Selected Environmental Provisions in the Energy Bill (H.R. 6/S. 2095)

Order Code RS21673

Updated February 17, 2004

CRS Report for Congress

Received through the CRS Web

Selected Environmental Provisions in the

Energy Bill (H.R. 6/S. 2095)

Brent Yacobucci, Coordinator

Analyst in Energy Policy

Resources, Science, and Industry Division

Summary

On November 18, 2003, the House passed the conference report accompanying the

omnibus energy bill, H.R. 6 (H.Rept. 108-375). However, the Senate subsequently

failed to invoke cloture and limit debate on the bill. On February 12, 2004, Senate

leaders introduced a scaled-down energy policy bill, S. 2095, intended to offset the

overall cost and some of the controversies of H.R. 6. Both H.R. 6 and the modified

Senate bill contain various provisions that could affect environmental quality, either

directly or indirectly. S. 2095 omits one of the most controversial of these provisions

in H.R. 6 (providing a safe harbor for MTBE and renewable fuels) and modifies some

of that bill’s incentives. This report provides a short discussion of selected

environmental provisions involving limits on the use of MTBE; a renewable fuel

mandate for gasoline; stricter regulation of underground storage tanks; Clean Water Act

requirements for oil and gas exploration; incentives and R&D funding for alternative

fuels and vehicles; energy efficiency and conservation incentives; hydroelectric

relicensing; ozone compliance deadlines; use of mining wastes; and hydraulic fracturing.

This report will be updated as warranted.

MTBE and Ethanol: Fuels. Title XV of the bill contains several provisions

addressing the gasoline additive methyl tertiary butyl ether (MTBE). Some of the H.R.

6 provisions in this title (notably the “safe harbor” for producers of MTBE and renewable

fuels from product liability lawsuits that have been used to force petroleum and chemical

companies to pay for cleanup of ground and surface water contaminated by releases of

fuels containing MTBE) were among the most controversial elements in the bill. The safe

harbor provision has been dropped from S. 2095, but other less controversial MTBE

provisions remain in the bill.

Under the Clean Air Act Amendments of 1990, reformulated gasoline (RFG) sold

in many areas of the country with poor air quality must contain an oxygenate (MTBE,

ethanol, or other substances containing oxygen) to improve combustion and reduce

emissions of ozone-forming compounds and carbon monoxide. A little more than 30%

of the gasoline sold in the United States is RFG, and a majority of RFG has contained

Congressional Research Service ˜ The Library of Congress

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MTBE. MTBE has been implicated in numerous incidents of groundwater contamination,

however, and 17 states have taken steps to ban or regulate its use. The most significant

of these bans (in California and New York) took effect at the end of 2003.

Like the conference report on H.R. 6, the new Senate energy bill would ban the use

of MTBE as a fuel additive, except in states that specifically authorize its use, after

December 31, 2014, unless the President determines not to ban it. The Clean Air Act

requirement to use MTBE or other oxygenates in RFG would be repealed 270 days after

enactment. In place of this requirement, the bill would provide a major new stimulus to

the use of ethanol: Under a renewable fuels standard (RFS), annual production of gasoline

would be required to contain at least 5 billion gallons of ethanol or other renewable fuel

(more than double the current production of ethanol) by 2012. To prevent backsliding on

air quality, the bill requires that reductions in emissions of toxic substances achieved by

RFG be maintained; and it authorizes $2 billion in grants to assist merchant MTBE

production facilities in converting to the production of other fuel additives. The bill also

authorizes funds for MTBE cleanup (discussed immediately below). [This section

prepared by James McCarthy, Specialist in Environmental Policy.]

MTBE and Underground Storage Tanks: Water Quality. The underground

storage tank provisions in the new Senate energy bill, S. 2095, are identical to those in the

conference report for H.R. 6. The conference report (Title XV, Subtitle B) makes

extensive amendments to the Solid Waste Disposal Act (SWDA) to strengthen leak

prevention provisions of the federal underground storage tank regulatory program, and to

broaden the allowable uses of the Leaking Underground Storage Tank (LUST) Trust

Fund. The conference report essentially incorporates the language of H.R. 3335, the

Underground Storage Tank Compliance Act of 2003. The provisions add new tank

inspection and operator training requirements; prohibit fuel delivery to ineligible tanks;

expand underground storage tank (UST) requirements for federal facilities; and require

EPA, with Indian tribes, to develop and implement a strategy to address releases on tribal

lands. The provisions also authorize states to use funds from the LUST Trust Fund to help

UST owners or operators pay the costs of remediating tank leaks in cases where the cost

of cleanup would significantly impair the ability of the owner or operator to continue in

business. EPA and states also may use LUST funds to conduct inspections and enforce

federal and state UST release prevention and detection requirements.

Section 1531 authorizes LUST Trust Fund appropriations of $200 million annually

for FY2004 through FY2008 for remediating tank leaks generally, and the same amount

for responding to leaks containing MTBE or other oxygenated fuel additives (e.g.,

ethanol). [This section prepared by Mary Tiemann, Specialist in Environmental Policy.]

Oil and Gas Exploration: Clean Water. Section 328 of H.R. 6 would give a

permanent exemption from Clean Water Act (CWA) stormwater runoff rules for the

construction of exploration and production facilities by oil and gas companies and the

roads that service those sites. S. 2095 includes an identical provision. Currently under

the CWA, the operation of facilities involved in oil and gas exploration, production,

processing, transmission, or treatment generally is exempt from stormwater runoff

regulations, but the construction of these facilities is not. The amendment would modify

the act to specifically include construction activities in the types of oil and gas facilities

that are covered by the law’s statutory exemption from stormwater rules.

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The issue arises from stormwater permitting rules for small construction sites and

municipal separate storm sewer systems that were issued by EPA in 1999 and became

effective March 10, 2003. Those rules, known as Phase II of the Clean Water Act

stormwater program, require most small construction sites disturbing one to five acres and

municipal separate storm sewer systems serving populations of up to 100,000 people to

have a CWA discharge permit. The permits require pollution-prevention plans describing

practices for curbing sediment and other pollutants from being washed by stormwater

runoff into local water bodies. Phase I of the stormwater program required construction

sites larger than five acres (including oil and gas facilities) and larger municipal separate

storm sewer systems to obtain discharge permits beginning in 1991.

As the March 2003 compliance deadline approached, EPA proposed a two-year

extension of the Phase II rules for small oil and gas construction sites to allow the agency

to assess the economic impact of the rule on that industry. EPA had initially assumed that

most oil and gas facilities would be smaller than one acre in size and thus excluded from

the Phase II rules, but recent Department of Energy data indicate that several thousand

new sites per year would be of sizes subject to the rule.

The provision in the conference report is similar to one in the House-passed H.R. 6:

It makes EPA’s two-year delay permanent and makes it applicable to construction

activities at all oil and gas development and production sites, regardless of size, including

those covered by Phase I rules. Industry argues that the EPA stormwater rule creates

costly permitting requirements, even though the short construction period for drilling sites

carries little potential for stormwater runoff pollution. Supporters said the amendment

was intended to clarify existing CWA language. Opponents argued that the provision did

not belong in the energy legislation, and that there was no evidence that construction at

oil and gas sites causes less pollution than other construction activities. [This section

prepared by Claudia Copeland, Specialist in Resources and Environmental Policy.]

Alternative Fuels and Vehicles: R&D and Incentives. S. 2095 and the

conference report contain identical provisions on hydrogen and fuel cell research and

development, as one strategy to promote expansion of alternative fuels and advanced

technology vehicles and reduce dependence on foreign oil. Title VIII would authorize

$2.1 billion for hydrogen fuel and fuel cells R&D over the course of FY2004-FY2008.

This is roughly equal to the amount announced by the President in the 2003 State of the

Union address. A Senate-endorsed goal of 100,000 fuel cell vehicles commercially

available by 2010 and 2.5 million vehicles by 2020 was not included in the final H.R. 6.

Tax incentives for alternative fuels and vehicles differ between S. 2095 and the H.R.

6 conference report. The provisions in S. 2095 are identical to those in the Senateapproved version of H.R. 6. Section 1318 of the conference report would provide

extensive tax credits for the purchase of certain alternative fuel and advanced technology

vehicles. Covered vehicles include fuel cell vehicles, electric vehicles, hybrid-electric

vehicles, alternative fuel vehicles, and lean-burn vehicles. Credits vary depending on the

technology employed, the performance of the vehicle, and the size of the vehicle. Under

S. 2095 (sec. 1311), the credit amounts would differ, as would the method for computing

those credits. Further, lean-burn vehicles would not qualify for the credits. Section 1319

of H.R. 6 would extend the existing tax deduction for the installation of alternative fuel

infrastructure, while section 1313 of S. 2095 would replace the existing deduction with

a tax credit. [This section prepared by Brent Yacobucci, Analyst in Energy Policy.]

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Energy Efficiency and Conservation. S. 2095 and the H.R. 6 conference

report contain similar provisions to promote energy efficiency and conservation.

However, S. 2095 omits provisions from H.R. 6 on energy savings performance contracts.

These contracts are intended to improve the energy efficiency of federal government

buildings. Although the contracts result in zero net cost (because they are required to pay

back any up-front costs through energy and water savings), they were removed from the

bill to eliminate the estimated $3 billion up-front cost, according to the Senate Energy

Committee.

Title XIII of the conference report and S. 2095 include a number of tax incentives

to promote conservation and efficiency. The conference report on H.R. 6 would expand

incentives for geothermal facilities. However, S. 2095 would delay those incentives until

FY2005. Both versions provide additional support for weatherization programs and

would establish a voluntary programs to promote efficient appliances. However, critics

of the bill argue that incentives are heavily weighted toward energy production. [This

section prepared by Brent Yacobucci, Analyst in Energy Policy.]

Hydroelectric Power: Relicensing. The modified Senate bill makes no change

to Section 231 of H.R. 6, which would allow applicants for hydroelectric licenses

increased flexibility in compliance with conditions imposed by federal agencies.

Currently, the Federal Power Act gives certain federal agencies the authority to attach

conditions to Federal Energy Regulatory Commission (FERC) licenses. For example,

federal agencies may require applicants to build passageways through which fish can

travel around the dam, schedule periodic water releases for recreation, release minimum

flows of water for fish migration, control water release rates to reduce erosion, or limit

reservoir fluctuations to protect the reservoir’s shoreline habitat. Once an agency issues

such conditions, FERC must include them in its license. While these conditions often

generate environmental or recreational benefits, they may also require construction

expenditures and may increase generation costs by reducing operational flexibility.

The provision in H.R. 6 and S. 2095 would allow stakeholders to propose alternative

license conditions, and would require federal agencies to consider alternatives proposed

by license applicants. It would also require an agency to accept an applicant’s proposed

alternative if it found that the alternative (1) provides for the adequate protection and

utilization of the federal reservation, or will be no less protective of the fish resource than

the fishway initially prescribed, and (2) costs less to implement, and/or will result in

improved operation of the project for electricity production. [This section prepared by

Kyna Powers, Analyst in Environmental Policy.]

Air Quality: Ozone Nonattainment Area Deadlines. Section 1443 of S. 2095

would extend Clean Air Act deadlines for areas that have not attained the ozone air

quality standard if upwind areas “significantly contribute” to their nonattainment. This

section was identical in H.R. 6. Under the 1990 Clean Air Act Amendments, ozone

nonattainment areas were classified in one of five categories: marginal, moderate,

serious, severe, or extreme. Areas with higher concentrations of the pollutant were given

more time to reach attainment. In return for the additional time, they were required to

implement more stringent controls on emissions. Failure to reach attainment by the

specified deadline was to result in reclassification of an area to the next highest category

and the imposition of more stringent controls.

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For a variety of reasons, EPA has generally not reclassified areas when they failed

to reach attainment by the statutory deadlines. As of June 2003, the agency’s website

listed 20 marginal areas, 7 moderate areas, and 12 serious areas, most of which should

have been categorized as severe under the statutory requirements. In several cases, the

agency granted additional time to reach attainment on the grounds that a significant cause

of the area’s continued nonattainment was pollution generated outside the area and

transported into it by prevailing winds. EPA has been sued over its failure to bump up

five of these areas; of the first three cases decided (Washington, D.C.; St. Louis; and

Beaumont-Port Arthur, Texas), the agency lost all three. As a result, EPA has taken steps

to reclassify the three areas.

Section 1443 would roll back these reclassifications and would extend attainment

deadlines in areas affected by upwind pollution to the date on which the last reductions

in pollution necessary for attainment in the downwind area are required to be achieved in

the upwind area. The specific date is open for interpretation. Under EPA’s overturned

policy, areas were given extensions no longer than the attainment or compliance deadline

in the upwind area (generally 2004, 2005, or 2007). The language of Section 1443

appears to give EPA flexibility to extend the deadlines beyond those dates, however; it

also would apply to the agency’s new eight-hour ozone standard scheduled to be

implemented next year, making many additional areas eligible for extensions. [This

section prepared by James McCarthy, Specialist in Environmental Policy.]

Use of Tar Creek Mine Tailings. The Tar Creek Superfund site in northeastern

Oklahoma is a former lead and zinc mining area of approximately 40 square miles.

Section 1445 of S. 2095 makes no changes to the same-numbered provision of H.R. 6; it

directs the EPA Administrator to establish criteria for the safe and environmentally

protective use of mine tailings from the site (known as “chat”) in highway construction

projects. The mine tailings are deposited in hundreds of piles and ponds in the area, and

contain lead and other heavy metals. The criteria that the agency is instructed to issue are

to include an evaluation of whether to establish numerical standards for the concentration

of lead and other hazardous substances in materials used for highway construction. [This

section prepared by Mark Reisch, Analyst in Environmental Policy.]

Hydraulic Fracturing: Drinking Water Regulation. Section 327 of the

conference report amends the Safe Drinking Water Act (SDWA), Section 1421(d), to

specify that the definition of “underground injection” excludes the injection of fluids or

propping agents used in hydraulic fracturing operations for oil and gas production. The

modified Senate energy bill, S. 2095, makes no changes to this provision.

The SDWA directed EPA to promulgate regulations for state underground injection

control (UIC) programs that included minimum requirements for programs to prevent

underground injection that endangers sources of drinking water. The provisions specified

that UIC program regulations may not prescribe requirements that interfere with or

impede “any underground injection for the secondary or tertiary recovery of oil or natural

gas, unless such requirements are essential to assure that underground sources of drinking

water will not be endangered by such injection” (SDWA §1421(b)(2)).

The bill prevents EPA from regulating the underground injection of fluids for

hydraulic fracturing purposes, thus removing EPA’s existing discretion to do so under

SDWA. It incorporates language from the House bill specifically exempting hydraulic

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fracturing from the definition of underground injection. The Senate bill directed EPA to

study the effects of hydraulic fracturing of hydrocarbon-bearing formations on

underground drinking water sources, and to determine whether regulation was necessary.

EPA reports that before 1997 it had not considered regulating hydraulic fracturing

because it did not view this well production process as an activity subject to regulation

under SDWA’s UIC program. The Legal Environmental Assistance Foundation (LEAF)

challenged EPA’s interpretation, and argued that Alabama should regulate hydraulic

fracturing for coalbed methane development as underground injection. LEAF petitioned

EPA to withdraw Alabama’s UIC program, and sued EPA when the petition was rejected.

In 1997, the 11th Circuit Court of Appeals ruled that the injection of fluids for the purpose

of hydraulic fracturing constitutes underground injection, that all underground injection

must be regulated, and that hydraulic fracturing of coalbed methane wells in Alabama

should be regulated under the state’s UIC program (LEAF v. EPA, 118 F. 3d 1467).

Following the court’s decision, EPA decided it needed more information before

making further decisions regarding the regulation of hydraulic fracturing, and undertook

a study to evaluate impacts of hydraulic fracturing practices used in coalbed methane

production on drinking water sources. In August 2002, EPA issued a draft report that

identified water quality and quantity problems attributed to hydraulic fracturing in several

states in the West and Southeast, but concluded that the overall impact was small.

In 2003, EPA’s National Drinking Water Advisory Council recommended that EPA

(1) work to eliminate the use of diesel fuel and related additives in fracturing fluids that

are injected into formations containing drinking water sources; (2) continue to study the

health and environmental problems that could occur from hydraulic fracturing for coalbed

methane production; and (3) defend its authority and discretion to implement the UIC

program in a way that advances protection of groundwater resources from contamination.

[This section prepared by Mary Tiemann, Specialist in Environmental Policy.]

Other Issues Not Included in the Legislation. ANWR: One major element

of the energy debate in the 108th Congress has been whether to approve energy

development in the Arctic National Wildlife Refuge (ANWR) in northeastern Alaska, and

if so, under what conditions, or whether to continue to prohibit development to protect the

area’s biological resources. Current law forbids energy leasing in the refuge. The House

version of H.R. 6 had a provision to limit certain features of federal leasing development

to no more than 2,000 acres, while the Senate version contained no provisions to open the

refuge to development. In the end, neither the conference bill nor S. 2095 includes the

House’s development title. [This section prepared by M. Lynne Corn, Specialist in

Natural Resources.]

Renewable Portfolio Standard: A key issue in the debate over H.R. 6 has been the

inclusion or exclusion of a renewable portfolio standard (RPS). An RPS would impose

a requirement on electric utilities to increase the use of renewable fuels in electric power

generation. The Senate bill contained a 10% RPS provision. The conference report

contained no similar provision, nor does S. 2095. [This section prepared by Robert

Bamberger, Specialist in Energy Policy.]