{
  "id": "RL30406",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL30406",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 305690,
      "date": "2005-06-28",
      "retrieved": "2016-04-07T19:40:17.334029",
      "title": "Energy Tax Policy: An Economic Analysis",
      "summary": "This report provides background on the theory and application of tax policy as it relates to the\nenergy\nsector, particularly with respect to the theory of market failure in the energy sector and suggested\npolicy remedies. \n Economic theory suggests that producers of energy-related minerals be taxed no differently than\nnon-mineral producers: Exploration and development costs and other investments in a deposit\n(including geological and geophysical costs and delay rentals) should be capitalized. In general,\ncompetitive mineral producers subject to a pure income tax would not exploit resources as fast\n(compared with the rate of exploitation under the present system of subsidies). Over the longer term,\ndepletion of fossil fuels and mineral resources leads to higher real energy prices, which would\neventually promote the optimal amount of investment in energy efficiency and alternative fuels\nsupply. \n Under principles of neutrality of tax policy, there is no purely economic rationale for energy\ntaxes or tax subsidies to (1) raise revenues; (2) conserve energy (with one exception); (3) promote\nalternative fuels; (4) compensate for any extra market risk; or (5) promote, as an industrial policy,\nspecific industries such as the fossil fuels industry. However, even under a pure income tax,\neconomic efficiency suggests a system of energy taxes (in addition to the income taxes) to correct\nfor any environmental externalities caused by the production, importation, and use of each fuel, and\nenergy taxes in the form of user charges for benefits received, such as the highway trust fund. In the\ncase of energy conservation, market failures in the use of energy in rental housing provide an\nefficiency rationale for the current gross income exclusion for conservation subsidies provided by\nelectric utilities. There are other market failures in energy use that suggest efficiency standards,\nenergy labeling, or government-provided information, but not necessarily tax subsidies.\n Tax subsidies for domestic oil production tend to stimulate domestic supply of petroleum and\nreduce demand for petroleum imports. This may enhance national and economic security in the short\nrun, but it might damage national and economic security in the long run as domestic energy resources\nare depleted faster than they otherwise would be. The economically efficient policy to reduce import\ndependence would impose a tax (or tariff) on imported petroleum based on the per-barrel estimate\nof these costs (the so-called oil import \"premium\"). The problem of vulnerability to embargoes and\nprice shocks, which relates to dependence on imported oil from the Organization of Petroleum\nExporting Countries (OPEC) and other potentially unstable or unfriendly foreign countries, is more\neffectively addressed in a policy of stockpiling oil, as is being done with the Strategic Petroleum\nReserve.\n In terms of environmental protection and management, energy taxes can be a cost-effective and\nefficient market-based instrument, and they are economically superior to the command and control\napproach. In sum, energy taxes are generally distortional (except to correct for externalities, or when\nimposed as user fees for benefits received) and regressive, and may have adverse macroeconomic\nconsequences, particularly sizeable taxes on energy production or oil imports.",
      "type": "CRS Report",
      "typeId": "REPORTS",
      "active": false,
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      "topics": []
    }
  ],
  "topics": [
    "Economic Policy",
    "Energy Policy",
    "Environmental Policy"
  ]
}