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Annual Energy Outlook 2011

Release Date: April 26, 2011   |  Next Early Release Date: January 23, 2012  |   Report Number: DOE/EIA-0383(2011)

Legislation and regulations

3. Updates on liquid fuels taxes and tax credits

Excise taxes on highway fuels

The handling of Federal highway fuel taxes in AEO2011 is unchanged from AEO2010. Gasoline is taxed at 18.4 cents per gallon, diesel fuel is taxed at 24.4 cents per gallon, and jet fuel for use in commercial aviation is taxed at 4.4 cents per gallon, as specified in the 2005 Transportation Equity Act [26]. The taxes are not adjusted for inflation and remain at the same nominal values through 2035. Although the highway fuel taxes expire in 2011 under current law, their assumed extension is consistent with Federal budgeting procedures which dictate that excise taxes dedicated to a trust fund, if expiring, are assumed to be extended at current rates [27].

Federal fuel taxes are the primary source of funding for the Highway Trust Fund, which is used to maintain the interstate highway system as well as mass transit systems. Recent vehicle efficiency improvements and lower consumer demand have led to shortfalls in the Trust Fund's revenues over the past few years.

State fuel taxes are calculated and allocated by Census Region, based on a volume-weighted average of diesel, gasoline, and jet fuel sales. State fuel taxes in AEO2011 are updated to their most recent values (as of June 2010) [28].

Tax credits and tariffs for biofuels

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 became law [29]. The law includes an extension through 2011 of the $0.45 per gallon Volumetric Ethanol Excise Tax Credit, which was previously set to expire at the end of 2010 as specified in the Food, Conservation, and Energy Act of 2008 [30]. The cellulosic biofuels [31] production tax credit, also specified in the Food, Conservation, and Energy Act of 2008, remains set to expire in January 2013. The credit is $1.01 per gallon, but if applied to cellulosic ethanol it is reduced by the amount of the excise tax credit available to ethanol blends (assumed to be $0.45 per gallon through 2011).

In addition, the law includes a retroactive extension (through 2011) of the $1.00 per gallon biodiesel excise tax credit, which had been set to expire in December 2009. The credit applies to biodiesel made from recycled vegetable oils or animals fats and to renewable diesel. The tax package also includes an extension through 2011 of the $0.54 per gallon tariff on imported ethanol, which had been set to expire at the end of 2010. Both extensions are included in the AEO2011 Reference case.