The US Energy Information Administration (EIA) has published a comprehensive report on federal financial interventions and subsidies in the energy sector covering fiscal years 2016–2022. The report sheds light on the dynamics of federal support for various energy-related activities during this period and highlights some interesting trends.
According to the report, tax expenditures in the energy sector saw a significant rise starting in FY 2016, followed by a leveling off. Meanwhile, direct federal support remained steady until recently when temporary provisions were enacted by Congress. The expiration of provisions and programs under the American Reinvestment and Recovery Act (ARRA) of 2009 resulted in decreasing federal activities within the scope of the study until FY 2016.
However, direct expenditures remained relatively stable through FY 2020. In response to the COVID-19 pandemic and its economic effects, there was a sharp but temporary increase in federal direct expenditures on energy in FY 2020 and FY 2021. On the other hand, tax expenditures steadily increased from FY 2017 to FY 2020 and have since slightly decreased.
The U.S. energy system experienced continuous growth, except for FY 2020, when total energy use dropped by a record 7 percent. Consequently, the scale of federal financial interventions in U.S. energy markets varied during FY 2016–2022 due to the historic volatility experienced by both federal energy-directed activities and the economy.
Renewable energy producers, primarily in the biofuels, wind, and solar sectors, received the majority of federal subsidies during the given period. In fact, nearly half (46 percent) of all federal energy subsidies were associated with renewable energy, while 35 percent were connected to energy end uses. Support for renewable energy of all types more than doubled from $7.4 billion in FY 2016 to $15.6 billion in FY 2022.
The report also highlights the increasing investment in conservation and end-use subsidies, which rose from $9.0 billion in FY 2016 to $10.1 billion in FY 2022. The largest program in this category, the Low Income Home Energy Assistance Program (LIHEAP), administered through the U.S. Department of Health and Human Services (HHS), slightly decreased its funding from $4.0 billion in FY 2016 to $3.9 billion in FY 2022. However, it experienced a substantial one-year increase to nearly $10.0 billion in FY 2021.
Provisions in the tax code constituted the largest source of federal financial support during FY 2016–22. In FY 2016, the Internal Revenue Code (IRC) with its 31 energy-specific tax provisions provided more financial support to energy than direct expenditures, including R&D expenditures. Total tax expenditures accounted for 70 percent of the total federal financial support. Since FY 2016, tax expenditures have continued to grow, reaching over 75 percent of total federal support in recent years. However, in FY 2021, this support dipped slightly to 65 percent.
Surprisingly, natural gas and petroleum-related subsidies became a net cost to the federal government. The tax expenditures associated with these energy sources increased to $2.1 billion in FY 2022, reversing the trend from an estimated revenue inflow of $1.1 billion in FY 2016 and FY 2017. These tax provisions were previously the largest energy-related, revenue-generating tax provisions for the government during the years covered in the report.
The report also noted that the U.S. Department of Energy (DOE) issued loan guarantees in FY 2022, with a subsidy cost of $166 million. No subsidy costs were identified for FY 2016–21 in this category, as the cost is assessed at the time the loan is issued. However, the budget authority remains for future lending on the Section 1703 loan program even though lending authority for the Section 1705 loan program expired by FY 2016.
The EIA report provides valuable insights into the trends and patterns of federal financial interventions and subsidies in the US energy sector during FY 2016–2022. Policymakers and industry stakeholders can utilize this information to make informed decisions and shape the future of energy support and investment in the country.