Energy Tax Policy: Issues in the 111th Congress (CRS Report for Congress)
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| Release Date |
Revised Sept. 20, 2010 |
| Report Number |
R40999 |
| Report Type |
Report |
| Authors |
Donald J. Marples, Section Research Manager; Molly F. Sherlock, Analyst in Economics |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Energy tax policy involves the use of one of the governmentâs main fiscal instruments, taxes (both as an incentive and as a disincentive) to alter the allocation or configuration of energy resources and their use. In theory, energy taxes and subsidies, like tax policy instruments in general, are intended either to correct a problem or distortion in the energy markets or to achieve some economic (efficiency, equity, or even macroeconomic) objective. In practice, however, energy tax policy in the United States is made in a political setting, being determined by the views and interests of the key players in this setting: politicians, special interest groups, bureaucrats, academic scholars, and fiscal dictates. As a result, enacted tax policy embodies compromises between economic and political goals, which could either mitigate or compound existing distortions. The economic rationale for government intervention in energy markets is commonly based on the governmentâs perceived ability to correct for market failures. Market failures, such as externalities, principal-agent problems, and informational asymmetries, result in an economically inefficient allocation of resources--in which society does not maximize well-being. To correct for these market failures governments can utilize several policy options, including taxes and regulation, in an effort to achieve policy goals. Current energy policy reflects efforts to achieve both current and past policy objectives. Recent legislative efforts have primarily focused on renewable energy production and conservation to address environmental concerns. In contrast, past efforts attempted to reduce reliance on foreign energy sources through increased domestic production of fossil fuels. Recently enacted legislation focusing on encouraging renewable energy production and conservation reduces reliance on imported, foreign oil, while also addressing environmental concerns by reducing the use of fossil fuels. Favorable tax preferences given to domestic fossil fuel energy sources also promote domestic energy production, reducing the demand for imported oil.
