Introduction

This report responds to request from Senator John Sununu that the Energy Information Administration (EIA) provide an analysis of certain tax provisions included in the Conference Energy Bill (CEB) agreed to by House and Senate conferees and subsequently passed by the House. The provisions covered by the request, as specified in Senator Sununu’s letter of January 29, 2004, are:

• Extension and Expansion of Section 45 Credit for Electricity Produced from Certain Sources
• Credit for Electricity Produced from Advanced Nuclear Power Facilities
• Amortization of Geological and Geophysical Expenditures Over 2 Years
• Extension and Modification of Section 29 for Producing Fuel from Nonconventional Sources.
• Enhanced Oil Recovery Tax Credits

EIA was asked to provide analysis and numerical estimates, where possible, focusing on:

• The incremental energy produced or saved over the next 10 years and through 2025;
• The quantity of petroleum imports reduced or increased over the next 10 years and for the forecast;
• An estimate of the tax revenue losses that would result from each provision and a comparison with the estimates of the Joint Committee on Taxation (JCT), with an explanation of the differences, where possible.

Where a covered tax provision can be analyzed using EIA’s National Energy Modeling System (NEMS)¹, its impacts are estimated by comparing a model run incorporating that provision to the Reference Case of the Annual Energy Outlook 2004² (AEO2004). Qualitative analysis is provided for provisions that cannot be modeled using NEMS.

This report evaluates each of the subject tax provisions individually. These policies, if applied together, could in theory interact to produce a combined effect that differs from the sum of their individual impacts. However, given the small magnitude of the individual impacts, interaction among policies considered herein is not likely to change the conclusions of this report.

Estimates of the tax revenue impacts computed by EIA may differ from those developed by the JCT³ for several reasons. EIA estimates the amount of activity eligible for tax credits using a sophisticated energy model, and then calculates tax revenue impacts by applying the specified tax credits without taking account of their possible interactions with other parts of the tax code. JCT may have less capability to estimate the amount of activity eligible for a credit (for example, the JCT did not include biomass co-firing in the renewable PTC calculation) but greater expertise in accounting for tax interactions. Also, EIA’s tax impact estimates extend out to 2025, the NEMS forecast horizon, while JCT’s estimates stop at 2013. Some long-lived provisions (e.g., the advanced nuclear power provision) have substantial revenue impacts beyond 2013. Finally, while JCT provided revenue impact estimates for all provisions, EIA’s revenue impact estimates are limited to those provisions it could model using NEMS.

The next section summarizes the major findings of this report. The five sections that follow it present the analysis of the five individual tax provisions that were reviewed by EIA.

Notes and Sources