United States General Accounting Office
Report to the Chairman, Committee on
Ways and Means, House of
Effects of the Alcohol
Fuels Tax Incentives
General Accounting Office
Washington, D.C. 20548
General Government Division
B-271977 March 6, 1997
The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives
Dear Mr. Chairman:
In the late 1970s and early 1980s, Congress enacted tax incentives for
biomass-derived alcohol fuels.
1 Proponents maintained that the incentives
would reduce U.S. dependence on petroleum imports and provide an
additional market for U.S. agricultural products. Subsequent
environmental legislation has increased the demand for alcohol fuels.
These alcohol fuels currently are blended with gasoline to increase its
oxygen content in certain areas of the country that have mandatory
minimum oxygen requirements for transportation fuel.
In recent months, Congress has debated the need for continuing to provide
tax incentives for alcohol fuels. In this context, you asked the following
questions relating to tax incentives for alcohol fuels, which we address in
¸ Whom do the incentives benefit and disadvantage economically?
¸ What environmental benefits, if any, have the incentives produced?
¸ Have the incentives increased the nation's energy independence?
¸ To what extent has the partial exemption from the excise tax for alcohol
fuels reduced the flow of revenue into the Highway Trust Fund?
Background In the 1970s and 1980s, the federal government adopted numerous policies
to encourage the use of alternatives to imported fossil fuels. 3 Among these
policies were tax incentives that were specifically targeted at the use of
alcohol fuels derived from biomass materials. Supporters claimed that the
tax incentives would not only reduce U.S. reliance on imported petroleum
but would also help support farm incomes by finding another market for
the agricultural products from which alcohol can be produced, such as
corn. In the late 1980s, Congress' attention turned to the possible benefits
of using alcohol fuels as additives to fossil-based fuels to reduce urban air
1Biomass-derived alcohol fuels are chemical compounds made from nonfossil material of biological
origin and constitute a renewable energy source.
2Ethanol, which is