Biofuel Oil Subsidy To Conoco Illustrates Problems With Government Tax Credits

Over at BNET: Energy is an article about how some people are upset that Conoco was receiving tax subsidies for work on converting animal fat to diesel fuel. The Federal Government provides a $1 a gallon subsidy for these kind of efforts in order to spur creation of facilities and capability to make biofuels.

The argument against Conoco getting this is that they are are a large oil company that should have the money within themselves to do this if wanted. There are those who argue that the oil companies are evil and part of the problem with this and they shouldn't be involved in solving the problem of dependence on foreign oil.

As Kirstin Korosec points out in the article though "If the priority of the government is to become energy independent then tax incentives -- meant to encourage development of alternative fuels -- must be issued to all companies willing to take on the endeavor." The way the U.S. Government uses these kind of stimulants through the tax process it has to be evenly applied.

Of course as in the example of the paper companies using diesel to mix with a side product of production in order to get a subsidy it can be seen that these kind of ideas need to be properly set up and managed. In this case the money they are getting from the Federal Government is often more then they earn through making and selling paper. In fact the price of paper may drop as it is a benefit for the companies to maximize production.

So in the end the Government will and has used a variety of tax subsidies and credits to encourage behavior. As the two cases discussed above illustrate these have mixed results based on how they are set up and managed. This in the end might just be an argument that trying to use the Federal tax code is not the best way to get a desired result.

Photo from Flickr user Jan Tik.