Order Code IB10041
CRS Issue Brief for Congress
Received through the CRS Web
Renewable Energy:
Tax Credit, Budget, and
Electricity Production Issues
Updated June 17, 2005
Fred Sissine
Resources, Science, and Industry
Congressional Research Service ˜ The Library of Congress

---

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 the 109th Congress
Renewable Portfolio Standard (RPS)
Renewable Energy Production Tax Credit (PTC) and Renewable Energy
Production Incentive (REPI)
Renewable Fuel Standard (RFS)
Renewable Hydrogen
Renewables Tax Revenue Effect
Other Renewables Provisions
Renewables in 108th Congress Omnibus Energy Bills (H.R. 6, S. 2095, and S. 1637)
FY2006 DOE Budget
Using Renewable Energy to Produce Electricity
Renewables Under Electric Industry Restructuring
Green Power
Distributed Energy
Net Metering
Natural Gas and Renewables
Biomass-Generated Synthetic Natural Gas (Syngas)
Substituting Electricity from Renewables for Gas-Fired Generation
Climate Change and Renewables
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
CRS Reports
Websites

---

IB10041
06-17-05
Renewable Energy: Tax Credit, Budget,
and Electricity Production Issues
SUMMARY
Energy security, a major driver of federal
lion for Wind, and $1 million for International
renewable energy programs in the past, came
Renewables.
back into play as oil and gas prices rose late in
the year 2000. The terrorist attack in 2001
The House-passed version of H.R. 6, the
and the Iraq war have led to heightened con-
Energy Policy Act of 2005, has many non-tax
cern about energy security, energy infrastruc-
renewable energy provisions similar to those
ture vulnerability, and the need for alternative
of H.R. 6 in the 108th Congress. It has a 5
fuels. Further, the 2001 electricity shortages
billion gallon renewable fuels standard (RFS),
in California, the northeast-midwest blackout
and Section 1311 provides an $18 million
of 2003, and continuing high natural gas
residential solar tax credit.
prices have brought a new emphasis to the
role that renewable energy may play in pro-
S.Amdt. 775 incorporates the non-tax
ducing electricity, displacing fossil fuel use,
provisions of S. 10 into the Senate version of
and curbing demand for power transmission
H.R. 6, which is on the Senate floor. The bill
equipment.
has an RFS of 8 billion gallons, and S.Amdt.
791 was adopted, adding a 10% renewable
Also, worldwide emphasis on environ-
energy portfolio standard (RPS). The Senate
mental problems of air and water pollution
Finance Committee chairman’s mark for tax
and global climate change, the related devel-
provisions to be incorporated into H.R. 6 has
opment of clean energy technologies in west-
$5.1 billion for renewables, including a
ern Europe and Japan, and technology com-
three-year extension of the renewable energy
petitiveness may remain important influences
production tax credit (PTC).
on renewable energy policymaking.
In the 108th Congress, the conference
The Bush Administration’s FY2006
version of the omnibus energy bill (H.R. 6)
budget request for the Department of Energy’s
left out the Senate-proposed RPS but provided
(DOE’s) Renewable Energy Program seeks
a PTC, RFS, and several other tax and non-tax
$353.6 million, which is $32.4 million less
measures. The bill did not pass, in part due to
than the FY2005 appropriation.
concerns about the bill’s cost and the contro-
versial MTBE “safe harbor” provision.
The House passed H.R. 2419, the Energy
and Water (E&W) appropriations bill for
The Working Families Tax Relief Act
FY2006, which funds DOE’s Energy Effi-
(P.L. 108-311) extended the previous PTC
ciency (Conservation) and Renewable Energy
through December 31, 2005. The American
programs. A new account structure does not
Jobs Creation Act (P.L. 108-357) expanded
provide a total figure for renewable energy
the PTC to solar and geothermal; added a half-
programs.
credit for open-loop biomass, municipal
waste, and small irrigation hydro; and created
Compared with the House-passed bill,
a credit for producers of refined coal. Also,
the Senate version of H.R 2419 has increases
tax incentives were created for ethanol and
of $6 million for Biomass and $2 million for
biodiesel, and tax-exempt bonds were autho-
Geothermal, and it has decreases of $10 mil-
rized for green buildings (including solar).
Congressional Research Service ˜ The Library of Congress

---

IB10041
06-17-05
MOST RECENT DEVELOPMENTS
A June 16 draft Senate amendment to H.R. 6, entitled “Climate and Economy Insurance
Act,” would create (§1526) a Climate Change Trust Fund with incentives for renewables.
Also, on June 16, the Senate adopted S.Amdt. 775, incorporating S. 10 into its version of
H.R. 6. Further, the Senate adopted S.Amdt. 791, putting a 10% renewable energy portfolio
standard (RPS) into the bill. Also, the Senate Finance Committee chairman’s mark for tax
provisions to be incorporated into the Senate bill has $5.5 billion (30%) for renewables,
including a three-year extension of the renewable energy production tax credit (PTC). On
May 26, 2005, the Senate Energy and Natural Resources Committee reported S. 10, an
omnibus energy bill with several non-tax renewable energy provisions. Section 204 has a
renewable fuels standard of 8 billion gallons. On April 21, the House passed H.R. 6, the
Energy Policy Act of 2005, which contains many non-tax renewable energy provisions
similar to those of H.R. 6 in the 108th Congress. Further, Section 1311 has an $18 million
residential solar tax credit. (Key issues of H.R. 6 are described in CRS Issue Brief IB10143,
Energy Policy: Comprehensive Energy Legislation (H.R. 6) in the 109th Congress; the
renewable energy provisions in H.R. 6 and other bills of the 109th Congress are discussed in
“Renewables in the 109th Congress,” below; and the provisions in H.R. 6 and S. 2095 from
the 108th Congress are described in “Renewables in 108th Congress Omnibus Energy Bills,”
below.)
On June 16, the Senate Appropriations Committee reported the FY2006 Energy and
Water appropriations bill (H.R. 2419), which provides funding for DOE’s Energy Efficiency
(Conservation) and Renewable Energy programs. Compared with the House-passed bill, the
Senate version of H.R 2419 has increases of $6 million for Biomass and $2 million for
Geothermal, and it has decreases of $10 million for Wind, and $1 million for International
Renewables. (For more details, see “FY2006 DOE Budget” and Table 2.)
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/].)
CRS-1

---

IB10041
06-17-05
Contribution to National Energy Supply
According to the Energy Information Administration’s (EIA’s) Annual Energy Outlook
2005, renewable energy resources (excluding wood used for home heating) supplied about
5.9 Q (quadrillion Btu’s or quads) of the 98.2 Q the nation used in 2003, 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 2005 projects that current policies would yield a 1.5%
average annual increase in renewable energy production to 8.1 Q through 2025, resulting in
a 38% total increase. This would amount to about 6.1% of the projected 133 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 (see [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 (see [http://www.state.gov/g/oes/sus/wssd/]), and the
European Union committed to a $700 million energy partnership.
CRS-2

---

IB10041
06-17-05
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 FY2006 Congressional Budget Request,
DOE/ME-0053, v. 3, February 2005.)
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
CRS-3

---

IB10041
06-17-05
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 kwh, 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 the 109th Congress
Renewable Portfolio Standard (RPS). For retail electricity suppliers, an RPS sets
a minimum requirement (often a percentage) for electricity production from renewable
energy resources or for the purchase of tradable credits that represent an equivalent amount
of production. In the 107th Congress, a 10% RPS provision was included in the Senate
version of the omnibus energy bill (H.R. 4). In the 108th Congress, the Senate adopted the
CRS-4

---

IB10041
06-17-05
same provision in its version of H.R. 6, but it was dropped in conference. Meanwhile several
more states have enacted an RPS, bringing the total to 18 states and the District of Columbia.
In the 109th Congress, two bills (H.R. 983 and S. 427) would establish an RPS. The
Senate Committee on Energy and Natural Resources held a hearing on RPS on March 8,
2005. Regional differences in the availability of renewable resources, particularly resource
availability in the southeastern United States, was a key issue of the discussion. In the April
12 markup of a committee print (to be incorporated into H.R. 6) by the House Committee on
Energy and Commerce, an amendment to add an RPS (1% in 2008, increasing by 1%
annually through 2027) was rejected (17-30). Proponents noted a growing number of states
with an RPS and that EIA reports show an RPS could reduce electricity bills. Opponents
raised concerns about the exclusion of existing hydropower facilities and resource limits for
the southeastern United States. There is no RPS provision in the House-passed version of
H.R. 6. (For more background information on how the RPS works, a CRS Memorandum on
Renewable Energy Portfolio Standard is available from the author. For current status of RPS
policies in the states, see Database of State Incentives for Renewable Energy at
[http://www.dsireusa.org/library/includes/type.cfm].)
Renewable Energy Production Tax Credit (PTC) and Renewable Energy
Production Incentive (REPI). In the 108th Congress, the JOBS Act (P.L. 108-357)
expanded the PTC (adding solar, geothermal, and open-loop biomass, landfill gas, trash
combustion, and certain small hydro) and extended it through the end of 2005. In the 109th
Congress, there is no PTC extension in the House-passed version of H.R. 6. However,
several bills (H.R. 141, H.R. 1511, S. 35, S. 387, S. 542, S. 727) would extend the PTC in
some form. (A detailed description of the PTC appears in the report Description and
Analysis of Certain Federal Tax Provisions Expiring in 2005 and 2006, by the Joint Tax
Committee at [http://www.house.gov/jct/x-12-05.pdf].)
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 the Energy Policy Act of 1992 (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. In the 109th Congress, some bills (H.R. 6 [§202], H.R. 622/S. 326, H.R. 1127)
would modify the incentive.
Renewable Fuel Standard (RFS). In the 108th Congress, the proposals for a
renewable fuel standard (RFS) would have been linked with other provisions involving the
fuel additive MTBE. The energy bill conference report (H.R. 6, §1502) would have provided
a “safe harbor” from product liability lawsuits for producers of MTBE and certain renewable
fuels. 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. H.R. 6 would have put a qualified
ban on the use of MTBE as a fuel additive and would have replaced the RFG requirement
with a renewable fuel standard (RFS), requiring that the annual production of gasoline in
2012 contain at least 5 billion gallons of “renewable fuel.”
CRS-5

---

IB10041
06-17-05
In the 109th Congress, H.R. 6 (§1501) defines “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 2003, about
2.8 billion gallons of ethanol were blended with gasoline. Biodiesel is used at a rate of about
50 million gallons per year. The RFS provision would call for renewable fuels (primarily
ethanol) production to grow to 3.1 billion gallons a year in 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 to 2.5 gallons of
renewable fuel.
In the Senate, S. 606 would set an RFS of 3.8 billion gallons in 2006, rising to 6.0
billion gallons in 2012. Further, S. 650 would put the RFS at 4.0 billion gallons in 2006,
rising to 8.0 billion gallons in 2012.
For more information on the bills’ provisions for renewable fuels and MTBE, see CRS
Report RL32865, Renewable Fuels and MTBE: A Comparison of Selected Legislative
Initiatives; CRS Report RS21676, The Safe-Harbor Provision for Methyl Tertiary Butyl
Ether (MTBE); and CRS Report RL32787, MTBE in Gasoline: Clean Air and Drinking
Water Issues.
Renewable Hydrogen. In the 109th Congress, H.R. 6 (§803) 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. In the Senate,
several bills (S. 373, S. 665, S. 726) would create programs to produce hydrogen from
renewable energy.
Renewables Tax Revenue Effect. Table 1 shows the estimated 10-year revenue
effect of renewable energy tax provisions in the House version of H.R. 6 (H.R. 1541) and the
Senate Finance Committee markup of the tax bill for the Senate version of H.R. 6.
Table 1. H.R. 6, Tax Revenue Effect
($ billions)
H.R. 6 (House)
Senate Fin. Cmte.
Renewable Energy Production Tax Credit (PTC)
——
$4.577
Clean Renewable Energy Bonds
——
$0.493
Business Investment Tax Credit (Solar & Geo.)
——
$0.059
Residential Solar Tax Credit (includes fuel cells)
$0.018
——
Biodiesel Tax Credit
——
$0.402
Total, Renewables Provisions
$0.018
$5.531
Gross Total, All Tax Provisions
$8.090
$18,421
Renewables Share of Total
0.2%
30.0%
Sources: Joint Committee on Taxation (JCT), Estimated Revenue Effects of the Chairman’s Amendment in the
Nature of a Substitute to H.R. 1541, Scheduled for Markup by the Committee on Ways and Means, April 13,
2005 (JCX-17-05); Estimated Revenue Effects of the Chairman’s Amendment in the Nature of a Substitute to
the “Energy Policy Tax Incentives Act of 2005,” Scheduled for Markup by the Committee on Finance, June
16, 2005 (JCX-47-05).
CRS-6

---

IB10041
06-17-05
Other Renewables Provisions. The above-mentioned bills, and others, cover
additional areas of renewable energy policy, resources, and technology including distributed
energy, federal purchases, federal lands, Indian energy, net metering, alternative fuels
(alcohol, biofuel, biodiesel), biopower/biomass, geothermal, hydropower, solar, and wind.
(These bills and provisions are identified in CRS Report RL32860, Energy Efficiency and
Renewable Energy Legislation in the 109th Congress.)
Renewables in 108th Congress Omnibus Energy Bills
(H.R. 6, S. 2095, and S. 1637)
In the 108th Congress, the American Jobs Creation Act (P.L. 108-357) extended the
renewable energy production tax credit (PTC) through the end of 2005 and expanded it to
include solar, geothermal, open-loop biomass, landfill gas, trash combustion, small hydro
used for irrigation, and refined coal. Also, it 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
otherwise stalled in the 108th Congress.
In the 108th Congress, most legislative action on renewables focused on the omnibus
energy policy bills, S. 1637, S. 2095, H.R. 6, and S. 14/S. 1149. Late in 2003, a cloture
motion to stop a filibuster on the conference report (H.Rept. 108-375) for H.R. 6 failed (57-
40). Key objections cited in Senate debate included budget concerns and the Title XV
provisions that would provide a “safe harbor” from product liability lawsuits for producers
of methyl tertiary butyl ether (MTBE), ethanol, and other renewable fuels. 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 remained in S. 2095. Other renewables provisions in the H.R. 6
conference report included a renewable energy production incentive, a residential solar tax
credit, and other tax and authorization measures. S. 2095 and H.R. 6 also included 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].)
FY2006 DOE Budget
On February 7, 2005, President Bush issued the Administration’s budget request for
FY2006. The Department of Energy (DOE) request seeks $353.6 million for renewables,
which is $32.4 million, or 8%, less than the FY2005 appropriation (excluding inflation). The
main increases are for Hydrogen ($5.1 million) and Facilities ($4.9 million). The main cuts
are for Biofuels (-$30.5 million), Small Hydro (-$4.4 million), International Renewables
(-$3.4 million), and Tribal Energy (-$1.5 million). Further, at least $75.9 million in
congressional earmarks would be reprogrammed or eliminated, including Hydrogen ($37.6
million), Biofuels ($35.3), and Intergovernmental ($3.0 million).
CRS-7

---

IB10041
06-17-05
The FY2006 budget request aims to “accelerate” the development of hydrogen-powered
fuel cell vehicles. The Hydrogen program aims to facilitate industry commercialization of
infrastructure for those vehicles by 2015. Goals for other renewable energy technologies
generally seek to improve energy production performance while reducing costs. The request
also proposes funding tax credits, including an extension of the PTC for wind, biomass, and
landfill gas through the end of 2007 and an investment tax credit for residential solar systems
through the end of 2009.
For FY2005, the 108th Congress approved the Consolidated Appropriations Act for
FY2005, P.L. 108-447 (H.R. 4818, H.Rept. 108-792). Division C, the Energy and Water
appropriations bill, provides $389.1 million for DOE’s Renewable Energy program and
$121.2 million for OETD. Also, the act has $23.0 million for renewables at USDA and $180
million for clean energy (renewables) and energy efficiency in developing countries.
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. In the 109th
Congress, H.R. 6 (§1253) includes 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 109th Congress, H.R. 983 and S.
427 have an RPS. A proposed RPS amendment to H.R. 6 was rejected in Energy and
Commerce Committee markup.
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 [http://www.eere.energy.gov/greenpower/].)
Distributed Energy. Distributed energy involves the use of small, modular electricity
generators sited close to the customer load that can enable utilities to defer or eliminate
costly investments in transmission and distribution system upgrades, and provide customers
with quality, reliable energy supplies that may have less environmental impact than
traditional fossil fuel generators. Technologies for distributed electricity generation use
wind, solar, bioenergy, fuel cells, gas microturbines, hydrogen, combined heat and power,
and hybrid power systems. A DOE study, Structural Vulnerability of the North American
Power Grid, suggests that adding more distributed power generation could help reduce grid
CRS-8

---

IB10041
06-17-05
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 Energy
Program is available at [http://www.eere.energy.gov/de/]).
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. About 40 states have some form
of net metering in place. In the 109th Congress, H.R. 6 (§1251) provides for net metering.
Natural Gas and Renewables
On January 24, 2005, the Senate Energy and Natural Resources Committee held a
natural gas conference. Some participants described the potential for renewable energy to
augment gas supplies, reduce gas demand, and thereby help reduce natural gas prices; see
[http://energy.senate.gov/conference/conference.cfm]. Some of these statements referred to
a 2005 Department of Energy (DOE) study, Easing the Natural Gas Crisis: Reducing
Natural Gas Prices through Increased Deployment of Renewable Energy and Energy
Efficiency, available at [http://eetd.lbl.gov/ea/ems/reports/56756.pdf].
Biomass-Generated Synthetic Natural Gas (Syngas). Continuing high natural
gas prices have created interest in using renewables to dampen natural gas demand.
Renewable energy (mainly biomass) can be used to produce methane (the main component
of natural gas), which could possibly substitute directly for natural gas. DOE projects that,
by 2020, biomass and energy crops could produce 15% of natural gas needs. A 2005
Harvard University study, The National Gasification Strategy, cites a Princeton University
study (A Cost-Benefit Assessment of Biomass Gasification Power Generation in the Pulp and
Paper Industry) that says that biomass-generated “black liquor” and wood waste could
produce enough syngas to support 25 billion watts (gigawatts) of natural gas-fired power
plant capacity by 2020.
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. For many utilities the peak demand (often supported with natural gas
peak-load plants) occurs during hot summer afternoons. In many regions, solar and wind
energy reach high levels during summer peak periods. The American Wind Energy
Association (AWEA) says that by the end of 2005, wind farms will be saving more than 0.5
billion cubic feet (Bcf) of natural gas per day. DOE’s report Scenarios for a Clean Energy
Future (Table 7.11) projects that, with some federal policy changes, biomass-based power
production could be greatly accelerated through 2010. (Also see the 2005 DOE study noted
above, and the American Council for an Energy Efficient Economy’s report, Impacts of
Energy Efficiency and Renewable Energy on Natural Gas Markets.)
CRS-9

---

IB10041
06-17-05
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
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
109th Congress
H.R. 6 (Barton). Energy Policy Act of 2005. Reauthorizes REPI, authorizes increased
hydropower at existing dams, sets renewables goal for federal facilities, and establishes
residential rebate program. Committee on Energy and Commerce ordered committee print
reported, as amended, April 13. Incorporated Domestic Energy Security Act and H.R. 1541
CRS-10

---

IB10041
06-17-05
(as Title XIII). Referred to Committees on Energy and Commerce, Resources, Ways and
Means, Science, and others April 18. Passed House, amended, April 21.
H.R. 1541 (Thomas). Provides $18 million in residential investment tax credits over
three years for solar hot water, photovoltaics, and fuel cell equipment. Committee on Ways
and Means ordered bill reported, April 13. Incorporated into H.R. 6.
H.R. 2419 (Hobson). Energy and Water Development Appropriations Act, 2006.
Provides funding for DOE renewable energy programs in a new account structure that
merges program funding for DOE energy efficiency (conservation) programs formerly
funded under Interior Appropriations. Reported (H.Rept. 109-86) May 18, 2005. Passed
House, amended, May 24. Senate Appropriations Committee reported (S.Rept. 109-84) June
16.
S. 427 (Jeffords). Renewable Energy Investment Act of 2005. Creates a federal
renewable energy portfolio standard, starting at 5% in 2006 and reaching 20% in 2020
Introduced February 17, 2005; referred to Committee on Energy and Natural Resources.
S. 726 (Alexander). Natural Gas Price Reduction Act of 2005. Section 103 authorizes
funding for distributed generation, solar energy, and biomass technologies. Section 104
authorizes funding to accelerate hydrogen and fuel cell development. Section 105 would,
under certain conditions, repeal PURPA Section 210 requirements for cogeneration and
small power facilities. Section 106 calls for a study of cogeneration and small power.
Section 108 directs states to consider requiring net metering services for electric utility
customers. Section 113 provides financial incentives to industry to encourage use of
gasification equipment that uses biomass and other fuels. Introduced April 6, 2005; referred
to Committee on Energy and Natural Resources.
S. 727 (Alexander). Tax Incentives for the Natural Gas Price Reduction Act of 2005.
Section 3(a) increases the business investment tax credit for solar energy equipment from
10% to 30% for five years. Section 3(b) establishes a 30% tax credit ($7,500 maximum)
over five years for installation (including labor) of residential solar heating equipment.
Section 4(a) has a 15% investment tax credit ($2,000 maximum) for residential solar electric
(3-year), solar water heating (1-year), and wind energy (1-year) equipment. Section 3(c)
extends the renewable energy electricity production tax credit (PTC) for solar and geothermal
energy for five years. For other equipment under the PTC, Section 4(b) extends the credit
for one year. Introduced April 6, 2005; referred to Committee on Finance.
(A more extensive list of over 50 bills appears in CRS Report RL32860, Energy Efficiency
and Renewable Energy Legislation in the 109th Congress.)
108th Congress
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. PTC provision
CRS-11

---

IB10041
06-17-05
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 301 extends 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. Conference report (H.Rept. 108-755)
approved in House October 7 and in Senate October 11. President signed October 22, 2004.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. Senate. Committee on Energy and Natural Resources. Power
Generation Resource Incentives & Diversity Standards. Hearing held March 8, 2005.
[http://energy.senate.gov/hearings/witnesslist.cfm?id=1403]
(A more extensive list appears in CRS Report RL32860, Energy Efficiency and Renewable
Energy Legislation in the 109th Congress.)
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/]
CRS-12

---

IB10041
06-17-05
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. 2004. 200 p.
Owens, Brandon. “Does the PTC Work?” Standard and Poor’s. Sept. 2004.
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.
——. Federal Energy Regulatory Commission. The Interconnection of Wind Energy and
Other Alternative Technologies. January 24, 2005.
[http://www.ferc.gov/industries/electric/indus-act/gi/wind.asp].
——. National Renewable Energy Laboratory. Domestic Energy Scenarios. 2003. 25 p.
[http://www.nrel.gov/docs/fy03osti/32742.pdf]
——. National Renewable Energy Laboratory. Power Technologies Energy Data Book.
April 2005. 230 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.
CRS-13

---

IB10041
06-17-05
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
Communities. [GAO-04-756] September 3, 2004. 107 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/]
CRS Reports
CRS Issue Brief IB10143. Energy Policy: Legislative Proposals in the 109th Congress, by
Rob Bamberger and Carl Behrens.
CRS Report RL32865. Renewable Fuels and MTBE: A Comparison of Selected Legislative
Initiatives, by Brent Yacobucci, Mary Tiemann, and James McCarthy.
CRS Issue Brief IB10136. Arctic National Wildlife Refuge (ANWR): Controversies for the
109th Congress, by Lynne Corn, Bernard Gelb, and Pam Baldwin.
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 RL32860. Energy Efficiency and Renewable Energy Legislation in the 109th
Congress, 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 Report RL30369. Fuel Ethanol: Background and Public Policy Issues, by Brent
Yacobucci.
CRS Report RL32712. Agriculture-Based Renewable Energy Production, by Randy
Schnepf.
CRS Report RS21563. Biodiesel Fuel and U.S. Agriculture, by Randy Schnepf.
CRS Issue Brief IB10054. Energy Tax Policy, by Salvatore Lazzari.
Websites
American Council for Renewable Energy. [http://www.acore.org/]
CRS-14

---

IB10041
06-17-05
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/]
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/]
Tenth Session of the Conference of Parties to the United Nations Framework Convention on
Climate Change (Buenos Aires, COP-10). December 6-17, 2004.
[http://unfccc.int/meetings/cop_10/items/2944.php]
Renewable Energy Policy Project. [http://solstice.crest.org/]
Renewable Energy/Information Center. International Energy Agency (IEA).
[http://www.iea.org/dbtw-wpd/Textbase/subjectqueries/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].
CRS-15

---

IB10041
06-17-05
Table 2. DOE Renewable Energy Budget for FY2004-FY2006
(selected programs, $ millions)
OFFICE OF ENERGY
EFFICIENCY AND
Senate
Senate
Senate
RENEWABLE ENERGY
FY2005
FY2006
FY2006
Apprn
Cmte -
Cmte -
(EERE)
App.
Req.
House
Cmte
House
FY05
HYDROGEN TECHNOLOGY
94.6
99.1
99.1
99.1
0.0
4.5
FUEL CELL TECH.
74.9
83.6
83.6
83.6
0.0
8.7
BIOMASS & BIOREFINERY
89.1
72.2
86.2
92.2
6.0
3.1
SOLAR ENERGY
85.8
84.0
84.0
84.0
0.0
-1.9
Photovoltaics
—
75.0
—
—
—
—
Concentrating
—
6.0
—
11.0
—
—
Solar Heating & Lighting
—
3.0
—
—
—
—
WIND
41.3
44.2
44.2
34.2
-10.0
-7.0
GEOTHERMAL
25.6
23.3
23.3
25.3
2.0
-0.3
SMALL HYDRO
5.0
0.5
0.5
0.5
0.0
-4.5
VEHICLE TECHNOLOGIES
166.9
165.9
167.9
199.9
32.0
33.0
BUILDING TECHNOLOGIES
67.1
58.0
65.0
67.0
2.0
-0.1
INDUSTRIAL TECHNOLOGIES
75.3
56.5
58.9
56.5
-2.4
-18.9
DISTRIBUTED ENERGY*
60.6
56.6
56.6
—
—
—
FEDERAL ENERGY MGMT
20.1
19.2
19.2
19.2
0.0
-0.9
FACILITIES & INFRASTRUC.
11.4
16.3
16.3
16.3
0.0
4.9
National Renewable Energy Lab
4.8
5.8
5.8
5.8
0.0
1.0
Construction
6.6
10.5
10.5
10.5
0.0
3.9
WEATHER’N & INTERGOV.
309.6
298.2
307.2
325.1
4.0
-1.4
International Renewables
6.4
2.9
3.9
2.9
-1.0
-3.5
Tribal Energy
5.5
4.0
4.0
4.0
0.0
-1.5
Renew. Production Incentive
5.0
5.0
5.0
5.0
0.0
0.0
PROGRAM MANAGEMENT
123.8
117.5
118.0
153.0
34.9
36.5
RENEWABLES, SUBTOTAL
386.0
353.6
—
—
—
—
Prior Year Balances (EERE)
-5.3
—
—
—
—
—
EERE, TOTAL
1,248.9
1,200.4
1,236.8
1,253.80
17.0
4.9
Office of Electricity Delivery &
Energy Reliability (EDER)*
120.2
95.6
99.8
178.1
78.3
57.9
Source: DOE FY2006 Cong. Budget Request, v. 3; Feb. 2005 (p. 13); H.Rept. 109-86 (p. 96-104); S.Rept. 109-
84.
*Funding for Distributed Energy was moved to EDER.
CRS-16

---