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 ).