Effects of U.S. Tax Policy on Greenhouse Gas Emissions (2013) / Chapter Skim
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The committee examined both tax expenditures and excise taxes that could have a significant impact on GHG emissions. SELECTION OF TAX PROVISIONS AND METHODS OF ANALYSIS Limited time and other resources compelled the committee to focus its work.
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The committee found that a substantial body of research relating tax policy to greenhouse gas emissions is limited to two areas: highway taxes and emissions taxes. Studies of the impact of highway motor fuels taxes, particularly those on gasoline, go back decades.
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To estimate the effects on emissions of particular tax code provisions, the committee instructed the modeling consultants to run scenarios where they removed each of the taxes or tax preferences from the baseline one at a time, keeping all other policies, assumptions, and taxes unchanged. One model, which focused on agricultural markets, is designed to represent changes in global GHG emissions.
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Home Energy-efficient Improvement Credits The committee examined Credits for Energy Efficiency Improvements to Existing Homes qualitatively, because time and budget constraints precluded obtaining detailed and reliable estimates of its impacts. Using market analysis, the committee expects that this credit is unlikely to produce major reductions in GHG emissions.
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These provisions involve a complex combination of taxes, tax expenditures, import tariffs, and regulatory mandates that interact to change the composition of fuels and even affect agriculture. Most of these provisions expired in 2012, but under the committee's methodology, each of these provisions is included in the reference scenario.
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As structured, the biofuels tax credits encouraged the consumption of motor fuels because they lower prices, and this effect appears to offset any reduction in the GHG intensity of motor fuels that occurs because of the incentives to blend biofuels with gasoline. Accelerated Depreciation Accelerated depreciation is one of the largest business tax expenditures in the federal income tax code.
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GENERAL FINDINGS Our report does not estimate an aggregate impact of tax provisions on greenhouse gas emissions due to the complexity of the tax code as well as the difficulty of determining the impact of several important provisions. The summary table of impacts of different studies and provisions is contained in Table 7-1.
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Important tax expenditures that have resisted analysis include ones subsidizing residential energy efficiency. The difficulties in this case involve such factors as the discount rate consumers apply to future fuel savings, the strength of any rebound effect, and the extent to which consumers understand and respond to tax law changes.
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Particular attention should be given to improving current models in the following ways: First, models need to be made more transparent by clarifying both their assumptions and their structure; second, models should include measures of economic welfare that can be used to measure the efficiency and equity of policies; third, there should be more work to integrate partial equilibrium models with general equilibrium models so that the impact of revenue recycling and overall economic impacts can be more reliably estimated; and fourth, the committee recommends increased attention to studies that compare energy-economic models as a tool for improving understanding of models, narrowing the range of estimates, and improving model reliability. GUIDANCE FOR SCORING GHG EMISSIONS Because of the difficulties and resources required to provide reliable estimates, the committee discourages requiring the formal scoring of tax proposals for their impacts on GHG emissions.
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Although the committee does not make any recommendations about specific changes, the analysis undertaken for this report leads to several important insights and cautions about tax policy in the context of climate change. First, current tax expenditures and subsidies are a poor tool for reducing greenhouse gases and achieving climate-change objectives.
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