7.7.1. Federal Subsidies

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As shown in Table 7-13, the largest subsidy in the area of cleaner fuels is the exemption of ethanol blends from $0.054 of the $0.184 per gallon gasoline tax. Since ethanol blends of 10% receive this deduction, the exemption for ethanol is the equivalent of $0.54 per gallon.

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The "other direct subsidies" in Table 7-13 include preferential taxation of compressed natural gas (CNG) and payments to subsidize purchases of AFVs and AFV infrastructure. The CNG tax deduction is equivalent to $0.128 per gallon. Although this subsidy is currently small compared to ethanol tax deductions, it is expected to increase in importance by the year 2000 as the number of CNG vehicles increases. The federal government also subsidizes the purchase of alternative fuel mass transit buses and school buses, state AFV planning, and the purchase of alternative fuel vehicles by small businesses.

Tax credits for AFVs and refueling stations currently amount to about $20 million annually but are predicted to rise to $100 million annually by the year 2000. The federal government also subsidizes a number of research and development activities.

The RVP (Reid vapor pressure) waiver entitles ethanol blends to an extra pound of vapor pressure beyond the limits imposed on conventional gasoline. (Adding ethanol to gasoline raises vapor pressure about 1 lb. of RVP in a 10% ethanol blend. Without the waiver, ethanol blends would be disadvantaged in the marketplace.) This waiver is worth approximately $0.09 per gallon of ethanol, based on additional costs incurred by refiners to produce a blend stock with lower vapor pressure.

Table 7-13 also shows that another type of subsidy, preferential procurement, is expected to rise significantly in value by the year 2000. This trend is due to the fact that many procurement requirements are only now entering into effect and are scheduled to become more stringent over time. Table 7-14 shows these requirements, many of which will eventually also be applied to private vehicle fleets.

The federal government also provides income tax deductions of $2,000 to $50,000 for clean-fuel vehicles. Electric vehicles purchases are eligible for 10% income tax credits up to $4,000. The cost to the government of the electric vehicle credits has been estimated at $65 million in 1995. Whitehouse (1996), p. 74.

7.7.1. Federal Subsidies

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