Order Code IB10041
CRS Issue Brief for Congress
Received through the CRS Web
Renewable Energy:
Tax Credit, Budget, and
Electricity Production Issues
Updated December 1, 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
gram and $121.2 million for OETD. For
renewable energy programs in the past, came
renewables, this is $14.3 million more than
back into play as oil and gas prices rose late in
the request and $31.6 million more than the
the year 2000. The terrorist attack of Septem-
FY2004 appropriation. Compared to FY2004,
ber 11, 2001, and the Iraq war of 2003 have
this includes $13.3 million more for Hydro-
led to heightened concern about energy secu-
gen, $6.8 million more for Program Direction,
rity, energy infrastructure vulnerability, and
and $4.3 million less for Biomass/Bio-
the need for alternative fuels. Further, the
refineries. Also, the CAA bill has $23.0
2001 electricity shortages in California, the
million for renewables at USDA and $180
high natural gas prices in 2003, and the
million for clean energy (renewables) and
northeast-midwest blackout of 2003 brought a
energy efficiency in developing countries.
new emphasis to the role that renewable
energy may play in producing electricity,
In the first session, the conference ver-
displacing fossil fuel use, and curbing demand
sion of the omnibus energy bill (H.R. 6) left
for power transmission equipment.
out the Senate-proposed renewable portfolio
standard, but provided a renewable energy
Also, worldwide emphasis on environ-
production tax credit (PTC), renewable energy
mental problems of air and water pollution
fuel standard (RFS), and several other tax and
and global climate change, the related devel-
non-tax measures.
opment of clean energy technologies in west-
ern Europe and Japan, and technology com-
In the second session, S. 2095 was intro-
petitiveness may remain important influences
duced without the controversial MTBE safe
on renewable energy policymaking.
harbor provision and with a cost about half
that of H.R. 6. Its renewable energy provi-
In the 108th Congress, debate over renew-
sions are nearly identical to those in H.R. 6
able energy programs has focused on tax
and H.R. 4503. This includes a three-year
credits, incentives, budget, and provisions of
extension of the renewable energy production
the omnibus energy policy bill H.R. 6.
tax credit (PTC) and a residential solar energy
tax credit. The House has passed H.R. 4503.
The Bush Administration’s FY2005
The Working Families Tax Relief Act (P.L.
budget request for the Department of Energy’s
108-311) extends the previous PTC through
(DOE’s) Renewable Energy Program sought
December 31, 2005. The American Jobs
$374.8 million (excluding $90.9 million for
Creation Act (P.L. 108-357) expands the PTC
the new Office of Electricity Transmission
to solar and geothermal; adds a half-credit for
and Distribution [OETD]).
open-loop biomass, municipal waste, and
small irrigation hydro; and creates a credit for
Congress approved the Consolidated
producers of refined coal. Also, tax incentives
Appropriations Act (CAA: H.R. 4818,
are created for ethanol and biodiesel, and tax
H.Rept. 108-792). Division C, the Energy and
exempt bonds are authorized for green build-
Water appropriations bill, provides $389.1
ings (including solar).
million for DOE’s Renewable Energy pro-
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On November 20, 2004, Congress approved H.R. 4818 (H.Rept. 108-792), the
Consolidated Appropriations Act, 2005. Division A provides $23 million for renewable
energy programs at the Department of Agriculture (USDA). Division C, the Energy and
Water Development appropriations bill (H.R. 4614) has $389.1 million for DOE’s
Renewable Energy program. (For more details, see “FY2005 DOE Budget” and Table 3.)
Also, Section 576 of Division D, the Foreign Operations appropriations bill, has $180
million for clean (renewable) energy and energy efficiency in developing countries.
However, Section 122 of Division J has a general reduction of 0.83%. H.R. 4818 is being
held over for H.Con.Res. 528, which would change the general reduction to 0.80%.
On October 22, 2004, the President signed the American Jobs Creation Act (P.L 108-
357, H.R. 4520). It expands the renewable energy production tax credit (PTC) extended
earlier by P.L. 108-311 to include solar and geothermal over five years and a half-credit over
five years for open-loop biomass, landfill gas, trash combustion, and small hydro used for
irrigation. Further, there is a weight-based credit for refined-coal producers. Also, the law
provides excise and income tax credits for ethanol and biodiesel, enables small ethanol
producers to pass credits to patrons, and creates tax exempt bonds for green buildings at
brownfield sites. Omnibus energy legislation has otherwise stalled since mid-June, when the
House passed H.R. 4503 (Energy Policy Act of 2004), which is nearly identical to the
conference version of H.R. 6. (For a summary of provisions in S. 2095 and H.R. 6, see
“Renewables in Omnibus Energy Bills,” 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 used for home heating) supplied about
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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 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.
DOE’s FY2004 renewable energy R&D funding totaled $439.4 million, or about 19%
of DOE’s energy R&D appropriation. Energy conservation received $559.7 million (24%),
fossil energy received $672.8 million (29%), and fission and fusion were appropriated $667.4
million (29%).
Tax Credits. The Energy Tax Act of 1978 (P.L. 95-618) created residential solar
credits and residential and business credits for wind energy installations; it expired on
December 31, 1985. However, business investment credits were extended repeatedly through
the 1980s. Section 1916 of the Energy Policy Act of 1992 (EPACT, P.L. 102-486) extended
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the 10% business tax credits for solar and geothermal equipment indefinitely. Also, EPACT
Section 1914 created an income tax “production” credit of 1.5 cents/kwh for electricity
produced by wind and closed-loop biomass (energy crops or trees grown only for use as a
fuel). P.L. 106-170 expanded this credit to include poultry waste. Section 603 of the Job
Creation and Worker Assistance Act (P.L. 107-147) extended the production tax credit to
December 31, 2003. Additionally, P.L. 96-223 created an income tax credit for alcohol
fuels; and Section 9003(a)(3) of P.L. 105-178 extended 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 at [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
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of methyl tertiary butyl ether (MTBE), ethanol, and other renewable fuels. The conference
version of H.R. 6 excluded the renewable portfolio standard (RPS) proposed in the Senate
bill, but the production tax credit and the renewable fuel standard (RFS) for cellulosic
ethanol and biodiesel remain in S. 2095. Other renewables provisions in the H.R. 6
conference report 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].)
Production Tax Credit (PTC) and Production Incentive (REPI). P.L. 108-311
and P.L. 108-357 extend and expand the PTC. (See “Legislation” below.)
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 MTBE.
While H.R. 6 conference report (§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), requiring 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. S. 1637 (§823), S. 2095 (§1323) and H.R. 6 (§1323) would
create a 15% residential tax credit worth up to $2,000 for homeowners who purchase
photovoltaics, wind energy, and solar water heating equipment. The credit would be in effect
for three calendar years, ending on December 31, 2006.
Other Non-Tax Provisions. Other renewable energy provisions (and sections)
include resource assessment (201), federal purchases (203), insular areas (204), renewables
in public buildings (205, 922), biomass/biopower (206, 207, 919), geothermal leasing (H.R.
6, 211-227; S. 2095, 211-227), hydropower (231, 241-248), federal lands (352), Indian
energy (503), funding authorizations (918), concentrating solar (920), ocean/wave/marine
(921, 923), net metering (1251), small power (1253), alternative fuels (1503-1514).
Renewables Tax Revenue Effect. Table 1 shows the estimated 10-year revenue
effect of renewable energy and alternative fuel tax provisions in H.R. 6 and S. 2095. The
amounts for S. 2095 are estimated from the scoring for S. 1149, as reported by committee.
Table 1. S. 2095 and H.R. 6, Tax Revenue Effect
($ 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.
FY2005 DOE Budget
The House-passed FY2005 Energy and Water Development appropriations bill (H.R.
4614, H.Rept. 108-554) 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.” The hydrogen
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education initiative would be cut by $7.0 million (zero appropriation) and the National
Climate Change Technology Initiative would be cut by $3.0 million (zero appropriation).
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
reduce costs 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.
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 the Office of Electricity Transmission
and Distribution (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.
USDA’s 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 CRS Report RL32728, Electric Utility Regulatory Reform: Issues
for the 109th Congress.)
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/].)
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
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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. Another DOE study, Homeland Security: Safeguarding America’s Future with
Energy Efficiency and Renewable Energy Technologies, provides a broad look at the
potential to address vulnerabilities. (More information about DOE’s Distributed 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 kilowatts to 1 megawatt. 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 trillion cubic feet 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 the
American Council for an Energy Efficient Economy’s 2003 report, Impacts of Energy
Efficiency and Renewable Energy on Natural Gas Markets and the Union of Concerned
Scientists fact sheet, Renewable Energy Can Help Ease Natural Gas Crunch.)
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 could substitute for fossil energy sources used to
produce vehicle fuels and electricity. The percentage of renewable energy substitution
depends on technology cost, market penetration, and the use of energy efficiency measures
to control energy prices and demand. DOE’s November 2003 report, U.S. Climate Change
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Technology Program — Technology Options for the Near and Long Term, compiles
information from multiple federal agencies on more than 80 technologies. For these end-use
and supply technologies, the report describes President Bush’s initiatives and R&D goals for
advancing technology development, but it does not estimate emissions saving potentials, as
some previous DOE reports on the topic had presented.
EPA’s Climate Action Report — 2002 describes federal renewable energy programs
aimed at reducing greenhouse gas emissions. In Climate Change 2001: Mitigation, the
Intergovernmental Panel on Climate Change looks at the role that renewables could play in
curbing global 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, 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
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on Environment Programs includes $180 million for “energy conservation, energy efficiency,
and clean energy” in developing countries to reduce greenhouse gases.
P.L. 108-311 (H.R. 1308, Section 313)
Working Families Tax Relief Act of 2004. Section 313 extends the previous renewable
energy production tax credit (PTC) of 1.8 cents/kwh over 10 years (adjusted for inflation)
for wind, closed-loop biomass, and poultry waste projects installed by December 31, 2005.
Also, Section 318 extends a credit for electric vehicles, and Section 319 extends a deduction
for clean fuel vehicles. The Joint Tax Committee scored the PTC at $1.2 billion over 10
years. PTC provision originated in Senate version (S.Amdt. 862). House and Senate
approved the conference report (H.Rept. 108-696) September 23, 2004. Signed into law
October 4, 2004.
P.L. 108-357 (H.R. 4520)
American Jobs Creation Act. Section 710 expands the renewable energy production tax
credit (PTC) in P.L. 108-311 to include 1.8 cents/kwh over five years (adjusted for inflation)
for geothermal and solar, and 0.9 cents/kwh over five years (adjusted for inflation) for a
broad range of “open-loop” biomass, municipal solid waste (landfill gas and trash
combustion), and hydropower at small irrigation projects installed by December 31, 2005.
Also, a $4.38/ton credit over 10 years is created for “refined coal producers” through
December 31, 2008. Section 301extends the income tax credit for ethanol fuels and creates
a volumetric excise tax credit for ethanol (VEETC) and biodiesel. Section 302 creates an
income tax credit for biodiesel. Section 313 allows a coop to allocate the small ethanol
producer credit to its patrons. Section 701 creates a $2 billion tax-exempt bond program for
green building demonstrations at brownfields, which includes goals for solar photovoltaics.
Introduced in House June 4, 2004. Reported (H.Rept. 108-548, Part 1) June 16. Passed
House June 17. In Senate, S. 1637 reported (S.Rept. 108-192) November 3, 2003. S.Amdt.
3562 incorporated S. 1637 into H.R. 4520 and passed Senate July 15, 2004. Conference
Report (H.Rept. 108-755) approved in House October 7 and in Senate October 11. President
signed October 22, 2004.
H.R. 4818, Consolidated Appropriations Act 2005
The Agriculture Appropriations Act (Division A; p. H10241, H10423) includes $23.0
million for the USDA Renewable Energy Program. The Energy and Water Development
Appropriations Act (Division C, H10552-10553) provides $389.1 million for the DOE
Renewable Energy Program and $121.2 million for Office of Electricity Transmission and
Distribution (OETD). The Foreign Operations Appropriations Act (Division D, Section 576,
p. H10587) includes $180.0 million for “clean energy and other climate change policies in
developing countries,” of which $100.0 million is targeted for renewable energy and energy
efficiency. Section 122 of Division J has a general reduction of 0.83%. Reported (H.Rept.
108-792), House passed, and Senate passed November 20, 2004. Held over for H.Con.Res.
528, which would change the cut to 0.80%.
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
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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. 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. 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.
Incorporated into Consolidated Appropriations Act FY2005 (H.R. 4818).
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. Incorporated into S.Amdt. 1530 to S. 14, but action
stopped when the Senate substituted H.R. 4 that it sent to conference in the 107th Congress.
S. 2095 (Domenici)
Omnibus energy legislation. This bill is a pared-down version of the conference report
on 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.
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. House. Committee on Science. Subcommittee on Energy. What Are the
Administration Priorities for Climate Change Technology? Hearing held November
6, 2003.
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CRS Reports
CRS Issue Brief IB10116. Energy Policy: The Continuing Debate, by Rob Bamberger.
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 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 trends back to FY1974 (current
and constant) are available from the author of this issue brief.
American Solar Energy Society. Renewable Hydrogen Forum. Apr. 10-11, 2003. 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.
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 2004. Sept. 2004. 204 p.
[http://library.iea.org/dbtw-wpd/bookshop/add.aspx?id=68]
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.
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Wind Power Reconsidered. Popular Science. November 2004. p. 43-44.
[http://www.popsci.com/popsci/generaltech/article/0,20967,714431,00.html]
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. Solar Energy Development
Policy. [Instruction Memo No. 2005-006] October 20, 2004. 10 p.
[http://www.blm.gov/nhp/efoia/wo/fy05/im2005-006.htm]
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.
——. 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.pi.energy.gov/library/cete2001statusreport.html#pdf]
——. The Clean Air Act and Renewable Energy: Opportunities, Barriers, and Options.
(NREL/CP-620-29654). 2001.
U.S. 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. Government Accountability Office (GAO). Renewable Energy: Wind Power’s
Contribution to Electric Power Generation and Impact on Farms and Rural
C o m m u n i t i e s . [ G A O - 0 4 - 7 5 6 ] S e p t e m b e r 3 , 2 0 0 4 . 1 0 7 p .
[http://www.gao.gov/docsearch/abstract.php?rptno=GAO-04-756]
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/]
Edison Electric Institute. [http://www.eei.org/]
Electric Power Research Institute (EPRI) and EPRI Journal Online. [http://www.epri.com/]
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-9). 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.eere.energy.gov/
afdc/index.html]
U.S. Environmental Protection Agency. Clean Energy Site.
[http://www.epa.gov/cleanenergy/]
Vote Solar Initiative. San Francisco’s $100 Million Solar Revenue Bond Initiative.
[http://www.votesolar.org/sf.html].
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Table 3. DOE Renewable Energy Budget for FY2004-FY2005
(selected programs, $ millions)
OFFICE OF ENERGY EFFICIENCY
FY2004
FY2005
FY2005 FY2005
Conf.-
Percent
AND RENEWABLE ENERGY
App.
Request
House
Conf.
FY2004
Change
BIOMASS / BIOREFINERIES
86.5
72.6
72.6
82.1
-4.3
-5%
R&D / Feedstock
43.7
45.0
——
——
——
——
Utilization
42.8
27.6
——
——
——
——
GEOTHERMAL
25.5
25.8
25.8
25.8
0.3
1%
HYDROGEN
82.0
95.3
64.3
95.3
13.3
16%
HYDROPOWER
4.9
6.0
5.0
5.0
0.1
2%
SOLAR ENERGY
83.4
80.3
82.7
86.5
3.1
4%
Concentrating Solar
5.4
2.0
4.4
6.0
0.6
11%
Photovoltaics
75.1
75.4
75.4
——
——
——
Solar Heating & Lighting
2.9
2.9
2.9
——
——
——
ZERO-ENERGY BUILDINGS
0.0
0.0
——
——
——
——
WIND
41.3
41.6
41.6
41.6
0.3
1%
INTERGOV. / RENEW. SUPPORT 1
21.6
18.0
19.0
22.0
0.4
2%
Dept. Energy Management
2.0
2.0
2.0
2.0
0.0
0%
International Renewables
5.9
6.5
6.5
6.5
0.6
10%
Production Incentive
3.9
4.0
5.0
5.0
1.1
27%
Tribal Energy
4.9
5.5
5.5
5.5
0.6
12%
Program Support
4.9
0.0
——
3.0
-1.9
-39%
NAT. CLIMATE CHANGE INIT.
0.0
3.0
——
——
——
——
FACILITIES & INFRASTRUCTURE
13.0
11.5
11.5
11.5
-1.5
-11%
PROGRAM DIRECTION
12.4
20.7
20.7
19.2
6.8
55%
RENEWABLES, SUBTOTAL
370.5
374.8
343.2
389.1
18.6
5%
Prior Year Balances
-13.0
0.0
——
——
13.0
100%
Transfers
0.0
0.0
——
——
——
——
RENEWABLES, TOTAL
357.5
374.8
343.2
389.1
31.6
9%
Office of Electricity T&D (OETD) 2
81.9
90.9
75.4
121.2
39.3
48%
RENEWABLES + OETD, Total
439.4
465.7
418.5
510.2
70.8
16%
Source: DOE FY2005 Cong. Budget Request, v. 3; Feb. 2004 (p. 15-16, 49, 87, 169, 193, 211, 215, 231, 275);
H.Rept. 108-554 (pp. 85-89, 143); H.Rept. 108-792, Division C.
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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