Economics, Energy and the Environment

Energy fact of the week: Refining tax credits

The Energy Information Administration recently produced the figure below of biodiesel production that is admirable for its candor in displaying just how crucial the $1.00 per gallon blending tax credit is. When the tax credit expired at the end of 2009, biodiesel production fell instantly in half, and did not rise again until the credit was reinstated at the beginning of 2011.

We often hear that fossil fuels—oil and gas especially—also get large subsidies, though there is legitimate argument about how “subsidy” is defined, since in some cases the alleged “subsidy” is merely the same tax treatment accorded to all manufacturing industries. But try out the following thought experiment: Even if you use the most generous definition of oil and gas “subsidies” and then eliminated them entirely, does anyone think there would be a 50 percent decline in the amount of oil and gas produced and refined into finished products? (If you need help thinking through the answer to this, go back and look at this previous Energy Fact, and also this one.)

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