Using Tax Expenditures to Achieve Energy Policy Goals

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Tax expenditures are a major source of support for energy related activities in the federal budget exceeding direct budget support for energy by a factor of nearly six. Focusing on the policy goals of reducing greenhouse gas emissions and petroleum consumption, I find these tax expenditures highly cost ineffective at best and counterproductive at worse. The tax credit for ethanol is an example of a cost ineffective subsidy. The cost of reducing CO2 emissions through this subsidy exceeded $1,700 per ton of CO2 avoided in 2006 and the cost of reducing oil consumption over $85 per barrel.

Published: Gilbert E. Metcalf, 2008. "Using Tax Expenditures to Achieve Energy Policy Goals," American Economic Review, American Economic Association, vol. 98(2), pages 90-94, May.

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