United States

United States

Renewables subsidies poised to overtake fossil fuels

UNITED STATES: A non-profit policy watchdog has said renewable energy subsidies are poised to overtake federal tax expenditures on fossil fuels over the next few years.

The Pew Charitable Trusts found that tax breaks for the fossil fuel sector totalled $3.2 billion in fiscal year 2009, with half of that coming in the form of deductions for oil and gas exploration and development. The analysis comes with Congress back in session after the summer recess and US lawmakers considering what their next steps will be on a new energy bill.

Federal tax expenditures on renewable energy totalled $1.5 billion in 2009, with an estimated $1.1 billion of that paid out in the form of cash grant The government created the temporary grant program as part of its 2009 economic stimulus bill.

Companies can opt to take a investment tax credit, which allows them to deduct 30% of the capital cost of the wind farm in the year the project came into service.

This is instead of a production tax credit, which is paid out on the actual energy produced over the first 10 years of a project’s life.

For projects that start construction in 2009 or 2010 and are completed before 2013, developers are able to take a cash grant equivalent to the value of the ITC.

Outlays under the program are expected to reach just over $3 billion in 2010, nearly $4.5 billion in 2011 and $4.2 billion in 2012, part of a trend that will see tax-based support for renewables "increase sharply above the level of fossil fuels over the next few years before trailing off," says the Pew analysis.

The analysis found that the federal role in the energy sector is significant, with total spending in the sector reaching about $25 billion, or about $212 billion per household, in fiscal year 2009.

"The United States spends billions of dollars a year attempting to make energy more affordable, cleaner and to reduce our dependence on foreign sources of oil," says Marcus Peacock, director of Pew’s Subsidyscope project.

"As legislators in Washington consider decisions that will affect how our nation consumes and produces energy, this data provides a clearer view of how our government shapes energy policy through its use of subsidies."

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