United States. Congress. House. Committee on Scien.

Road from Kyoto : hearing before the Committee on Science, U.S. House of Representatives, One Hundred Fifth Congress, second session (Volume pt. 2) online

. (page 136 of 137)
Online LibraryUnited States. Congress. House. Committee on ScienRoad from Kyoto : hearing before the Committee on Science, U.S. House of Representatives, One Hundred Fifth Congress, second session (Volume pt. 2) → online text (page 136 of 137)
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the Department of Energy and $10 million for the Department of Transportation — which is about $3.5 million greater than
funding in 1998.

c. No funding in that year.



1216

24 CLIMATE CHANGE AND THE FEDERAL BUDGET August 1998

o The Advanced Transportation Technologies Consortium, which

would receive $10 million in funding from the Department of
Transportation in addition to the $10 million in funding from DOE
under CCTl.

o The Advanced Technology Transit Bus and Fuel Cell Bus Programs

at the Federal Transit Administration, which support the development
and market penetration of low-emission, light-weight, low-cost buses.
Funding for those programs totaled $14 million in 1998; the total
funding request for 1999 is only $5 million because the transit bus
program ends next year.

Conservation grants administered by the Department of Energy.

Those grants would be ftinded at $191 million in 1999 — an increase
of $36 million compared with 1998. The additional funding would
expand programs that administer block grants to states to fund
energy-efficiency programs and weatherization of low-income
housing.

o Civilian nuclear energy R&D (that was not included in the CCTI).

Those activities are University Nuclear Science and Reactor Support
(at $10 million, an increase of $3 million from 1998), a new $24
million Nuclear Energy Research Initiative, and research on magnetic
fusion, fianding for which has been stable for several years and comes
in at $228 million.

TAX PROVISIONS THAT AFFECT ENERGY USE

Several tax preferences in current law directly or indirectly discourage reliance on
fossil fuels. hi addition, several excise taxes raise the price of fossil fuels and
thereby reduce demand for them.

Tax Preferences to Promote Less Use of Fossil Fuels

Of the tax preferences designed to encourage less reliance on fossil ftiels, two
account for the largest revenue losses: the excise tax exemption for alcohol fuels, and
the exclusion from income of interest on state and local bonds for hydroelectricity-
generating facilities and solid waste disposal facilities that produce electricity (see
Table 7). These and other preferences are described below.

Income Tax Credits and Excise Tax Exemptions for Alcohol Fuels . The tax code
provides three income tax credits for alcohol-based motor fuels: the alcohol mixture



1217



CHAPTER III OTHER FEDERAL SPENDING PROGRAMS AND TAX POLICIES 25

TABLE 7. ESTIMATES OF TAX EXPENDITURES FROM PREFERENCES THAT
DISCOURAGE RELIANCE ON FOSSIL FUELS (In millions of dollars)



Tax Preference 1996 1997 1998 1999 2000 2001 2002



Tax Credits for Alcohol

Fuels 11 11 11 11 11 11 3

Excise Tax Exemprion for

Alcohol Fuels 511 520 530 539 547 556 564

Exclusion of Energy

Conservation Subsidies

Provided by Public

Utilities 55 40 35 35 35 40 40

Tax Credits for

Investments in Solar and

Geothermal Energy

Facilities 80 80 75 70 70 70 70

Tax Credit for Electricity

Production from Wind

andBiomass 5 10 20 35 37 38 40

Deductions for Clean-Fuel

Vehicles and Refueling

Property 16 10 10 12 13 15 4

Tax Credit for Electric

Vehicles 1 11 25 34 54 71 77

Exclusion of Interest on

State and Local IDBs for

Energy Production

Facilities 225 225 215 205 215 215 210



SOURCE: Congressional Budget Office based on the Joint Committee on Taxation's estimates of the revenue effects of the
Climate Change Technology Initiative in the President's 1999 budget.

NOTES: Tax expenditures are revenues that the federal government forgoes as a result of provisions in the income tax code
that give selective relief to particular groups of taxpayers or special incentives for particular types of economic
activity.

IDBs ^ industrial development bonds



1218



26 CLIMATE CHANGE AND THE FEDERAL BUDGET August 1 998

or blender's credit, the pure alcohol credit, and the credit for small ethanol producers.
The first two credits are 53 cents per gallon of ethanol and 60 cents per gallon of
methanol of at least 190 proof; for mixtures of between 150 proof and 190 proof, the
credits are 40 cents per gallon of alcohol and 45 cents per gallon of methanol. The
credit for small ethanol producers is 10 cents per gallon of ethanol produced, used,
or sold for use as a transportation fuel. That credit is limited to 15 million gallons
of annual alcohol production from firms with a production capacity of less than 30
million gallons. The credits, which were extended under the Transportation Equity
Act of 1998, are in effect through December 3 1 , 2007.

Blenders have a choice of using the income tax credit or claiming an excise
tax exemption of 5.4 cents for mixtures of ethanol and liquid motor fuels. Because
the credits are included in income and apply only to a portion of income tax liability,
most blenders opt for the excise tax exemption. Consumption of ethanol motor fijel
has increased sharply in the past 20 years. That increase is probably a result not so
much of the income tax credits but of the exemption of alcohol fuels from excise
taxes. The Transportation Equity Act extended the excise tax reduction through
2007.

The extent to which the use of ethanol motor fuels reduces emissions of
greenhouse gases has been the subject of recent reports by the General Accounting
Office (GAO) and Argonne National Laboratory (ANL), among others. The GAO
reports concluded that the effect on emissions is difficult to determine but is likely
to be minimal. By contrast, the ANL study concluded that the use of corn-based
ethanol significantly reduces both the use of fossil energy and emissions of
greenhouse gases.'

Exclusion of Energy Conservation Subsidies Provided by Public Utilities . The tax
code permits residential customers to exclude fi-om income the subsidies provided
by public utilities for the purchase or installation of an energy conservation item.
The exclusion, which is permanent, reduces the costs of programs financed by
utilities to conserve energy.

Tax Credit for Investments in Solar and Geothermal Energy Facilities . The tax code
provides a 10 percent credit for business investment in solar and geothermal energy
equipment (electric utilities do not qualify). The credits are permanent.

Tax Credit for Electricity Production fi-om Wind and Biomass . The tax code permits
a 1.5-cent credit (in 1992 dollars, adjusted for inflation) per kilowatt hour for
electricity produced from wind energy or "closed-loop" biomass. (Closed-loop



See General Accounting OflRce. Tax Policy Effects of the Alcohol Fuel Incentives, letter Report, GAO/GGD-97-4I
(1997), and Motor Fuels: Issues Related to Reformulated Gasoline, Oxygenated Fuels, and Biofuels, Letter
Report, GAO/RCED-96- 1 2 1 ( 1 996); Argonne National Laboratory, Fuel-Cycle Fossil Energy Use and Greenhouse
Gas Emissions of Fuel Elhanol Produced from U.S. Midwest Cofn(Oak Ridge, Tenn.; 1997).



1219



CHAPTER ni OTHER FEDERAL SPENDING PROGRAMS AND TAX POLICIES 27

biomass generates electricity using matter from plants grown solely for fuel.) The
credit was instituted to encourage development of technologies that use renewable
energy resources rather than conventional fossil fuels. The electricity must be
produced from a qualified facility and must be sold to an unrelated third party. (A
qualified facility is one that is placed in service after 1992 and before July 1 , 1999,
for biomass and after 1993 and before June 1, 1999, for wind. The facility must be
owned by the taxpayer who claims the credit.) The credit is available for 10 years
after a facility is placed in service. It is phased out as the price of electricity from the
renewable resource rises over a 3-cent range, fi"om 8 cents to 11 cents (in 1992
dollars, adjusted for inflation). It is also reduced by other government subsidies,
including tax-exempt financing. The Administration is proposing to extend the
credit.

Deductions for Clean-Fuel Vehicles and Refueling Property and the Tax Credit for
Electric Vehicles . Deductions are available for the portion of the cost attributed to
the engine, the fuel delivery system, and the exhaust system of vehicles that bum
clean ftiel. The vehicle must be new, but deductions can also be taken for retrofitting
vehicles propelled by gasoline or diesel fuel. Costs are limited by a vehicle's type
and weight. The deductions phase out between 2002 and 2005.

Electric vehicles qualify for a tax credit but not the deduction. The credit is
!0 percent of the cost of the vehicle up to S4,000. It, too, phases out between 2002
and 2005. The tax preferences are intended to make clean-fuel and electric vehicles
more economically attractive, but costs are still high relative to conventional
vehicles.

Exclusion of Interest on State and Local Industrial Development Bonds for Energy
Production Facilities . Tax-exempt financing is limited to solid waste disposal
facilities that produce electric energy and to the construction of hydroelectric
generating facilities at dam sites built before 1979 or at sites without dams that
require no impoundment of water. The bonds generally are subject to a state-by-state
annual volume cap on private activity bonds; however, bonds issued for
govemmentally owned solid waste disposal facilities are not subject to the cap. The
exclusion is permanent.



Excise Taxes and Fees

Excises and fees that may result in decreased emissions of carbon dioxide chiefly
include taxes on coal, motor ftaels, equipment, and transactions related to travel and
shipping (see Table 8). Those tax receipts primarily finance spending on roads,
airports, harbors, and other transportation needs. Financing those transportation
programs could increase emissions of carbon dioxide. Building more and better
roads, airports, and harbors may provide an incentive for more travel. Taxes on
motor fuels are dedicated to several trust fiinds. The largest share of revenue goes



1220



28 CLIMATE CHANGE AND THE FEDERAL BUDGET



August 1998



TABLE 8. ESTIMATES OF RECEIPTS FROM EXCISE TAXES AND FEES THAT MAY
REDUCE THE USE OF FOSSIL FUELS (In millions of dollars)



Tax or Fee


1996 1997 1998 1999


2000


2001


2002




Highway Trust Fund'








Trust Fund Taxes
General Fund Taxes


23,456 24,354 25,569 37,873
6,513 6.772 321 489


32,499
414


33,010
420


33,548
426


Total


29,968 31,126 25,890 38,362
Airport and Airway Trust Fund*


32,913


33,430


33,974


Trust Fund Fuel Taxes
Other Trust Fund Taxes
General Fund Taxes


688 753 798 836

1,153 3,822 7,566 9,254

584 612


867

8,446




893

8,923




918

9.643




Total


2,425 5,187 8,364 10,090


9.313


9,816


10.561



Aquatic Resources Trust Fund



Taxes on Motorboat
Fuels, Motors, and
Sportfishing Equipment



Fuel Taxes



Taxes



Fuel Taxes



Cargo Taxes



Petroleum, Chemicals,
and Feedstock



Coal Tax



315 321 281 376 336

Inland Waterways Trust Fund
103 107 no 113 115

Land and Water Conservation Trust Fund

11111
Lealiing Underground Storage Tanic Trust Fund

40 139 206 176

Harbor Maintenance Trust Fund
746 784 826 873 922

Hazardous Substance Superfund

211

Black Lung Disability Trust Fund

615 632 641 651 661



339 345



117 119



179 181



972 1,025



671 681

(Continued)



1221



CHAPTER in OTHER FEDERAL SPENDING PROGRAMS AND TAX POLICIES 29

TABLE 8. CONTINUED



Tax or Fee 1996 1997 1998 1999 2000 2001 2002

Abandoned Mine Reclamation Fund

Coal Fee 256 266 262 260 262 267 274

Taxes Not Dedicated to Trust or Special Funds

Gas Guzzler Taxes 33 47 37 34 34 34 34

Ozone-Depleting

Chemicals Taxes 429 100 65 14

SOURCE: Congressional Budget Office.

a Projections reflect modifications in the rules governing deposits Taxes imposed on gasoline, diesel fuel, special motor
fiiels, and kerosene that would otherwise be deposited with the Treasury after July 31, 1998, and before September 20.
1998, are not required to be deposited until October 5, 1998 The same rule modifications apply to air cargo taxes. In
addition, deposits of air passenger taxes normally due after August 14, 1 998, and before October 1 , 1 998, are now due on
Octobers, 1998.



to transportation, with smaller amounts going to nature conservation and
environmental cleanup. The Land and Water Conservation Trust Fund accumulates
roughly $1 million per year from oil and gas leases. The only excise taxes not
dedicated to trust or special funds and designed solely to discourage consumption of
products that are detrimental to the environment (as opposed to paying for cleanup
after damage has occurred) are taxes on cars that do not achieve specified fuel
economy ratings and on ozone-depleting chemicals. Those taxes raise nominal
amounts of revenue compared with the trust fund taxes.

Highway Trust Fund . Several excise taxes finance the Highway Trust Fund, which
was established under the Federal-Aid Highway Act of 1956. The primary sources
of revenue are a tax of 18.3 cents per gallon levied on gasoline, a tax of 24.3 cents
per gallon on diesel fuel, and taxes on gasohol and other special fuels. Other trust
fund taxes are levied on sales of tires, inner tubes, trucks, tractors, and trailers. In
addition, annual use taxes are levied on trucks weighing more than 55,000 pounds.
Of the total taxes on gasoline, 1 .5 cents per gallon is dedicated to a special mass
transit account, which may be used for capital and related expenditures. The taxes
dedicated to the Highway Trust Fund were scheduled to expire on September 30,
1999, with the exception of a motor fuels excise tax of 4.3 cents per gallon. The
Transportation Equity Act of 1998 extended them through 2005.

Airport and Airway Trust Fund . Taxes on air passenger tickets, air cargo,
noncommercial jet fuel and aviation gasoline, domestic flight segments, and



1222



30 CLIMATE CHANGE AND THE FEDERAL BUDGET August 1998

international departures and arrivals are dedicated to the Airport and Airway Trust
Fund. Those taxes were scheduled to expire on September 30. 1997. TTie Taxpayer
Relief Act of 1997 extended them with significant modifications, including new
taxes on domestic flight segments and international arrivals. The trust fund, which
was established in the Airport and Airway Development and Revenue Acts of 1 970,
finances a substantial portion of the Federal Aviation Administration's budget. When
fully phased in, the domestic air passenger tax will be 7.5 percent of the transpor-
tation cost plus $3 per flight segment (indexed for inflation). Air cargo is subject to
a 6.25 percent excise tax. Aviation gasoline is subject to a permanent excise tax of
4.3 cents per gallon. (Noncommercial aviation fuels are subject to an excise tax of
15 cents per gallon on aviation gasoline and 17.5 cents per gallon on jet fuel.)
Commercial air passengers coming fi-om another country or leaving the United States
are subject to a $12 tax per arrival or departure.

Aquatic Resources Trust Fund . Taxes on gasoline, electric outboard motors,
sportfishing equipment, and sonar devices for finding fish are dedicated to the
Aquatic Resources Trust Fund, which was established under the Deficit Reduction
Act of 1984. The trust fund is composed of two accounts: one for fish management
and restoration and the other for boating safety. Taxes on diesel fiiel for recreational
motorboats were repealed by the Taxpayer Relief Act of 1997.

Inland Waterways Trust Fund . Taxes dedicated to the hiland Waterways Trust Fund
are levied at the rate of 20 cents a gallon on fuels used by commercial vessels plying
specified inland and intracoastal waterways. The expenditures from the trust ftind,
which was established in 1978 under the Inland Waterways Revenue Act, finance up
to half of the construction and rehabilitation expenditures for navigation projects on
a designated system of 27 inland and intracoastal waterways.

Leaking Underground Storage Tank Trust Fund . An additional 0.1 -cent tax on
gasoline, diesel, and other motor fuels; aviation fuels; and fuels used by vessels in
inland waterways is dedicated to the Leaking Underground Storage Tank Trust Fund.
Expenditures from the trust flind finance the cleanup of underground petroleum tanks
that are leaking. The tax, which was initially established under the Superfund
Amendments and Reauthorization Act of 1986 and had expired at the end of 1995,
was reinstated by the Taxpayer Relief Act of 1997.

Harbor Maintenance Trust Fund . Under the Water Resources Development Act of
1986. a tax on both ship passengers and the value of cargo loaded or unloaded at U.S.
harbors, channels, and ports was dedicated to the operation and maintenance costs
of the Saint Lawrence Seaway and harbors within the United States. The tax is 0.125
percent and, in the case of passengers, had been levied on transportation charges.
The Supreme Court recently held that the harbor maintenance tax was
unconstitutional as applied to exports. Subsequently — in June 1998 — the U.S. Court
of International Trade ruled that the tax on embarking passengers was also
unconstitutional.



1223



CHAPTER III OTHER FEDERAL SPENPFNG PROGRAMS AND TAX POLICIES 31

Black Lung Disability Trust Fund . Taxes of $0.55 a ton on surface-mined coal and
$1.10 a ton on underground-mined coal other than lignite are dedicated to the Black
Lung Disability Trust Fund, established in 1977 under the Black Lung Benefits
Revenue Act. The trust fund finances medical care and rehabilitation for miners with
black lung disease and makes disability payments to them and to their surviving
spouses and dependents.

Abandoned Mine Reclamation Fund . Fees that are structurally similar to excise taxes
are levied on the tonnage of domestically mined coal and dedicated to the Abandoned
Mine Land Fund, established in 1977 under the Surface Mining Control and
Reclamation Act. The current fee is 35 cents per ton on surface-mined coal and 15
cents per ton on underground-mined coal or, alternatively, 10 percent of the value of
the coal at the mine, whichever is less. For surface-mined lignite, the fee is 10 cents
a ton, or 2 percent of the value of the coal at the mine. The Energy Policy Act of
1992 extended the authorization of the fees through September 30, 2004.

Gas Guzzler Taxes . Gas guzzler taxes are levied on domestic and imported cars with
fuel-economy ratings of less than 22.5 miles per gallon. The tax ranges from $1,000
for cars that get at least 21 .5 but less than 22.5 miles per gallon to $7,700 for cars that
get less than 12.5 miles per gallon. Revenue from the tax is deposited in the general
fund.

Taxes on Ozone-Depleting Chemicals . Taxes imposed on a variety of CFCs and
halons as well as carbon tetrachloride and methyl chloroform are calculated as the
product of a base tax amount and the specific chemical's "ozone-depleting factor."
The base rate was set at $5.35 per pound in 1995 and has increased by $0.45 per
pound per year. TTie amount of revenue collected, however, is small because
production and import of most ozone-depleting chemicals are prohibited.



Proposed Increases in Excise Taxes That May Cut the Use of
Fossil Fuels and Emissions of Carbon Dioxide

The Administration has proposed reinstating several taxes dedicated to the Oil Spill
Liability Trust Fund and the Hazardous Substance Superfund (see Table 9). The
taxes dedicated to these two funds expired a few years ago. Reinstatement would
lead to price increases for oil and petroleum products and thus could indirectly result
in reduced emissions of greenhouse gases. The Administration also proposed
reinstating the motor fiiel excise taxes dedicated to the Highway Trust Fund; those
taxes were recently extended and are currently in effect through 2005.

Oil Spill Excise Tax . The President's budget proposes to reinstate the oil spill excise
tax of 5 cents per barrel on domestic crude oil and imported petroleum products. The
tax. which expired at the end of calendar year 1994, was dedicated to the Oil Spill



1224



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1225



CHAPTER III OTHER FEDERAL SPENDING PROGRAMS ANfP TAX POLICIES 33

Liability Trust Fund to finance the cleanup of oil spills and other costs associated
with oil pollution. The tax was not imposed for the calendar quarter if the
unobligated balance in the trust fiind exceeded $1 billion at the close of the previous
quarter. The proposal would reinstate the tax from the date of enactment through
September 30, 2008, and would increase the funding limit from $1 billion to $5
billion.

The JCT estimates that the proposal would increase revenues by $1,197
million through 2003 and by $2,489 million through 2008 (see Table 9).

Hazardous Substance Excise Taxes . The President's budget also calls for reinstating
three taxes that were dedicated to the Hazardous Substance Superfund and expired
at the end of 1995: an excise tax of 9.7 cents per barrel on domestic crude oil and
imported petroleum products; an excise tax on listed hazardous chemicals at rates
that varied from $0.22 to $4.87 per ton; and an excise tax on imported substances that
use any materials in their manufacture or production that are subject to the hazardous
chemicals excise tax. The taxes were dedicated to the Superflind for expenditures
connected to releases of hazardous substances into the environment, under provisions
of the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended. The proposal would reinstate the taxes for calendar years 1998
through 2008.

The JCT estimates that the proposal would increase revenues by $3,598
million through 2003 and by $7,479 million through 2008.



Tax Preferences to Increase the Domestic Supplv of Fossil Fuels

Several tax preferences in current law were designed to increase domestic production
of oil and other fuels and reduce reliance on imports, particularly from the Persian
Gulf region or politically unstable areas (see Table 10). To the extent that tax
preferences lead to lower fuel prices, their effect may go beyond substituting
domestic oil for imported oil to fostering increased consumption of fossil fuels. Tax
preferences to encourage energy self-sufficiency may also result in more rapid
depletion of national resources. In recent years, however, oil drilling activity has
been low because of a drop in oil prices and cutbacks in certain tax benefits; as a
result, preferences to encourage domestic production of fossil fuels would currently
have little effect on emissions of carbon dioxide.

Expensing of Exploration and Development Costs for Oil, Gas, and Other Fuels .
Firms engaged in production of oil, gas, or geothermal energy are permitted to
expense (rather than capitalize) certain intangible drilling and development costs
(IDCs), which include amounts paid for labor, fuel, repairs to drilling equipment.



1226



34 CLIMATE CHANGE AND THE FEDERAL BUDGET



August 1998



TABLE 10. ESTIMATES OF TAX EXPENDITURES FROM PREFERENCES TO

INCREASE DOMESTIC PRODUCTION OF FOSSIL FUELS AND REDUCE
RELIANCE ON IMPORTS (In millions of dollars)



Tax Preference



1996



1997



1998



1999



2000 2001



2002



Expensing of Exploration
and Development Costs

Oil and gas

Other fuels



304 324 356 405 454 498 541

a a a a a a a



Excess of Percentage
over Cost Depletion

Oil and gas

Other fUels



418 471 489 508 529 550 572

85 143 145 148 151 154 157



Tax Credit for Enhanced
Oil Recovery Costs



Online LibraryUnited States. Congress. House. Committee on ScienRoad from Kyoto : hearing before the Committee on Science, U.S. House of Representatives, One Hundred Fifth Congress, second session (Volume pt. 2) → online text (page 136 of 137)