Energy tax policy plays a crucial role in regulating the United States energy market. In a project, the energy tax policy acts as a rule that influences the after-tax cash flow through various credits and deductions. In the next few decades, Federal energy tax policy will be a crucial requirement for energy investment. The discussions of the energy tax policy have been necessitated by risks, security and macroeconomics, resulting from dependence of the United States on oil imports.
The aim of the energy tax policy is to check the dependence of the United States on energy imports. It focuses on bringing about essential balance between supply and demand of energy. According to Mühleisen, Towe and Cardarelli (2004), the policy is sensitive to factors that may cause environmental degradation due to intensity of energy use in the United States economy. This includes greenhouse effects. The energy tax proposals have focused on subsidizing taxes on domestic energy production. The focus has also been on development of energy efficient systems at a considerable economic cost.
What the Energy Tax Policy does
The energy tax policy attempts to reduce the United States’ dependence on oil imports with an aim of enhancing national security through the development of domestic energy investments. Domestic energy production is subject to tax subsidies. Environmental concerns are at the center of the policy through utilization of the tax code to subsidize renewable and energy-efficient technologies. Therefore, the aim of the energy tax policy is to promote domestic energy production using fossil fuels in the short term. The long-term policies aim at the conservation of energy and the use of renewable energy sources. Presently, the long-term energy tax policies on energy conservation and alternative fuel sources are adopted from the policies formulated in the 1970s.
How the Energy Tax Policy Accomplishes its Objectives/Goals
The energy tax policy utilizes tax credits from the energy taxes to promote investments in alternative energy sources like wind and solar technologies (Dernbach, 2002). Residential investment in energy conservation efforts gets a boost from the federal energy tax credit as advocated for in the policy. According to Dernbach (2002), imposition of tax credits on imported oil promotes use of renewable energy and ensures energy efficiency. Therefore, in accomplishing its objectives, the policy ensures diversification of energy sources to produce electricity and oil.
Importance of the Energy Tax Policy
The energy tax policy is significant in helping reduce adverse environmental effects associated with energy use such as global warming and over dependence on imported oil. Domestic energy producers get protection from fluctuating and ever escalating world oil prices. The revenues accrued from the energy taxes help reduce large projected budget deficits.
Energy Tax Policy Implementation
Once implemented, the energy tax policy will strive to promote sound production and distribution of affordable, dependable, and environmentally friendly energy. For effective implementation, the first step would involve introducing subsidies to promote household energy conservation. Mühleisen, Towe and Cardarelli (2004), noted the significance of research and development in the areas of alternative energy facilitated by the policy. The implementation will also consider the establishment of new electricity regulatory structure. This will include extension of tradable emissions permits on sulphur dioxide system. According to Mühleisen, Towe and Cardarelli (2004), imposition of tax credits during the implementation would encourage the use of energy efficient vehicles, residential solar energy property, use of new hybrid or fuel cell vehicles, and new landfill methane projects.
The bodies in charge of implementation of the policy are National Energy Policy (NEP), the Federal Energy Regulatory, and the United States Department of Energy. The Federal Energy Regulatory Commission does the implementation of all federal policies in the energy sector. NEP department develops new technologies aimed at increasing energy efficiency and boosts domestic energy supply.
Those Affected by the Policy
Implementation of the policy will affect several sectors of the economy. Top on the list is the industrial sector that uses 33% of total Btu consumption. The transport sector will follow with 28% consumption. The residential sector will also experience some effects as it utilizes 21% of the country’s energy. The commercial sector will not be spared either as it accounts for 18%. However, impact of taxation on demand and revenue will depend on the price elastic demand.
According to Sherlock and Hollick (2011), the commercial and industrial sectors will experience a shift in the energy tax policy proposed by the current government. The current policy advocates for energy security through increased diversity of resources. In addition to current policy, the new proposal incorporates environmental concerns emanating from energy consumption. The proposal thus discourages the use of fossil fuels despite their nation of origin. It is notable that most renewable energy technologies still lack competitive edge without subsidization.
It is expected that the energy taxes will have a significant effect on consumption while raising government revenues with a great margin. Mühleisen, Towe and Cardarelli (2004), concur that the energy tax policy will have adverse effects on prices, income distribution, and real wages but the effects will depend squarely on the use of the additional tax revenues.
The energy tax policy is feasible both administratively and operationally. This is in view of positive short-term effects in production due to different pace of adjusting producer and consumer prices. There is political good will and legal justification in supporting the energy tax policy on the basis of environmental conservation and improvement. The policy will thus help reduce depletion of nonrenewable energy sources and dependence on imported oil. Promotion of domestic energy production will also shield the country from unpredictable world energy prices.
The Strategic Triangle
The energy tax policy has to create public value as explained by Moore (1995). The policy makers will thus consider public value aims, operational capability, and the authorizing environment as they formulate the policy. The public value aims will look into the effects of the energy tax policy to the general public. This ensures consideration of the public interests when formulating the policies thus avoiding conflicts. The authorizing environment involves strategies to ensure the policy gets necessary support for efficient operation. This involves both internal and external stakeholders. The operational capability looks at the organization of resources necessary for the implementation and operation of the policy. This includes personnel, finance, skills, and technology. Operational capability is particularly crucial in achieving the public value aims. However, the authorizing environment also needs to be harnessed.
In conclusion, it will be the task of the congress to ensure proper usage of the tax credits obtained from this policy. It is notable that energy taxes may be utilized as user charges for either public or quasi public good. The transport sector also needs support through tax incentives generated from similar policies. The policies can also help develop energy efficient vehicles such as electric cars as in the case of renewable sources of energy and alternative fuels.