Renewable Energy: Tax Credit, Budget, and Electricity Production Issues

Order Code IB10041

CRS Issue Brief for Congress

Received through the CRS Web

Renewable Energy:

Tax Credit, Budget, and

Electricity Production Issues

Updated May 25, 2006

Fred Sissine

Resources, Science, and Industry

Congressional Research Service ˜ The Library of Congress

CONTENTS

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Renewable Energy Concept

Contribution to National Energy Supply

Role in Long-Term Energy Supply

History

Tax Credits

Public Utility Regulatory Policies Act

State and Local Government Roles

Renewables in the 109th Congress

Renewable Portfolio Standard (RPS)

Renewable Energy Production Tax Credit (PTC) and

Renewable Energy Production Incentive (REPI)

Renewable Fuel Standard (RFS)

Renewable Hydrogen

Renewables Tax Revenue Effect

Other Renewables Provisions

FY2007 DOE Budget

Using Renewable Energy to Produce Electricity

Renewables Under Electric Industry Restructuring

Green Power

Distributed Energy

Net Metering

Natural Gas and Renewables

Biomass-Generated Synthetic Natural Gas (Syngas)

Substituting Electricity from Renewables for Gas-Fired Generation

Climate Change and Renewables

LEGISLATION

CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS

FOR ADDITIONAL READING

CRS Reports

Websites

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Renewable Energy: Tax Credit, Budget,

and Electricity Production Issues

SUMMARY

Energy security, a major driver of federal

renewable energy programs in the past, came

back into play as oil and gas prices rose late in

the year 2000. The terrorist attack in 2001

and the Iraq war have led to heightened concern about energy security, energy infrastructure vulnerability, and the need for alternative

fuels. Further, the 2001 electricity shortages

in California, the northeast-midwest blackout

of 2003, and continuing high natural gas

prices have brought a new emphasis to the

role that renewable energy may play in producing electricity, displacing fossil fuel use,

and curbing demand for power transmission

equipment.

Initiative) and biomass (to support the

Biorefinery Initiative). The main increases are

for Solar Photovoltaics ($79.5 million) and

Biomass ($59.0 million). The main cuts are

for Geothermal (-$23.1 million), Solar Heat &

Light ($1.5 million), International Renewables

(-$1.4 million), and Small Hydro (-$0.5 million). Further, the request would eliminate all

congressional earmarks under the DOE

Renewable Energy Program, which amount to

$80.0 million for FY2006.

Compared with FY2006 funding, the

FY2007 House recommendation (H.R. 5427,

109-474), as amended, seeks an increase of

$160.8 million for R&D and deployment

programs. This reflects support for the Advanced Energy Initiative, including increases

for Hydrogen ($40.2 million), Biomass/Biorefineries ($59.0 million), and Solar

($65.3 million). The main cuts for R&D and

deployment programs include the Geothermal

program (-$18.1 million), termination of the

Small Hydro program (-$0.5 million), and a

reduction of the Vehicle Technologies Program (-$9.6 million).

Also, worldwide emphasis on environmental problems of air and water pollution

and global climate change, the related development of clean energy technologies in western Europe and Japan, and technology competitiveness may remain important influences

on renewable energy policymaking.

The Bush Administration’s FY2007

budget request for the Department of Energy’s

(DOE’s) Renewable Energy Program seeks

$359.2 million for renewables, which is $84.0

million, or 30.5%, more than the FY2006

appropriation. In support of the President’s

proposal for an Advanced Energy Initiative,

the request includes major funding increases

for solar energy (to support the Solar America

Congressional Research Service

The “Legislation” section below provides

a summary of the key renewable energy legislation enacted during the first session of the

109th Congress.

˜

The Library of Congress

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MOST RECENT DEVELOPMENTS

On May 24, 2006, the House passed H.R. 5427, the Energy and Water Appropriations

bill for FY2007 (H.Rept. 109-474), with amendments. As amended, the bill includes funding

for the DOE Renewable Energy Program, which is conducted by the Office of Energy

Efficiency and Renewable Energy (EERE). Compared with FY2006 funding, the Committee

recommends an increase of $160.8 million for R&D and deployment programs. This reflects

support for the Advanced Energy Initiative, including increases for Hydrogen ($40.2

million), Biomass/Biorefineries ($59.0 million), and Solar ($65.3 million). The main cuts

for R&D and deployment programs include the Geothermal program (-$18.1 million),

termination of the Small Hydro program (-$0.5 million), and a reduction of the Vehicle

Technologies Program (-$9.6 million).

On February 6, President Bush issued the Administration’s budget request for FY2007.

The Department of Energy (DOE) request seeks $359.2 million for renewables, which is

$84.0 million, or 30.5%, more than the FY2006 appropriation (excluding inflation). The

Administration’s request includes funding for an Advanced Energy Initiative (AEI) as part

of its American Competitiveness Initiative (ACI), which includes accelerated funding for the

“Solar America” and “Biorefinery” initiatives under DOE’s Renewable Energy Program.

(For more budget details, see “FY2006 DOE Budget” and Table 2. CRS Report RL33294,

DOE Budget Earmarks: A Selective Look at Energy Efficiency and Renewable Energy R&D

Programs, by Fred Sissine, provides more details about earmarks for DOE’s renewable

energy programs. Also, the DOE budget document is online at [http://www.cfo.doe.gov/

budget/index.htm].)

(The renewable energy provisions in the Energy Policy Act of 2005 [P.L. 109-58, H.R.

6] and other bills of the 109th Congress are discussed in the “Renewables in the 109th

Congress” and “Legislation” sections below. A list of all renewable energy bills introduced

in the 109th Congress is provided in CRS Report RL32860, Energy Efficiency and Renewable

Energy Legislation in the 109th Congress, by Fred Sissine).

BACKGROUND AND ANALYSIS

Renewable Energy Concept

Renewable energy is derived from resources that are generally not depleted by human

use, such as the sun, wind, and water movement. These primary sources of energy can be

converted into heat, electricity, and mechanical energy in several ways. There are some

mature technologies for conversion of renewable energy such as hydropower, biomass, and

waste combustion. Other conversion technologies, such as wind turbines and photovoltaics,

are already well developed, but have not achieved the technological efficiency and market

penetration which many expect they will ultimately reach. Although geothermal energy is

produced from geological rather than solar sources, it is often included as a renewable energy

resource and this brief treats it as one. Commercial nuclear power is not generally considered

to be a renewable energy resource. (For further definitions of renewable energy, see the

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National Renewable Energy Laboratory’s website information on “Clean Energy 101” at

[http://www.nrel.gov/learning/].)

Contribution to National Energy Supply

According to the Energy Information Administration’s (EIA’s) Annual Energy Outlook

2006, renewable energy resources (excluding wood used for home heating) supplied about

5.7 Q (quadrillion Btu’s or quads) of the 99.7 Q the nation used in 2004, or about 6.0% of

national energy demand. More than half of renewable energy production takes the form of

electricity supply. Of this, most is provided by large hydropower. However, from 1998

through 2001, a drought-driven decline in hydroelectric availability led to a major drop in

national renewable energy use. Industrial use of renewables, supplied primarily by biofuels,

accounts for most of the remaining contribution.

After more than 25 years of federal support, some note that renewable energy has

achieved neither a high level of market penetration nor a growing market share among other

energy sources. A review of renewable energy studies by Resources for the Future,

Renewable Energy: Winner, Loser, or Innocent Victim?, concludes that the lower-thanprojected market penetration and flat market share are due primarily to declining fossil fuel

and electricity prices during most of this period. In contrast, however, it notes that the costs

for renewable energy technologies have declined by amounts equal to or exceeding those of

earlier projections.

EIA’s Annual Energy Outlook 2006 projects that current policies would yield a 1.8%

average annual increase in renewable energy production to 9.0 Q through 2030, resulting in

a 57% total increase. This would amount to about 6.7% of the projected 134 Q total demand

in 2030. (Detailed breakdowns of renewable energy use appear in EIA’s Renewable Energy

Trends 2004.)

Role in Long-Term Energy Supply

Our Common Future, the 1987 report of the United Nations World Commission on

Environment and Development, found that “energy efficiency can only buy time for the

world to develop ‘low-energy paths’ based on renewable sources.” Though many renewable

energy systems are in a relatively early stage of development, they offer “a potentially huge

primary energy source, sustainable in perpetuity and available in various forms to every

nation on Earth.” The report suggested that a research, development, and demonstration

(RD&D) program of renewable energy projects is required to attain the level of primary

energy now obtained from a mix of fossil, nuclear, and renewable energy resources.

The Agenda 21 adopted at the 1992 United Nations Conference on Environment and

Development (UNCED) concluded that mitigating urban air pollution and the adverse impact

of energy use on the atmosphere — such as acid rain and climate change — requires an

emphasis on “clean and renewable energy sources.” The U.N. Commission on Sustainable

Development oversees implementation of Agenda 21. The 2002 U.N. World Summit on

Sustainable Development (Johannesburg Summit) adopted a Political Declaration and a

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Plan of Implementation (see [http://www.johannesburgsummit.org/]), which includes “Clean

Energy” as one of five key policy actions. The U.S. Department of State implemented a $42

million Clean Energy Initiative in 2003 (see [http://www.state.gov/g/oes/sus/wssd/]), and the

European Union committed to a $700 million energy partnership.

History

The oil embargo of 1973 sparked a quadrupling of energy prices, major economic

shock, and the establishment of a comprehensive federal energy program to help with the

nation’s immediate and long-term energy needs. During the 1970s, the federal renewable

energy program grew rapidly to include basic and applied R&D, and federal participation

with the private sector in demonstration projects, commercialization, and information

dissemination. In addition, the federal government instituted market incentives, such as

business and residential tax credits, and created a utility market for non-utility produced

electric power through the Public Utility Regulatory Policies Act (P.L. 95-617).

The subsequent failure of the oil cartel and the return of low oil and gas prices in the

early 1980s slowed the federal program. Despite Congress’s consistent support for a broader,

more aggressive renewable energy program than any Administration, federal spending for

these programs fell steadily through 1990. Until 1994, Congress led policy development and

funding through legislative initiatives and close reviews of annual budget submissions.

FY1995 marked a noteworthy shift, with the 103rd Congress for the first time approving less

funding than the Administration had requested. The 104th Congress approved 23% less than

the Clinton Administration request for FY1996 and 8% less for FY1997. However, funding

turned upward again during the 105th Congress and in the 106th Congress. (A detailed

description of DOE programs appears in DOE’s FY2006 Congressional Budget Request,

DOE/ME-0053, v. 3, February 2005.)

From FY1973 through FY2003, the federal government spent about $14.6 billion (in

2003 constant dollars) for renewable energy R&D. Renewable energy R&D funding grew

from less than $1 million per year in the early 1970s to over $1.4 billion in FY1979 and

FY1980, then declined steadily to $148 million in FY1990. By FY2003, it reached $411

million in 2003 constant dollars.

This spending history can be viewed within the context of DOE spending for the three

major energy supply R&D programs: nuclear, fossil, and energy efficiency R&D. From

FY1948 through FY1972, in 2003 constant dollars, the federal government spent about $24.3

billion for nuclear (fission and fusion) energy R&D and about $5.5 billion for fossil energy

R&D. From FY1973 through FY2003, the federal government spent $49.7 billion for

nuclear (fission and fusion), $25.4 billion for fossil, $14.6 billion for renewables, and $11.7

billion for energy efficiency. Total energy R&D spending from FY1948 to FY2003, in 2003

constant dollars, reached $131.2 billion, including $74.0 billion, or 56%, for nuclear; $30.9

billion, or 24%, for fossil; $14.6 billion, or 11%, for renewables; and $11.7 billion, or 9%,

for energy efficiency.

DOE’s FY2004 renewable energy R&D funding totaled $439.4 million, or about 19%

of DOE’s energy R&D appropriation. Energy conservation received $559.7 million (24%),

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fossil energy received $672.8 million (29%), and fission and fusion were appropriated $667.4

million (29%).

Tax Credits. The Energy Tax Act of 1978 (P.L. 95-618) created residential solar

credits and residential and business credits for wind energy installations; it expired on

December 31, 1985. However, business investment credits were extended repeatedly through

the 1980s. Section 1916 of the Energy Policy Act of 1992 (EPACT, P.L. 102-486) extended

the 10% business tax credits for solar and geothermal equipment indefinitely. Also, EPACT

Section 1914 created an income tax “production” credit of 1.5 cents/kwh for electricity

produced by wind and closed-loop biomass (energy crops or trees grown only for use as a

fuel). P.L. 106-170 expanded this credit to include poultry waste. Section 603 of the Job

Creation and Worker Assistance Act (P.L. 107-147) extended the production tax credit to

December 31, 2003. The JOBS Act (P.L. 108-357) expanded the PTC (adding solar,

geothermal, and open-loop biomass, landfill gas, trash combustion, and certain small hydro)

and extended it through the end of 2005. Additionally, P.L. 96-223 created an income tax

credit for alcohol fuels; section 9003(a)(3) of P.L. 105-178 extended the 40- to 60cent/gallon credit through December 31, 2007. Further, the Energy Tax Act created a 5.2

cents/gallon federal excise tax exemption for gasohol (gasoline blended with alcohol), which

now stands at 5.3 cents/gallon.

Public Utility Regulatory Policies Act. The Public Utilities Regulatory Policies

Act (PURPA, P.L. 95-617) required electric utilities to purchase power produced by qualified

renewable power facilities. Under PURPA, the Federal Energy Regulatory Commission

(FERC) established rules requiring that electric utilities purchase power from windfarms and

other small power producers at an “avoided cost” price based on energy and capacity costs

that the utility would otherwise incur by generating the power itself or purchasing it

elsewhere. However, Section 1253 of P.L. 109-58 terminated the mandatory purchase and

sale requirements for a new renewable power facility, provided that FERC finds that the new

facility has access to wholesale power markets and transmission services.

State and Local Government Roles. State and local governments have played a

key role in renewable energy development. For example, in the early 1980s, a generous state

investment tax for wind energy in California combined with PURPA and the federal tax

credit to stimulate industry development of the first windfarms. California and New York

have invested some state funds in renewable energy R&D. Recently, Texas and several other

states have used a regulatory tool, the renewable energy portfolio standard (RPS), to

encourage renewable energy. Also, in 2001, the city of San Francisco enacted a $100 million

revenue bond (Proposition B, “Vote Solar”) to support solar and wind energy

implementation. In 2004, the city of Honolulu approved a $7.85 million solar and energy

efficiency bond.

(For more on federal, state, and local policies (incentives, grants, standards) for

renewable energy, see Database of Incentives for Renewable Energy at [http://www.

dsireusa.org/].)

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Renewables in the 109th Congress

Renewable Portfolio Standard (RPS). For retail electricity suppliers, an RPS sets

a minimum requirement (often a percentage) for electricity production from renewable

energy resources or for the purchase of tradable credits that represent an equivalent amount

of production. A growing number of states have enacted an RPS, currently including 19

states and the District of Columbia.

The Senate Committee on Energy and Natural Resources held a hearing on RPS on

March 8, 2005. Regional differences in the availability of renewable resources, particularly

resource availability in the southeastern United States, was a key issue of the discussion. In

the April 12 markup of a committee print (to be incorporated into H.R. 6) by the House

Committee on Energy and Commerce, an amendment to add an RPS (1% in 2008, increasing

by 1% annually through 2027) was rejected (17-30). Proponents noted a growing number

of states with an RPS and that EIA reports show an RPS could reduce electricity bills.

Opponents raised concerns about the exclusion of existing hydropower facilities and resource

limits for the southeastern United States. There was no RPS provision in the House version

of H.R. 6. The Senate version had a 10% RPS provision. During the conference, there was

an idea put out to compromise by including nuclear and hydropower facilities. Nevertheless,

RPS was dropped in conference. (For more background information on RPS, two

memoranda are available from the author. For current status of RPS policies in the states,

see Database of State Incentives for Renewable Energy at [http://www.dsireusa.org].)

Renewable Energy Production Tax Credit (PTC) and Renewable Energy

Production Incentive (REPI). The House version of H.R. 6 had no PTC extension, the

Senate version had a three-year extension, and the enacted law (§1301) extends the PTC for

two years, through the end of calendar year 2007. (A detailed description of the PTC appears

in the report Description and Analysis of Certain Federal Tax Provisions Expiring in 2005

and 2006, by the Joint Tax Committee at [http://www.house.gov/jct/x-12-05.pdf].)

Parallel to the PTC, there is a renewable energy production “incentive” (REPI) for state

and local governments and nonprofit electrical cooperatives. This 1.5 cent/kwh incentive

was created by the Energy Policy Act of 1992 (EPACT) §1212 and is funded by

appropriations to DOE. Eligible facilities currently include solar, wind, biomass, and

geothermal energy except municipal solid waste and certain types of dry steam geothermal

energy. The enacted law (§202) expands REPI to include ocean and wave energy and

extends the authorization through FY2016.

Renewable Fuel Standard (RFS). P.L. 109-58 (H.R. 6, §1501) defines “renewable

fuel” to include ethanol, biodiesel, and natural gas produced from landfills, sewage treatment

plants, and certain other sources. Ethanol is the only renewable motor fuel produced in large

quantity. In 2004, about 4.0 billion gallons of ethanol were blended with gasoline. Biodiesel

is used at a rate of about 50 million gallons per year. In the House version of H.R. 6, the

RFS provision called for renewable fuels (primarily ethanol) production to grow to 3.1

billion gallons a year in 2005, and then increase stepwise to 5.0 billion gallons a year by

2012. In the Senate version of H.R. 6, the RFS called for 4.0 billion gallons in 2006, rising

to 8.0 billion gallons in 2012. The enacted version (§1501) set a standard starting at 4.0

billion gallons in 2006 and rising to 7.5 billion gallons by 2012. Further, an incentive would

encourage the use of cellulosic and waste-derived ethanol to fulfill the RFS target, by raising

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the value of 1.0 gallon of cellulosic or waste-derived ethanol from a previous incentive level

of 1.5 gallons of renewable fuel to 2.5 gallons of renewable fuel.

An MTBE “safe harbor” from product liability lawsuits, which had been a major issue

in previous omnibus energy bills, was dropped in conference. For more information on the

bills’ provisions for renewable fuels and MTBE, see CRS Report RL32865, Renewable Fuels

and MTBE: A Comparison of Selected Provisions in H.R. 6, by Brent D. Yacobbuci, et al.;

CRS Report RS21676, The Safe-Harbor Provision for Methyl Tertiary Butyl Ether (MTBE),

by Aaron M. Flynn; and CRS Report RL32787, MTBE in Gasoline: Clean Air and Drinking

Water Issues, by James E. McCarthy and Mary Tiemann.

Renewable Hydrogen. P.L. 109-58 (H.R. 6, §933) would create a program to

produce hydrogen from a variety of sources, including renewable energy and renewable fuels,

as part of a broader effort to develop hydrogen fuels, vehicles, and infrastructure. The

provision includes a focus on distributed energy that uses renewable sources. Another

section (§812) also calls for use of renewable hydrogen as part of a hydrogen fueling and

infrastructure demonstration program.

Renewables Tax Revenue Effect. Table 1 shows the estimated 10-year revenue

effect of renewable energy tax provisions in the House version of H.R. 6 (H.R. 1541), the

Senate version of H.R. 6, and the enacted law.

Table 1. H.R. 6, Tax Revenue Effect

($ billions)

Renewable Energy Production Tax Credit (PTC)

Clean Renewable Energy Bonds

Business Investment Tax Credit (Solar & Geo.)

Residential Solar Tax Credit (includes fuel cells)

Biodiesel Tax Credit

Total, Renewables Provisions

Gross Total, All Tax Provisions

Renewables Share of Total

House

—

—

—

$0.018

—

$0.018

Senate

$4.577

$0.493

$0.059

—

$0.402

$5.531

Conference

$2.747

$0.411

$0.024

$0.031

$0.194

$3.407

$8.090

0.2%

$18,421

30.0%

$14.553

23.4%

Sources: Joint Committee on Taxation (JCT), Estimated Budget Effects of the Conference Agreement for Title

XIII of H.R. 6, July 27, 2005 (JCX-59-05); Estimated Revenue Effects of the Chairman’s Amendment in the

Nature of a Substitute to H.R. 1541, Scheduled for Markup by the Committee on Ways and Means, April 13,

2005 (JCX-17-05); Estimated Revenue Effects of the Chairman’s Amendment in the Nature of a Substitute to

the “Energy Policy Tax Incentives Act of 2005,” Scheduled for Markup by the Committee on Finance, June

16, 2005 (JCX-47-05).

Other Renewables Provisions. P.L. 109-58 (H.R. 6) covers additional areas of

renewable energy policy, resources, and technology including distributed energy, federal

purchases, federal lands, Indian energy, net metering, alternative fuels (alcohol, biofuel,

biodiesel), biopower/biomass, geothermal, hydropower, solar, and wind. (Additional bills

with renewable energy provisions are identified in CRS Report RL32860, Energy Efficiency

and Renewable Energy Legislation in the 109th Congress, by Fred Sissine.)

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FY2007 DOE Budget

The House Appropriations Committee report (H.Rept. 109-474) includes several policy

directives to EERE. First, it says (pp. 72-73) that EERE could have avoided employee

layoffs at the National Renewable Energy Laboratory (NREL) through better management

of uncosted balances, and directs EERE to report by January 31, 2007, on steps taken to

identify prior year balances and account for all out-year commitments. Second, the report

directs (p. 73) EERE to report by January 31, 2007, on the progress of implementing the

Inspector General’s recommendations (IG audit report DOE/IG-0689) to improve the

management of cooperative agreements. Further, the report directs (pp. 74-75) EERE to

fully fund a biomass R&D grant to Natureworks LLC, strengthen recruiting from Historically

Black Colleges and Universities, and prepare a report on solar water heaters by January 31,

2007, that covers potential energy savings, market impediments, and deployment strategy.

Also, one DOE-wide directive that would clearly affect EERE involves funding for the Asia

Pacific Partnership (APP), which would support clean, energy-efficient technologies. The

report directs (pp. 67-68) DOE to submit a reprogramming request if it intends to support

APP with FY2006 funds and to submit a detailed budget justification (which would be

considered by the conference committee) if it proposes to use FY2007 funds.

Using Renewable Energy to Produce Electricity

The Public Utility Regulatory Policies Act (PURPA) has been key to the growth of

electric power production from renewable energy facilities. Since 1994, state actions to

restructure the electric utility industry have dampened PURPA’s effect. In the 109th

Congress, P.L. 109-58 (H.R. 6, §1253) includes a conditional repeal of the mandatory

renewables purchase requirement in Section 210 of PURPA. (For a discussion of broader

electricity restructuring issues, see CRS Report RL32728, Electric Utility Regulatory

Reform: Issues for the 109th Congress, by Amy Abel.)

Renewables Under Electric Industry Restructuring. To encourage a continued

role for renewable energy under restructuring, some states and utilities have enacted such

measures as a renewable energy portfolio standard (RPS), public benefits fund (PBF), and/or

“green” pricing and marketing of renewable power. In the 109th Congress, H.R. 983, H.R.

2828, H.R. 4384, and S. 427 have an RPS. The above section on “Renewable Portfolio

Standard” summarizes the RPS action in H.R. 6, including a Senate proposal that was

rejected in conference committee.

Green Power. The term “green power” generally refers to electricity supplied in

whole or in part from renewable energy sources. Green power marketing (retail or

wholesale) is underway in California, Illinois, Massachusetts, New Jersey, New York,

Pennsylvania, and Texas. Green pricing is an optional utility service that allows electricity

customers who are willing to pay a premium for the environmental benefits of renewable

energy to purchase green power instead of conventional power. Utility green pricing

programs reach more than one-third of the nation’s consumers. (For more on green power,

see [http://www.eere.energy.gov/greenpower/].)

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Distributed Energy. Distributed energy involves the use of small, modular electricity

generators sited close to the customer load that can enable utilities to defer or eliminate

costly investments in transmission and distribution system upgrades, and provide customers

with quality, reliable energy supplies that may have less environmental impact than

traditional fossil fuel generators. Technologies for distributed electricity generation use

wind, solar, bioenergy, fuel cells, gas microturbines, hydrogen, combined heat and power,

and hybrid power systems. A DOE study, Structural Vulnerability of the North American

Power Grid, suggests that adding more distributed power generation could help reduce grid

vulnerability. Another DOE study, Homeland Security: Safeguarding America’s Future with

Energy Efficiency and Renewable Energy Technologies, provides a broad look at the

potential to address vulnerabilities. (More information about DOE’s Distributed Energy

Program is available at [http://www.eere.energy.gov/de/]).

Net Metering. Net metering allows customers with generating facilities to “turn their

electric meters backwards” when feeding power into the grid; they receive retail prices for

the excess electricity they generate. This encourages customer investment in distributed

generation, which includes renewable energy equipment. About 40 states have some form

of net metering in place. P.L. 109-58 (H.R. 6, §1251) provides for net metering.

Natural Gas and Renewables

On January 24, 2005, the Senate Energy and Natural Resources Committee held a

natural gas conference. Some participants described the potential for renewable energy to

augment gas supplies, reduce gas demand, and thereby help reduce natural gas prices; see

[http://energy.senate.gov/conference/conference.cfm]. Some of these statements referred to

a 2005 Department of Energy (DOE) study, Easing the Natural Gas Crisis: Reducing

Natural Gas Prices through Increased Deployment of Renewable Energy and Energy

Efficiency, available at [http://eetd.lbl.gov/ea/ems/reports/56756.pdf].

Biomass-Generated Synthetic Natural Gas (Syngas). Continuing high natural

gas prices have created interest in using renewables to dampen natural gas demand.

Renewable energy (mainly biomass) can be used to produce methane (the main component

of natural gas), which could possibly substitute directly for natural gas. DOE projects that,

by 2020, biomass and energy crops could produce 15% of natural gas needs. A 2005

Harvard University study, The National Gasification Strategy, cites a Princeton University

study (A Cost-Benefit Assessment of Biomass Gasification Power Generation in the Pulp and

Paper Industry) that says that biomass-generated “black liquor” and wood waste could

produce enough syngas to support 25 billion watts (gigawatts) of natural gas-fired power

plant capacity by 2020.

Substituting Electricity from Renewables for Gas-Fired Generation. Also,

a variety of renewables can generate electricity that indirectly displaces natural gas use for

power generation. For many utilities the peak demand (often supported with natural gas

peak-load plants) occurs during hot summer afternoons. In many regions, solar and wind

energy reach high levels during summer peak periods. The American Wind Energy

Association (AWEA) says that by the end of 2005, wind farms will be saving more than 0.5

billion cubic feet (Bcf) of natural gas per day. DOE’s report Scenarios for a Clean Energy

Future (Table 7.11) projects that, with some federal policy changes, biomass-based power

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production could be greatly accelerated through 2010. (Also see the 2005 DOE study noted

above, and the American Council for an Energy Efficient Economy’s report, Impacts of

Energy Efficiency and Renewable Energy on Natural Gas Markets.)

Climate Change and Renewables

Because most forms of renewable energy generate no carbon dioxide (CO2), renewables

are seen as a key long-term resource that could substitute for fossil energy sources used to

produce vehicle fuels and electricity. The percentage of renewable energy substitution

depends on technology cost, market penetration, and the use of energy efficiency measures

to control energy prices and demand. DOE’s November 2003 report U.S. Climate Change

Technology Program — Technology Options for the Near and Long Term compiles

information from multiple federal agencies on more than 80 technologies. For these end-use

and supply technologies, the report describes President Bush’s initiatives and R&D goals for

advancing technology development, but it does not estimate emissions saving potentials, as

some previous DOE reports on the topic had presented.

EPA’s Climate Action Report — 2002 describes federal renewable energy programs

aimed at reducing greenhouse gas emissions. In Climate Change 2001: Mitigation, the

Intergovernmental Panel on Climate Change looks at the role that renewables could play in

curbing global CO2 emissions.

Since 1988, the federal government has accelerated programs that study the science of

global climate change and has initiated programs aimed at mitigating fossil fuel-generated

carbon dioxide (CO2) and other human-generated emissions. The federal government funds

programs for renewable energy as a mitigation measure at DOE, USDA, the Environmental

Protection Agency (EPA), the Agency for International Development (AID), and the World

Bank. The latter two agencies have received funding for renewable energy-related climate

actions through Foreign Operations appropriations bills.

Because CO2 contributes the largest share of greenhouse gas emission impact, it has

been the focus of studies of the potential for reducing emissions through renewable energy

and other means. Except for biofuels and biopower, wherever renewable energy equipment

displaces fossil fuel use, it will also reduce carbon dioxide (CO2) emissions, as well as

pollutants that contribute to water pollution, acid rain, and urban smog. In general, the

combustion of biomass for fuel and power production releases CO2 at an intensity that may

rival or exceed that for natural gas. However, the growth of biomass material, which absorbs

CO2, offsets this release. Hence, net emissions occur only when combustion is based on

deforestation. In a “closed loop” system, biomass combustion is based on rotating energy

crops, there is no net release, and its displacement of any fossil fuel, including natural gas,

reduces CO2 emissions.

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LEGISLATION

Public Laws

P.L. 109-58 (H.R. 6)

Energy Policy Act of 2005 (EPACT 2005). For renewables, Title II has several

provisions: Section 202 reauthorizes REPI, Title II (Subtitle C) authorizes increased

hydropower at existing dams, Section 203 sets a goal for renewables use in federal facilities

and fleets, and Section 206 establishes a residential renewable energy rebate program.

Section 812 creates a program for using solar energy to produce hydrogen. Title IX provides

funding reauthorizations for renewable energy R&D programs. Section 1253 would, under

certain conditions, terminate PURPA cogeneration and small (renewable) power

requirements. Title XIII has several tax incentives for renewables: Section 1301 extends the

renewable energy production tax credit (PTC) for two years, Section 1303 creates $800

million in renewable energy bonds, Section 1335 creates a 30% residential solar investment

credit for two years, Section 1337 increases the business solar investment credit from 10%

to 30% for two years, and Sections 1345, 1346, 1347, and 1348 create or extend credits for

ethanol and biodiesel fuels. Title XV (Subtitle A) has several renewable fuels provisions

covering ethanol, biofuels, cellulosic biodiesel, and municipal waste. In particular, Section

1501 sets a renewable fuels standard of 7.5 billion gallons per year by 2012 for increased use

of ethanol and biodiesel. Section 1826 requires a study of passive solar energy. Conference

reported (H.Rept. 109-190) July 27, 2005. Signed into law August 8.

P.L. 109-59 (H.R. 3)

Transportation Equity Act: A Legacy for Users (SAFETEA-LU). Section 1113 has a

volumetric excise tax credit for alternative fuels. Section 1121 on High-Occupancy Vehicle

(HOV) Lanes includes provisions for alternative-fueled vehicles. Section 1208 on HighOccupancy Vehicle (HOV) Lanes includes provisions for alternative-fueled vehicles and

energy-efficient vehicles. Section 3010 on Clean Fuels Formula Grant Program includes

provisions for biodiesel, alcohol fuels, and fuel cells. Section 3044 supports clean fuels, and

Section 6015 supports clean fuel school buses. Conference reported (H.Rept. 109-203) July

28. Signed into law August 10.

P.L. 109-148 (H.R. 2863)

Department of Defense Appropriations Bill, 2006. Title II, regarding Operation and

Maintenance, includes $4.25 million for a wind power demonstration project on an Air Force

base. Conference Committee reported (H.Rept. 109-359, p. 5) December 18, 2005. Signed

into law December 30, 2005.

P.L. 109-171 (S. 1932)

Deficit Reduction Act of 2005. Section 1301 amends section 9006(f) of the Farm

Security Act of 2002 to set a limit of $3 million in FY2007 funding for the USDA

Commodity Credit Corporation to carry out renewable energy and energy efficiency projects.

Section 1402 terminates FY2007 funding authorization for the USDA Value-Added Producer

Program (created by section 6401 of the Farm Security Act of 2002) to provide grants to

renewable energy and energy efficiency projects. Conference reported (H.Rept. 109-362)

December 19, 2005. Signed into law February 8, 2006.

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Note: Three other public laws make appropriations for renewable energy programs.

P.L. 109-97 (H.R. 2744), the Agriculture Appropriations Bill for FY2006, includes $23

million for USDA’s renewable energy grant and loan program; P.L. 109-102 (H.R. 3057,

Section 585[a]), the Department of State’s Appropriations Bill for FY2006, provides $100

million for clean (renewable) energy and energy efficiency programs that seek to reduce

greenhouse gas emissions in developing countries; and P.L. 109-103 (H.R. 2419) makes

appropriations for the DOE renewable energy programs. These laws and bills are described

in CRS Report RL32860, Energy Efficiency and Renewable Energy Legislation in the 109th

Congress, by Fred Sissine.

Legislation

H.R 5427 (Hobson)

Energy and Water Development Appropriations Act, 2007. Provides funding for DOE

Renewable Energy Program. Committee on Appropriations reported (H.Rept. 109-474) May

17, 2006, with amendments. Passed House, amended, May 24.

(A more extensive list of more than 140 bills appears in CRS Report RL32860, Energy

Efficiency and Renewable Energy Legislation in the 109th Congress, by Fred Sissine.)

CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS

U.S. Congress. Senate. Committee on Energy and Natural Resources. Power

Generation Resource Incentives & Diversity Standards. Hearing held March 8, 2005.

[http://energy.senate.gov/hearings/witnesslist.cfm?id=1403]

(A more extensive list appears in CRS Report RL32860, Energy Efficiency and

Renewable Energy Legislation in the 109th Congress.)

FOR ADDITIONAL READING

Tables showing DOE Renewable Energy R&D Funding trends back to FY1974 (current

and constant) are available from the author of this issue brief.

American Solar Energy Society. Renewable Hydrogen Forum. Apr. 10-11, 2003.

Barry, Courtney. “Winds of Change in Texas.” Public Utilities Fortnightly, v. 141, no. 7,

Apr. 1, 2003. pp. 27-31.

Blankinship, Steve. “A Sunny Outlook for Grid-Connected PV.” Power Engineering, v.

107, no. 1, May 2003. pp. 32-40.

Cato Institute. Policy Analysis. Evaluating the Case for Renewable Energy: Is Government

Support Warranted? 2002.

Energy Future Coalition. Challenge and Opportunity: Charting a New Energy Future,

Report of the Bioenergy and Agriculture Working Group. 2003.

[http://www.energyfuturecoalition.org/]

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European Commission. Directorate General for Research. European Research Spending for

Renewable Energy Sources. 2004. (European Union)

[http://ec.europa.eu/research/energy/pdf/res_spending_en.pdf]

International Energy Agency. Renewables Information 2005. Sept. 2005.

[http://library.iea.org/w/bookshop/add.aspx?id=68]

National Research Council. The Hydrogen Economy: Opportunities, Costs, Barriers, and

R&D Needs. 2004.

Owens, Brandon. “Does the PTC Work?” Standard and Poor’s. Sept. 2004.

Popular Science. “Wind Power Reconsidered.” November 2004. pp. 43-44.

[http://www.popsci.com/popsci/technology/generaltechnology/72959aa138b84010v

gnvcm1000004eecbccdrcrd.html]

Schimmoller, Brian K. “Renewables Get Into the Mix” Power Engineering, Jan. 2004. pp.

22-30.

Sklar, Scott and Sheinkopf, Kenneth. Consumer Guide to Solar Energy: New Ways to Lower

Utility Costs, Cut Taxes, and Take Control of Your Energy Needs. 2002.

The White House. State of the Union. The Advanced Energy Initiative. January 31, 2006.

[http://www.whitehouse.gov/news/releases/2006/01/20060131-6.html]

U.S. Department of Energy. Interlaboratory Working Group. Scenarios for a Clean Energy

Future. 2000. [http://www.ornl.gov/sci/eere/cef/]

——. Energy Information Administration. Federal Financial Interventions and Subsidies

in Energy Markets 1999: Primary Energy. (SR/OIAF/99-03). 1999.

——. Federal Energy Regulatory Commission. The Interconnection of Wind Energy and

Other Alternative Technologies. January 24, 2005.

[http://www.ferc.gov/industries/electric/indus-act/gi/wind.asp].

——. Lawrence Berkeley National Laboratory. Balancing Cost and Risk: The Treatment

of Renewable Energy in Western Utility Resource Plans. [Mark Bolinger and Ryan

Wiser] August 2005. [http://eetd.lbl.gov/ea/ems/re-pubs.html]

——. National Renewable Energy Laboratory. Near-Term Practical and Ultimate

Technical Potential for Renewable Resources. [Draft] January 16, 2006. 7 p.

——. National Renewable Energy Laboratory. Domestic Energy Scenarios. 2003.

[http://www.nrel.gov/docs/fy03osti/32742.pdf]

——. National Renewable Energy Laboratory. Projected Benefits of Federal Energy

Efficiency and Renewable Energy Programs: FY2006 Budget Request. May 2005.

[http://www.nrel.gov/docs/fy05osti/37931.pdf]

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——. National Renewable Energy Laboratory. Power Technologies Energy Data Book.

April 2005. [http://www.nrel.gov/docs/fy03osti/32742.pdf]

——. Oak Ridge National Laboratory. Biomass as Feedstock for a Bioenergy and

Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply.

[DOE/USDA Biomass Feedstock Gate Review Meeting]

March 2005.

[http://feedstockreview.ornl.gov/pdf/perlack_stokes/session1_perlack_stokes.pdf]

——. Office of Science. Basic Research Needs for Solar Energy Utilization. August 2005.

[http://www.sc.doe.gov/bes/reports/files/SEU_rpt.pdf]

——. Enhancing Homeland Security Through Renewable Energy — Richard Truly’s

Remarks to the National Press Club. Mar. 14, 2002.

——. Status Report to Congress on Current and Proposed Activities under the Clean Energy

Technology Exports (CETE) Initiative. 2001.

[http://www.pi.energy.gov/library/cete2001statusreport.html#pdf]

——. The Clean Air Act and Renewable Energy: Opportunities, Barriers, and Options.

(NREL/CP-620-29654). 2001.

U.S. Department of Interior. Bureau of Land Management. Solar Energy Development

Policy. [Instruction Memo No. 2005-006] October 20, 2004.

[http://www.blm.gov/nhp/efoia/wo/fy05/im2005-006.htm]

U.S. Environmental Protection Agency. Climate Action Report: The United States of

America’s Third National Communication under the United Nations Framework

Convention on Climate Change.

2002.

[http://yosemite.epa.gov/oar/

globalwarming.nsf/content/ResourceCenterPublicationsUSClimateActionReport.html]

U.S. Executive Office of the President. Office of Science and Technology Policy. Domestic

Policy Council. American Competitiveness Initiative. February 2006. 23 p.

[http://www.ostp.gov/html/ACIBooklet.pdf]

U.S. Government Accountability Office (GAO). Renewable Energy: Wind Power’s

Contribution to Electric Power Generation and Impact on Farms and Rural

Communities. [GAO-04-756] 2004. [http://www.gao.gov/docsearch/abstract.php?

rptno=GAO-04-756]

Worldwatch Institute. Mainstreaming Renewable Energy in the 21st Century. May 2004.

[http://www.worldwatch.org/pubs/paper/169/]

CRS Reports

CRS Report RL33294. DOE Budget Earmarks: A Selective Look at Energy Efficiency and

Renewable Energy R&D Programs, by Fred Sissine.

CRS Report RL32860. Energy Efficiency and Renewable Energy Legislation in the 109th

Congress, by Fred Sissine.

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CRS Issue Brief IB10136. Arctic National Wildlife Refuge (ANWR): Controversies for the

109th Congress, by Lynne Corn, Bernard Gelb, and Pam Baldwin.

CRS Report RL31033. Energy Efficiency and Renewable Energy Fuel Equivalents to

Potential Oil Production from the Arctic National Wildlife Refuge (ANWR), by Fred

Sissine.

CRS Report RS21442. Hydrogen and Fuel Cell Vehicle R&D: freedomCAR and the

President’s Hydrogen Fuel Initiative, by Brent Yacobucci.

CRS Report RL32865. Renewable Fuels and MTBE: A Comparison of Selected Legislative

Initiatives, by Brent Yacobucci, Mary Tiemann, and James McCarthy.

CRS Report RL30369. Fuel Ethanol: Background and Public Policy Issues, by Brent

Yacobucci.

CRS Report RL32712. Agriculture-Based Renewable Energy Production, by Randy

Schnepf.

CRS Report RS21563. Biodiesel Fuel and U.S. Agriculture, by Randy Schnepf.

CRS Issue Brief IB10054. Energy Tax Policy, by Salvatore Lazzari.

Websites

American Council for Renewable Energy.

[http://www.acore.org/]

American Solar Energy Society.

[http://www.ases.org/]

American Wind Energy Association (AWEA).

[http://www.awea.org/]

California Energy Commission.

[http://www.energy.ca.gov/renewables/index.html]

Database of State Incentives for Renewable Energy (IREC).

[http://www.dsireusa.org/]

Databook of Renewable Energy Power Technologies.

[http://www.nrel.gov/analysis/power_databook/]

Earthtrack (Database of Energy Subsidies).

[http://www.earthtrack.net/]

Edison Electric Institute.

[http://www.eei.org/]

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Electric Power Research Institute (EPRI) and EPRI Journal Online.

[http://www.epri.com/]

Eleventh Session of the Conference of Parties to the United Nations Framework Convention

on Climate Change (Montreal, COP-11 and COP/MOP 1). November 28 — December 9,

2005.

[http://unfccc.int/meetings/cop_11/items/3394.php]

National Association of Regulatory Utility Commissioners.

[http://www.naruc.org/]

Renewable Energy Policy Project.

[http://www.crest.org/]

Renewable Energy/Information Center. International Energy Agency (IEA).

[http://www.iea.org/dbtw-wpd/Textbase/subjectqueries/index.asp]

Solar Electric Power Association (SEPA).

[http://www.solarelectricpower.org/]

Solar Energy Industries Association (SEIA).

[http://www.seia.org/]

Tax Incentives Assistance Project.

[http://www.energytaxincentives.org/]

U.S. Department of Energy. Energy Efficiency and Renewable Energy Network.

[http://www.eere.energy.gov/]

U.S. Department of Energy. Green Power Network Clearinghouse.

[http://www.eere.energy.gov/greenpower/]

U.S. Department of Energy. National Renewable Energy Laboratory (NREL).

[http://www.nrel.gov/]

U.S. Department of Energy. Alternative Fuels Data Center.

[http://www.eere.energy.gov/afdc/index.html]

U.S. Environmental Protection Agency. Clean Energy Site.

[http://www.epa.gov/cleanenergy/]

Vote Solar Initiative. San Francisco’s $100 Million Solar Revenue Bond Initiative.

[http://www.votesolar.org/sf.html].

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Table 2. DOE Renewable Energy Budget for FY2005-FY2007

(selected programs, $ millions)

OFFICE OF ENERGY

EFFICIENCY AND

RENEWABLE ENERGY (EERE)

FY2005

Appn.

FY2006

Appn.

FY2007

Request

FY2006

House

FY2007FY2006

Percent

Change

HYDROGEN TECHNOLOGY

166.8

155.6

195.8

195.8

40.2

25.8%

Fuel Cell Technology

81.9

67.8

96.6

96.6

28.8

42.4%

BIOMASS & BIOREFINERY

87.5

90.7

149.7

149.7

59.0

65.0%

Biochemical Platform (Cellulose)

11.1

10.4

32.8

32.8

22.4

215.4%

SOLAR ENERGY

84.3

83.1

148.4

148.4

65.3

78.5%

Photovoltaics

65.8

60.0

139.5

134.5

74.5

124.2%

Concentrating Solar

5.9

7.4

8.9

8.9

1.5

19.9%

Solar Heating & Lighting

2.4

1.5

0.0

5.0

3.5

241.3%

WIND

40.6

38.9

43.8

43.8

5.0

12.8%

GEOTHERMAL

25.3

23.1

0.0

5.0

-18.1

-78.3%

SMALL HYDRO

4.9

0.5

0.0

0.0

-0.5

-100.0%

VEHICLE TECHNOLOGIES

161.3

182.1

166.0

172.5

-9.6

-5.3%

BUILDING TECHNOLOGIES

65.2

69.3

77.3

80.0

10.8

15.5%

INDUSTRIAL TECHNOLOGIES

73.4

56.9

45.6

51.6

-5.3

-9.3%

DISTRIBUTED ENERGY*

59.1

0.0

—

—

—

—

FEDERAL ENERGY MGMT

19.9

19.2

16.9

18.9

-0.3

-1.4%

FACILITIES & INFRASTRUC.

(National Renewable Energy Lab)

11.4

26.1

5.9

15.9

-10.1

-38.8%

WEATHER’N & INTERGOV.

325.5

316.9

225.6

335.4

18.6

5.9%

International Renewables

6.4

3.9

2.5

4.5

0.6

15.6%

Tribal Energy

5.5

4.0

4.0

4.0

0.0

-0.1%

Renew. Production Incentive

5.0

5.0

4.9

4.9

0.0

-0.1%

PROGRAM MANAGEMENT

115.1

111.9

102.0

102.0

-9.9

-8.8%

RENEWABLES, SUBTOTAL

270.3

275.2

359.2

364.2

89.0

32.3%

Renewables R&D Subtotal

242.5

236.2

341.9

346.9

110.6

46.8%

RENEWABLES, EARMARKS

52.0

82.6

0.0

28.8

-53.8

-65.1%

Prior Year Balances (EERE)

-5.3

—

—

—

—

—

1,234.3

1,173.8

1,176.4

1,373.9

199.9

17.0%

117.9

161.9

124.9

144.0

-17.8

-11.0%

EERE, TOTAL

Office of Electricity Delivery &

Energy Reliability (OE)*

Source: DOE FY2007 Congressional Budget Request, v. 3; Feb. 2006; H.Rept. 109-474.

*Funding for Distributed Energy was moved to OE.

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