Subsidyscope

Summary

Abundant, affordable energy is essential to the American way of life, and the federal government uses subsidies to ensure that it remains available. The government implements dozens of energy policies and programs subsidizing research, domestic energy production, energy efficiency and many other activities. Even as it tries to hold down the price of traditional fossil fuels such as oil and gas, the government also supports greener alternatives and seeks to reduce energy consumption.

Subsidyscope found that the federal government spent almost $25 billion in fiscal year 2009 on grants and tax expenditures likely to include subsidies in the energy sector. This excludes significant, yet unquantified, subsidies provided through regulations, loans, loan guarantees and contracts. Despite its wide-ranging involvement, the government actually plays a smaller role in the energy sector of the economy than it does in other sectors such as housing or transportation.1 That said, federal grants alone to the energy sector quadrupled to over $18 billion in fiscal year 2009, due in large part to stimulus funding under the American Recovery and Reinvestment Act.

Subsidyscope relies on federal data to calculate these estimates, and as such, any data quality issues in the government’s data will be reflected in our analysis. As previously noted, Subsidyscope believes there are significant problems with some of the government’s information. However, it is the best data available and it provides a baseline for assessing federal intervention through subsidies in each economic sector relative to other sectors. By publishing these estimates, the data are more accessible and their shortcomings can be more easily identified and, ultimately, improved.

Federal Activities and Subsidies in the Energy Sector

The U.S. Department of Energy (DOE) alone spent about $13.3 billion in the energy sector in fiscal year 2009, while other federal agencies also paid out billions in this area, either directly or indirectly. Through tax credits and deductions, the U.S. Department of the Treasury (Treasury) was responsible for $6.3 billion in energy-related spending in fiscal year 2009. During the same period, the U.S. Department of Health and Human Services (HHS) spent $5.1 billion to help low-income families afford their heating bills. Total federal spending on tax expenditures and grant programs likely to contain subsidies to the energy sector totaled $24.9 billion in fiscal year 2009. (This estimate does not include potential subsidies through regulations, loans, loan guarantees and contracts, which were not systematically estimated by the government.) Historically, such spending has been much lower. For example, federal spending on energy sector grants that are likely to contain a subsidy have averaged just over $4 billion a year from fiscal years 2000 through 2008, while energy sector tax expenditures also averaged roughly $4 billion per year over that same period.

Subsidyscope divides federal support of the energy sector into four categories: direct expenditures (grants and contracts), tax expenditures, risk transfers (mostly loans and loan guarantees) and regulations. Each of these categories is summarized below.

Grants and Contracts

In fiscal year 2009, the federal government awarded $18.6 billion in direct grants to companies or organizations engaged in energy-related work, or nearly 3 percent of all grants the government awarded during that period. Subsidyscope deems all of these programs as likely to contain a subsidy, and therefore includes all of them in our analysis. The largest grant program in the energy sector is DOE’s Weatherization Assistance for Low Income Persons (WAP). The program received $5.6 billion in fiscal year 2009, $5.4 billion more than the year before. All of this increase came from the American Recovery and Reinvestment Act.2 Click here to search Subsidyscope’s database of energy-related grants.

The government spent another $4.3 billion on non-competed contracts for energy-related goods or services. Subsidyscope considers non-competed contracts as more likely to contain a subsidy component than competed contracts. Click here to search Subsidyscope’s database of energy-related non-competed contracts.

Tax Expenditures

The energy sector claimed about $6.3 billion in federal tax credits and deductions in fiscal year 2009. That figure does not include broad-based tax provisions, such as accelerated depreciation of machinery and equipment, which benefited firms across the entire economy. The largest tax break for energy companies allows them to expense their exploration and development costs for oil, a provision that cost the Treasury about $1.6 billion in fiscal year 2009.3

In recent years, federal tax policy has subsidized fossil fuels to a greater extent than renewable energy sources or conservation. Over the next five years, however, federal tax policy is likely to provide greater support to renewable and alternative fuels than to any other category. For more on tax expenditures in the energy sector, see here.

Risk Transfers

The federal government also subsidizes the energy sector with loans and loan guarantees, assuming financial risks that otherwise would be borne by investors or other entities. These "risk transfers" totaled $31.2 billion in fiscal year 2009 -- $16.7 billion in direct loans to companies and $14.5 billion in loan guarantees. Prior to 2009, direct loan programs in the energy sector focused primarily on improving electricity transmission in rural areas, while loan guarantee programs focused on both electricity transmission and renewable energy.4 In fiscal year 2009, the largest direct-loan program was DOE’s Advanced Technology Vehicle Manufacturing Loan Program, and the largest loan guarantee initiative was DOE’s Innovative Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Technologies Program. See Subsidyscope's risk transfers page for more details on these and other loan and loan guarantee programs.

Regulations

The federal government subsidizes the energy sector through regulations, which can significantly benefit particular producers or consumers. Unfortunately, there is no way to methodically identify and quantify these subsidies. Subsidyscope's regulations page describes some of the regulatory subsidies in the energy sector, such as royalty relief for the oil and gas industry. Other regulatory subsidies in the energy sector include the renewable fuels standard (RFS), and environmental response cleanup.

Structure of Sector

In addition to the pages above, Subsidyscope examines the size and scope of the energy sector and explains the economic rationale for government intervention here.

Limitations of Government Data

As with other sectors, Subsidyscope relies solely on government figures to estimate subsidies and spending on programs that are likely to contain a subsidy. Subsidyscope recognizes that government data can be of poor quality and in particular may not include some types of subsidies. The data may also contain gaps that prevent allocating published subsidy data to recipient sectors. All of these limitations can result in omissions of federal support that may, nonetheless, influence markets. Subsidyscope presents examples of these limitations with respect to energy in this table.

An important objective of the Subsidyscope initiative is to help identify such gaps and other data problems so that, over time, they can be addressed and estimates of subsidies and subsidy spending will continually improve. For instance, Subsidyscope is in the process of acquiring additional information from Treasury which, we hope, will allow a credible apportionment of some tax expenditures across economic sectors that, at present, are available only economy-wide. With this in mind, we will continue to evaluate the energy sector and identify data gaps and needs that would result in a more accurate estimate of subsidies and subsidy spending and post this assessment on this site. If you have suggested improvements regarding federal estimates of subsidies and subsidy spending in the energy sector, please contact us.

1. Subsidyscope analysis of the Transportation Sector. Analysis of the Housing Sector is forthcoming.
2. Subsidyscope analysis of USAspending.gov.
3. Subsidyscope analysis of FY2009 data in Office of Management and Budget (OMB). "Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2011."
4. Subsidyscope analysis of data from multiple years of the Federal Credit Supplement, available here.

Last updated September 9, 2010.