Now you see it; now you don’t—but unfortunately, it’s not an act of prestidigitation. A new report from the National Research Council (NRC) has found that the overall effect of billions of U.S. dollars used as tax incentives to reduce greenhouse gases is net zero.
The report, which was compiled at the request of Congress, evaluates the results of both energy-related tax provisions— such as transportation fuel taxes, oil and gas depletion allowances, subsidies for ethanol, and tax credits for renewable energy – and broad-based provisions that may have indirect effects on emissions, such as those for employer-provided health insurance, owner-occupied housing, and incentives for investment in machinery.
NRC models based on the 2011 U.S. tax code indicate that provisions subsidizing renewable energy do work to reduce greenhouse gas emissions—however, those for ethanol and other biofuels actually may slightly increase emissions. While few of these provisions were created solely to reduce greenhouse gas emissions, they are a poor tool for doing so, the report says.
The models also suggest that broad-based provisions, such as tax incentives, to increase investment in machinery influence emissions primarily through their effect on national economic output. In other words, when a broad-based tax provision is removed, the percentage of change in emissions is likely to be close to the percentage of change in national output.
What’s more, the council found that these provisions achieve little, but at substantial cost: The U.S. Department of the Treasury estimates that the cumulative federal revenue losses from energy-sector tax subsidies in 2011 and 2012 totaled $48 billion.
While the report does not make any recommendations about specific changes to the tax code, it says that policies that target emissions directly—such as carbon taxes or tradable emissions allowances—would be the most effective and efficient ways of reducing greenhouse gases.
The study was sponsored by the U.S. Department of the Treasury. The National Research Council is the principal operating arm of the National Academy of Sciences (NAS) and the National Academy of Engineering. Together with the Institute of Medicine, these private, nonprofit institutions provide science, technology, and health policy advice under a Congressional charter granted to NAS in 1863.
Edited by Alisen Downey