In the United States, the federal government does not impose an energy tax or a general sales tax that is broadly applicable to energy. However, excise taxes are imposed on certain fuels, and there are a number of income tax provisions specific to the energy sector. There are three separate categories of taxes and fees that affect energy use: (1) excise taxes/fees that primarily affect energy demand; (2) income tax provisions that primarily affect energy supply by operating on the after-tax rate of return on investment; and (3) income tax provisions that primarily affect the demand for specific energy sources.

Excise Taxes

Excise taxes placed on specific energy sources tend to reduce the demand for these energy sources in both the short and the long run. The federal government imposes excise taxes on almost all petroleum products and coal (see Table 1). The federal government also imposes...