Washington, D.C. – Foreign oil production receives the largest U.S. tax breaks, and fossil fuels receive more than renewable fuels, according to a new study by the Environmental Law Institute (ELI) and the Woodrow Wilson International Center for Scholars.

The study, which reviewed fossil fuel and energy subsidies for fiscal years 2002 to 2008, found that the largest share of energy subsidies supported energy sources that emit high levels of greenhouse gases.

Fossil fuels received the benefit of approximately US$72 billion over the seven-year period, while subsidies for renewal fuels were only $29 billion. Of the renewable subsidies, $16.8 billion went to corn-based ethanol, which the study said is hotly disputed with regard to its effects on climate. Of the fossil fuel subsidies, $70.2 billion went to traditional sources such as oil and coal, while $2.3 billion went to carbon capture and storage, which is designed to reduce greenhouse gas emissions from coal-fired power plants. The market for traditional energy sources is shaped by policies such as royalty relief, tax incentives, direct payments and other forms of support to the non-renewable energy industry, ELI said.

“The combination of subsidies, or ‘perverse incentives’, to develop fossil fuel energy sources, and a lack of sufficient incentives to develop renewable energy and promote energy efficiency, distorts energy policy in ways that have helped cause, and continue to exacerbate, our climate change problems,” said John Pendergrass, senior attorney at ELI. “With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for ‘dirty’ fuels in the U.S. Tax Code.”

The subsidies examined fall roughly into two categories: foregone revenues, mostly in the form of tax breaks, which change the tax code to reduce the tax liabilities of particular entities; and direct spending, in the forms of expenditures on research and development and other programs. The report said that $15.3 billion in subsidies was attributed to the Foreign Tax Credit, which applies to the overseas production of oil through an obscure provision of the U.S. Tax Code, and allows energy companies to claim a tax credit for payments that would normally receive less-beneficial treatment under the tax code.

The ELI researchers considered fossil fuels to include petroleum, natural gas and coal products, while renewable fuels were defined as wind, solar, biofuels, biomass, hydropower, and geothermal energy production. Nuclear energy was not included in the study.

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