Order Code IB10128
CRS Issue Brief for Congress
Received through the CRS Web
Alternative Fuels and Advanced Technology Vehicles:
Issues in Congress
Updated April 19, 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-
the bill would expand existing tax incentives
ogy vehicles are seen by proponents as inte-
for the purchase of advanced vehicles; autho-
gral to improving urban air quality, decreasing
rize R&D funding for hydrogen fuel and fuel
dependence on foreign oil, and reducing
cells; require that gasoline contain ethanol or
emissions of greenhouse gases. However,
other renewable fuel; and ban the use of the
major barriers — especially economics —
fuel additive MTBE. Various House commit-
currently prevent the widespread use of these
tees completed markup of the bill the week of
fuels and technologies. Because of these
April 11, 2005. Floor action is expected the
barriers, and the potential benefits, there is
week of April 18. This bill is similar to legis-
continued congressional interest in providing
lation that stalled in the 108th Congress.
incentives and other support for their develop-
ment and commercialization.
On March 16, 2005, the Senate Commit-
tee on Environment and Public Works ordered
In the 109th Congress, alternative fuels
S. 606 (the Reliable Fuels Act) reported favor-
and advanced technology vehicles are ex-
ably with amendments. This bill would estab-
pected to receive a good deal of attention,
lish a renewable fuels standard requiring the
especially in the debate over omnibus energy
use of 6 billion gallons of renewable fuel in
legislation. Major topics include tax incen-
gasoline by 2012.
tives for alternative fuel production; the future
of ethanol and the fuel additive MTBE, in-
Because of concerns over the energy bill
cluding the establishment of a renewable fuels
in the 108th Congress, some alternative fuels
standard (RFS); and research and development
provisions from the bill — especially those
of hydrogen fuel and fuel cells. Other topics
related to ethanol and MTBE — were inserted
include government vehicle purchase require-
into other bills, including tax legislation.
ments; tax credits for vehicle purchases;

promotion of biodiesel fuel; and incentives for
Some tax provisions from the energy bill,
hybrid electric vehicles.
including tax credits for ethanol and biodiesel,
were inserted into the conference report on the
The House version of omnibus energy
American Jobs Creation Act of 2004 (P.L.
legislation (H.R. 6) contains many provisions
108-357). Among other provisions, the new
relevant to alternative fuels and advanced
law replaces the existing ethanol tax exemp-
technology vehicles. Among its provisions,
tion with a tax credit, and establishes tax
credits for biodiesel.
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MOST RECENT DEVELOPMENTS
Markups in various House committees on omnibus energy legislation (H.R. 6) were
completed the week of April 11, 2005. It is expected that floor discussion of the bill will
commence the week of April 18. This bill contains provisions on renewable fuel use,
hydrogen R&D, and tax credits for advanced vehicles.
On March 16, 2005, the Senate Committee on Environment and Public Works ordered
S. 606 (the Reliable Fuels Act) reported favorably with amendments. This bill would
establish a renewable fuels standard requiring the use of 6 billion gallons of renewable fuel
in gasoline by 2012. It would also ban the use of the fuel additive MTBE, and would provide
funding for MTBE cleanup.
On October 7, 2004, the House approved the conference report on 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 (P.L. 108-357).
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, (P.L. 105-178) 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. 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. Many of these topics are addressed in H.R. 6, the House version of energy
legislation 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). Every gallon of gasoline sold in the United States is
subject to a federal tax of 18.4 cents. However, before 2005 gasohol with 10% ethanol was
taxed at a lower rate. For every gallon of 10% gasohol sold, the overall forgone revenue was
5.2 cents. (The exemption was prorated for blends with less ethanol.) The Joint Committee
on Taxation estimates that the exemption resulted in about $7.5 billion in cumulative forgone
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.)
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Because of this concern, a Volumetric Ethanol Excise Tax Credit (VEETC) was
proposed. This proposal was to 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 the energy bill in the 108th
Congress, and a version of this credit was inserted into the conference report on the bill.
VEETC provisions were later inserted into the conference report on the American Jobs
Creation Act of 2004 (P.L. 108-357), which became law on October 22, 2004. Under this
law the new ethanol tax credit will expire at the end of 2010.
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. Under the act this biodiesel credit will expire at the
end of 2006, four years before the expiration of the ethanol credit.
(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. Until recently, the most commonly used oxygenate was MTBE. In 1999,
87% of RFG contained MTBE, a number since reduced to about 46%, 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.
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
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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 reported by various House committees, H.R. 6 contains numerous MTBE and
ethanol provisions. It would ban the use of MTBE as a fuel additive, and would repeal the
Clean Air Act requirement to use MTBE or other oxygenates. In place of this requirement,
the bill would establish 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 would require that
reductions in emissions of toxic substances achieved by RFG be maintained; it would
authorize grants to assist merchant MTBE production facilities in converting to the
production of other fuel additives; it would authorize funds for MTBE cleanup; and, perhaps
most controversially, it would provide 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 an energy bill
in the 108th Congress.
In addition to omnibus energy legislation, stand-alone renewable fuels bills have also
seen congressional action. On March 16, 2005, the Senate Environment and Public Works
Committee ordered S. 606 reported favorably with amendments. This bill would establish
an RFS of 6 billion gallons by 2012, ban the use of MTBE, authorize funding for MTBE
cleanup, and provide a safe harbor for renewable fuels but not MTBE.
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(For a detailed comparison of the renewable fuels legislation, see CRS Report RL32865,
Renewable Fuels and MTBE: A Comparison of Legislative Initiatives. For additional
background on the MTBE issue, see CRS Report RL32787, MTBE in Gasoline: 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
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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).
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).
H.R. 6 would significantly modify the existing requirements for EPAct compliance. All
dual-fuel vehicles purchased to meet the EPAct quotas would be required to operate on
alternative fuels, unless an agency were granted a waiver by the Secretary of Energy. In
addition, the Secretary of Energy would be 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 109th Congress, H.R. 626 would significantly expand the vehicle purchase
incentives. In addition, H.R. 6 would establish a tax credit for the purchase of certain
vehicles with advanced lean-burn engines.
(For more information on vehicle 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). These credits are set to expire at the end of 2006.
(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 between FY2004 and FY2008 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 $264 million in FY2005 (H.R.
4818). For FY2006, the Administration is requesting $283 million for hydrogen and fuel cell
research. H.R. 6 would authorize a total of $4 billion through FY2010 for fuel cell and
hydrogen R&D.
(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. For background information on hydrogen and fuel cells, see CRS Report
RL32196, A Hydrogen Economy and Fuel Cells: An Overview.)
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. While not addressing hybrids directly, H.R. 3
(Transportation Equity Act: A Legacy for Users) would permit states to exempt certain high-
efficiency vehicles from HOV restrictions. H.R. 3 passed the House March 10, 2005, and
has been referred to the Senate.
Further, as was stated above, there is interest in expanding the incentives for the
purchase of hybrid vehicles (see “Vehicle Purchase Tax Incentives” above).
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(For more information on hybrid vehicles, see CRS Report RL30484, Advanced Vehicle
Technologies: Energy, Environment, and Development Issues.)
LEGISLATION
109th Congress
H.R. 3 (Young)
Transportation Equity Act: A Legacy for Users. A bill authorizing funding for federal
highway programs, transit programs, and highway safety. Among other provisions, the bill
would allow states to exempt certain alternative fuel and high-efficiency vehicles from HOV
restrictions. The bill also provides assistance to municipalities for the purchase of alternative
fuel buses and refueling infrastructure. Introduced February 9 , 2005; passed House March
10, 2005; referred to Senate.
H.R. 6 (Barton)
Energy Policy Act of 2005. Title VII modifies existing requirements for alternative fuel
fleets. Title VIII authorizes $4 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 18, 2005.
H.R. 626 (Camp)
Volume Enhancing Hardware Incentives for Consumer Lowered Expenses (VEHICLE)
Technology Act of 2005. Extends existing tax credit for electric vehicles. Establishes
purchase tax credits for alternative fuel and hybrid vehicles. Modifies the tax deduction for
alternative fuel refueling infrastructure. Introduced February 8, 2005; referred to House
Ways and Means.
S. 606 (Thune)
Reliable Fuels Act. Among other provisions: Establishes a renewable fuels standard
of 6 billion gallons by 2012; bans the use of MTBE; authorizes funding for MTBE cleanup;
provides a safe harbor from defective product liability for renewable fuels. Introduced March
11, 2005; ordered reported by Senate Environment and Public Works March 16.
S. 650 (Lugar)
Fuels Security Act of 2005. Among other provisions: Establishes a renewable fuels
standard for 8 billion gallons by 2012; requires federal agencies to use biodiesel and ethanol-
blended gasoline wherever possible. Introduced March 17, 2005; referred to Senate
Environment and Public Works.
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
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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.
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.
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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]
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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