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Fiscal Effects of Electricity Generation: A Full Fuel Cycle Analysis
Dallas Burtraw, Pallavi R. Shah
RFF Discussion Paper 95-16 | March 1995
This study employs discounted cash flow financial models to investigate direct and indirect statutory incidence of taxes on a per kilowatt-hour basis when different fuel cycles are used to generate electricity. We find substantial differences between fuel cycles, stemming from the relatively favorable treatment of fuel costs, relative to capital and labor expenses. Also, costs that enter the rate base produce relatively greater fiscal benefits due to taxes on corporate and personal earnings. In contrast, upstream taxes in fuel supply are relatively insignificant. These factors afford financial advantage to natural gas, relative to coal, and especially relative to renewable technologies. Recent estimates of differences in external environmental costs among fuel cycles, excluding the impacts of global warming, have arrived at estimates of less than one cent per kWh. We find the differences in fiscal benefits among fuel cycles to be of equal or greater magnitude.
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