Home > Forecasts & Analysis > Congressional Response > Analysis of Five Selected Tax Provisions >Analysis Summary

Analysis of Five Selected Tax Provisions of the Conference Energy Bill of 2003
 

Analysis Summary

Energy Production, Consumption, and Prices

  • With the exception of Section 29, the provisions considered in this report do not measurably increase domestic oil or gas production over the next 10 years or over the forecast through 2025.
  • The Section 29 provisions increase total domestic natural gas production from unconventional resources, particularly for the period 2004 to 2009. Unconventional gas production remains higher than the Reference Case after 2009 because of the increased reserve additions in the early period when the tax credits are available. The increased unconventional production reduces natural gas imports and other conventional gas production.
  • Total energy consumption is virtually unaffected by the modeled policies. The difference from the Reference Case is at most 0.2 percent in any year for any individual measure.
  • Section 29 provisions, which change the timing and magnitude of gas investments, are estimated to reduce the average wellhead natural gas price by almost $0.15 per thousand cubic feet over the 2005 to 2010 period. However, natural gas wellhead prices later in the forecast are only slightly affected.

Petroleum Imports

  • None of the provisions analyzed are expected to have a measurable impact on oil imports or domestic oil supplies. Since oil generates only a tiny portion of total electricity in the United States (about 2 percent), the electricity provisions do not impact the level of petroleum imports. The Section 29 provisions do not significantly affect petroleum markets, since coal-to-liquids and gas-to-liquids are not economic.
  • EIA could not directly model the impacts resulting from the amortization of geological and geophysical (G&G) expenditures over 2 years. However, based on the JCT estimates of tax revenue losses, the apparent financial benefit to the industry is less than 1 percent of annual cash flow variations that are likely to occur from price fluctuations. A change of this magnitude would not result in any significant change in oil production or imports.
  • Based on JCT estimates of revenue losses for application of enhanced oil recovery (EOR) tax credits against the alternative minimum tax for 2004 and 2005, the proposed tax change for EOR would increase industry cash flow by less than one-quarter of one percent. While this proposed tax change could improve some individual company balance sheets, on an industry level, the impact on domestic oil production and petroleum imports would be negligible if the JCT estimates are valid.

Tax Revenue Losses

  • The EIA estimate of the tax revenue impact of the renewable PTC extension and expansion differ significantly from the JCT estimate. For the period 2004 to 2013, the EIA estimate of the tax revenue loss is $6.7 billion, compared to the JCT estimate of $3 billion. The primary source of the difference for the 2004 through 2013 period is the exclusion of co-firing at existing facilities using “open loop” biomass from the JCT estimate. EIA’s estimate including tax revenue losses that occur after 2013 is $7.1 billion.
  • For the nuclear PTC, EIA and JCT estimates of tax revenue losses for the 2004 to 2013 period are very close -- $170 million for EIA and $167 million for JCT. However, given the long period required to bring new nuclear capacity into production, nearly all of the tax revenue losses associated with this provision occur after the 2013 end date of the JCT analysis. EIA’s estimate of tax revenue losses for this provision over its entire period of application is $5.7 billion.

Caveats of the Study

The projections in the Reference Case and the analysis cases developed for this report are not statements of what will happen but of what might happen, given the assumptions and methodologies used. The Reference Case projections are business-as-usual trend forecasts, given known technology, technological and demographic trends, and current laws and regulations. Thus, they provide a policy-neutral starting point that can be used to analyze policy initiatives. EIA does not propose, advocate, or speculate on future legislative and regulatory changes.