Order Code IB10041
CRS Issue Brief for Congress
Received through the CRS Web
Renewable Energy:
Tax Credit, Budget, and
Electricity Production Issues
Updated March 12, 2004
Fred Sissine
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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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 Omnibus Energy Bills (S. 2095 and H.R. 6)
Production Tax Credit (PTC) and Production Incentive (REPI)
Renewable Fuel Standard (RFS)
Renewable Hydrogen
Residential Tax Credit
Other Non-Tax Provisions
Renewables Tax Revenue Effect
FY2005 DOE Budget
FY2005 USDA Budget
Using Renewable Energy to Produce Electricity
Renewables Under Electric Industry Restructuring
Green Power
Distributed Generation
Net Metering
Natural Gas and Renewables
Biomass-Generated Synthetic Natural Gas
Substituting Electricity from Renewables for Gas-Fired Generation
Climate Change and Renewables
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
CRS Reports
FOR ADDITIONAL READING
Websites

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Renewable Energy:
Tax Credit, Budget, and Electricity Production Issues
SUMMARY
Energy security, a major driver of federal
In addition to the FY2004 Energy and
renewable energy programs in the past, came
Water appropriations bill (P.L. 108-137)
back into play as oil and gas prices rose late in
funding for the DOE Renewable Energy
the year 2000. The terrorist attack of Septem-
Program, the consolidated appropriations bill
ber 11, 2001, and the Iraq war of 2003 have
(H.R. 2673, Division H) added a total of
led to heightened concern about energy secu-
nearly $20 million more for several renewable
rity, energy infrastructure vulnerability, and
energy project earmarks.
the need for alternative fuels. Further, the
2001 electricity shortages in California, the
FY2004 congressional funding earmarks
high natural gas prices in 2003, and the
have become a concern for DOE program
northeast-midwest blackout of 2003 brought a
officials. They contend that the resultant
new emphasis to the role that renewable
funding shift leaves insufficient resources for
energy may play in producing electricity,
the Hydrogen Program and for the High Tem-
displacing fossil fuel use, and curbing demand
perature Superconductivity Program under the
for power transmission equipment.
Office of Electric Transmission and Distribu-
tion (OETD).
Also, worldwide emphasis on environ-
mental problems of air and water pollution
In the first session, the H.R. 6 confer-
and global climate change, the related devel-
ence bill left out the Senate-proposed renew-
opment of clean energy technologies in west-
able portfolio standard, but provided a renew-
ern Europe and Japan, and technology com-
able energy production tax credit (PTC),
petitiveness may remain important influences
renewable energy fuel standard (RFS), and
on renewable energy policymaking.
several other tax and non-tax measures.
In the 108th Congress, debate over renew-
In the second session, S. 2095 was intro-
able energy programs has focused on tax
duced without the controversial MTBE safe
credits, incentives, budget, and provisions of
harbor provision and with a cost about half
the omnibus energy policy bill H.R. 6.
that of H.R. 6. Its renewable energy provi-
sions are nearly identical to those in H.R. 6.
The Bush Administration’s FY2005
This includes a three-year extension of the
budget request for DOE’s Renewable Energy
renewable energy production tax credit (PTC),
Program seeks $374.8 million (excluding
a residential solar energy tax credit, a renew-
$90.9 million for the new Office of Electricity
able fuels standard (RFS), and several other
Transmission and Distribution [OETD]). This
tax and non-tax provisions.
is $4.3 million, or 1%, more than the FY2004
appropriation (including $13.0 million from
prior year balances and excluding inflation).

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MOST RECENT DEVELOPMENTS
On March 4, 2004, S.Amdt. 2687 to S. 1637 (“jobs bill”) was introduced, which would
extend the renewable energy production tax credit (PTC) through December 31, 2004. A
longer PTC extension is a major provision of the “leaner” omnibus energy bill, S. 2095,
which was introduced February 12. Compared to H.R. 6, S. 2095 drops the controversial
MTBE (methyl tertiary butyl ether) safe harbor provision and cuts the overall bill cost to
about $15 billion. S. 2095 otherwise provides renewables provisions nearly identical to
those of H.R. 6. (For a summary of provisions in S. 2095 and H.R. 6, see “Renewables in
Omnibus Energy Bills,” below.)
On February 2, 2004, President Bush issued the Administration’s budget request for
FY2005. The Department of Energy (DOE) request seeks $374.8 million for renewables,
which is $4.3 million , or 1%, more than the FY2004 appropriation (including $13.0 million
from prior year balances and excluding inflation). The main increases are for Hydrogen
Safety ($12.1 million) and Program Direction ($8.3 million). The main cuts are for Small
Modular Biopower and biomass earmarks (-$13.9 million) and for Concentrating Solar
Power (-$3.4 million). (For more details, see “FY2005 DOE Budget” and Table 3.)
The Department of Agriculture (USDA) request would cut funding for the Bioenergy
Program of the Commodity Credit Corporation by $50 million and would cut discretionary
funding of renewable energy grants by $12 million. (See “FY2005 USDA Budget,” below)
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 National Renewable Energy Laboratory’s website information on “Clean Energy 101”
at [http://www.nrel.gov/clean_energy/].)
Contribution to National Energy Supply
According to the Energy Information Administration’s (EIA’s) Annual Energy Outlook
2004, renewable energy resources (excluding wood use for home heating) supplied about 5.8
Q (quadrillion Btu’s or quads) of the 97.7 Q the nation used in 2002, 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
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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 recent review of renewable energy studies by Resources for the Future,
Renewable Energy: Winner, Loser, or Innocent Victim?, concludes that the lower-than-
projected market penetration and flat market share are due primarily to declining fossil fuel
and electricity prices during 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 2004 projects that current policies would yield a 1.9%
average annual increase in renewable energy production to 9.0 Q through 2025, resulting in
a 71% total increase. This would amount to about 6.5% of the projected 136 Q total demand
in 2025. (Detailed breakdowns of renewable energy use appear in EIA’s Renewable Energy
Annual 2002 and Renewable Energy 2000: Issues and Trends.)
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
Plan of Implementation ([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 ([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 joint federal
participation with the private sector in demonstration projects, commercialization, and
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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 FY2005 Congressional Budget Request,
DOE/ME-0034, v. 3, February 2004.)
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.
Tax Credits. The Energy Tax Act of 1978 (P.L. 95-618) created residential solar
credits and the 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) systems. 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. Additionally, P.L. 96-223 created an income tax credit for
alcohol fuels; and Section 9003(a)(3) of P.L. 105-178 extends the 40- to 60-cent/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.
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Public Utility Regulatory Policies Act. The Public Utilities Regulatory Policies
Act (PURPA, P.L. 96-917) 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, to receive avoided cost payments, each renewables facility must file
for, and obtain, qualifying facility (QF) status from FERC. EIA’s Renewable Energy 2000:
Issues reports that, in 1998, QF renewable power capacity reached 12,700 megawatts (MW)
and generation reached 64 billion kilowatt-hours (kwh). Thus, QFs provided about 1.6% of
national electric capacity and about 1.7% of national electricity generation. In comparison,
the capacity of all renewables reached 94,800 MW, or about 12% of national capacity; and
generation for all renewables stood at 418,000, which is about 11.5% of national generation.
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.
(For more on federal, state, and local policies (incentives, grants, standards) for renewable
energy, see Database of Incentives for Renewable Energy [http://www.dsireusa.org/].)
Renewables in Omnibus Energy Bills
(S. 2095 and H.R. 6)
In the 108th Congress, most legislative action on renewables has focused on the omnibus
energy policy bills, S. 2095, H.R. 6 and S. 14/S. 1149. Late in 2003, a cloture motion to stop
a filibuster on the conference report (H.Rept. 108-375) for H.R. 6 failed (57-40). Key
objections cited in Senate debate included budget concerns and the Title XV provisions that
would provide a “safe harbor” from product liability lawsuits for producers of methyl tertiary
butyl ether (MTBE), ethanol, and other renewable fuels. This section summarizes key
renewable energy provisions in S. 2095 and the conference version of H.R. 6. The renewable
portfolio standard (RPS) proposed in the Senate bill was left out of the conference bill, but
the production tax credit and the renewable fuel standard (RFS) for cellulosic ethanol and
biodiesel remain in S. 2095 (and H.R. 6). Other renewables provisions include a renewable
energy production incentive, a residential solar tax credit, and other tax and authorization
measures. S. 2095 and H.R. 6 also include a provision (§920) for concentrating solar power
R&D that did not appear in either the House or Senate bill. (For a detailed summary of
provisions in the conference version of H.R. 6, see CRS Report RL32204. For more
information about House and Senate bills, see CRS Report RL32078, which compares House
and Senate versions of H.R. 6 with S. 14. For side-by-side comparisons of provisions in
H.R. 6, see CRS Report RL32033 [non-tax provisions], CRS Report RL32042 [tax
provisions], and CRS Report RL32041 [electricity provisions].)
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Production Tax Credit (PTC) and Production Incentive (REPI). The existing
renewable energy production tax credit provides a 1.8 cents/kwh credit for businesses that
generate power from wind, closed-loop biomass (energy crops), and poultry waste for sale
to the grid. This credit expired December 31, 2003, but would be extended, retroactively,
through December 31, 2004, by S.Amdt. 2687 to S. 1637. S. 2095 (§1301) and H.R. 6
(§1302) would extend the placed-in-service date for three years, through December 31, 2006.
Eligible sources would be expanded to include open-loop biomass (agricultural livestock
nutrient, forest, and construction wastes), geothermal energy, solar energy, small irrigation
power, and municipal solid waste (landfill gas and trash combustion facilities). However,
these newly eligible sources would be allowed to claim the credit for five years after being
placed in service — compared to 10 years for the currently eligible sources. Also, the
General Accounting Office (GAO) would be required by June 30, 2006, to prepare a study
of the market viability of these resources, comparing their costs with those for fossil-fueled
power generators. This cost comparison would include estimates of the dollar value of the
environmental impacts of power production.
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 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. S. 2095 (§202) and H.R. 6 (§202) would
make landfill gas eligible too. Also, the eligibility period would be extended for 10 fiscal
years, through 2013; eligibility for payments would be extended through 2023.
Renewable Fuel Standard (RFS). The proposal for a renewable fuel standard (S.
2095, §1501; and H.R. 6, §1501) would be linked with other provisions involving methyl
tertiary butyl ether (MTBE). While H.R. 6 (§1502) would provide a “safe harbor” from
product liability lawsuits for producers of MTBE and other renewable fuels, S. 2095 dropped
this controversial provision.
Under the Clean Air Act Amendments of 1990, reformulated gasoline (RFG) must
contain 2% oxygen, a requirement that led to the use of MTBE, and to a lesser extent
ethanol. However, MTBE has been implicated in numerous incidents of groundwater
contamination, leading 17 states to ban or regulate its use. S. 2095 and H.R. 6 would put a
qualified ban on the use of MTBE as a fuel additive and would replace the RFG requirement
with a renewable fuel standard (RFS), which requires that the annual production of gasoline
contain at least 5 billion gallons of “renewable fuel.”
S. 2095 and H.R. 6 (§1501) define “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 2002, about 2.1
billion gallons of ethanol were blended with gasoline. Biodiesel is used at a rate of about 50
million gallons per year. RFS would call for renewable fuels (primarily ethanol) production
to grow to 3.1 billion gallons a year by 2005, and then increase stepwise to 5 billion gallons
a year by 2012. An incentive would encourage the use of cellulosic and waste-derived
ethanol, by raising the value of 1.0 gallon of cellulosic or waste-derived ethanol from a
previous incentive level of 1.5 gallons of renewable fuel up to 2.5 gallons of renewable fuel.
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For more information on the bill’s provisions for renewable fuels and MTBE, see CRS
Report RL31912, Renewable Fuels and MTBE: Side-by-Side Comparison of the House and
Senate Energy Bills and the Conference Report on H.R. 6; and see CRS Report RS21673,
Selected Environmental Provisions in the Energy Bill (H.R. 6).
Renewable Hydrogen. Section 803 of S. 2095 and H.R. 6 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.
Residential Tax Credit. Section 1323 of S. 2095 and H.R. 6 would create a 15%
residential tax credit worth up to $2,000 for homeowners who purchase photovoltaics, wind
energy, and solar water heating equipment. The credit would be in effect for three calendar
years, ending on December 31, 2006.
Other Non-Tax Provisions. Other renewable energy provisions (and sections)
include resource assessment (201), federal purchases (203), insular areas (204), renewables
in public buildings (205, 922), biomass/biopower (206, 207, 919), geothermal leasing (H.R.
6, 211-227; S. 2095, 211-227), hydropower (231, 241-248), federal lands (352), Indian
energy (503), funding authorizations (918), concentrating solar (920), ocan/wave/marine
(921, 923), net metering (1251), small power (1253), alternative fuels (1503-1514)
Renewables Tax Revenue Effect. Table 1 shows the estimated 10-year revenue
effect of renewable energy and alternative fuel tax provisions in H.R. 6 and S. 2095. The
amounts for S. 2095 are estimated from the scoring for S. 1149, as reported by committee.
Table 1. H.R. 6 and S. 2095, Tax Revenue Effect
($ billions)
H.R. 6
S. 2095
Renewable Energy Production Tax Credit
$ 3.04
$3.04
Residential Solar Tax Credit
$ 0.11
$0.11
Alternative Fuels and Vehicles
$ 2.42
$2.42
Total, Renewables & Alternative Fuels
$ 5.57
$5.57
Net Total, All Tax Provisions
$23.51
$14.80
Renewables Share of Total
23.7%
37.6%
Source: Joint Tax Committee (JTC). Estimated Revenue Effects of the Conference Agreement for the “Energy
Tax Policy Act of 2003.” November 18, 2003; and JTC Estimated Revenue Effects of S. 1149 as Reported by
the Committee on Finance, May 30, 2003.
FY2005 DOE Budget
The FY2005 budget request aims to promote “breakthroughs in hydrogen fuel cells,”
develop advanced technologies for cellulosic biomass as an energy source, and generally
lower cost while improving the performance and efficiency of various renewable energy
systems. The request also proposes competitive solicitations for applied research on
technologies that would help curb greenhouse gas emissions. Further, anticipating passage
of an omnibus energy bill, the request proposes $4.1 billion in tax incentives for renewables
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and energy efficiency, which includes support for the renewable energy production tax credit
and the excise tax exemption for alcohol fuels.
As Table 3 shows, the request seeks $374.8 million for renewables, which is $4.3
million, or 1%, more than the FY2004 appropriation. This comparison includes the use of
$13.0 million in prior year balances for FY2004 and excludes the projected inflation from
FY2004 to FY2005. The funding request includes $13.3 million more for Hydrogen (due
to increases of $12.1 million for safety and $2.7 million for renewable hydrogen), $8.3
million more for Program Direction, and $3.0 million for a new National Climate Change
Technology program. However, it would terminate Program Support (a cut of $4.9 million)
and cut Biomass Utilization by $15.2 million (to terminate Small Modular Biopower and
discontinue congressional earmarks) and cut Concentrating Solar by $3.4 million. Also, the
request includes $90.9 million for OETD, and increase of $10.1 million, or 12%. The
primary increase in OETD is for High Temperature Superconductivity.
FY2005 USDA Budget
For FY2005, the Administration’s request for the Department of Agriculture (USDA)
seeks to reduce the mandatory appropriation for the Bioenergy Program of the Commodity
Credit Corporation (CCC) from $150 million to $100 million. Also, the Administration
proposes to cut discretionary funding of renewable energy grants for Rural Development
from $23 million in FY2004 to $11 million in FY2005.
The Agriculture, Rural Development, Food and Drug Administration, and Related
Agencies appropriations bill for FY2004 is included as Division A of the conference report
(H.Rept. 108-401) for the Consolidated Appropriations Act (H.R. 2673). Title III (H12329)
includes $23.0 million for renewable energy loans, loan guarantees, and grants as authorized
by Section 9006 of the Farm Security Act of 2002. Also, under Title VII, Section 778
(H12334) would create a “Sun Grant Research Initiative,” by amending Title IX of the Farm
Security Act of 2002 to add a new section 9011 for “Research, Extension, and Educational
Programs on Biobased Energy Technologies and Products.” A program that includes plans,
grants, and reports would be authorized $25 million in FY2005, $50 million in FY2006, and
$75 million annually for FY2007 through FY2010.
In the 108th Congress, debate has surfaced over appropriations for executing the
mandatory spending requirements for renewable energy and energy efficiency programs, set
by Title IX (Section 9006) of the Farm Security and Rural Investment Act of 2002.
The Department of Agriculture’s (USDA) renewable energy programs have recently
grown, spurred by federal bioenergy initiatives (P.L. 106-224, Executive Order 13134), the
President’s National Energy Policy, and the Farm Security Act (P.L. 107-171). According
to USDA, renewable energy program funding reached $247.6 million in FY2002. Table 2
shows some funding details. Also, for FY2003, Section 6013 of the Farm Security Act of
2002 provides loan guarantees for renewable energy equipment and broadens the range of
renewable energy equipment available for loans. Sections 2101 and 6401 of the act provide
other programs and incentives for renewable energy (For more information about USDA
Bioenergy Programs, go to the website at [http://www.ars.usda.gov/bbcc/index.htm]).
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Table 2. USDA Funding for Renewables, FY2001-FY2003
($ millions)
FY2001
FY2002
FY2003
Biobased Products and Bioenergy Programs
Agricultural Research Service
48.9
64.2
67.4
Commodity Credit Corporation (CCC)
40.7
150
115.0
Cooperative State Research, Education, Extension
23.0
12.3
14.2
Forest Service
12.5
12.5
17.5
Other
8.0
8.2
3.4
Subtotal, Biobased Products and Bioenergy Programs*
133
247.2
102.5
Substitution: Solar and Wind Energy Programs
0.4
0.4
0.4
Farm Security Act, Title IX (mandatory appropriations)
——-
——-
39.0
Total
133.4
247.6
141.9
Source: USDA. Office of Energy Policy and New Uses. Selected tables from Roger Conway, October 29,
2002.
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. H.R. 6 (Section
16062) and S. 14 (Section 1145) include a conditional repeal of the mandatory renewables
purchase requirement in Section 210 of PURPA. (For a discussion of broader electricity
restructuring issues, see the CRS Electronic Briefing Book on Electricity Restructuring at
[http://www.congress.gov/brbk/html/ebele1.shtml].)
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 108th Congress, the Senate version
of H.R. 6 had an RPS (Sections 264 and 271).
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 the website [http://www.eren.doe.gov/greenpower/home.shtml].)
Distributed Generation. Distributed generation 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
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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. (More information about DOE’s Distributed Power Program is
available at [http://www.eren.doe.gov/distributedpower/]).
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. In 2002, California enacted laws
(AB58, Chapter 836; AB2228, Chapter 845) that encourage net metering, including a
provision that permanently raises the size limit from 10 kw to 1 Mw. Also, H.R. 6 (Section
16071) and S. 14 (Section 1141) provide nearly identical language for net metering.
Natural Gas and Renewables
Biomass-Generated Synthetic Natural Gas. The natural gas price spike in 2003
has created interest in using renewables to dampen natural gas demand. EIA data show that
a growing share of natural gas is used for electric power generation. Renewable energy
(mainly biomass) can be used to produce methane (the main component of natural gas) to
substitute for natural gas directly. DOE projects that, by 2020, biomass and energy crops
could produce 15% of natural gas needs.
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. The American Wind Energy Association (AWEA) says that the installed
base of wind farms through the end of 2003 will produce enough electric power to lessen the
natural gas shortfall by 10% to 15% in 2004 and could reach the equivalent of 1.1 Tcf per
year in four years. Similarly, with some federal policy changes, DOE’s report Scenarios for
a Clean Energy Future (Table 7.11) projects that biomass-based power production could be
greatly accelerated through 2010. (See ACEEE’s September 2003 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 (CO ), renewables
2
are seen as a key long-term resource that can 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.
DOE’s 2000 report Scenarios for a Clean Energy Future estimates that new policies
could triple non-hydro renewables electricity production in 2010 from a projected business-
as-usual 86 billion kilowatt-hours (Bkwh) to 265 Bkwh. EPA’s Climate Action Report-2002
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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 can play in curbing global CO emissions.
2
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 (CO ) and other human-generated emissions. The federal government funds
2
programs for renewable energy as a mitigation measure at DOE, the Department of
Agriculture (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 CO contributes the largest share of greenhouse gas emission impact, it has
2
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 (CO ) emissions, as well as
2
pollutants that contribute to water pollution, acid rain, and urban smog. In general, the
combustion of biomass for fuel and power production releases CO at an intensity that may
2
rival or exceed that for natural gas. However, the growth of biomass material, which absorbs
CO , offsets this release. Hence, net emissions occur only when combustion is based on
2
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 CO emissions.
2
LEGISLATION
P.L. 108-137 (H.R. 2754)
Energy and Water Appropriations Act, FY2004. Includes funding for the DOE
Renewable Energy Program and the Electricity Transmission and Distribution Program.
House bill reported (H.Rept. 108-212) July 16, 2003. Passed House July 21. Senate bill
reported (S.Rept. 108-105) July 17. Passed Senate, amended, September 16. Conference
reported (H.Rept. 108-357) November 7. Signed into law December 1.
P.L. 108-199 (H.R. 2673, Division H, Miscellaneous)
Consolidated Appropriations Bill, FY2004. Division H, Sections 132 and 167
(H12745), includes nearly $20 million in additional funding earmarks for the DOE
Renewable Energy Program and the Electricity Transmission and Distribution Program.
House bill reported (H.Rept. 108-193) July 9, 2003. Passed House July 14. Passed Senate,
amended without report, November 6. Conference reported (H.Rept. 108-401) November
25. House approved December 8. Senate approved January 22, 2004. President signed
January 23, 2004.
P.L. 108-199 (Division D, Foreign Operations Appropriations Bill)
Consolidated Appropriations Bill, FY2004. Division D contains the Foreign
Operations, Export Financing, and Related Programs Appropriations Bill, 2004. Under
Environment Programs, Senate bill appropriates $185 million for “energy conservation,
energy efficiency, and clean energy” in developing countries to reduce greenhouse gases.
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House bill reported (H.Rept. 108-222) July 21, 2004. Senate bill reported (S.Rept. 108-106,
p. 17) July 17. Passed Senate October 30. In Division D of the Consolidated Appropriations
Bill, Section 555 on Environment Programs includes $180 million for this provision.
H.R. 6, House Version (Tauzin)/H.R. 6, Senate Version (Domenici)
Omnibus Energy Bill. House version includes provisions for renewable energy
production tax credit (PTC), renewable energy production incentive (REPI), renewable
energy fuel standard (RFS), renewable hydrogen, residential solar tax credit, alternative fuels,
and others. Incorporates renewable energy provisions of H.R. 39, H.R. 238, and H.R. 1531.
Introduced April 7, 2003; referred to Committee on Energy and Commerce and several other
committees. Passed House, amended, April 10. Senate version incorporates text of omnibus
energy bill (H.R. 4) that the Senate adopted in the 107th Congress. Passed Senate July 31,
in lieu of S. 14. Conference reported (H.Rept. 108-375) November 18. House approved
November 18. Senate cloture motion failed (57-40) November 21.
S. 944 (Jeffords)
Renewable Energy Investment Act. Would establish a renewable portfolio standard
(RPS) that reaches 20% by the year 2020. Introduced April 9, 2003; referred to Committee
on Energy and Natural Resources. The provisions of this bill were incorporated into an
amendment (S.Amdt. 1530) to S. 14, but action stopped when the Senate substituted the
energy bill (H.R. 4) that it had sent to conference in the 107th Congress.
S. 1548 (Grassley)
Volumetric Ethanol Excise Tax Credit (VEETC) Act. The bill’s measures are described
in a January 29, 2004, report by the Joint Tax Committee (JTC), Description of the Highway
Reauthorization and Excise Tax Simplification Act of 2004. Also, in a January 30 report,
JTC estimated VEETC would cost $4.3 billion over 10 years. This bill is designed to be
incorporated into the highway reauthorization bill (S. 1072, SAFETEA). Introduced July 31,
2003. Committee on Finance reported February 2, 2004.
S. 2095 (Domenici)
Omnibus Energy Bill. This bill is a pared-down version of the conference bill, H.R. 6,
which failed under a Senate cloture vote (57-40). Renewable energy appears as Title II.
Also, Title VII A covers alternative fuels, Title VIII covers hydrogen, Title IX covers R&D
authorizations, Title XI on electricity includes a provision on PURPA and small power, and
Title XIII has tax incentives. Introduced February 12, 2004. Under Rule 14, placed on
Senate Calendar for floor action.
S.Amdt. 1480 to S. 14 (Bingaman)
This amendment would have set a 10% renewable portfolio standard (RPS) and
included refinements to the RPS provisions (Sections 264 and 271) in the Senate version of
the omnibus energy bill, H.R. 6.
S.Amdt. 2687 to S.Amdt. 2686 to S. 1637 (Grassley)
Section 514 of this amendment would extend the renewable energy production tax
credit, retroactively, from January 1, 2004, though December 31, 2004. Also , Section 520
would eliminate the electric vehicle tax credit phase-out, and Section 521 would eliminate
the clean-fuel vehicle tax deduction phase-out. Introduced March 4, 2004 (Congressional
Record p. S2250).
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CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee on Appropriations. FY2005 DOE Budget Request.
Hearing held March 10, 2004.
U.S. Congress. Senate. Committee on Appropriations. Subcommittee on Energy and
Water. FY2005 Budget Request for DOE Office of Energy Efficiency and Renewable
Energy. Hearing held March 3, 2004.
U.S. Congress. House. Committee on Science. Reviewing the Hydrogen Fuel and Freedom
Car Initiatives. Hearing held March 3, 2004.
U.S. Congress. Joint Committee on Taxation. Description of Revenue Provisions Contained
in the President’s Fiscal Year 2005 Budget Proposal. (Energy Provisions)
[http://www.house.gov/jct/s-3-04.pdf]. February 2004. p. 122-153.
U.S. Congress. House. Committee on Science. Subcommittee on Energy. What Are the
Administration Priorities for Climate Change Technology? Hearing held November
6, 2003.
U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on Energy
and Air Quality. The Hydrogen Energy Economy. Hearing held May 20, 2003.
CRS Reports
CRS Issue Brief IB10116. Energy Policy: The Continuing Debate, by Rob Bamberger.
CRS Report RS21673. Selected Environmental Provisions in the Energy Bill (H.R. 6), by
Brent Yacobucci.
CRS Memorandum. Renewable Energy Portfolio Standard (RPS), by Fred Sissine.
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 RS20270. Renewable Energy and Electricity Restructuring, by Fred Sissine.
CRS Electronic Briefing Book, Electric Utility Restructuring, page on “Reliability,” by
Amy Abel. At [http://www.congress.gov/brbk/html/ebele16.html].
CRS Report RS21442. Hydrogen and Fuel Cell Vehicle R&D: freedomCAR and the
President’s Hydrogen Fuel Initiative, by Brent Yacobucci.
CRS Issue Brief IB10054. Energy Tax Policy, by Salvatore Lazzari.
CRS Report RL30369. Fuel Ethanol: Background and Public Policy Issues, by Brent
Yacobucci.
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FOR ADDITIONAL READING
Tables showing DOE Renewable Energy R&D Funding (current and constant) trends
back to FY1974 are available from the author of this issue brief.
American Solar Energy Society. Renewable Hydrogen Forum. Apr. 10-11, 2003. 50 p.
Barry, Courtney. “Winds of Change in Texas.” Public Utilities Fortnightly, v. 141, no. 7,
Apr. 1, 2003. p. 27-31.
Blankinship, Steve. “A Sunny Outlook for Grid-Connected PV.” Power Engineering, v.
107, no. 1, May 2003. p. 32-40.
Cato Institute. Policy Analysis. Evaluating the Case for Renewable Energy: Is Government
Support Warranted? Jan. 10, 2002. 16 p.
Edison Electric Institute. [http://www.eei.org/]
Electric Power Research Institute (EPRI) and EPRI Journal Online. [http://www.epri.com/]
——. Renewable Power Industry Status Overview. Dec. 1998. 1 vol. (EPRI TR-111893).
Energy Future Coalition. Challenge and Opportunity: Charting a New Energy Future,
Report of the Bioenergy and Agriculture Working Group. 2003. 13 p.
[http://www.energyfuturecoalition.com/]
International Energy Agency. Renewables Information 2003. Sept. 2003. 201 p.
[http://www.iea.org/stats/files/renewables.htm]
National Research Council. “The Hydrogen Economy: Opportunities, Costs, Barriers, and
R&D Needs. February 2004. 200 p.
Polachek, Jay S. “Cape Cod: Twisting in the Wind?” Public Utilities Fortnightly, May 15,
2002. p. 28-37.
Schimmoller, Brian K. “Renewables Get Into the Mix” Power Engineering, Jan. 2004. p.
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. 195 p.
U.S. Department of Interior. Bureau of Land Management. Assessing the Potential for
Renewable Energy on Federal Lands. May 2002. 89 p.
[http://www.nplnews.com/toolbox/fedreports/renewablereport.pdf]
U.S. Department of Energy. Interlaboratory Working Group. Scenarios for a Clean Energy
Future. (ORNL/CON-476) Nov. 2000. 350 p.
[http://www.ornl.gov/ORNL/Energy_Eff/CEF.htm]
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——. Energy Information Administration. Federal Financial Interventions and Subsidies
in Energy Markets 1999: Primary Energy. (SR/OIAF/99-03). 1999.
——. Lawrence Berkeley Laboratory. Case Studies of State Support for Renewable Energy.
Sept. 2002.
——. Lawrence Berkeley Laboratory and National Renewable Energy Laboratory.
Forecasting the Growth of Green Power Markets in the United States. 2001.
——. National Renewable Energy Laboratory. Domestic Energy Scenarios. 2003. 25 p.
[http://www.nrel.gov/docs/fy03osti/32742.pdf]
——. Enhancing Homeland Security Through Renewable Energy — Richard Truly’s
Remarks to the National Press Club. Mar. 14, 2002. 7 p.
[http://www.nrel.gov/news/news.html]
——. Status Report to Congress on Current and Proposed Activities under the Clean Energy
Technology Exports (CETE) Initiative. 2001. 58 p.
[http://www.pi.energy.gov/cete2001statusreport.html]
——. The Clean Air Act and Renewable Energy: Opportunities, Barriers, and Options.
(NREL/CP-620-29654). 2001.
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. June 2002. 260 p. [http://yosemite.epa.gov/oar/
globalwarming.nsf/content/ResourceCenterPublicationsUSClimateActionReport.html]
U.S. Executive Office of the President. National Energy Policy Report. May 2001. 170 p.
[http://www.whitehouse.gov/energy/National-Energy-Policy.pdf]
U.S. General Accounting Office. Renewable Energy: DOE’s Funding and Markets for Wind
Energy and Solar Cell Technologies. (GAO/RCED-99-130) May 1999. 38 p.
Wiser, Ryan et al. “Renewable Energy Policy and Electricity Restructuring: A California
Case Study.” Energy Policy, v. 26, 1998. pp. 465-475.
Websites
American Council for Renewable Energy. [http://www.americanrenewables.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/]
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Databook of Renewable Energy Power Technologies.
[http://www.nrel.gov/analysis/power_databook/chapters.asp]
Earthtrack (Database of Energy Subsidies). [http://www.earthtrack.net/]
National Association of Regulatory Utility Commissioners. [http://www.naruc.org/]
Eighth Session of the Conference of Parties to the United Nations Framework Convention
on Climate Change (New Delhi, COP-8). October 23 - November 1, 2002.
[http://unfccc.int/cop8/index.html]
Renewable Energy Policy Project. [http://solstice.crest.org/]
Renewable Energy Website. International Energy Agency (IEA).
[http://library.iea.org/renewables/index.asp]
Solar Electric Power Association (SEPA). [http://www.solarelectricpower.org/]
Solar Energy Industries Association (SEIA). [http://www.seia.org/]
U.S. Department of Energy. Energy Efficiency and Renewable Energy Network.
[http://www.eren.doe.gov/]
U.S. Department of Energy. Green Power Network Clearinghouse.
[http://www.eren.doe.gov/greenpower/home.shtml]
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.afdc.nrel.gov/]
U.S. Environmental Protection Agency. Solar Site. [http://www.epa.gov/solar/]
Vote Solar Initiative. San Francisco’s $100 Million Solar Revenue Bond Initiative.
[http://www.votesolar.org/sf.html].
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Table 3. DOE Renewable Energy Budget for FY2003-FY2005
(selected programs, $ millions)
OFFICE OF ENERGY EFFICIENCY
FY2003
FY2004
FY2005
FY2005 -
Percent
AND RENEWABLE ENERGY
App.
App.
Request
FY2004
Change
BIOMASS / BIOFUELS
85.3
86.5
72.6
-13.9
-16%
R&D / Feedstock
47.2
43.7
45.0
1.3
3%
Utilization
38.0
42.8
27.6
-15.2
-35%
GEOTHERMAL
28.4
25.5
25.8
0.3
1%
HYDROGEN
38.1
82.0
95.3
13.3
16%
HYDROPOWER
5.0
4.9
6.0
1.1
22%
SOLAR ENERGY
82.3
83.4
80.3
-3.1
-4%
Concentrating Solar
5.3
5.4
2.0
-3.4
-63%
Photovoltaics
73.2
75.1
75.4
0.4
1%
Solar Heating & Lighting
3.8
2.9
2.9
0.0
-1%
ZERO-ENERGY BUILDINGS
7.6
0.0
0.0
0.0
——
WIND
41.6
41.3
41.6
0.3
1%
INTERGOV. / RENEW. SUPPORT 1
15.9
21.6
18.0
-3.6
-17%
Dept. Energy Management
1.4
2.0
2.0
0.0
0%
International Renewables
3.9
5.9
6.5
0.6
10%
Production Incentive
4.8
3.9
4.0
0.1
2%
Tribal Energy
5.8
4.9
5.5
0.6
12%
Program Support
0.0
4.9
0.0
-4.9
-100%
NAT. CLIMATE CHANGE INIT.
——
0.0
3.0
3.0
——
FACILITIES & INFRASTRUCTURE
5.3
13.0
11.5
-1.5
-11%
PROGRAM DIRECTION
12.6
12.4
20.7
8.3
68%
RENEWABLES, SUBTOTAL
322.2
370.5
374.8
4.3
1%
Prior Year Balances
0.0
-13.0
0.0
13.0
-100%
Transfers
0.0
0.0
0.0
0.0
——
RENEWABLES, TOTAL
322.2
357.5
374.8
17.3
5%
Office of Electricity T&D (OETD) 2
88.4
80.8
90.9
10.1
12%
RENEWABLES + OETD, Total
410.5
438.3
465.7
27.4
6%
1 Combines “Intergovernmental Activities” and “Renewable Support and Implementation.”
2 Replaces “Electric/Storage” in FY2003 and “Electricity Reliability” in FY2004 request.
Source: DOE FY2005 Cong. Budget Request, v. 3; Feb. 2004 (p. 15-16, 49, 87, 169, 193, 211, 215, 231, 275).
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