Since the 1970s, energy tax policy in the United States has attempted to achieve two broad objectives. First, policymakers have sought to reduce oil import dependence and enhance national security through a variety of domestic energy investment and production tax subsidies. Second, environmental concerns have led to subsidization of a variety of renewable and energy efficiency technologies via the tax code. While these two broad goals continue to guide policy, enacted policies that solely focus on achieving only one of the goals are often inconsistent with policies solely designed to achieve the other goal. For example, subsidies to oil and gas producers, while enhancing domestic oil and gas production and ultimately increasing the burning of fossil fuels, encourage an activity which may have negative environmental consequences. By providing a longitudinal perspective on energy tax policy and expenditures, this report examines how current revenue losses resulting from energy tax provisions compare to historical losses and provides a foundation for understanding how current energy tax policy evolved. Further, this report compares the relative value of tax incentives given to fossil fuels, renewables, and energy efficiency. Recent legislation has introduced, reintroduced, expanded, and extended a number of energy tax provisions. While a number of the current energy provisions have a long historical standing in the tax code, a wider variety of tax incentives, to promote a range of energy sources, are presently available than have been available in the past. After reviewing the history of energy tax policy, this report examines the economic rationale for government interventions in energy markets. Understanding when and how government intervention can improve market outcomes assists in evaluating the potential effects of various tax policy proposals. In the case of energy markets, externalities, other market barriers, and national security concerns raise the possibility that government intervention via tax policy may lead to a more economically efficient distribution of energy resources. Trends in energy tax expenditures have changed substantially over the past 30 years. In the early 1980s, revenue losses associated with energy tax provisions were approximately 3% of total revenue losses from all tax expenditures. In the mid-1980s, energy tax expenditures and total tax expenditures were scaled back. While total tax expenditures relative to GDP have trended up since the mid-1980s, energy tax expenditures relative to total tax expenditures have remained below early 1980s levels. Relatively low levels of tax expenditures do not necessarily suggest that the government is devoting fewer resources towards achieving energy policy goals, as federal grants, loans and loan guarantees, and mandates are also important energy policy tools. Examining trends in revenue losses associated with energy tax provisions provides insight into the actual direction of energy tax policy. In inflation-adjusted terms, revenue losses associated with energy tax provisions in the late 1970s and early 1980s are similar in total cost to revenue losses in the late 2000s. The composition of these revenue losses, however, has changed significantly. In the late 1970s nearly all revenue losses associated with energy tax provisions were the result of two tax preferences given to the oil and gas industry. In the early 1980s, revenue losses associated with special treatment for the oil and gas industry accounted for more than three quarters of all federal revenue losses associated with energy tax expenditures. Changes in policy, coupled with declining oil prices in the late 1980s, dramatically reduced revenue losses associated with oil and gas tax policy. Throughout the 1990s, the bulk of revenue losses associated with energy tax provisions were attributable to the tax credit for unconventional fuels. In the 2000s, revenue losses associated with renewable energy production incentives began to make up a larger portion of energy tax expenditure revenue losses, reaching an estimated 21% in 2006. Revenue losses associated with tax provisions benefitting fossil fuels also remained important into the 2000s, with a large proportion of revenue losses in the mid-to-late 2000s associated with the unconventional fuel production credit, benefitting synthetic coal producers. In the late 2000s, the majority of revenue losses have been associated with incentives designed to promote biofuels. The federal government also loses significant revenue from excise tax credits given to alcohol fuel blenders (specifically, the volumetric ethanol excise tax credit (VEETC)). While excise tax credits are not technically a tax expenditure (technically, tax expenditures are only revenue losses associated with income tax provisions), these excise tax credits have played an important role in shaping energy tax policy. In 2010, tax credits for alcohol fuels reduced excise tax receipts by $5.7 billion. In 2009, Congress enacted the Section 1603 grant in lieu of tax credit program as part of the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ). The Section 1603 grant program allows taxpayers eligible for the renewable energy production tax credit (PTC) and investment tax credit (ITC) to elect to receive a one-time cash payment from the Treasury instead of tax payments. In 2010, outlays under this program were $4.2 billion. The history of energy tax policy can be divided into five eras: the oil and gas period from 1916 through 1970, the energy crisis period of the 1970s, the 1980s free-market era of the Reagan Administration, the post-Reagan era of the 1990s, and the 2000s, which is characterized by a renewed interest in promoting renewable energy. For more than half a century, federal energy tax policy focused almost exclusively on increasing domestic oil and gas reserves and production. There were no tax incentives promoting renewable energy or energy efficiency. During that period, two major tax preferences were established for oil and gas. These two provisions speed up the capital cost recovery for investments in oil and gas exploration and production. First, the expensing of intangible drilling costs (IDCs) and dry hole costs was introduced in 1916. This provision allows IDCs to be fully deducted in the first year rather than being capitalized and depreciated over time. Second, the excess of percentage over cost depletion deferral was introduced in 1926. The percentage depletion provision allows a deduction of a fixed percentage of gross receipts rather than a deduction based on the actual value of the resources extracted. Through the mid-1980s, these tax preferences given to oil and gas remained the largest energy tax provisions in terms of estimated revenue loss. Both of these provisions remain in the tax code in limited form today. Events in the 1970s caused a dramatic shift in the focus of federal energy tax policy as evidenced by legislation enacted in the late 1970s and early 1980s. First, large budget deficits made it difficult to continue the large tax preferences given to oil and gas. Second, the 1970s brought a heightened awareness of environmental issues, resulting in interest in promoting alternative energy sources alongside energy efficiency. Finally, the oil embargo and subsequent energy crisis of 1973, followed by the 1979 crisis in the wake of the Iranian Revolution, led policymakers to enact policies promoting alternative fuels (both alcohol and unconventional fuels) and energy efficiency. Additionally, policy also focused on increasing domestic energy production to enhance national energy security. Three broad actions were taken through the tax code shifting energy policy away from oil and gas promotion towards creating incentives for alternative energy and efficiency. First, the oil industry's two major tax preferences—expensing of IDCs and percentage depletion—were significantly reduced. Second, several excise taxes penalizing the use of fossil fuels were introduced. These included the federal "gas guzzler" tax, a windfall profit tax on oil, and an excise tax on petroleum (the "Superfund" program). Third, a number of tax incentives were implemented to promote energy efficiency and incentivize alcohol and unconventional fuels. Most of these new tax subsidies were introduced as part of the Energy Tax Act of 1978 (ETA78, P.L. 95-618 ). The Windfall Profit Tax Act of 1980 (WPT80; P.L. 96-223 ) also introduced a number of provisions that had the effect of either discouraging fossil fuel production or promoting unconventional (synthetic) or renewable fuels. In spite of these policy shifts, the majority of revenue losses associated with energy tax provisions served to benefit the oil and gas industry well into the 1980s. Since the 1970s, policymakers have continued to provide incentives for the development of both conventional and renewable forms of energy. In recent years, the policy focus has shifted more towards incentives for renewables. Policymakers have also continued to focus on providing incentives for energy efficient technologies in many different sectors. The residential energy efficiency tax credits, which were allowed to expire in the 1980s, were reenacted. A number of incentives for energy efficiency in commercial, industrial, and transportation sectors have been reinstated, expanded, or introduced. The Reagan Administration sought to pursue what was believed to be a more neutral and less distortionary energy tax policy. As such, the Administration opposed using tax law to promote oil and gas development, energy efficiency, renewable energy sources, or unconventional or renewable fuels. It was believed that high oil prices alone would be enough to spur the economically efficient level of investment in unconventional or renewable energy sources. Congress, in being consistent with the free market approach, allowed a number of the energy tax provisions enacted under the ETA78 to expire. Most business energy tax credits were allowed to expire in 1982 as scheduled. The residential energy tax credits were allowed to expire at the end of 1985 as scheduled. Of the ETA78 energy tax provisions scheduled to expire, only the tax credit for energy property (solar, geothermal, ocean geothermal, and biomass) was extended. Toward the end of President Reagan's second term, in 1988, following a massive decline in oil prices, the windfall profit tax (enacted under the WPT80) was repealed. While the Reagan Administration did successfully reduce the number of energy tax provisions, the Administration did not accomplish all of their stated goals. Specifically, the primary tax incentives for oil and gas (expensing of IDCs and percentage depletion) were not eliminated, although they were scaled back as part of the Tax Reform Act of 1986 (TRA; P.L. 99-514 ). In addition to a reduction in the number of favorable energy tax provisions, revenue losses associated with energy tax provisions fell during the 1980s due to relatively low energy prices. Low oil and gas prices during the late 1980s reduced investment. Consequently, revenue losses associated with tax provisions designed to promote investment in oil and gas declined. In the post-Reagan era, energy tax policy again followed a more interventionist course. A number of provisions were enacted to promote energy production from renewable sources, alcohol fuels, and unconventional fuels. In addition, favorable tax provisions continued to be extended to the oil and gas industry. The first major tax policies enacted under President George H. W. Bush were contained in the revenue provisions of the Omnibus Budget Reconciliation Act of 1990 (OBRA90; P.L. 101-508 ). First, the act increased the gasoline tax by 5¢ per gallon while also doubling the gas-guzzler tax. Second, the act introduced a 10% tax credit for enhanced oil recovery expenditures, liberalized some of the restrictions on the percentage depletion provision, and reduced the effect of the alternative minimum tax (AMT) on oil and gas investments. Third, the act expanded the unconventional fuel production credit and introduced a tax credit for small ethanol producers. The Energy Policy Act of 1992 ( P.L. 102-486 ) included a number of energy tax provisions. The tax credit for energy produced using renewable resources was established under this act. The renewable energy production tax credit (PTC) (IRC §45) was only available for electricity generated using wind or closed-loop biomass systems. The act also included a number of other energy tax provisions, including an income tax deduction for the costs of clean-fuel powered vehicles, liberalization of the alcohol fuels tax credit, another expansion of the unconventional fuel production credit, and further liberalization of the favorable tax provisions for oil and gas. The Tax Relief and Extension Act, enacted as Title V of the Ticket to Work and Work Incentives Improvement Act of 1999 ( P.L. 106-170 ), extended and liberalized the production tax credit, while also extending liberalizations regarding the percentage depletion provision for oil and gas. In 1993, President Clinton proposed a differential British thermal unit (Btu) tax on fossil fuels, which was ultimately dropped in favor of an excise tax increase on motor fuels. The Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66 ) contained a 4.3¢ per gallon increase in the motor fuel excise tax. The revenues were allocated for deficit reduction rather than to the highway or other trust funds. The late 1990s were characterized by low crude oil prices, which hurt oil producers and encouraged consumption. Additionally, with oil prices at record lows, there was little economic incentive to invest in energy efficiency, renewable energy, or renewable fuels. Rising oil prices in the early 2000s led to a push for comprehensive energy legislation in the 107 th and 108 th Congresses. While comprehensive energy legislation was debated and otherwise stalled, energy tax policy goals were pursued through smaller provisions in tax relief and jobs bills. The Working Families Tax Relief Act of 2004 ( P.L. 108-311 ) retroactively extended four energy tax subsidies that had been allowed to expire. These included (1) the tax credit for energy produced using renewable resources (PTC), (2) the suspension of the 100% net income limitation for the oil and gas percentage depletion allowance, (3) the tax credit for electric vehicles, and (4) the deduction for clean fuel vehicles. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) also included tax credits for alcohol fuels and biodiesel. Additionally, the act increased the number of technologies that were eligible for the renewable energy production tax credit. The Energy Policy Act of 2005 (EPACT05; P.L. 109-58 ) was the culmination of efforts for comprehensive energy legislation that began in 2001. (See the shaded text-box below for a listing and brief explanation of the energy tax provisions of EPACT05.) Spurred by rising energy prices and growing dependence on foreign oil, the law was shaped by competing concerns about energy security, environmental quality, and economic growth. Included in EPACT05 were a number of tax provisions related to energy infrastructure, domestic fossil fuels, energy efficiency, clean motor vehicles and fuels, among others. EPACT05 was responsible for substantially increasing energy tax subsidies, both in terms of the number of provisions and amount of federal revenue losses. At the end of the 1990s, there were 11 energy tax expenditure programs listed in the President's Budget. The 2007 budget listed 38 energy tax expenditure programs. The provisions enacted or modified under EPACT05 can be classified as those related to electricity infrastructure, domestic fossil fuels, energy efficiency, and clean motor vehicles and fuels. The energy tax provisions contained within EPACT05 attempted to enhance domestic energy production and increase energy efficiency. The electricity infrastructure provisions included electricity generation incentives as well as those designed to facilitate the restructuring of the electric utility industry. Electricity market conditions (spiking prices, supply shortfalls, and transmission bottlenecks) led to the belief that incentives for investment in electricity generation and transmission were needed. Many of the domestic fossil fuel incentives were based on proposals that had been made in response to the low oil prices of the late 1990s. While oil prices had increased by 2005, EPACT05 still included a number of spending, tax, and deregulatory incentives to stimulate the production of oil and gas. The energy efficiency provisions of EPACT05 represented an effort to reduce energy consumption. EPACT05 reestablished some of the residential and business energy efficiency credits that had been allowed to expire in the 1980s as well as introduced a number of other energy efficiency incentives. Recognizing that transportation is the nation's largest energy consuming sector, EPACT05 expanded incentives for alcohol fuels and clean motor vehicles. Following EPACT05, additional incremental changes to energy tax policy were made in subsequent legislation. Provisions in the Tax Increase Prevention and Reconciliation Act ( P.L. 109-222 ) reduced tax subsidies to oil and gas, while the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ) extended a number of renewable energy provisions that were set to expire. The Food, Conservation, and Energy Act of 2008 ( P.L. 110-234 ), otherwise referred to as the 2008 Farm Bill, contained a provision to promote cellulosic ethanol through a blenders credit. The 2008 and 2009 stimulus bills expanded and extended energy tax incentives for renewables and efficiency. The Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343 ) contained a number of energy tax provisions, primarily ones that extended existing provisions. The majority of the extended tax breaks went to promote renewable energy production, encourage energy efficiency, or provide incentives for alcohol fuels and clean motor vehicles. The cost of the energy tax extenders legislation in the Emergency Economic Stabilization Act of 2008 was fully financed, or paid for, by raising taxes on the oil and gas industry (mostly by reducing oil and gas tax breaks) and by other tax increases. From the perspective of energy tax policy, the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) modified incentives for renewable energy production, energy efficiency, clean motor vehicles, as well as a number of other energy tax incentives. Like EESA, most of ARRA focused on modifying and extending previously enacted energy tax provisions promoting renewables, efficiency, and alternative technology vehicles. ARRA's Section 1603 grants for renewables, discussed in greater detail below, substantially changed federal incentives for renewable energy by converting the previously available tax credits into direct cash payments. ARRA also provided tax incentives for advanced energy manufacturing that were not previously available. A number of energy tax provisions were scheduled to expire at the end of 2010, including the Section 1603 grants in lieu of tax credits program, the excise tax credits for alcohol fuels, and the tax credits for energy efficiency improvements to existing homes. Under the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ), the Section 1603 grant program and the tax credits for alcohol fuels were extended for one year, through 2011. The tax credits for energy efficiency improvements to existing homes were also extended, but at a reduced rate. The tax credits for advanced energy manufacturing were not extended in P.L. 111-312 . The primary economic justification for intervening in energy markets via the tax code is to address market failures. When market failures are present, resources are not efficiently allocated. Market failures can result from the presence of externalities, the existence of principal-agent problems or informational inefficiencies, or from a failure to adequately address national security concerns. The following paragraphs elaborate on these concepts in the context of energy taxation. Both the production and consumption of energy often generate negative externalities. For example, burning fossil fuels contributes to air pollution and generates greenhouse gasses. When an activity generates a negative externality, imposing a tax on the activity can improve economic efficiency. For example, driving gasoline powered motor vehicles may impose negative externalities due to polluting emissions as well as increased highway congestion. Imposing a tax equal in value to the monetary value of the driving-induced environmental and congestion damages reduces the equilibrium quantity of driving. By imposing a tax, potential drivers face a price of driving that is equal to the social marginal cost associated with driving. With a tax, an individual's choices regarding driving are based on their own costs as well as the external costs driving imposes on society. As an alternative, policymakers often subsidize a substitute activity, one that is associated with fewer negative externalities. Following the example above, policymakers may choose to subsidize public transportation, reducing the price of public transportation relative to driving. Currently, there are a number of subsidies available for renewable energy production and technologies. While taxing activities associated with negative externalities may enhance economic efficiency, subsidizing the alternative activity is not necessarily economically efficient. Subsidizing renewable energy, in this context, reduces the average price of energy, which increases demand and ultimately consumption. Subsidies for renewable energy, by decreasing the average price of energy, work against initiatives for energy efficiency. Further, the government must raise revenue to finance these subsidies. Such revenues may be raised using distortionary taxes. Intervention in energy markets has also been justified in the presence of principal-agent problems. Principal-agent problems occur when the ultimate consumer of energy does not make equipment purchasing decisions. For example, with rental property, landlords choose what appliances to install while tenants are often responsible for paying utility bills. Landlords may be unwilling to pay higher prices for energy-efficient appliances when the savings will ultimately accrue to tenants. Tax policies that reduce the cost of energy-efficient appliances tend to increase energy-efficient installations. Existing tax policies, however, do not directly aim to ameliorate the under-installation of energy-efficient property in markets that likely suffer from principal-agent problems (current energy tax incentives are not targeted toward markets susceptible to principal-agent problems, such as rental housing). Informational problems and a variety of other market barriers may also be used to justify government intervention in energy markets. For example, homeowners may not know the precise payback or rate of return of a specific energy-efficient device. This may explain the so-called "energy paradox"—the empirical observation that consumers require an abnormally high rate of return to undertake energy-efficiency investments. High initial first costs of energy-efficiency investments are also often cited as a barrier to investment in energy efficiency. When externalities lead to an inefficient use of energy resources, tax policy may effectively address the inefficiency. It is less clear that tax policy will effectively address the inefficiency when informational problems or other barriers prevent an efficient allocation of energy resources. While tax subsidies can be used to reduce the cost of investing in energy-efficient property, informational programs or consumer lending programs may also be effective at encouraging investments in energy-efficiency. Preserving national security is another often-cited rationale for intervention in energy markets. Presently, much of the petroleum consumed in the United States is derived from foreign sources. There are potentially a number of external costs associated with petroleum importation, especially when imported from unstable countries and regions. First, a high level of reliance on imported oil may contribute to a weakened system of national defense or contribute to military vulnerability in the event of an oil embargo or other supply disruption. Second, there are costs to allocating more resources to national defense than otherwise necessary when relying on high levels of imported oil. Specifically, there is an opportunity cost associated with resources allocated to national defense, as such resources are not available for other domestic policy initiatives and programs. To the extent that petroleum importers fail to take these external costs into account, there is market failure. While imposing a tax on imported oil would theoretically correct for this externality, in practice such a tax would likely violate trade agreements. Instead, policymakers have historically subsidized domestic oil and gas production. The economic well-being and economic security of the nation depends on having stable energy sources. There are national economic costs associated with unstable energy supplies, such as increasing unemployment and inflation that may follow oil price spikes. While domestic production subsidies for oil and gas may reduce the cost of producing, such subsidies are unlikely to materially change consumer prices. Oil as a commodity is priced on world markets, and so long as the United States remains an open economy it will be affected by world oil price fluctuations. Even if the United States produces all the energy consumed domestically, world oil price fluctuations will impact the prices of other imported goods. The Congressional Budget and Impoundment Act of 1974 (the Budget Act; P.L. 93-344 ) defines tax expenditures as "revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." Both the Treasury Department and the Joint Committee on Taxation (JCT) provide annual tax expenditure estimates. The Treasury's list is included in the President's annual budget submission. The JCT issues annual tax expenditure estimates as a stand-alone product. Tax provisions that reduce excise tax revenues are technically not considered tax expenditures under the Budget Act. Tax provisions are only considered to have tax expenditure impacts if they lead to a reduction in corporate or personal income tax receipts. Consequently, excise tax credits are not considered tax expenditures. Even though excise tax credits or rate reductions are not technically considered tax expenditures, provisions that provide exemptions from, or credits against, excise taxes still reduce taxpayers' aggregate tax liability and lead to federal revenue losses. Grants paid by the Treasury are also not tax expenditures, as grants involve direct federal outlays rather than revenue losses attributable to reduced tax receipts. Figure 1 illustrates the broader trend in tax expenditures from 1977 through 2010 as well as the trend in energy tax expenditures. The solid line depicts revenue losses arising from tax expenditures as a percentage of GDP. Between 1977 and 1987 revenue losses associated with tax expenditures increased from less than 6% of GDP to nearly 10% of GDP. By reducing tax rates, eliminating and scaling back various tax expenditures, and generally broadening the tax base, the Tax Reform Act of 1986 (TRA86; P.L. 99-514 ) reduced revenue losses associated with tax expenditures. By 1989 revenue losses associated with tax expenditures were again less than 6% of GDP. Since the end of the 1980s, revenue losses associated with tax expenditures as a percentage of GDP have trended upward. The increase in revenue losses associated with tax expenditures partially reflects rising incomes during periods of economic expansion, but it is also the result of the introduction of new tax expenditures or the expansion of existing tax expenditure provisions. The dashed line in Figure 1 depicts revenue losses associated with energy-related tax expenditures as a percentage of total tax expenditures. While tax expenditures as a percentage of GDP were high in relative terms in the late 1970s into the early 1980s, energy tax expenditures relative to total tax expenditures were also relatively high. In 1982, revenue losses from energy tax expenditures as a percentage of total tax expenditures exceeded 3%. By the end of the 1980s, revenue losses from energy tax expenditures as a percentage of total tax expenditures dropped to less than one-third of one percent (0.3%). Energy tax expenditures as a percentage of total tax expenditures have remained below 1% in all years except 2009 (energy tax expenditures as a percentage of total tax expenditures were estimated to be 1.1% in 2009). The reduced importance of energy tax expenditures may be reflective of a policy preference in which tax policy is not the preferred mechanism for achieving energy policy goals. In addition to tax incentives, there are a number of federal grants and energy-related mandates designed to achieve federal energy goals. For example, ARRA's Section 1603 grant in lieu of tax credit program converted some of the federal support for renewable energy into a grant program not delivered directly through the tax code. Technically, tax expenditures cannot be simply summed to estimate the aggregate revenue loss because of interaction effects. When the revenue losses associated with various tax provisions are estimated, the estimates are made assuming that there are no changes in other provisions or in taxpayer behavior. Consequently, aggregate tax expenditure estimates, derived from summing the estimated revenue effects of individual tax expenditure provisions, are unlikely to reflect the actual change in federal receipts associated with removing various tax provisions. While a summation of tax expenditure revenue loss estimates may not be technically accurate, the analysis presented here likely provides a useful approximation of the general trend in energy tax expenditures. It is unknown whether the summing of individual tax expenditure provisions understates or overstates actual revenue losses associated with tax expenditures. Furthermore, since many tax expenditure provisions remain in the tax code minimally changed for long periods of time, the bias from summing tax expenditures remains approximately the same from year to year. Even if the summation of tax expenditures is not believed to represent accurate levels of revenue loss, the examination of trends is still highly useful. Figure 2 illustrates trends in energy tax expenditures in current dollars from 1977 through 2010. Figure 3 presents energy tax expenditures using inflation-adjusted dollars. Through the 1970s and most of the 1980s the majority of tax expenditures benefited the oil and gas industry through the expensing of IDCs and percentage depletion provisions. In 1977, before the enactment of the ETA78, annual revenue losses of the expensing of IDCs and percentage depletion provisions to the oil and gas industry were more than $2 billion ($6 billion in 2010 dollars). While the ETA78 and WPT80 enacted energy tax provisions to encourage efficiency and unconventional and renewable fuels, the majority of energy tax expenditures continued to result from the expensing of IDCs and percentage depletion provisions for oil and gas. In 1981, these two oil and gas tax provisions resulted in revenue losses of $4.9 billion while the residential energy efficiency credits resulted in revenue losses of $0.5 billion ($10.5 billion and $1.2 billion in 2010 dollars, respectively). The majority of the $1.2 billion for "other" energy tax expenditures were attributable to the expensing of IDCs and percentage depletion provisions for fuels other than gas and the energy credit for investment in renewable energy production. While a number of energy tax incentives were allowed to expire under the Reagan Administration, the most striking change in energy tax expenditures came toward the end of the 1980s. By 1988, energy tax expenditures were only $0.6 billion ($1 billion in 2010 dollars). Part of the reason for this relatively low estimate for revenue losses is the negative tax expenditure estimate ($-0.6 billion) associated with the expensing of IDCs for oil and gas. While the tax incentives for oil and gas were scaled back under the TRA in 1986, external market forces, specifically low oil prices, were also responsible for the reduction in energy tax expenditures during the late 1980s that persisted into the 1990s. The tax expenditure estimate for the expensing of IDCs provision can be negative—indicating an increase in federal revenues rather than a loss—since the provision represents a tax deferral, essentially an interest free loan from the government. Government revenue losses from the expensing of IDCs are incurred when an investment is made, as the costs are expensed in the first year. Over the next four years, however, there is an offsetting gain for the government, as no further deductions on investments can be made. When investments are growing, the additional amount deducted via expensing exceeds the offsetting gains from reduced cost depletions, and the government faces revenue losses. Investments in oil and gas fell off following the collapse of oil prices in 1986. In 1988 and 1989, the tax expenditure estimates for the expensing of IDCs provision were negative, indicating an increase in federal revenues. Throughout the 1990s and into the 2000s, the estimated revenue losses associated with this provision remained relatively small. Throughout the 1990s, growth in energy tax expenditures was primarily driven by the unconventional fuel production credit (IRC § 29). In 1990, the two major oil and gas provisions, expensing of IDCs and percentage depletion, accounted for $0.4 billion in tax expenditures ($0.6 billion in 2010 dollars) while the remaining $0.6 billion ($0.9 billion in 2010 dollars) in revenue losses was attributable to a variety of other provisions, some for renewable energy and others for fossil fuel energy sources. By 1999, estimated revenue losses from expensing of IDCs and percentage depletion for oil and gas was $0.9 billion while the estimated revenue losses from the unconventional fuel production credit were $1.3 billion ($1.1 and $1.7 billion in 2010 dollars, respectively). Between 1990 and 1999, total energy tax expenditures had increased from $1 billion to $2.8 billion ($1.5 to $3.6 billion in 2010 dollars). While the unconventional fuel production tax credit was initially enacted as part of the WPT80, the early revenue losses associated with the provision were low. The goal of the unconventional fuel production tax credit was to stimulate the production of synthetic fuels using domestic deposits of oil, gas, and coal. Even in the face of the high oil prices of the late 1970s and early 1980s, there was little production of unconventional fuels. By the late 1980s and into the early 1990s, producers of unconventional gases, such as coal bed methane and tight sands gas, had begun to claim the credit. The credit was expanded and extended under OBRA in 1990 and again under the Energy Policy Act of 1992. The composition of energy tax expenditures remained relatively stable throughout the late 1990s and early 2000s. By 2005, significant changes in the composition of revenue losses attributable to energy tax expenditures began to emerge. As provisions enacted under EPACT05 in 2005 went into effect, revenue losses associated with energy tax provisions increased. The provision primarily responsible for increasing energy tax expenditures in the years immediately after 2005 was the unconventional fuel production credit. In 2004, revenue losses associated with the unconventional fuel production credit were an estimated $0.6 billion. By 2007, revenue losses associated with the provision had increased more than seven-fold to $4.5 billion. The unconventional fuels production credit was designed to induce the substitution of coal for oil and stimulate the development of a new synthetic fuel industry, but ultimately there were questions as to whether the credit served to benefit its intended recipients. A number of favorable private letter rulings from the IRS in the late 1990s and early 2000s encouraged an increasing number of producers to claim the tax credit for synthetic fuels. To qualify for the credit for coal-based synthetic fuel, producers had to demonstrate that their process involved a "substantial chemical change." Some firms qualifying for this credit were simply spraying newly mined coal with diesel fuel, pine-tar resin, limestone, acid, or some other substance to induce this chemical change. By the mid-2000s there was evidence of substantial abuse of the credit. Following EPACT05, the Section 29 credit was eliminated from the Internal Revenue Code. Non-expired incentives for unconventional fuels are now claimed as part of the general business credit, under § 45K, and subject to overall limitations. Revenue losses associated with the tax credit for electricity produced from renewable resources also grew relatively rapidly following 2005. While first introduced under the Energy Policy Act of 1992, revenue losses associated with the provision were negligible until 2005. In 2004, the American Jobs Creation Act expanded the list of technologies eligible for the credit. The eligibility of additional technologies, rising oil prices spurring investment in renewables, and a greater interest in reducing the use of fossil fuels, were all factors likely contributing to additional claims of the renewable energy production credit. By 2006, 23% ($2.1 billion) of estimated energy tax expenditures were attributable to the renewable energy production tax credit. The primary tax incentives for renewable energy were substantially altered with the introduction of the Section 1603 grants in lieu of tax credits under ARRA. Effectively, this provision allows PTC-eligible projects to instead receive a one-time payment from the Treasury in lieu of tax benefits. As of March 31, 2011, $6.9 billion had been paid out in Section 1603 grants. Under current law, Section 1603 grants will not be available to projects with a construction start date after December 31, 2011. A number of residential and commercial energy efficiency tax incentives that had been allowed to expire in the 1980s were reintroduced under EPACT05. Over time, the share of energy tax expenditures supporting residential energy efficiency has fluctuated. In the early 1980s, tax expenditures associated with residential energy efficiency exceeded $0.5 billion, and represented about 9% of all energy-related tax expenditures. In 2007 the revenue losses for residential energy efficiency, the largest of the efficiency tax provisions enacted under EPACT05, were estimated to be $0.3 billion, or 3% of all energy tax expenditures. By 2010, estimated revenue losses for residential energy tax provisions had increased to $1.9 billion, or 22% of all energy tax expenditures. The recent increase in the share of energy tax expenditures supporting residential energy efficiency can be attributed to the increased generosity of these tax credits under ARRA. Specifically, during 2009 and 2010, certain residential energy efficiency improvements were eligible for a 30% tax credit, up to $1,500. While the tax credits for residential energy efficiency improvements were extended through 2011 under the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ), the credit rate was reduced to 10% and the credit capped at $500. The most striking change in the composition of energy tax expenditures in the 2000s is the dramatic increase in the estimated revenue losses associated with the tax credits for alcohol fuels and biodiesel. This increase is primarily attributable to "black liquor." In the context of taxes, the term "black liquor" currently refers to a process in which pulp mills use a mixture of conventional fuel (such as diesel fuel) and a byproduct of the pulping process as an energy source for the mill. Prior to 2010, black liquor qualified for an income tax credit under the alternative fuel mixture tax credit. The intent of this credit was not to provide a tax subsidy for black liquor, but instead to create incentives for companies producing liquid motor fuels from biomass. When enacted, this provision was estimated to cost less than $100 million annually. In the first half of 2009, $2.5 billion in tax credits were claimed. In 2009, an estimated 50% of energy tax expenditures were revenue losses associated with tax credits for alcohol fuels, with the vast majority of these credits going to producers using black liquor. The alcohol fuel mixture credit was allowed to expire at the end of 2009. The IRS subsequently ruled that black liquor qualifies for the cellulosic biofuel producer credit, which does not expire until the end of 2012. Under the Reconciliation Act of 2010 ( P.L. 111-152 ), Congress modified the cellulosic biofuel producer credit such that fuels with significant water, sediment, or ash content, such as black liquor, were no longer eligible. This healthcare reform pay-for reduced estimated tax expenditures associated with this provision by $23.6 billion over the 2010 through 2019 budget window. Figure 4 provides a comparison of the relative magnitude of revenue losses associated with tax incentives for fossil fuels, renewables, and energy efficiency over time ( Appendix A provides information on how various energy tax provisions are categorized). The data in Figure 4 are presented in inflation-adjusted dollars. In the late 1970s, all revenue losses associated with energy tax expenditures provided benefits to fossil fuels, primarily oil, gas, and coal. Following the enactment of ETA78 and WPT80, revenue losses associated with tax provisions providing incentives for renewables and efficiency increased, but remained small relative to revenue losses associated with tax preferences for fossil fuels (in 1982, revenue losses associated with tax expenditures for renewables and efficiency were approximately 18% of those associated with tax preferences for fossil fuels). From the late 1980s through the early 2000s, not only were revenue losses associated with energy tax provisions low relative to previous and current levels, revenue losses associated with renewables and efficiency also made up a small proportion of total energy tax expenditures. In the mid-2000s, revenue losses associated with energy tax provisions for renewables increased rapidly. Revenue losses associated with fossil fuels also increased in the mid-2000s. This increase was driven by the unconventional fuel production credit. By 2006, revenue losses associated with renewables were an estimated $2.6 billion (in 2010 dollars) while revenue losses associated with incentives for fossil fuels were an estimated $6.2 billion (in 2010 dollars). In 2006, the majority of the revenue losses associated with incentives for renewables were attributable to the renewable energy PTC. The large increase in the estimated revenue losses associated with tax incentives for renewables in 2009 is attributable to "black liquor" under the alcohol fuel mixture tax credit. As noted above, producers whose production processes rely on black liquor are no longer eligible for the alternative fuel mixture tax credit or the cellulosic biofuel producer credit. By 2010, the balance of energy tax expenditures had shifted such that tax expenditures supporting renewables were estimated to exceed those supporting fossil fuels. Estimates suggest that in 2010, 39% ($3.4 billion) of energy tax expenditures supported renewables. An estimated 28% ($8.7 billion) supported fossil fuels. As is discussed in greater detail below, when excise tax credits for alcohol fuels, biodiesel, and the Section 1603 grants in lieu of tax credits are included, an even larger share of federal tax support for energy can be attributed to renewables. Taken together, Figure 2 , Figure 3 , and Figure 4 emphasize the trends in energy tax policy over the last 30 years. The value of tax subsidies given to oil and gas through the expensing of IDCs and percentage depletion were dramatically reduced in the late 1980s. Following a period of relatively low levels of energy tax expenditures, revenue losses associated with energy tax provisions have increased, reaching levels similar to those experienced during and immediately following the "energy crisis" of the late 1970s. While the goal of energy tax policy has been to promote renewables and efficiency, the majority of revenue losses associated with energy tax expenditures in recent years have been associated with credits for unconventional or alcohol fuels. Even more striking is the fact that the primary beneficiaries of these tax credits—in both the case of the unconventional fuels production credit and the case of black liquor—were not those policymakers drafting the provision initially sought to subsidize. As noted above, excise tax credits and various other tax-related revenue losses are not considered tax expenditures. Consequently, the excise tax credit for alcohol fuel mixtures—also known as the "blenders credit"—does not appear in conventional estimates of energy tax expenditures. The biodiesel producer tax credit, which results in a reduction in excise tax receipts, is also not included in the tax expenditure estimates above. Finally, Treasury grants in lieu of the renewable energy investment tax credit (ITC) or production tax credit (PTC), enacted under Section 1603 of the Recovery Act (ARRA), are not directly included in the tax expenditure estimates above. Figure 5 illustrates the magnitude of revenue losses due to tax expenditures as defined above relative to revenue losses from reduced excise tax receipts and outlays associated with the Treasury grants in lieu of tax credits in inflation-adjusted dollars. Over the past 30 years, tax incentives for alcohol fuels have resulted in substantial federal revenue losses. Most of the revenue losses associated with alcohol fuels have been realized either through excise tax exemptions or credits. Such exemptions or credits, however, do not show up as a tax expenditure, as these provisions do not directly reduce income tax liability. Tax incentives for alcohol fuel blends were first enacted under ETA78. Under ETA78, alcohol fuels blends received a partial exemption from the excise tax on gasoline. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) restructured the tax subsidies for alcohol fuels. First, the blenders income tax credit was eliminated (since this credit was not as valuable as the excise tax exemption, the primary benefits for alcohol fuels were realized through the excise tax exemption, not the income tax credit). Second, the blenders excise tax exemption was replaced with the volumetric ethanol excise tax credit (VEETC). From the perspective of alcohol fuel blenders, the change from an exemption to a credit increased the value of this tax provision. Excise tax revenue losses increased following the change from an excise tax exemption to an excise tax credit. In 2004, an estimated $1.45 billion ($1.67 billion in 2010 dollars) in revenue was lost due to the excise tax exemption. In 2006, an estimated $2.57 billion ($2.77 billion in 2010 dollars) in revenue was lost due to the excise tax credit. By 2010, estimated revenue losses associated with the excise tax credit were $5.68 billion. The VEETC is set to expire at the end of 2011. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) also created an excise tax credit for biodiesel. In 2009, estimated revenue losses associated with the biodiesel excise tax credit were $0.81 billion. The biodiesel mixture credit terminated on December 31, 2009, but was retroactively extended through the end of 2011 in the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). To provide an additional comparison of revenue losses associated with tax preferences for fossil fuels, renewables, and efficiency, revenue losses associated with the excise tax credits for alcohol fuels and biodiesel are incorporated into Figure 4 , presented earlier in this report. Including excise tax exemptions for alcohol fuels and biodiesel increases revenue losses for renewables relative to revenue losses for fossil fuels and efficiency, with the most dramatic shift taking place in the mid-2000s (see Figure 6 ). When revenue losses associated with excise tax preferences are included, estimated revenue losses associated with tax provisions benefiting renewables exceed estimated revenue losses associated with provisions benefiting fossil fuels in 1988-1989 and again in 2008. In 2008, estimated revenue losses associated with provisions benefitting renewables (including alcohol fuels) were an estimated 1.6 times estimated revenue losses benefitting fossil fuels. Under Section 1603 of ARRA, qualifying commercial renewable energy projects have the option of electing to receive a one-time cash grant from the Treasury in lieu of the renewable energy PTC or ITC. In the wake of the financial crisis, many renewable power project developers and their investors were less able to take advantage of existing tax credits for renewable energy projects. The grant in lieu of tax credit program was designed to provide an incentive for renewable energy development during the economic slowdown, where there was diminished demand for tax incentives. Currently, for projects to be eligible for the grant in lieu of tax credits, construction has to begin before the end of 2011. The President's FY2012 Budget reports that $4.21 billion was awarded in grants under Section 1603 in 2010. Between 2010 and 2016, it is estimated that the total effect on outlays of the Section 1603 Treasury grant program will be $18.95 billion. Figure 7 presents data on tax expenditures, including fuel excise tax provisions and outlays resulting from the Section 1603 grant program. When the excise tax provisions for alcohol fuels, biodiesel, and Section 1603 grant outlays are included, the cost associated with tax provisions for renewables is an estimated $13.78 billion for 2010. The value of fossil fuel tax expenditures in 2010 is an estimated $2.4 billion. Including these tax provisions, the cost of tax provisions that support renewables is roughly six times greater than the cost of provisions that support fossil fuels. Since the 1970s, energy tax policy has attempted to achieve two broad objectives. First, policymakers have sought to reduce oil import dependence by subsidizing domestic sources of energy. Second, environmental concerns have motivated tax preferences for various renewable energy sources and energy efficiency. Using estimated federal revenue losses associated with energy tax provisions, it is not clear that energy tax policy in practice has followed a stable course consistent with these objectives. The low levels of energy tax subsidization in the late 1980s and throughout the 1990s, coupled with periods of relatively low oil prices, did little to promote the development of domestic energy resources, renewable or otherwise. The overall level of tax subsidization of domestic energy resources in the mid-to-late 2000s was similar to early 1980s levels (in inflation-adjusted terms). During the late 1980s, throughout the 1990s, and into the 2000s, revenue losses associated with energy tax provisions were low, both relative to total tax expenditures and relative to current energy tax expenditure levels. Since 2005, revenue losses associated with the renewable energy production tax credit have been increasing, suggesting an increase in renewable energy production and domestic renewable energy capacity. By 2010, revenue losses associated with tax incentives for renewables exceeded those available for fossil energy resources. While environmental concerns have led to an increasing number of tax incentives for renewables and efficiency being made available, energy tax expenditures still suggest that, even in recent years, fossil fuels remain subsidized in practice. Since the late 1970s, tax subsidies for oil and gas have been scaled back and made less generous, but revenue losses attributable to fossil fuel subsidies persisted through 2007. Overall, the number of energy tax provisions has increased since the 1970s, providing tax incentives to a broader spectrum of energy-related activities. In 2007, even with an increasing number of tax provisions designed to promote renewables and efficiency in place, the majority of energy tax expenditure revenue losses still served to benefit fossil fuels. In 2007, nearly half of the energy tax expenditure revenue losses were attributable to the unconventional fuel production credit being claimed by coal-based synfuel producers. Following the expiration of the unconventional fuel credit in 2007, energy tax policy, as evaluated according to revenue losses, appears to have shifted towards favoring renewables. While revenue losses associated with the excise tax credit for alcohol fuels (ethanol) and the renewable energy production tax credit have increased in relative importance, most of the revenue losses categorized as being associated with renewables are attributable to "black liquor." The fact that the tax provisions associated with the largest estimated revenue losses in the 2000s—the unconventional fuel tax credit claimed by synfuel producers and the alcohol fuels and cellulosic biofuels income tax credit claimed by those using "black liquor"—had high revenue loss stemming from claims that were inconsistent with policymakers' intent, raises concerns about using the tax code to achieve energy policy objectives. Designing tax policy that is more consistent with economic objectives could help address these concerns. Energy tax policy, particularly in the 2000s, has focused on subsidizing a variety of clean-energy alternatives, an approach that is unlikely to maximize economic efficiency. Taxing energy-related activities that generate negative externalities (such as the burning of fossil fuels), as opposed to subsidizing clean-energy alternatives, would likely enhance the efficiency of energy tax policy. Taxing an activity that imposes negative externalities reduces the amount of the activity in equilibrium, as a corrective tax leads market participants to consider the full internal and external costs of the activity when making consumption or production choices. Taxing activities that generate negative externalities also allows the government to avoid "picking winners," which is often the result when selective subsidies are given to certain sectors within the complete set of alternatives. To provide subsidies, the government must generate revenue. If that revenue is generated by levying distortionary taxes in other sectors of the economy, such as income taxes that lead individuals to reduce work hours, such a policy is unlikely to be economically efficient. The government may be creating inefficiencies in the labor market via income taxes to finance subsidies for clean-energy alternatives. Taxing energy-related activities that generate negative externalities, increasing the price of activities associated with negative externalities relative to the clean-energy alternatives, would also create incentives for increased investment in and utilization of the clean-energy alternative without creating distortions in other markets. Finally, limiting selective subsidies would reduce the scope for taxpayers to find loopholes allowing them to exploit energy tax incentives. Both coal-based synfuel producers and "black liquor" claimants were able to make small modifications in what were currently utilized production techniques, modifications which resulted in billions of dollars of tax incentives. Clean-energy tax subsidies do create incentives for alternative and innovative energy resources. Congress, in drafting tax policy, however, faces significant challenges. Creating narrowly defined clean-energy tax policy may stifle innovation, while providing broader incentives leaves open the possibility of tax loopholes and potential abuse. Appendix A. Data Tables Table A -1 provides data from a sample of cross sections used to create Figure 2 . Additional data regarding revenue losses associated with a specific tax provisions are available from the author upon request. Table A -2 presents the estimated revenue losses associated with various tax provisions presented in Table A -1 , adjusted for inflation. This information was used in creating Figure 3 and Figure 5 . Again, additional data regarding revenue losses associated with a specific tax provisions are available from the author upon request. Table A -3 presents estimated revenue losses associated with various energy tax provisions. The provisions are categorized as those that benefit fossil fuels, those that benefit renewables (both electricity and fuels), and those that promote efficiency. Fuels excise tax preferences include excise tax provisions for alcohol fuels, biodiesel, and renewable diesel. Appendix B. Cumulative Revenue Losses Associated with Various Tax Preferences This appendix presents data on the revenue losses over time associated with various energy tax preferences. Specifically, the sections below present historical revenue losses associated with tax provisions that benefit the oil and gas sector, those that benefit renewable energy, and revenue losses associated with the excise tax credits for alcohol fuels. Cumulative Revenue Losses: Oil and Gas Tax Preferences Over time, the primary tax incentives for oil and gas were the percentage depletion allowance and the ability to expense intangible drilling costs (IDCs). Before the 1980s, these were the only tax incentives designed specifically to promote investment in oil and gas. Tax preferences for oil and gas introduced in the 1980s and 1990s, such as expensing allowance for tertiary injectants and the tax credit for enhanced oil recovery, sought to encourage domestic production by providing tax incentives for difficult to extract domestic oil resources. Table B -1 provides an estimate of the cumulative revenue losses associated with these tax provisions, through the year 2000, in constant 2000 dollars. Table B -2 presents historical revenue losses over the 2000 through 2010 period. As was the case in the earlier time period referenced above, the percentage depletion allowance and ability to expense IDCs continues to make up the majority of oil and gas related federal revenue losses. Cumulative revenue losses, combining the data from Table B -1 and Table B -2 , are presented in Table B -3 . Since 1968, the percentage depletion allowance has resulted in an estimated $111 billion in federal revenue loss. The ability to expense IDCs has resulted in an estimated $78 billion over the same time period. The majority of historical revenue losses associated with targeted tax incentives for oil and gas are attributable to these two provisions. From 1968 through 2010, estimated revenue losses associated with targeted tax incentives for the oil and gas sector sum to $193.4 billion. Cumulative Revenue Losses: Renewables Historically, the primary tax incentives for renewable energy have been the investment tax credit (ITC) and production tax credit (PTC). The ability to forgo these tax credits and instead receive a one-time grant from the Treasury under Section 1603 of ARRA substantially increased the cost of these provisions during recent years. Table B -4 and Table B -5 present historical data on tax expenditures for renewable energy. Since tax incentives for renewable energy were first introduced in the late 1970s, the estimated cumulative cost has been $24.6 billion. Of this, $5.3 billion is due to outlay payments under the Section 1603 grants in lieu of tax credits program. An estimated $12.2 billion, roughly half of the total support through tax-related incentives, is attributable to the renewable energy ITC and PTC. Cumulative Revenue Losses: Excise Tax Credits for Alcohol Fuels Table B -6 presents estimated revenue losses associated with the excise tax exemption for alcohol fuels from 1980 through 2010. The first row presents revenue losses in current dollars. The second row presents revenue losses in 2010 inflation-adjusted dollars. The third row presents estimated revenue losses adjusting for income tax offsets (discussed below), in 2010 inflation adjusted-dollars. Over time, federal revenue losses increased, reflecting increased use of alcohol fuels, particularly ethanol. Beginning in 2005, the volumetric ethanol excise tax credit (VEETC) was introduced to replace the previously available excise tax exemption for ethanol. Since excise tax credits are deductible, replacing the excise tax exemption with an excise tax credit has additional federal revenue consequences, above and beyond payouts for the excise tax credit. Specifically, income tax receipts decrease due to the higher excise tax deduction. Assuming an average tax rate of 25%, excise tax credits resulting in $5.7 billion in lost excise tax receipts in 2010 also reduce income tax receipts by an estimated $1.4 billion ($5.7 * 0.25). Between 2005 and 2010, income tax offsets (foregone income tax receipts) associated with the alcohol fuels excise tax credit can be approximated at $5.7 billion ($22.6 * 0.25). Including estimated income tax offsets, and adjusting for inflation, total federal losses associated with alcohol fuels excise tax credits between 2005 and 2010 were approximately $29.3 billion dollars. Since the introduction of excise tax preferences for alcohol fuels, these excise incentives have resulted in $43.8 billion in revenue losses. When including estimated revenue losses associated with income tax offsets, total revenue losses associated with excise tax preferences for alcohol fuels between 1980 and 2010 total an estimated $49.7 billion.

Summary: Since the 1970s, energy tax policy in the United States has attempted to achieve two broad objectives. First, policymakers have sought to reduce oil import dependence and enhance national security through a variety of domestic energy investment and production tax subsidies. Second, environmental concerns have led to subsidization of a variety of renewable and energy efficiency technologies via the tax code. While these two broad goals continue to guide policy, enacted policies that solely focus on achieving only one of the goals are often inconsistent with policies solely designed to achieve the other goal. For example, subsidies to oil and gas producers, while enhancing domestic oil and gas production, encourage an activity with negative environmental consequences. By providing a longitudinal perspective on energy tax policy and expenditures, this report examines how current revenue losses resulting from energy tax provisions compare to historical losses and provides a foundation for understanding how current energy tax policy evolved. Further, this report compares the relative value of tax incentives given to fossil fuels, renewables, and energy efficiency. Recent legislation has introduced, reintroduced, expanded, and extended a number of energy tax provisions. While a number of the current energy provisions have a long historical standing in the tax code, a wider variety of tax incentives, to promote a range of energy sources, are presently available than have been available in the past. Examining trends in revenue losses associated with energy tax provisions provides insight into the actual direction of energy tax policy. In inflation-adjusted terms, revenue losses associated with energy tax provisions in the late 1970s and early 1980s are similar to revenue losses in the late 2000s. The composition of these revenue losses, however, has changed significantly. In the late 1970s nearly all revenue losses associated with energy tax provisions were the result of two tax preferences given to the oil and gas industry. In the early 1980s, revenue losses associated with special treatment for the oil and gas industry accounted for more than three quarters of all federal revenue losses associated with energy tax expenditures. Changes in policy, coupled with declining oil prices in the late 1980s, dramatically reduced revenue losses associated with oil and gas tax policy. Throughout the 1990s, the bulk of revenue losses associated with energy tax provisions were attributable to the tax credit for unconventional fuels. In the 2000s, revenue losses associated with renewable energy production incentives began to make up a larger portion of energy tax expenditure revenue losses. Revenue losses associated with tax provisions benefitting fossil fuels also remained important into the 2000s, with a large proportion of revenue losses in the mid-to-late 2000s associated with the unconventional fuel production credit, benefitting synthetic coal producers. In the late 2000s, the majority of revenue losses have been associated with incentives designed to promote alternative fuels and biofuels. By 2010, revenue losses associated with tax incentives for renewables exceeded revenue losses associated with fossil fuels. The Section 1603 grants in lieu of tax credits, made available starting in 2009, have resulted in increased federal financial support for renewables. The federal government also loses revenue from excise tax credits given to alcohol fuel blenders (specifically, the volumetric ethanol excise tax credit (VEETC)). While excise tax credits are not technically a tax expenditure (technically, tax expenditures are only revenue losses associated with income tax provisions), these excise tax credits have played an important role in shaping energy tax policy and were estimated to result in revenue losses of $5.7 billion in 2010 alone.