The AEO2007 reference case and alternative cases generally assume compliance
with current laws and regulations affecting the energy sector. Some provisions
of the U.S. Tax Code are scheduled to expire, or may be subject to adjustment,
before the end of the projection period. In general, scheduled expirations
and adjustments provided in legislation or regulations are assumed to occur,
unless there is significant historical evidence to support an alternative
assumption. This section examines the AEO2007 treatment of three provisions
that could have significant impacts on U.S. energy markets: the gasoline
excise tax, biofuel (ethanol and biodiesel) tax credits, and the PTC for
electricity generation from certain renewable resources.
Excise Taxes on Highway Fuels
Excise taxes on highway fuels have been a dedicated source of funding for
the Federal Highway Trust Fund since its creation in 1956. The Federal
Government levies a tax of 18.4 cents per gallon on domestic gasoline sales
and 24.4 cents per gallon on diesel fuel. The tax levels were last adjusted
in 2003. Since 1932, when the first Federal excise tax on gasoline was
imposed, it has been adjusted by Congress almost 20 times.
Because the statutes do not specify that the Federal excise taxes on highway
fuels will be adjusted for inflation, and because they have not been adjusted
at regular intervals in the past, they are assumed to remain at current
levels in nominal terms through 2030. This assumption can, however, result
in seemingly inconsistent results. For example, both the Federal Highway
Administration and the Congressional Budget Office (CBO) project that the
Highway Account in the Highway Trust Fund will have a negative balance
by 2009, based on their respective receipts and outlays [30, 31].Because
EIA does not track expenditures on specific transportation infrastructure
requirements, the AEO2007 projections for vehicle miles traveled are not
affected by the loss of funding for upkeep of the Nation’s transit system,
including maintenance of highways and bridges, which would be necessary
to support the projected levels of vehicle use.
In addition to the Federal excise tax on highway fuels, the States and
some local governments also levy excise or sales taxes on highway fuels.
State and local fuel taxes are kept constant in real terms in AEO2007,
based on analysis of aggregate historical adjustments to State and local
fuel taxes, and reflecting the calculation of State sales taxes as a percentage
of the sales price of the fuel [32].
Biofuels Tax Credits
The ethanol tax credit provides a credit against Federal gasoline taxes
that is worth 51 cents for every gallon of ethanol blended into the gasoline
pool. For a typical gasoline blend with 10 percent ethanol, the credit
reduces the Federal excise tax (18.4 cents per gallon) by 5.1 cents, resulting
in an effective tax rate of 13.3 cents per gallon for the blender. Currently,
the ethanol tax credit is scheduled to expire in 2010; however, it has
been in effect since 1978, and while it has been adjusted both up and down,
it has consistently been extended [33]. AEO2007 assumes that reauthorizations
will continue throughout the projections.
Biodiesel also receives a tax credit, at $1.00 per gallon for biodiesel
produced from virgin oils and 50 cents per gallon for biodiesel produced
from recycled oils. The credit is scheduled to expire in 2008, and AEO2007 assumes that it will not be reauthorized. The biodiesel tax credit was
established by the American Jobs Creation Act of 2004, with a 2006 expiration
date. It was extended to 2008 in EPACT2005, after the industry had sought
an extension to 2010 [34]. If the credit is reauthorized after 2008, it
will have a significant impact on biodiesel production.
Production Tax Credit for Renewable Electricity Generation
A PTC of 0.95 to 1.9 cents per kilowatthour [35] is provided for sales
of electricity generated from certain renewable resources at qualifying
facilities for the first 10 years of their operation. The PTC is adjusted
by the IRS each year, based on the annual inflation rate. First established
in 1992, the PTC has been allowed to expire three times, followed by after-the-fact
reauthorizations [36]. It has been modified significantly with each extension,
including changes in the qualifying resources (adding some, removing others),
the value and duration of the credit for certain resources, and the interaction
with other aspects of the Tax Code (such as the alternative minimum tax).
While the AEO2007 reference case assumes that the PTC will expire at the
end of 2007, both AEO2007 and previous AEOs include alternative cases that
consider the impacts of a PTC extension.
Notes and Sources
Contact: Sean Hill
Phone: 202-586-4247
E-mail: sean.hill@eia.doe.gov |