Green fuel could decrease US federal tax revenue by $21 billion
WASHINGTON, DC, US, June 25, 2005 (Refocus Weekly)
Proposed legislation to promote renewable fuels in the United States could cost the federal government US$21.3 billion in tax revenue over 20 years.
The Energy Information Administration prepared the analysis to compare the
near- and mid-term potential price and supply effects of enacting S.606
(Reliable Fuels Act) or S.650 (Fuels Security Act) compared with a scenario of
no legislation.
S.606 would require production of 3.8 billion gallons of ethanol and biodiesel
in 2006, increasing to 6 billion gallons by 2012, with a 1.5 ratio for every
gallon of cellulosic biomass ethanol. S.650 would require 4 billion gallons in
2006, rising to 8 billion by 2012, with a credit of 2.5 for every gallon of
cellulosic biomass ethanol produced.
The renewable fuels program in both bills would increase nationwide consumption
of green fuels rapidly in the first few years, with growth moderating after
2012, but demand for renewable fuels does not reach either the 6 or 8 billion
gallon goals in 2012 because of the extra credits provided for cellulosic
biomass ethanol. Beyond 2012, virtually all growth in mandated green fuels
consumption is met through increased use of cellulosic biomass ethanol, it
predicts.
Neither bill would have an impact on biodiesel production compared to the base
case, since neither proposed law would provide additional incentives for
biodiesel.
In 2004, domestic ethanol supply in the U.S. was 3.4 billion gallons, reflecting
a trend in recent years of rapidly increasing corn ethanol production capacity.
The Renewable Fuels Association projects 4.4 billion gallons of ethanol
production capacity from plants that are currently operating or under
construction, sufficient to provide demand in either bill by 2006.
Both bills would reduce net petroleum imports, from 200,000 barrels (1.5%) per
day in 2012 under S.606, to 260,000 barrels per day (2%) under S.650. A
requirement to increase ethanol use would lead to higher ethanol production
costs, resulting in higher costs and prices, with average pump prices in 2012 to
be 2.4 cents per gallon higher under S.650 and 1.5 cents higher under S.606
compared with the base case.
“Although the pump price is most visible to consumers, it does not take into
account that ethanol has only about two-thirds the energy content of an
equivalent volume of gasoline and about four-fifths the energy content of MTBE
that it would be replacing,” the EIA report explains. The estimated impacts of
the two bills on overall consumer expenditures for gasoline would be $1 billion
to $3.8 billion more under the two bills.
An assumption federal tax credit of 51 cents per gallon of ethanol blended into
gasoline will result in additional loss in tax revenue to the federal government
relative to the base case, and the cumulative additional loss from 2006 to 2010
is $3.2 billion under S.650 and a 20-year loss of $21.3 billion from 2006 to
2025. Under S.606, the projected loss of tax revenue are $1.5 billion in
2006-2010 and $11.6 billion in 2006-2025.
EIA adds that the renewable fuels program could also affect revenues or costs
for other federal programs, but consideration of such effects was beyond the
scope of its analysis.
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