The past decade has brought about a monumental shift in how fuel sources benefit from the U.S. tax code, with renewable energy more than lapping its counterparts in the oil, gas, and coal sectors.
Federal tax “preferences” — such as tax credits for energy production, specific write-offs or deductions, or other benefits aimed at an energy subsector — have moved dramatically toward wind, solar and other renewable fuels since 2008. That increase has come as tax preferences for fossil fuels have declined or stayed relatively flat year after year.
In 2016, renewable energy received $10.9 billion in tax preferences, compared to $4.6 billion for fossil fuels. A decade ago, fossil fuels got $8.2 billion while renewables pulled in only $5.3 billion in tax preferences, according to Congressional Budget Office figures recently presented to Congress.
The dynamic began to shift in the early days of the Obama administration. The massive American Recovery and Reinvestment Act, along with ramped-up production in the wind and solar power sectors, shifted tax preferences toward renewable energy; from 2008 to 2009, for example, tax preferences for green fuels jumped by nearly $10 billion, from $7.4 billion to $17.1 billion.
At the same time, tax preferences for fossil fuels decreased from $5.5 billion in 2008 to $3.6 billion in 2009.
While the gap has closed significantly since then, it still highlights how the current tax code seems to tilt toward renewable fuels.
The latest CBO figures also come against the backdrop of a broader debate about tax reform.
Both President Trump and his Republican allies in Congress are eager to rewrite the tax code, shrink rates and eliminate deductions — but specialists say they’ll have an uphill battle to strip all of the energy carve-outs that have been implemented over the past decade.
“I think it’s pretty difficult. Look at the wind production tax credit — it keeps getting extended because there are a bunch of Republican senators from wind states,” said Benjamin Zycher, a scholar at the American Enterprise Institute who specializes in energy and environmental policy.
“It’s supposed to be phased out, but we’ll see. I have my doubts. It’s difficult to get rid of these things,” he said.
Indeed, tax credits for the production of wind power routinely have been extended by Congress, though they’re currently being phased out and are scheduled to end by 2019.
That tax credit, along with other tax preferences for solar power and other renewable sources, accounted for more $6 billion in tax preferences last year, according to CBO numbers. Another $4.2 billion went to biodiesel and renewable diesel credits, the CBO said.
Specialists routinely point out, however, that much of the tax preferences have come about because of increased production in renewable energy, not just because of the establishment of new government policies favoring a given source.
The shift has been the result of tax policies and changes within the energy industry itself.
The wind production tax credit, for example, was first enacted in 1992. The following year, renewable energy received just $900 million in tax preferences, compared to $2 billion for fossil fuels.
The tax credits have become more valuable in terms of dollar amounts simply because of the wind industry’s expansion and significant increases in production, analysts say.
“These tax expenditures don’t represent a shift — there have been no changes in the tax provisions that deliver fossil fuel tax expenditures over the past decade — but an increase in the renewable power investment and output that qualifies for the renewable tax expenditures,” said Joseph Aldy, a professor of public policy at the Harvard Kennedy School who studies energy and tax policy.