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Items with tag:"subsidy"

California team to receive up to $122 million for energy innovation hub to develop method to produce fuels from sunlight

Section: News

Category: Biomass

2010-08-02 14:35:11
8974_fuels_from_sunlight_californiaAs part of a broad effort to achieve breakthrough innovations in energy production, U.S. Deputy Secretary of Energy Daniel Poneman today announced an award of up to $122 million over five years to a multidisciplinary team of top scientists to establish an Energy Innovation Hub aimed at developing revolutionary methods to generate fuels directly from sunlight. The Joint Center for Artificial Photosynthesis (JCAP), to be led by the California Institute of Technology (Cal Tech) in partnership with the U.S. Department of Energy's Lawrence Berkeley National Laboratory (Berkeley Lab), will bring together leading researchers in an ambitious effort aimed at simulating nature's photosynthetic apparatus for practical energy production. The goal of the Hub is to develop an integrated solar energy-to-chemical fuel conversion system and move this system from the bench-top discovery phase to a scale where it can be commercialized. California  biofuels  subsidy  sun 

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Danish renewable energy projects get millions in state support funding

Section: News

Category: Green Energy

2010-07-27 03:44:01

8956_denmark_support_renewable_energy28 new projects focusing on renewable energy and energy efficiency have collectively received DKK 286 million in support funding from the Energy Technology Development and Demonstration Programme, writes the Danish Energy Authority in a news release. The largest slice of the funding cake has been given to projects in the fuel cell and biomass areas: six project s in both sectors have received DKK 90 million. Other renewable energy areas receiving support include projects in wind, solar, oil and gas. Support funding for biomass projects has been divided between pre-market development and demonstration for both smaller-scale and large-scale technologies where Denmark has a leading international position. The technologies cover a broad spectrum of both wet and dry biomass applications for the production of heat, electricity and fuels for transport.

Source: Denmark.dk

Denmark  renewable energy  subsidy  support 

Dutch Minister Van Middelkoop announces €15 million for national government energy-saving subsidy

Section: News

Category: Energy Savings

2010-07-27 03:16:54
8950_netherlands_more_with_less_subsidy_energy_efficiencyAs of Saturday 17 July 2010, owner-occupiers who make their homes more energy-efficient will again be able to apply for subsidy. The budget for the subsidy fund provided by the More with Less [‘Meer Met Minder'] Foundation ran out in May, so the subsidies will now come from a scheme set up by the national government. €15 million have been earmarked for this scheme. Minister Van Middelkoop of Housing, Communities and Integration (WWI) made this announcement today. The More with Less State Subsidy (Rijkspremie Meer met Minder) is a temporary scheme that will run until the end of 2011. A ceiling of €5 million has been set for the total amount available in subsidies from the scheme this year. Netherlands  energy efficiency  home  subsidy 

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Tax policies for low-carbon energy

Section:

Category:

2010-07-09 03:50:13 Abstract

Economists often advocate taxes or cap-and-trade schemes to fight pollution, but US policy primarily subsidises clean energy alternatives. This column critiques such subsidies on four counts: they lower the cost of energy, pick favourite technologies, are often "inframarginal", and interact in unexpected ways with other policies.

Article

8939_tax_policies_low_carbon_energyNearly all economists agree that the most efficient way to address environmental problems is to raise the cost of the pollution-generating activity. Whether one uses a tax as famously suggested by Pigou (1938) or a quantity constraint such as a cap and trade system as proposed by Dales (1968) and others, the point is to "internalise the externality" by raising the cost of pollution to the firm or individual so that they have the appropriate incentives to engage in the socially optimal level of this activity. Weitzman (1974) provides a framework for choosing between price and quantity approaches when benefits and costs of abatement are uncertain.

All of these approaches assume that policymakers will address externalities by making them more costly. The experience with US energy policy has been to take another approach. Rather than making energy sources that contribute to pollution more costly the approach has been to subsidise clean energy alternatives. Such has been the case to date with policies to reduce energy-related greenhouse gas emissions. Until such time as the US enacts a national cap-and-trade system or a carbon tax, tax-based subsidies provide some of the most substantial incentives to reduce greenhouse gas emissions.

In Metcalf (2009), I review the current set of tax-based subsidies for low-carbon energy and provide a critique of a subsidy-based approach to energy policy. The single largest subsidy is the 45 cents per gallon excise tax credit for ethanol. But in addition to this credit there are production and investment tax credits for renewable electricity production, for clean-fuel burning vehicles, as well as credits and subsidies for energy efficiency investments both in the home and in the workplace. Many of these subsidies were recently renewed and extended in the American Recovery and Reinvestment Act of 2009. Even if a national cap and trade bill such as the American Clean Energy and Security Act bill (HR 2454) recently reported out of the House Energy and Commerce Committee were enacted it is likely that many of these subsidies to clean energy will remain in the tax system.

Subsidies for clean energy are appealing but they suffer from four problems. First they lower the cost of energy; second, they play favourites with technologies; third they are often "inframarginal"; and finally they often interact in unexpected ways with other policies.

Problem 1: Subsidies lower the cost of energy consumption

Tax-based subsides achieve the important goal of adjusting relative prices of polluting and non-polluting energy sources in the right direction. If fuel source X causes pollution that is equal to 10% of its cost then we can provide the right incentive to fuel users choosing between fuel sources X and Y by raising the price of X by 10% or by lowering the cost of fuel source Y by 1/(1.10) or 9.1%. Either way the relative cost of fuel source X to Y is now 10% higher than it was prior to the implementation of the new energy policy. Either a tax or a subsidy can be effective on the margin of choosing among fuel sources where some sources cause pollution.

This creates a problem, however, on a different margin. Efficiency requires that consumers make decisions taking into account the full cost of using commodities - including the pollution costs associated with using energy. Raising the cost of the polluting fuel source X raises the overall cost of energy use and encourages a reduction in energy consumption. Subsidising the clean substitute undermines this consumer substitution effect as it leads to a lower cost of energy overall. Consumers do not reduce energy consumption as much as they would under a cost-raising policy.

Problem 2: Subsidies favour particular technologies

8939_subsidies_hybrid_vehiclesSubsidies tend to favour particular technologies. Consider the tax credit for hybrid vehicles put in place in the Energy Policy Act of 2005. The credit ranges from zero to $3,000 per vehicle depending on whether the vehicle meets the specific hybrid criteria and on how many vehicles have been sold. The credit phases out as the vehicle hits certain sales targets over time. Table 1 shows the subsidy cost per gallon of gasoline saved through this credit for a number of model 2009 vehicles.

Table 1. Hybrid vehicle tax credit - Model 2009 values

Vehicle                   MPG  Tax Credit Annual Value Gasoline Sav.   Tax Credit per Gallon Saved          
Chrysler Aspen      21       $2,200                  $347                  30                                $11.68
Hybrid
Ford Escape          32       $3,000                  $474                  234                              $2.02
Hybrid (2WD)
Mazda Tribute        32       $3,000                  $474                  234                              $2.02
Hybrid (2WD)
Nissan Altima         34       $2,350                  $371                  257                              $1.44
Hybrid
Toyota Corolla        31       $0                          $0                      222                              $0
Toyota Prius           46        $0                          $0                     353                               $0

Source: Metcalf (2009). Author's calculations of savings relative to a vehicle that gets 20 miles per gallon and is driven 12,485 miles per year. Vehicles are assumed to be driven for ten years and savings are annualised with a ten percent discount rate.

Table 1 illustrates several points. First, the tax credit per gallon of gasoline saved varies from zero to over $11 per gallon. Second, certain hybrid vehicles that get high mileage are excluded from the credit because they have been successful in the market place. Third, certain high mileage vehicles are excluded from the subsidy because they do not use specified technology. Note that the Corolla gets nearly the same mileage as the Tribute Hybrid. This is the most egregious violation of technology neutrality. The tax credit provides no incentive to tinker with the internal combustion engine to achieve increases in vehicle efficiency despite the many opportunities that exist to make the internal combustion engine more efficient. US tax policy should provide the same incentives to improve mileage regardless of the technology put in place.

Problem 3: Subsidies are wasteful

Ideally we want subsidies targeted to marginal investments. But often they end up supporting inframarginal investments, i.e. investments that would have taken place in the absence of the policy. A good example of this is the $0.50 per gallon alternative fuels mixture credit. This credit is intended to encourage the addition of biodiesel and other biomass based fuels to petroleum to reduce petroleum use. Recently it has emerged that many paper firms are taking the credit for mixing diesel fuel with black liquor, a biomass by-product of paper making that historically has been used by the industry as a fuel source for their boilers. Controversy has arisen over whether paper firms are adding diesel fuel to black liquor purely for the purpose of claiming the tax credit biodiesel mixture tax credit (Mouawad and Krauss 2009). This is troubling on two levels. First, it may be highly inefficient if credits are being provided for inframarginal activities. This is a common problem with any subsidy. We want to provide the incentive to firms that would not have undertaken the desirable activity in the absence of the subsidy. But we don't want to provide the subsidy to firms that would have undertaken the activity regardless of the subsidy. Yet the example from the paper industry is troubling beyond the inframarginal nature of the subsidy. If the tax credit is raising the demand for diesel fuel in order to make the biofuel eligible for the credit, then it is having the perverse effect of raising rather than lowering demand for petroleum products.

Problem 4: Subsidies interact in unexpected ways with other policies

Subsidies can be rendered ineffective or more expensive through their interaction with other policies. A simple example here is the interaction of the hybrid vehicle tax credit and the Corporate Average Fuel Economy standards. Allowing tax credits for hybrids encourages the production and purchase of high mileage vehicles. But the Corporate Average Fuel Economy sets minimum fleet mileage standards for automakers. Producing more hybrid vehicles relaxes the mileage constraint for automakers and allows them to sell more low mileage vehicles. The result is that federal tax collections are reduced with no improvement in automobile mileage.

An alternative to subsidies

Most if not all of the problems identified above disappear if we replace the current system of tax subsidies for carbon free technologies with a market-based system to set positive and gradually increasing carbon prices. It looks like we're on track to set the carbon price, either through a cap and trade system or some form of carbon charge. But insufficient attention is being paid to removing the various tax subsidies currently in place.

Contact Information

Author: Gilbert E. Metcalf

Affiliation: Professor of Economics, Tufts University

References

Source: VoxEU.org

efficiency  low carbon  subsidy  tax  tax credit 

Environmental advocates call for end to ethanol subsidy

Section: News

Category: Biomass

2010-07-05 06:03:34
8874_end_ethanol_subsidyThe Union of Concerned Scientists, Natural Resources Defense Council, Friends of the Earth and Clean Air Task Force are calling on Congress to let the Volumetric Ethanol Excise Tax Credit (VEETC) expire at the end of the year. The tax credit, which has totaled nearly $21 billion over the past 5 years, goes to oil companies for mixing ethanol into their gasoline. The tax credit is in addition to existing laws that require the blending of ethanol into gas. "We're paying Big Oil billions in taxpayer dollars simply to obey the law," said Brendan Bell of the Union of Concerned Scientists. "The subsidy is redundant, and it blocks investments in cleaner, advanced biofuels." The four groups have taken out an advertisement in Congress Daily criticizing VEETC and calling for lawmakers to allow it to expire at the end of 2010. If renewed, an additional $31 billion in tax credits will flow to oil company coffers between 2011-2015. United States  biofuels  subsidy 

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