Updated Study Confirms Federal Energy Incentives Have Chiefly Benefited Oil, Natural Gas Industries

Renewables Incentives Outpace Nuclear Energy Since 1994

WASHINGTON, Oct. 25, 2011 /PRNewswire-USNewswire/ -- An updated study on federal energy incentives confirms that the main beneficiaries of more than $800 billion of federal energy incentives over the past six 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 2010, with 44 percent of the roughly $837 billion in federal support going to the oil sector, according to the report by the consulting firm Management Information Services Inc (MISI).

The report shows that the oil industry has benefited from $369 billion in combined incentives, with natural gas receiving $121 billion. The study updates earlier MISI research that analyzed federal energy incentives from 1950 to 2006.

The MISI study also shows that, 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. In fact, they're roughly equal. Of the total incentives provided since 1950, nuclear energy has received nine percent ($73 billion), while renewable energy also has received nine percent ($74 billion). Coal and hydroelectric energy sources, meanwhile, have received 12 percent ($104 billion) and 11 percent ($90 billion) of the total respectively.

The report identifies 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 report states. "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.

MISI is a Washington, D.C.-based firm that specializes in economic research and management consulting. It conducted the study for the Nuclear Energy Institute to provide insight into the history of federal energy incentives. MISI has a long history of research and publications in energy and economics for the National Academy of Sciences, Fortune 500 companies and federal government agencies. 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 MISI's 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 the findings of this study," said Roger Bezdek, president at MISI.  "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 (2001 - 2010), 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," Bezdek said. "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," Bezdek added. "It is no simple matter to identify incentives and track them through year-to-year changes in legislation and budgets over the 60-plus years that federal incentives have been a significant part of the modern energy marketplace."

SOURCE Management Information Services, Inc.