Federal Fuels Taxes and Tax Credits |
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The AEO2008 reference case incorporates current regulations that pertain to the energy industry. This section describes the handling of Federal taxes and tax credits in AEO2008, focusing primarily on areas where regulations have changed or the handling of taxes or tax credits has been updated. Excise Taxes on Highway Fuel The handling of Federal highway fuel taxes remains unchanged from AEO2007 [14]. Gasoline is assumed to be taxed at 18.4 cents per gallon, diesel at 24.4 cents per gallon, and kerosene jet fuel at 4.4 cents per gallon [15]. Taxes are not adjusted for inflation and remain at the same nominal values throughout the projections. State fuel taxes are calculated on the basis of a volume-weighted average of gasoline, diesel, and jet fuels sold. The handling of State fuel taxes was updated as of July 2007 [16]. Biofuels Tax Credits The most significant change for AEO2008 is in the handling of Federal fuels taxes and credits that pertain to biofuels. Several Federal tax credits are available for liquid fuel blenders who blend ethanol into gasoline or biodiesel into diesel fuel or heating oil. Under the Volumetric Ethanol Excise Tax Credit (VEETC) [17], blenders are eligible for a tax credit of $0.51 per gallon of ethanol blended. Thus, the tax credit is equal to $0.051 per gallon for E10 and $0.434 per gallon for E85 [18]. The credit is scheduled to expire at the end of 2010. Biodiesel also receives a tax credit under VEETC, equal to $1.00 per gallon for “agri-biodiesel” and $0.50 per gallon for “wastegrease biodiesel” made from recycled vegetable oils and animal fats. Currently, the credits are scheduled to expire in 2008 [19, 20]. In AEO2008, both tax credits are assumed to expire according to the provisions of existing laws [21]. EPACT2005 provides small producers of ethanol, up to 60 million gallons [22], with an income tax credit of $0.10 per gallon on production volumes up to 15 million gallons. Because the credit affects only a small portion of the overall ethanol supply and is scheduled to expire on December 31, 2008, it is not included in AEO2008. Ethanol Import Tariff Two duties currently are imposed on imported ethanol. The first is an ad valorem tariff of 2.5 percent; the second is a tariff of $0.54 per gallon, which is applied after the ad valorem tariff. The second tariff, which was set to expire in October 2007 but has been extended to January 1, 2009, allows for limited dutyfree imports from designated Central American and Caribbean countries, not exceeding 7 percent of domestic production in the previous year. In the AEO2008 projections, ethanol imports increase after the tariff expires. Production Tax Credits for Renewable Electricity Production The handling of the Federal PTC for renewable electricity has been updated for AEO2008 to be consistent with current legislation. The PTC, which was set to expire on December 31, 2007, was extended to December 31, 2008, by the Tax Relief and Health Care Act of 2006, Public Law (P.L.) 109-432. It provides a benefit of $0.020 per kilowatthour (real 2007 dollars) for the first 10 years of an eligible renewable energy facility’s operation, boosting the growth of U.S. wind capacity in the near term. In the AEO2008 reference case, wind capacity in the electric power sector grows from 15.9 gigawatts in 2007 to 20.2 gigawatts in 2008, as compared with the AEO2007 projection of 16.6 gigawatts in 2008. Notes and Sources Contact: Sean Hill |