Order Code IB10041
CRS Issue Brief for Congress
Received through the CRS Web
Renewable Energy:
Tax Credit, Budget, and
Electricity Production Issues
Updated September 24, 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. 1637, 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
less than the request. Also, the approved
renewable energy programs in the past, came
figure is $14.3 million, less than the FY2004
back into play as oil and gas prices rose late in
appropriation. This reduction includes $17.7
the year 2000. The terrorist attack of Septem-
million less for Hydrogen, $2.6 million less
ber 11, 2001, and the Iraq war of 2003 have
for Intergovernmental Activities, and $1.5
led to heightened concern about energy secu-
million less for Facilities and Infrastructure.
rity, energy infrastructure vulnerability, and
the need for alternative fuels. Further, the
In the first session, the H.R. 6 confer-
2001 electricity shortages in California, the
ence bill left out the Senate-proposed renew-
high natural gas prices in 2003, and the
able portfolio standard, but provided a renew-
northeast-midwest blackout of 2003 brought a
able energy production tax credit (PTC),
new emphasis to the role that renewable
renewable energy fuel standard (RFS), and
energy may play in producing electricity,
several other tax and non-tax measures.
displacing fossil fuel use, and curbing demand
for power transmission equipment.
In the second session, S. 2095 was intro-
duced without the controversial MTBE safe
Also, worldwide emphasis on environ-
harbor provision and with a cost about half
mental problems of air and water pollution
that of H.R. 6. Its renewable energy provi-
and global climate change, the related devel-
sions are nearly identical to those in H.R. 6
opment of clean energy technologies in west-
and H.R. 4503. This includes a three-year
ern Europe and Japan, and technology com-
extension of the renewable energy production
petitiveness may remain important influences
tax credit (PTC) and a residential solar energy
on renewable energy policymaking.
tax credit. The House has passed H.R. 4503.
In the 108th Congress, debate over renew-
S. 1637 (“JOBS” bill) passed the Senate
able energy programs has focused on tax
with energy tax provisions from S. 2095,
credits, incentives, budget, and provisions of
including a three-year PTC extension for an
the omnibus energy policy bill H.R. 6.
expanded list of renewable resources. In
contrast, the House-passed H.R. 4520 (Amer-
The Bush Administration’s FY2005
ican Jobs Creation Act) has a two-year exten-
budget request for DOE’s Renewable Energy
sion of the PTC only for wind and biomass.
Program seeks $374.8 million (excluding
$90.9 million for the new Office of Electricity
The House and Senate approved the
Transmission and Distribution [OETD]). This
conference report (H.Rept. 108-696) on the
is $4.3 million, or 1%, more than the FY2004
Working Families Tax Relief Act (H.R. 1308)
appropriation (including $13.0 million from
with an extension of the previous PTC
prior year balances and excluding inflation).
through December 31, 2005.
For FY2005, the House approved (H.R.
The Highway Reauthorization Tax Act
4614, H.Rept. 108-554) $343.2 million for
(H.R. 3550) would extend and modify several
Renewable Energy, which is $31.6 million,
tax incentives for alcohol fuels.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On September 23, 2004, the House and Senate approved the conference report (H.Rept.
108-696; CR pp. H7479-H7509) on H.R. 1308, Working Families Tax Relief Act, with an
extension of the previous renewable energy production tax credit (PTC) for wind, closed-
loop biomass, and poultry waste through December 31, 2005. It also extends a credit for
electric vehicles and a deduction for clean fuel vehicles. The Joint Tax Committee scored
the PTC at $1.2 billion over 10 years ([http://www.house.gov/jct/pubs04.html]).
On July 15, 2004, the Senate substituted the text of S. 1637 (“JOBS” bill) into its
version of H.R. 4520, passed the bill by unanimous consent, and appointed conferees.
Section 403 of the House-passed version of H.R. 4520 (American Jobs Creation Act) would
extend the renewable energy production tax credit (PTC) for wind and biomass through
December 31, 2005. Section 422 would extend tax incentives for alternative-fuel vehicles.
The Senate-passed version of H.R. 4520 would expand and extend the PTC through
December 31, 2006; and it contains other renewables tax provisions from S. 2095. On June
15, the House passed H.R. 4503 (Energy Policy Act of 2004), which is nearly identical to the
conference version of H.R. 6. Compared to H.R. 4503, the revised Senate bill (S. 2095)
drops the controversial MTBE (methyl tertiary butyl ether) safe harbor provision and cuts the
bill cost to about $15 billion. S. 2095 provides a PTC and other renewables tax provisions
nearly identical to those of H.R. 6 and H.R. 4503. (For a summary of provisions in S. 2095
and H.R. 6, see “Renewables in Omnibus Energy Bills,” below.)
The House-passed Energy and Water appropriations bill (H.R. 4614) has $343.2 million
for DOE’s Renewable Energy program. (For more details, see “FY2005 DOE Budget” and
Table 3.) The Department of Agriculture (USDA) request would cut funding for the
Bioenergy Program and for renewable energy grants. (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/].)
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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
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
Trends 2003 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.
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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
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
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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.
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. 1637, S. 2095, and H.R. 6)
In the 108th Congress, most legislative action on renewables has focused on the omnibus
energy policy bills, S. 1637, 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. 1637, 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)
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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].)
Production Tax Credit (PTC) and Production Incentive (REPI). The former
renewable energy production tax credit provided 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. H.R. 4520 would retroactively extend
this credit from that date through December 31, 2005. In contrast, S. 1637 (§714 and §801),
S. 2095 (§1301) and H.R. 6 (§1302) would extend the placed-in-service date for three years,
through December 31, 2006. S. 1637 (§714) includes a retroactive extension of the credit,
back to December 31, 2003. 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
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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.
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. S. 1637 (§823), S. 2095 (§1323) and H.R. 6 (§1323) would
create a 15% residential tax credit worth up to $2,000 for homeowners who purchase
photovoltaics, wind energy, and solar water heating equipment. The credit would be in effect
for three calendar years, ending on December 31, 2006.
Other Non-Tax Provisions. Other renewable energy provisions (and sections)
include resource assessment (201), federal purchases (203), insular areas (204), renewables
in public buildings (205, 922), biomass/biopower (206, 207, 919), geothermal leasing (H.R.
6, 211-227; S. 2095, 211-227), hydropower (231, 241-248), federal lands (352), Indian
energy (503), funding authorizations (918), concentrating solar (920), ocan/wave/marine
(921, 923), net metering (1251), small power (1253), alternative fuels (1503-1514)
Renewables Tax Revenue Effect. Table 1 shows the estimated 10-year revenue
effect of renewable energy and alternative fuel tax provisions in H.R. 6 and S. 2095. The
amounts for S. 2095 are estimated from the scoring for S. 1149, as reported by committee.
Table 1. S. 2095 and H.R. 6, Tax Revenue Effect
($ billions)
S. 2095
H.R. 6
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
$14.80
$23.51
Renewables Share of Total
37.6%
23.7%
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.
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FY2005 DOE Budget
On June 25, 2004, the House passed the FY2005 Energy and Water appropriations bill,
H.R. 4614 (H.Rept. 108-554). It has $343.2 million for DOE’s Renewable Energy program,
which is $31.6 million, or 8%, less than the request. This reduction includes a cut of $31.0
million from the Hydrogen program to eliminate hydrogen storage “centers of excellence,”
which the committee states DOE awarded “without full and open competition.” Another
$7.0 million reduction (zero appropriation) would cut out DOE’s proposed hydrogen
education initiative. Also, the National Climate Change Technology Initiative would be cut
by $3.0 million (zero appropriation) and Concentrating Solar Power would increase by $3.4
million.
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
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, DOE’s FY2005 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). Also, the request includes $90.9 million for OETD, an increase of $10.1 million,
mainly 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 renewable energy grants (created by Section 9006 of the Farm Security Act)
from $22.9 million in FY2004 to $10.8 million in FY2005.
On July 13, 2004, the House passed H.R. 4766 (H.Rept. 108-584), the Agriculture,
Rural Development, Food and Drug Administration, and Related Agencies appropriations
bill for FY2005. It has $15.0 million for renewable energy grants (Section 9006). This is
$7.9 million less than the FY2004 appropriation and $4.2 million more than the request.
Section 737 of the bill restricts renewables funds from use for salaries and personnel.
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 $247.6 million in FY2002. Table 2
shows some funding details. Also, for FY2003, Section 6013 of the Farm Security Act of
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2002 provides loan guarantees for renewable energy equipment and broadens the range of
renewable energy equipment available for loans. Sections 2101 and 6401 of the act provide
other programs and incentives for renewable energy (For more information about USDA
Bioenergy Programs, go to the website at [http://www.ars.usda.gov/bbcc/index.htm]).
Table 2. USDA Funding for Renewables, FY2001-FY2003
($ 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 CRS Issue Brief IB10006, Electricity: The Road Toward
Restructuring.)
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.eere.energy.gov/greenpower/].)
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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
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 generation could help reduce grid
vulnerability. (More information about DOE’s Distributed Power Program is available at
[http://www.eere.energy.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 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
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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
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 Office of Electricity Transmission and Distribution
(OETD). Signed into law December 1, 2003.
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 OETD. Signed into law 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. Section 555
on Environment Programs includes $180 million for “energy conservation, energy efficiency,
and clean energy” in developing countries to reduce greenhouse gases.
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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. 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.
H.R. 3550 (Young)
Highway Reauthorization Tax Act of 2004. Would extend and modify several tax
incentives for alcohol fuels. Introduced September 18, 2003; referred to Committee on
Transportation and Infrastructure. Reported (H.Rept. 108-452, Part 1) November 7, 2003.
Referred jointly and sequentially to several other committees. Passed House April 2, 2004.
H.R. 4503 (Barton)
Energy Policy Act of 2004. Omnibus energy policy bill, nearly identical to conference
version of H.R. 6.. Introduced June 3, 2004; referred to Committee on Energy and
Commerce. Passed House (244-178) June 15, 2004.
H.R. 4520 (Thomas)
American Jobs Creation Act. Section 403 would extend the renewable energy
production tax credit for wind and biomass through December 31, 2005. Section 422 would
delay phase-out of tax credit for electric vehicles and tax deduction for clean-fuel vehicles
to January 1, 2006. Introduced June 4, 2004; referred to Committee on Ways and Means.
Reported (H.Rept. 108-548, Part 1) June 16, 2004. Passed House (251-178) June 17, 2004.
H.R. 4614 (Hobson)
Energy and Water Appropriations Act, FY2005. Includes funding for the DOE
Renewable Energy Program and the Office of Electricity Transmission and Distribution
(OETD). Reported (H.Rept. 108-554) June 18. Passed House (370-16) June 25.
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 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. In a January 30 report, JTC
estimated VEETC would cost $4.3 billion over 10 years. Introduced July 31, 2003.
Committee on Finance reported February 2, 2004. Incorporated into the highway
reauthorization bill (S. 1072, SAFETEA; §5101-5103) and into S. 1637 (§860-862).
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S. 2095 (Domenici)
Omnibus Energy Bill. This bill is a pared-down version of the conference bill, H.R. 6.
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.
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. 1637 (Grassley)
The energy tax provisions of S. 2095 appear in Titles VII and VIII . Section 714 of the
bill would extend the renewable energy production tax credit, retroactively, from January 1,
2004, though December 31, 2004. Section 801 would extend the credit for two more years.
Section 720 would eliminate the electric vehicle tax credit phase-out, and Section 721 would
eliminate the clean-fuel vehicle tax deduction phase-out. Sections 811 to 815 would add
further incentives for electric vehicles and alternative fuels. Introduced September 18, 2003.
S.Amdt. 2687 approved March 22, 2004, added some one-year energy tax incentive
extensions. Recommitted to the Committee on Finance. S.Amdt. 3011 incorporated as an
amendment in the nature of a substitute. S.Amdt. 3011 added many energy tax provisions
of S. 2095. Passed Senate, (92-5) May 11, 2004. Incorporated into H.R. 4520.
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.
CRS Reports
CRS Issue Brief IB10116. Energy Policy: The Continuing Debate, by Rob Bamberger.
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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 Issue Brief IB10006. Electricity: The Road Toward Restructuring, by Amy Abel and
Larry Parker.
CRS Report RS20270. Renewable Energy and Electricity Restructuring, 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 Issue Brief IB10054. Energy Tax Policy, by Salvatore Lazzari.
CRS Report RL30369. Fuel Ethanol: Background and Public Policy Issues, by Brent
Yacobucci.
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/]
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/dbtw-wpd/bookshop/add.aspx?id=68]
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National Research Council. “The Hydrogen Economy: Opportunities, Costs, Barriers, and
R&D Needs. February 2004. 200 p.
Owens, Brandon. “Does the PTC Work?” Standard and Poor’s. Sept. 2004.
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. Nov. 2000. 350 p. [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.
——. Lawrence Berkeley Laboratory. Case Studies of State Support for Renewable Energy.
Sept. 2002. [http://eetd.lbl.gov/ea/EMS/cases/]
——. 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.
——. Status Report to Congress on Current and Proposed Activities under the Clean Energy
Technology Exports (CETE) Initiative. 2001. 58 p.
[http://www.ornl.gov/sci/eere/international/cete2001statusreport%5B1%5D.pdf]
——. 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]
Worldwatch Institute. Mainstreaming Renewable Energy in the 21st Century. May 2004.
76 p. [http://www.worldwatch.org/pubs/paper/169/]
Websites
American Council for Renewable Energy. [http://www.americanrenewables.org/]
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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/chapters.asp]
Earthtrack (Database of Energy Subsidies). [http://www.earthtrack.net/]
National Association of Regulatory Utility Commissioners. [http://www.naruc.org/]
Ninth Session of the Conference of Parties to the United Nations Framework Convention on
Climate Change (Milan, COP-). December 1-12, 2003.
[http://www.cop9.info/news/news.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.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.afdc.nrel.gov/]
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 3. DOE Renewable Energy Budget for FY2004-FY2005
(selected programs, $ millions)
OFFICE OF ENERGY EFFICIENCY
FY2004
FY2005
FY2005
House
Percent
AND RENEWABLE ENERGY
App.
Request
House
FY2004
Change
BIOMASS / BIOFUELS
86.5
72.6
72.6
-13.9
-16%
R&D / Feedstock
43.7
45.0
——
——
——
Utilization
42.8
27.6
——
——
——
GEOTHERMAL
25.5
25.8
25.8
0.3
1%
HYDROGEN
82.0
95.3
64.3
-17.7
-22%
HYDROPOWER
4.9
6.0
5.0
0.1
2%
SOLAR ENERGY
83.4
80.3
82.7
-0.7
-1%
Concentrating Solar
5.4
2.0
4.4
-1.0
-18%
Photovoltaics
75.1
75.4
75.4
0.4
1%
Solar Heating & Lighting
2.9
2.9
2.9
0.0
-1%
ZERO-ENERGY BUILDINGS
0.0
0.0
——
——
——
WIND
41.3
41.6
41.6
0.3
1%
INTERGOV. / RENEW. SUPPORT 1
21.6
18.0
19.0
-2.6
-12%
Dept. Energy Management
2.0
2.0
2.0
0.0
0%
International Renewables
5.9
6.5
6.5
0.6
10%
Production Incentive
3.9
4.0
5.0
1.1
27%
Tribal Energy
4.9
5.5
5.5
0.6
12%
Program Support
4.9
0.0
——
-4.9
-100%
NAT. CLIMATE CHANGE INIT.
0.0
3.0
——
——
——
FACILITIES & INFRASTRUCTURE
13.0
11.5
11.5
-1.5
-11%
PROGRAM DIRECTION
12.4
20.7
20.7
8.3
68%
RENEWABLES, SUBTOTAL
370.5
374.8
343.2
-27.3
-7%
Prior Year Balances
-13.0
0.0
——
13.0
100%
Transfers
0.0
0.0
——
——
——
RENEWABLES, TOTAL
357.5
374.8
343.2
-14.3
-4%
Office of Electricity T&D (OETD) 2
81.9
90.9
75.4
-6.5
-8%
RENEWABLES + OETD, Total
439.4
465.7
418.5
-20.9
-5%
Source: DOE FY2005 Cong. Budget Request, v. 3; Feb. 2004 (p. 15-16, 49, 87, 169, 193, 211, 215, 231, 275);
House Appropriations Committee, Draft Report (pp. 85-89, 143).
1 Combines “Intergovernmental Activities” and “Renewable Support and Implementation.”
2 Replaces “Electric/Storage” in FY2003 and “Electricity Reliability” in FY2004 request.
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