Tax subsidies for renewable energy include the following items:
- Energy investment credit (sec 48)
- Alcohol fuel credits
- Bio-diesel and small agri-biodiesel producer tax credits
- Excise Taxes/VEETC (ethanol fuel) (excise tax exemption to Alcohol Fuel Credit)
- Biodiesel Producer Credit (excise tax exemption to Biodiesel and Small Agri-biodiesel credit)
By far, the renewable tax subsidy resulting in the greatest loss of federal revenue in recent years has been the excise tax credit for the Alcohol Fuel Credit—also known as the Volumetric Ethanol Excise Tax Credit (VEETC). The VEETC, which was created by the American Jobs Creation Act of 2004, expired at the end of 2011. However, for the 3 months it was available in Fiscal Year 2012, it resulted in foregone revenue of more than $3.8 billion.
Another significant source of support for renewables has been the energy investment tax credit (ITC), which provides a credit equal to either (a) 10 percent of investment in energy production using geothermal, microturbine technology, or combined heat and power, or (b) 30 percent of investment in a property using photovoltaic or thermal solar, fuel cell, or small wind technology. The ITC amounted to over $1 billion in tax expenditures in Fiscal Year 2012. In prior years, developers often chose to forgo the ITC for the now-expired Section 1603 program, which allowed investors to take a cash grant instead of the tax credit.
Renewables have been the largest beneficiary of federal tax support; moreover, most of the tax provisions supporting renewable energy have been credits, which are generally much more valuable than other tax subsidies such as deductions. This is because credits offset tax liability dollar-for-dollar, while a deduction reduces the taxpayer’s taxable income that is then used to calculate tax liability. For Fiscal Years 2009 through 2012, renewables accounted for 50 percent of total tax subsidies for energy.