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Federal energy incentives have chiefly benefited oil, natural gas industries; nuclear, renewables lag

(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)

The main beneficiaries of more than $700 billion of federal energy incentives over the past five decades have been the oil and natural gas industries. The oil and natural gas industries together garnered 60 percent of federal incentives between 1950 and 2006, with 46 percent of the roughly $725 billion in federal support going to the oil sector. Our new report shows that the oil industry has benefited from $335 billion in combined incentives, with natural gas receiving $100 billion.

Contrary to some claims, federal energy incentives have not gone to nuclear energy technologies at the expense of renewable energy sources, such as wind and solar. Of the total incentives provided since 1950, nuclear energy has received nine percent ($65 billion), while renewable energy has received six percent ($45 billion). Coal and hydroelectric energy sources, meanwhile, have received 13 percent ($94 billion) and 11 percent ($80 billion) of the total respectively.

We identified six categories of incentives: tax policy, regulation, research and development funding, market activity, government services and disbursements.

Tax policy has been, by far, the most widely used form of incentive mechanism, accounting for $325 billion (45 percent) of all federal expenditures since 1950. The oil and gas industries, for example, receive percentage depletion and intangible drilling provisions as an incentive for exploration and development. Federal tax credits and deductions have also been utilized to encourage the use of renewable energy.”

Federally funded regulation and R&D funding, at about 20 percent each, are the second- and third-largest incentives.

We conducted the study summarized here for the Nuclear Energy Institute to provide insight into the history of federal energy incentives. Information presented in the MISI report was compiled from publicly available budget documents prepared by federal agencies with a role in energy development.

Each energy type benefits from a mix of federal incentives. Federal tax concessions for oil and gas are the largest of all incentives, amounting to about 80 percent of all tax-related allowances for energy. Regulation of prices on oil from stripper wells or new wells comprises the second largest amount of incentives aimed at a particular energy type.

The federal government’s primary incentive to nuclear energy has been in the form of R&D programs. Of the incentives benefiting nuclear energy, 85 percent ($67 billion) has come in the form of R&D funding. Total incentives for nuclear energy are $2 billion less than that because the industry pays more than it receives in disbursements as the result of contributions industry has made to the federal Nuclear Waste Fund. According to our analysis, expenditures on nuclear waste disbursements were approximately $14 billion less than receipts to the Nuclear Waste Fund.

Only eight percent ($5.3 billion) of the nuclear energy R&D funding has been for the light water reactor technology used in the 104 reactors that supply nearly 20 percent of U.S. electricity. Thirty-five percent ($23.7 billion) of nuclear energy R&D funding was for the breeder reactor program terminated in 1988. Other funding went toward development of other reactor types, including heavy water reactors, organic moderated reactors and gas cooled reactors.

Renewable R&D Funding Outpaces Nuclear Energy Since 1994

Since 1988, federal spending on nuclear energy R&D has been less than spending on coal research and, since 1994, has been less than spending on renewable energy research. Coal produces about half of U.S. electricity, and wind and solar together less than 2 percent.

Research and development expenditures for nuclear, coal and renewables expanded greatly after 1975, but this increase was especially marked for coal and renewables. Between 1976 and 2006, the federal government spent more than five times as much on coal R&D ($26.1 billion) as it had in the previous quarter century, and more than 10 times as much on wind and solar R&D ($17.3 billion.)

The common perception that federal energy incentives have favored nuclear energy at the expense of renewable energy such as wind and solar is not supported by our findings. Since 1988, federal spending on nuclear energy research has been less than spending on coal research, and since 1994, has been less than spending on renewable energy research.

Annual R&D expenditures for all three technologies peaked between 1979 and 1981, and then declined dramatically. This decline continued through the late 1990s. In the final 10 years of the study period (1997-2006), the cumulative expenditure for nuclear R&D was less than half that for both coal and renewables (wind and solar).

With concern about the price and availability of energy increasing, public interest in the role of federal incentives in shaping today’s energy marketplace and future energy options has risen sharply. That interest has met with frustration in some quarters and half-truths in others because of the difficulty in developing a complete picture of the incentives that influence today’s energy options.

The difficulty arises from the many forms of incentives, the variety of ways in which they are funded, managed, and monitored, and changes in the agencies responsible for administering them. It is no simple matter to identify incentives and track them through year-to-year changes in legislation and budgets over the 50-plus years that federal incentives have been a significant part of the modern energy marketplace.”

Roger Bezdek, Ph.D., is president of the consulting firm Management Information Services Inc. MISI specializes in economic research and management consulting, has a long history of research and publications in energy and economics for the National Academy of Sciences, large companies and federal agencies. The full report can be found at www.misi-net.com, under "Publications."

Editorial Notes: The original article appears as the last part of the Oct 13 Peak Oil Review from ASPO-USA (PDF). The original has one charts and two graphs at the end of the article:
  • Summary of Federal Energy Incentives 1950-2006 (table)
  • Cumulative Federal R&D Expenditures 1997-2006 (graph)
  • Federal Nuclear R&D: 1976-2006 (graph)
-BA

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