Using Tax Expenditures to Achieve Energy Policy Goals
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.
Erich Muehlegger, Curtis Carlson, and Jay Mackie, provided helpful comments on a preliminary draft. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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. citation courtesy of