Order Code IB10128
CRS Issue Brief for Congress
Received through the CRS Web
Alternative Fuels and Advanced Technology Vehicles:
Issues in Congress
Updated February 28, 2005
Brent D. Yacobucci
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Congressional Interest
Legislative Background
Current Issues
Fuel Tax Incentives
Ethanol and MTBE
Ethanol Imports
Vehicle Purchase Requirements
Vehicle Purchase Tax Incentives
Biodiesel
Hydrogen and Fuel Cells
Hybrid Vehicles
LEGISLATION
FOR ADDITIONAL READING

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Alternative Fuels and Advanced Technology Vehicles:
Issues in Congress
SUMMARY
Alternative fuels and advanced technol-
fuel and fuel cells; required that gasoline
ogy vehicles are seen by proponents as inte-
contain ethanol or other renewable fuel;
gral to improving urban air quality, decreasing
banned the use of the fuel additive MTBE;
dependence on foreign oil, and reducing
and expanded tax incentives for the produc-
emissions of greenhouse gases. However,
tion of ethanol and biodiesel.
major barriers — especially economics —
currently prevent the widespread use of these
On November 17, 2003, the conference
fuels and technologies. Because of these
committee on H.R. 6 issued its report (H.Rept.
barriers, and the potential benefits, there is
108-375). The House approved the report, but
continued congressional interest in providing
a cloture motion on the bill failed in the Sen-
incentives and other support for their develop-
ate. Substitute bills were offered in the House
ment and commercialization.
and Senate, but the 108th Congress was unable
to complete an energy bill.
In the 108th Congress, alternative fuels
and advanced technology vehicles received a
Because of concerns over the energy bill,
good deal of attention, especially in the debate
some alternative fuels provisions from the bill
over omnibus energy legislation (H.R. 6,
— especially those related to ethanol and
among others). Major topics included tax
MTBE — were inserted into other bills,
incentives for alternative fuel production; the
including highway and tax legislation.
future of ethanol and the fuel additive MTBE,

including the establishment of a renewable
The conference on H.R. 3550 — the
fuels standard (RFS); and research and devel-
highway reauthorization bill — convened in
opment of hydrogen fuel and fuel cells. Other
June, 2004, but never issued its report.
topics included government vehicle purchase
Among other provisions, the bill would have
requirements; tax credits for vehicle pur-
reauthorized existing programs for alternative
chases; promotion of biodiesel fuel; and
fuel buses and other transit projects. Also, it
incentives for hybrid electric vehicles. It is
would have modified the tax incentives for
likely that many of these topics will be
ethanol-blended fuel.
addressed again in the 109th Congress.
Some tax provisions from the energy bill,
The omnibus energy bill contained many
including tax credits for ethanol and biodiesel,
provisions relevant to alternative fuels and
were inserted into the conference report on the
advanced technology vehicles. Among its
American Jobs Creation Act of 2004 (P.L.
provisions, the bill would have extended and
108-357, H.R. 4520). Among other provi-
expanded existing tax incentives for the pur-
sions, the new law replaces the existing etha-
chase of alternative fuel and advanced vehi-
nol tax exemption with a tax credit, and estab-
cles; authorized R&D funding for hydrogen
lishes tax credits for biodiesel.

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MOST RECENT DEVELOPMENTS
108th Congress
On October 7, 2004, the House approved the conference report on H.R. 4520, a
corporate tax bill. Among other provisions, the bill contains tax credits for ethanol and
biodiesel. The Senate approved the conference report on October 11. On October 22, The
president signed the American Jobs Creation Act of 2004.
On November 17, 2003, the conference committee on H.R. 6, the omnibus energy
package, issued its report (H.Rept. 108-375). The House approved the report on November
18, but on November 21 a cloture vote on the bill failed in the Senate. H.R. 6 contained
several key provisions related to alternative fuels and advanced technology vehicles. These
included authorizations for hydrogen and fuel cell R&D funding, tax credits for the purchase
of vehicles, and a requirement that gasoline contain ethanol or other renewable fuels.
BACKGROUND AND ANALYSIS
Congressional Interest
Legislative Background. A combination of concerns — the oil crises of the 1970s,
the rise in awareness of environmental issues, energy security, vehicle emissions, and fuel
conservation goals — have increased interest in moving the United States away from
petroleum fuels for transportation and toward alternative fuels and advanced technologies.
Most notably, the 102nd Congress passed the Energy Policy Act of 1992 (EPAct, P.L. 102-
486). Among other provisions, this law requires the purchase of alternative fuel vehicles by
federal, state, and alternative fuel providers. Under EPAct, a certain percentage — which
varies by the type of fleet — of new passenger vehicles purchased for an agency’s or
company’s fleet must be capable of operating on alternative fuels, including ethanol,
methanol, natural gas, or propane. In addition, EPAct established a tax credit for the
purchase of electric vehicles, as well as tax deductions for the purchase of alternative fuel
and hybrid vehicles.
(For background on alternative fuels, including legislative history, see CRS Report
RL30758, Alternative Transportation Fuels and Vehicles. For background on advanced
vehicle technologies, see CRS Report RL30484, Advanced Vehicle Technologies.)
Other laws affecting alternative fuel and advanced technology vehicles include the
Energy Policy and Conservation Act (P.L. 94-163), which established fuel economy
standards for passenger cars and light trucks; the 1990 Amendments to the Clean Air Act
(P.L. 101-549), which require cities with significant air quality problems to promote low
emission vehicles; highway authorization bills, including TEA-21, which established and
reaffirmed tax incentives for ethanol and other fuels; and numerous laws that authorize
federal research and development on alternative fuels, advanced technologies, and enabling
infrastructure.
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Current Issues. Recent events have renewed interest in alternative fuels and
advanced vehicles. For example, high pump prices for gasoline and diesel fuel have raised
concerns over oil imports, energy security, and fuel conservation. In light of this, there is
growing interest in more efficient vehicles or vehicles that abandon the use of petroleum
altogether. This is especially true as the rapid growth in the sales of light trucks — these
include sport utility vehicles (SUVs), mini-vans, and pickups — which tend to have lower
fuel economy than passenger cars, has lowered the overall fuel economy of the new vehicle
fleet.
Furthermore, ongoing developments in hybrid vehicles, fuel cells, and hydrogen fuel
have raised key policy questions. These questions include whether more generous tax
incentives for hybrid and fuel cell vehicles should be established; the costs associated with
production of hydrogen as a major transportation fuel; and whether research and
development funds should be focused on such potentially high-risk technologies as fuel cells
or on near-term, conventional technologies, such as hybrids.
In light of these and other energy policy concerns, Congress has been working on
comprehensive energy legislation since 2001. In the 107th Congress, an energy bill stalled
in conference. The 108th Congress continued the debate over energy legislation (H.R. 6).
The conference report (H.Rept. 108-375) included provisions on vehicle tax credits,
amendments to vehicle purchase requirements under EPAct, a requirement that gasoline
contain ethanol or other renewable fuels, and tax credits for ethanol and biodiesel fuels.
However, this bill also stalled. It is likely that many of these topics will be addressed again
in the 109th Congress.
Fuel Tax Incentives
There is ongoing interest in tax incentives for the production and purchase of alternative
fuels. Supporters of this approach argue that the market favors conventional fuels, and that
the widespread infrastructure and nearly ubiquitous use of conventional fuels in automobiles
makes it difficult for alternative fuels to compete without economic incentives. Currently,
some alternative fuels do receive incentives for their production or sale. Most notably,
through the end of 2004, gasoline blended with ethanol received a partial exemption from
the motor fuels excise tax. This exemption made ethanol-blended fuel (gasohol) price-
competitive with regular gasoline. Because of this, more than 99% of ethanol produced in
the United States is blended with gasoline, according to the Energy Information
Administration.
However, the excise tax exemption was criticized because it reduced revenue for the
federal Highway Trust Fund (HTF). For every gallon of gasoline sold in the United States,
a federal tax of 18.4 cents is imposed, all but 0.1 cents of which goes to the HTF. The
remaining 0.1 cents goes to the Leaking Underground Storage Tank (LUST) Trust Fund to
mitigate problems from fuel leaks. However, gasohol with 10% ethanol was taxed at 13.2
cents per gallon (an exemption of 5.2 cents per gallon). Of the 13.2 cents, 10.6 cents went
to the HTF (and an additional 0.1 cents goes to the LUST fund). The remaining 2.5 cents
was transferred to the general Treasury fund for debt reduction. Therefore, for every gallon
of 10% gasohol sold, the HTF “lost” 7.7 cents; the overall foregone revenue was 5.2 cents.
(The exemption was prorated for blends with less ethanol.) The Joint Committee on
Taxation estimates that the exemption has resulted in about $7.5 billion in cumulative
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foregone revenue from FY1979 through FY2000, while the U.S. Treasury estimates the
figure at about $11 billion. (The discrepancy in estimates arises from differing assumptions
made by the Treasury and the Committee.)
Because of this concern, a Volumetric Ethanol Excise Tax Credit (VEETC) was
proposed (S. 1548). This proposal would replace the existing excise tax exemption with a
tax credit. While the total value of the incentive to blenders might not change, the incentive
would be paid from the general Treasury fund, as opposed to the federal Highway Trust
Fund. Therefore, while overall revenue concerns would not be addressed, the effects of the
ethanol tax incentive on the HTF would be eliminated.
The VEETC was discussed as part of the debate over H.R. 6, and a version of this credit
was inserted into the conference report on the bill. VEETC provisions were inserted into the
conference report on the American Jobs Creation Act of 2004 (P.L. 108-357, H.R. 4520),
which became law on October 22, 2004.
In addition to the credit for ethanol-blended gasoline, there is interest in promoting
biodiesel fuel. In fact, the VEETC would apply to biodiesel as well. Because the biodiesel
market is in its infancy, there has been interest in creating a per-gallon tax credit for the
production of biodiesel fuel as well. P.L. 108-357 provides a tax credit of up to $1.00 per
gallon for the production of biodiesel.
(For more information on the ethanol tax exemption, see CRS Report RL30369, Fuel
Ethanol: Background and Public Policy Issues. For more information on the tax provisions
in H.R. 6, see CRS Report RL32042, Energy Tax Incentives in H.R. 6: The Conference
Agreement as Compared with the House Bill and Senate Amendment.)
Ethanol and MTBE
Outside of tax incentives, ethanol has been of key interest in recent Congresses,
especially in its role as an alternative to MTBE (methyl tertiary butyl ether). MTBE and
ethanol are used (among other purposes) to meet Clean Air Act requirements that
reformulated gasoline (RFG), sold in the nation’s worst ozone nonattainment areas, contain
at least 2% oxygen (by weight), to improve combustion. Under the RFG program, areas with
“severe” or “extreme” ozone pollution (90 counties with a combined population of 64.8
million) must use reformulated gas; areas with less severe ozone pollution may opt into the
program as well, and many have. In all, portions of 17 states and the District of Columbia
use RFG, and about 30% of the gasoline sold in the United States is RFG, according to the
Environmental Protection Agency (EPA).
The law requires that RFG contain at least 2% oxygen by weight. Refiners can meet this
requirement by adding a number of ethers or alcohols, any of which contains oxygen and
other elements. By far the most commonly used oxygenate is MTBE. In 1999, 87% of RFG
contained MTBE, a number since reduced to about 62%, according to EPA. MTBE has also
been used since the late 1970s in non-reformulated gasoline as an octane enhancer, at lower
concentrations. As a result, gasoline with MTBE has been used throughout the United States,
whether or not an area has been subject to RFG requirements.
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MTBE leaks, generally from underground gasoline storage tanks, have been implicated
in numerous incidents of ground water contamination. The substance creates taste and odor
problems in water at very low concentrations, and some animal studies indicate it may pose
a potential cancer risk to humans. For these reasons, 17 states (AZ, CA, CO, CT, IL, IN, IA,
KS, KY, MI, MN, MO, NE, NY, OH, SD, WA) have taken steps to ban or regulate its use,
according to the Renewable Fuels Association. The most significant of the bans (in
California, Connecticut, and New York) took effect at the end of 2003, leading many to
suggest that Congress revisit the issue to modify the oxygenate requirement and set more
uniform national requirements regarding MTBE and its potential replacements, principally
ethanol.
Support for eliminating the oxygenate requirement on a nationwide basis is widespread
among environmental groups, the petroleum industry, and states. In general, these
stakeholders have concluded that gasoline can meet the same low emission performance
standards as RFG without the use of oxygenates. But agricultural interests present a potential
obstacle to enacting legislation to remove the oxygen requirement. According to the U.S.
Department of Agriculture, roughly 13% of the nation’s corn crop is used to produce the
competing oxygenate, ethanol. If MTBE use is reduced or phased out, but the oxygen
requirement remains in effect, ethanol use would soar, increasing demand for corn. (In fact,
according to EPA, ethanol use is already growing as MTBE begins to be phased out.)
Conversely, if the oxygen requirement is waived by EPA or through legislation, not only
would MTBE use decline, but so, likely, would demand for ethanol. Thus, some Members
of Congress and governors from corn-growing states have taken a keen interest in MTBE
legislation and related oxygenate requirements.
To help promote the market for ethanol if the oxygen standard were eliminated, a
renewable fuels standard (RFS) has been suggested. This would require that all gasoline
contain ethanol or other renewable fuel. This concept has been supported by agricultural
interests, the oil industry, and some environmental groups. Opponents have included states
that do not produce ethanol, due to fears that the mandate could raise gasoline prices.
As approved by the conferees, H.R. 6 (108th Congress) contained numerous MTBE and
ethanol provisions. It would have banned the use of MTBE as a fuel additive, and would
have repealed the Clean Air Act requirement to use MTBE or other oxygenates. In place of
this requirement, the bill would have established a renewable fuels standard (RFS). Under
the RFS, annual production of gasoline would be required to contain at least 5 billion gallons
of ethanol or other renewable fuel by 2012. To prevent “backsliding” on air quality, the bill
required that reductions in emissions of toxic substances achieved by RFG be maintained;
it authorized grants to assist merchant MTBE production facilities in converting to the
production of other fuel additives; it authorized funds for MTBE cleanup; and, perhaps most
controversially, it provided a “safe harbor” from product liability lawsuits for producers of
MTBE, ethanol, and other renewable fuels (product liability lawsuits have been used to force
petroleum and chemical companies to pay for cleanup of ground and surface water
contaminated by releases of fuels containing MTBE). A disagreement over the safe harbor
provision for MTBE is seen as one of the issues that led to the failure of the bill.
(For a detailed comparison of the House and Senate provisions, see CRS Report
RL31912, Renewable Fuels and MTBE: Side-by-Side Comparison of H.R. 6 and S. 2095.
For additional background on the MTBE issue, see CRS Report 98-290, MTBE in Gasoline:
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Clean Air and Drinking Water Issues. For information on ethanol, see CRS Report RL30369,
Fuel Ethanol: Background and Public Policy Issues.)
Ethanol Imports
There is growing concern among some stakeholders over ethanol imports. Because of
lower production costs and/or government incentives, ethanol prices in Brazil and other
countries can be significantly lower than in the United States. To offset the U.S. tax
incentive that all ethanol (imported or domestic) receives, most imports are subject to a 54-
cent-per-gallon tariff. This tariff effectively negates the tax incentive for covered imports,
and has been a significant barrier to fuel ethanol imports.
However, under certain conditions imports of ethanol from Caribbean Basin Initiative
(CBI) countries are granted duty-free status. This is true even if the ethanol was produced
in a non-CBI country. In this scenario the ethanol is produced in another country
(historically Brazil or a European country), dehydrated in a CBI country, then shipped to the
United States. This avenue for imported ethanol to avoid the tariff has been criticized by
some stakeholders, including some Members of Congress. In the spring and summer of
2004, two companies announced plans to construct new dehydration facilities in CBI
countries and shipping ethanol from Brazil. In response, two bills were introduced in the
108th Congress. S. 2762 (Grassley) would have established additional limits to the quantity
of dehydrated ethanol that could be imported under the CBI. S. 2769 (Daschle) would have
precluded the use of imported ethanol in any future renewable fuels standard (see above).
Neither bill saw significant congressional action.
(For more information on ethanol imports from CBI countries, see CRS Report
RS21930, Ethanol Imports and the Caribbean Basin Initiative.)
Vehicle Purchase Requirements
The Energy Policy Act of 1992 (EPAct, P.L. 102-486) established mandatory alternative
fuel vehicle purchase requirements for various vehicle fleets. Under the law, 75% of the
passenger vehicles purchased by federal and state vehicle fleets must be capable of operating
on alternative fuels; 90% of the vehicles purchased by alternative fuel providers must be
alternative fuel vehicles.
The alternative fuel vehicle provisions of EPAct have been criticized as ineffective
because, while EPAct requires the purchase of vehicles, it does not mandate the use of
alternative fuels. In most cases, the vehicles purchased to meet the requirement are dual-fuel
vehicles (i.e., they can operate on either a conventional fuel or an alternative fuel). Further,
those vehicles are primarily fueled using gasoline, because gasoline tends to be less
expensive and more widely available than alternative fuels. In addition, despite the vehicle
purchase mandate, many agencies have failed to meet their statutory obligation. As a result,
in 2002 the Center for Biological Diversity filed a lawsuit with the U.S. District Court for
the Northern District of California. In July 2002, the court ruled that several federal agencies
failed to meet their quotas and ordered those agencies to prepare reports on their compliance
with EPAct (Center for Biological Diversity v. Abraham, N.D. Cal., No. CV-00027).
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In addition to the requirements for federal, state, and fuel provider fleets, EPAct grants
the Department of Energy (DOE) the authority to extend the requirements to local
government and private fleets. However, as of 2002, DOE had not made a determination on
requirements for local and private fleets. As part of the above lawsuit, the Center for
Biological Diversity also asked the court to force DOE to promulgate new rules. In ruling on
the above case, the U.S. District Court for the Northern District of California ordered DOE
to establish a timeline for a new rulemaking. DOE compiled a timeline, and on March 4,
2003, DOE issued a proposed rulemaking determining that such a program would not
promote the goals of EPAct, neither reducing dependence on foreign oil nor leading to
greater use of alternative fuel vehicles (68 Federal Register 10319).
The conference report on H.R. 6 would have significantly modified the existing
requirements for EPAct compliance. First, all dual-fuel vehicles purchased to meet the
EPAct quotas would have been required to operate on alternative fuels, unless an agency
were granted a waiver by the Secretary of Energy. Second, fleets would have been permitted
to purchase hybrid gasoline/electric (or diesel/electric) vehicles to meet their quotas. Third,
an agency would have been permitted to waive the purchase requirement if the agency
certified an alternative measure that reduced petroleum consumption as much as the use of
alternative fuel vehicles. Finally, the Secretary of Energy would have been required to
conduct a study of the effectiveness of the EPAct requirements.
(For more information on vehicle purchase requirements, see CRS Report RL30758,
Alternative Transportation Fuels and Vehicles: Energy, Environment, and Development
Issues.)
Vehicle Purchase Tax Incentives
Some supporters of alternative fuel and advanced technology vehicles argue that tax
incentives for the purchase of vehicles and fuels are more effective than any purchase
mandate. In addition to the mandatory purchase requirements, EPAct established a tax credit
for the purchase of electric vehicles and a tax deduction for “clean-fuel vehicles,” including
alternative fuel vehicles and hybrid vehicles. In 2005, taxpayers may claim a credit of 10%
of the vehicle purchase cost, up to $4,000, for the purchase of a new electric vehicle. The
clean fuel vehicle deduction is a maximum of $2,000 for passenger vehicles, $5,000 for
heavy-duty vehicles up to 26,000 pounds, and $50,000 for the heaviest vehicles. Both the
tax credit and the deduction are in the process of a phase-out, reaching zero after 2006.
Opponents of the purchase incentives see them as supporting an already profitable industry
— automakers — without significantly decreasing petroleum use.
However, because supporters see tax incentives as a key tool in promoting vehicle
purchases, there is interest in extending the existing incentives or establishing new
incentives. In the 108th Congress the CLEAR ACT (Clean Efficient Automobiles Resulting
from Advanced Car Technologies Act, H.R. 1054 and S. 505) and the energy bill (H.R. 6)
would have significantly expanded the vehicle purchase incentives. The conference report
on H.R. 6 would have replaced the existing deductions for alternative fuel and hybrid
vehicles with tax credits and established a tax credit for the purchase of fuel cell vehicles.
(For more information on these tax incentives, see CRS Report RS21277, Alternative
Fuel Vehicle Tax Incentives and the CLEAR ACT.)
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Biodiesel
Biodiesel (mono-alkyl esters) is a synthetic diesel fuel produced from oils, including
soybean and canola oils, animal fats, and recycled cooking grease. It can be blended with
conventional diesel fuel and used in diesel engines with few or no modifications. Further,
with some engine modifications, it can be used in nearly pure form. Because biodiesel can
displace conventional diesel without the use of new (and in many cases costly) vehicles, there
is growing interest in its use. Further, because it can be produced from agricultural products,
there is keen interest in its development by farmers (especially soybean and canola farmers),
and some environmentalists as a way to promote rural economies, reduce agricultural wastes,
and limit greenhouse gas emissions. However, biodiesel production is currently expensive:
wholesale biodiesel from virgin oils costs roughly two to three times conventional No. 2
diesel; biodiesel from recycled grease is less expensive but still costs considerably more than
conventional diesel.
The cost barriers for biodiesel production have generated interest in providing tax
incentives for biodiesel, either in the form of production tax credits or an excise tax
exemption, or both. Further there is interest in developing new technologies to help reduce
production costs. However, the organic oils used as raw materials are one of the largest costs
in production. Therefore, to significantly reduce biodiesel production costs, the costs of
soybean oil and other oils would need to decrease substantially.
As was stated above, the American Jobs Creation Act (P.L. 108-357, H.R. 4520)
provides a tax credit of up to $1.00 per gallon for the production of biodiesel. In addition,
the law provides an excise tax credit for biodiesel blends (i.e. biodiesel and conventional
diesel). Producers are eligible for one credit or the other, but not both. (see “fuel tax
incentives” above).
(For more information on biodiesel, see CRS Report RL32712, Agriculture-Based
Renewable Energy Production; and CRS Report RL30758, Alternative Fuels and Vehicles:
Energy, Environment, and Development Issues.)
Hydrogen and Fuel Cells
Over the past few years, interest has grown substantially in hydrogen fuel and fuel cells.
Hydrogen fuel can be produced using any energy source, and has thus been touted as a way
to limit dependence on energy imports. Further, when hydrogen is used in a fuel cell (a
device that produces electricity by converting hydrogen to water), only heat and water are
produced, drastically reducing vehicle emissions. However, hydrogen fuel production is
currently very expensive, as are fuel cells. In addition, depending on the original fuel source,
overall fuel-cycle emissions can be a key concern.
Because of the potential benefits from hydrogen and fuel cells, and because of the
existing barriers to their commercialization, the Bush Administration has strongly supported
research and development (R&D). In January 2002, the Administration announced the
FreedomCAR initiative, which promotes cooperative R&D between the “Big Three”
American auto manufacturers (DaimlerChrysler, Ford, and General Motors) and the federal
government. While the partnership is conducting research on many technologies, hydrogen
and fuel cell vehicles are a key focus. Further, in his January 2003 State of the Union
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address, President Bush announced the Hydrogen Fuel Initiative, which increased federal
spending on hydrogen fuel and stationary fuel cell R&D. Overall, the President requested
$1.8 billion over five years for both initiatives, including $720 million in new funding.
Opponents of the initiatives argue that hydrogen fuel and fuel cells may never be
commercialized and that the initiatives draw funding away from near-term technologies such
as hybrid vehicles. Further, some argue that research and development alone will not reduce
petroleum dependence and that Congress should instead consider tightening fuel economy
standards for all vehicles.
Congress agreed to increase funding for this research from $185 million in FY2003 to
$237 million in FY2004 (P.L. 108-108 and P.L. 108-137) and $261 million in FY2005 (H.R.
4818). In addition to the appropriations bills, the conference report on the energy bill (H.R.
6) would have reauthorized hydrogen and fuel cell R&D at a level slightly higher than that
requested by the President — $2.15 billion over five years, as opposed to the requested $1.8
billion. With or without this authorization, it is likely that increased federal hydrogen and
fuel cell R&D funding will continue, as demonstrated by the congressional support for the
Administration’s requested funding increases in FY2004 and FY2005.
(For more information on hydrogen and fuel cells, see CRS Report RL32196, A
Hydrogen Economy and Fuel Cells: An Overview. For more information on the
Administration’s initiatives, see CRS Report RS21442, Hydrogen and Fuel Cell Vehicle
R&D: FreedomCAR and the President’s Hydrogen Fuel Initiative.)
Hybrid Vehicles
Hybrid gasoline/electric (and diesel/electric) vehicles are becoming increasingly popular
in the United States. Hybrids combine a gasoline (or diesel) engine with an electrical motor
system to improve efficiency. If their use becomes more widespread, they could help
improve the overall efficiency of the vehicle fleet and could help limit oil consumption.
Further, they could do so without significant changes to existing infrastructure, which has
been a key barrier to the expanded use of alternative fuel vehicles. In model year 2005 Ford,
General Motors, Honda, and Toyota will offer vehicles with hybrid powertrains. At the
present time, only hybrid passenger cars, sport utility vehicles (SUVs), and one pickup are
available in the United States, but hybrid versions of other vehicle models and classes are
expected in the near future.
Because of their energy and environmental benefits, some states have provided drivers
of hybrid vehicles an exemption from high occupancy vehicle (HOV) lane requirements.
Under TEA-21 (which expired on September 30, 2003), states had the authority to grant
HOV exemptions for so-called “Inherently Low Emission Vehicles” (ILEVs). The ILEV
standard requires that a vehicle have no evaporative emissions, a standard that is not met by
any current hybrid. However, because of the reduced emissions and improved fuel economy
of hybrid vehicles, there is congressional interest in explicitly granting states the right to
exempt them from HOV lane requirements. The conference report on H.R. 6 would have
granted the exemption. Further, the highway reauthorization bill (H.R. 3550) would have
reauthorized the HOV lane exemption and expanded it to certain “low-emission and energy
efficient vehicles,” including some hybrids.
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Further, as was stated above, there is interest in expanding the incentives for the
purchase of hybrid vehicles (see “Vehicle Purchase Tax Incentives” above).
(For more information on hybrid vehicles, see CRS Report RL30484, Advanced Vehicle
Technologies: Energy, Environment, and Development Issues.)
LEGISLATION
108th Congress
H.R. 6 (Tauzin)
Energy Policy Act of 2003. Title VII establishes an excise tax credit for ethanol and
biodiesel fuels, establishes a tax credit for biodiesel production, and establishes tax credits
for the purchase of alternative fuel, fuel cell, and hybrid vehicles. Title VIII authorizes $2.15
billion over five years for hydrogen and fuel cell R&D. Title XV requires renewable fuels
in gasoline (3.1 billion gallons in 2005, increasing to 5.0 billion gallons in 2012), bans
MTBE after 2014 unless the President determines otherwise (states can choose to authorize
its use); eliminates RFG oxygen requirement, and authorizes funding for MTBE cleanup.
Introduced April 7, 2003; referred to several committees; passed House April 11; passed
Senate July 31; conference Report (H.Rept. 108-375) adopted by House November 18,
2003. Motion to invoke cloture failed in Senate November 21, 2003.
H.R. 1054 (Camp)
Clean Efficient Automobiles Resulting From Advanced Car Technologies Act (CLEAR
ACT). Extends existing tax credit for electric vehicles. Establishes purchase tax credits for
alternative fuel and hybrid vehicles. Establishes tax credit for retail sale of alternative fuels.
Introduced March 4, 2003; referred to Committee on Ways and Means. Some provisions
inserted into H.R. 6 conference report.
H.R. 3550 (Young)
Transportation Equity Act: A Legacy for Users. Authorizes grant funding for
municipalities to purchase alternative fuel buses and other vehicles. Introduced November
20, 2003; passed House April 2, 2004; passed Senate May 19, 2004; conference convened
June 9, 2004.
H.R. 4520, P.L. 108-357 (Thomas)
American Jobs Creation Act of 2004. Amends the tax code to comply with World
Trade Organization rulings on the Foreign Sales Corporation (FSC). Conference report
includes provisions on ethanol and biodiesel tax incentives. Introduced June 4, 2004; passed
House June 17, 2004; passed Senate July 15, 2004; conference report approved in House
October 7, 2004; conference report approved in Senate October 11, 2004.
S. 505 (Hatch)
CLEAR ACT (see H.R. 1054). Introduced March 4, 2003; referred to Committee on
Finance.
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S. 1548 (Grassley)
Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2003. Eliminates the existing
partial tax exemption for ethanol-blended gasoline. Establishes an excise tax credit for
ethanol- and biodiesel-blended fuels. Establishes a tax credit (coordinated with the excise
tax credit) for the use of biodiesel and biodiesel blends. Introduced July 31, 2003; referred
to Committee on Finance; ordered reported by Finance Committee September 17, 2003; for
more information see H.R. 4520.
S. 2762 (Grassley)
Amends the Tax Reform Act of 1986 to limit the quantity of duty-free imports of
dehydrated ethanol from Caribbean Basin Initiative countries. Introduced July 22, 2004;
referred to Committee on Finance.
S. 2769 (Daschle)
Precludes the use of imported ethanol to meet any future renewable fuels standard.
Introduced July 22, 2004; referred to Committee on Environment and Public Works.
FOR ADDITIONAL READING
California Energy Commission. ABCs of AFVs: A Guide to Alternative Fuel Vehicles.
Sacramento, CA. November 1999.
Electric Drive Transportation Association. Electric Drive Technologies and Products.
Washington, DC. Updated January 2004. [http://www.electricdrive.org]
Fuel Cells 2000. Online Fuel Cell Information Center. Washington, DC. Updated January
2004. [http://www.fuelcells.org/]
Methanol Institute. Methanol Institute Homepage. Washington, DC. Updated January
2004. [http://www.methanol.org/]
National Biodiesel Board. Biodiesel Basics. Jefferson City, MO. Updated January 2004.
[http://www.biodiesel.org/resources/biodiesel_basics/]
National Hydrogen Association. Hydrogen Quick Facts. Washington, DC. Updated
January 2004. [http://www.hydrogenus.org/hydrogen-basics.asp]
Natural Gas Vehicle Coalition. About NGVs. Washington, DC. Updated May 2003.
[http://www.ngvc.org/ngv/ngvc.nsf/bytitle/fastfacts.htm]
Propane Vehicle Council. Propane Vehicle Council. Washington, DC. Updated January
2004. [http://www.propanevehicle.org/]
Renewable Fuels Association. Ethanol Industry Outlook 2004. Washington, DC. February
2004. [http://www.ethanolrfa.org/outlook2003.shtml]
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U.S. Department of Energy, Clean Cities Program. Alternative Fuels Data Center.
Washington, DC. Updated May 2004. [http://www.eere.energy.gov/afdc//]
U.S. Department of Energy. Fuel Cell Report to Congress. Washington, DC. February
2003.
——. National Hydrogen Energy Roadmap. Washington, DC. November 2002.
U.S. General Accounting Office. Energy Policy Act of 1992: Limited Progress in Acquiring
Alternative Fuel Vehicles and Reaching Fuel Goals. Washington, DC. February 2000.
——. Tax Incentives for Petroleum and Ethanol Fuels. Washington, DC. September 2000.
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