Analysis & Projections

Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010

Release date: August 1, 2011

Energy Provisions Included in Legislation Responding to the Recent Financial Crisis

Two laws enacted in response to the financial crisis of late 2008 and early 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) and the Energy Improvement and Extension Act (EIEA), include significant energy-related provisions.

Both bills emphasize particular segments of the energy market such as use of renewable fuels in electricity production, alternative transportation fuels, clean energy facilities, upgrading the Nation's high voltage transmission system, energy efficiency, and conservation.

Both laws extended sunset provisions for some existing tax expenditures in addition to introducing new ones. These laws also featured provisions expanding the use of tax exempt bonds to publicly-owned energy providers. The energy-related provisions of EIEA were focused on tax expenditures. The energy-related provisions of ARRA included additional funding of existing direct expenditure, tax expenditure, and R&D programs, as well as funding for new direct expenditure, tax expenditure, and R&D programs; a new grant program available in lieu of production tax credits; and, expansion of DOE's loan guarantee program, first established in 2005. Finally, ARRA provided the Western Area Power Administration and the Bonneville Power Administration each with $3.25 billion in new borrowing authority to expand their transmission systems to better accommodate renewable sources of electricity supply.

ARRA created, expanded, or extended programs to increase the use of clean energy and improve energy efficiency. ARRA coupled an emphasis on promoting economic recovery and job creation with investments in energy programs. While only energy-related funds expended in FY 2010 are included in this report, ARRA included appropriations of more than $35.2 billion to the Department of Energy and provided more than $21 billion in energy tax incentives. This funding focused on energy efficiency, renewable energy, and smart grid investments. ARRA also provided $6 billion, of which $3.5 billion was subsequently rescinded, to fund a loan guarantee program administered by the U.S. DOE for eligible energy projects.

ARRA's Section 1603 energy grant program, which was designed as a supplement to existing energy production and investment tax credit programs directed at renewables, paid out $4.2 billion in FY 2010, targeted at wind (84 percent) and solar (11 percent) projects. ARRA also included additional spending on several existing direct expenditure programs. ARRA-related direct expenditures in FY 2010 totaled $8.5 billion.7

This included $1.5 billion to the Weatherization Assistance program, $682 million to the State Energy program, $409 million to smart grid investments, and $317 million to fund a program supporting advanced battery manufacturing. ARRA also provided $473 million in initial funding to the Conservation Block program (authorized by the Energy Independence and Security Act of 2007 (EISA)), to deploy economical, clean, and reliable conservation technologies.

At $3.2 billion, the Credit for Energy Efficiency Improvements to Existing Homes was the largest energy-specific tax expenditure in FY 2010 after the ethanol tax credit. Although established under the Energy Policy Act of 2005 (EPAct 2005), it was expanded under Section 302 of EIEA and amended under Section 1121 of ARRA. This credit is available to offset funds used for the installation of energy-efficient windows, furnaces, boilers, boiler fans, and building envelope components, such as exterior doors and any metal roof that has appropriate pigmented coatings.

ARRA included $0.6 billion in new R&D funding. The largest target of this funding included basic science, at $159 million, followed by non-defense uranium enrichment decontamination and decommissioning, at $139 million.

ARRA also expanded DOE's loan guarantee authority that was first established under Section 1703 of EPAct 2005 by authorizing loan guarantees to electric power transmission systems and biofuels projects.

EIEA and ARRA both contained provisions providing significant tax benefits to issuers and holders of certain energy-related tax-exempt bonds.8 EIEA provided $800 million in additional financing for Clean Renewable Energy Bonds (CREBs) and provided a one-year extension to existing CREBs. EIEA also created two new categories of CREB-like financing: New Clean Renewable Energy Bonds (New CREBs) and Qualified Energy Conservation Bonds (QECBs). Section 1111 of ARRA increased the amount of funds available to issue New CREBS from $800 million to $2.4 billion. Section 1112 of ARRA increased the amount of funds available to finance QECBs from $800 million to $2.4 billion.