From 2005 through 2009, the US government spent nearly $100 billion on about 60 different subsidies that were directed at increasing energy production, subsidizing energy consumption, or increasing energy efficiency. New research shows that over that same period, US expenditures shifted from energy subsidies that resulted in increased CO2 emissions toward those that resulted in reducing CO2 emissions.
In a new report, US Energy Subsidies: Effects on Energy Markets and Carbon Dioxide Emissions, RFF’s Maura Allaire and Stephen P.A. Brown model US energy markets to examine these effects, looking at both energy-related spending programs and tax provisions.
The authors find that in 2005, the net effect of US government energy subsidies was to increase US CO2 emissions by 53.1 million metric tons—about 0.9 percent of the country’s energy-related CO2 emissions that the US Energy Information Administration (EIA) estimated for that year. In 2009, the net effect of US government subsidies was to reduce US CO2 emissions by 38.0 million metric tons—about 0.7 percent of the 5.4 billion metric tons of US energy-related CO2 emissions that the EIA estimated for that year.
Subsidies that increased CO2 emissions include tax provisions for fossil fuel companies, assistance for low-income housing cooling and heating, and the alcohol fuels excise tax. Subsidies that reduced CO2 emissions include programs such as the home weatherization program, tax credits for energy efficient home improvements and renewable energy production, and loan guarantees for energy efficient improvements.
Allaire and Brown conclude that if the energy-related subsidies that increased CO2 emissions had been eliminated, US government expenditures would have been an average of $12 billion less per year and U.S. energy-related CO2 emissions would have been an average of about 1.0 percent lower over the 2005 through 2009 period.