Order Code IB10041
CRS Issue Brief for Congress
Received through the CRS Web
Renewable Energy:
Tax Credit, Budget, and
Electricity Production Issues
Updated March 28, 2006
Fred Sissine
Resources, Science, and Industry
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Renewable Energy Concept
Contribution to National Energy Supply
Role in Long-Term Energy Supply
History
Tax Credits
Public Utility Regulatory Policies Act
State and Local Government Roles
Renewables in 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
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

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Renewable Energy: Tax Credit, Budget,
and Electricity Production Issues
SUMMARY
Energy security, a major driver of federal
congressional earmarks under the DOE
renewable energy programs in the past, came
Renewable Energy Program, which amount to
back into play as oil and gas prices rose late in
$80.0 million for FY2006.
the year 2000. The terrorist attack in 2001
and the Iraq war have led to heightened con-
P.L. 109-102 (H.R. 3057) provides $100
cern about energy security, energy infrastruc-
million for clean (renewable) energy and
ture vulnerability, and the need for alternative
energy efficiency programs in developing
fuels. Further, the 2001 electricity shortages
countries. P.L. 109-97 (H.R. 2744) provides
in California, the northeast-midwest blackout
$23 million for farm-based renewable energy
of 2003, and continuing high natural gas
grants and loans. H.R. 2863 (in conference)
prices have brought a new emphasis to the
would authorize $5 million for a wind energy
role that renewable energy may play in pro-
project on an Air Force base.
ducing electricity, displacing fossil fuel use,
and curbing demand for power transmission
P.L. 109-58 (H.R. 6) authorizes or
equipment.
reauthorizes several renewable energy pro-
grams, sets new goals for renewable energy
Also, worldwide emphasis on environ-
use in federal facilities and fleets, expands
mental problems of air and water pollution
programs for hydrogen fuel cell buses, and
and global climate change, the related devel-
sets (§1501) a renewable fuels standard of 7.5
opment of clean energy technologies in west-
billion gallons per year by 2012 to increase
ern Europe and Japan, and technology com-
use of ethanol and biodiesel. Among the tax
petitiveness may remain important influences
measures, §1301 extends the renewable en-
on renewable energy policymaking.
ergy production tax credit for two years,
§1303 provides $800 million in renewable
The Bush Administration’s FY2007
energy bonds, §1335 establishes a residential
budget request for the Department of Energy’s
solar (heat and electricity) tax credit, and
(DOE’s) Renewable Energy Program seeks
§1337 increases a business solar tax credit.
$359.2 million for renewables, which is $84.0
However, the enacted law does not include a
million, or 30.5%, more than the FY2006
Senate-proposed provision to set a 10% re-
appropriation. In support of the President’s
newable portfolio standard.
proposal for an Advanced Energy Initiative,
the request includes major funding increases
P.L. 109-59 (H.R. 3) contains several
for solar energy (to support the Solar America
provisions for “alterative” and “clean” fuels,
Initiative) and biomass (to support the
including sections 1113, 1121, 3010, 3044,
Biorefinery Initiative). The main increases are
and 6015.
for Solar Photovoltaics ($79.5 million) and
Biomass ($59.0 million). The main cuts are
P.L. 109-171 (S. 1932, Section 1301)
for Geothermal (-$23.1 million), Solar Heat &
limits funding for one renewable energy
Light ($1.5 million), International Renewables
program at USDA, and Section 1402 termi-
(-$1.4 million), and Small Hydro (-$0.5 mil-
nates funding for another one.
lion). Further, the request would eliminate all
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On March 9, 2006, the House Committee on Science held a hearing focused on a
National Academy of Sciences proposal that Congress consider establishing an Advanced
Research Projects Agency for Energy (ARPA-E) at the U.S. Department of Energy (DOE).
Some bills (H.R. 4435, H.R. 4906, S. 2196, S. 2197, S. 2398) propose creating such an
agency in various forms. However, the Administration has already requested FY2007
funding for an Advanced Energy Initiative (AEI) as part of its American Competitiveness
Initiative (ACI), which includes accelerated funding for the “Solar America” and
“Biorefinery” initiatives under DOE’s Renewable Energy Program.
On February 6, 2006, President Bush issued the Administration’s budget request for
FY2007. The Department of Energy (DOE) request seeks $359.2 million for renewables,
which is $84.0 million, or 30.5%, more than the FY2006 appropriation (excluding inflation).
The main increases are for Solar Photovoltaics ($79.5 million) and Biomass ($59.0 million).
The main cuts are for Geothermal (-$23.1 million), Solar Heat & Light ($1.5 million),
International Renewables (-$1.4 million), and Small Hydro (-$0.5 million). Further, the
request calls for the elimination (or reprogramming) of all congressional earmarks, which
amount to $80.0 million for FY2006, including Biomass ($48.8 million) and Solar Energy
($14.4 million). (For more budget details, see “FY2006 DOE Budget” and Table 2. CRS
Report RL33294, DOE Budget Earmarks: A Selective Look at Energy Efficiency and
Renewable Energy R&D Programs, by Fred Sissine, provides more details about earmarks
for DOE’s renewable energy programs. Also, the DOE budget document is online at
[http://www.cfo.doe.gov/budget/index.htm].)
(The renewable energy provisions in the Energy Policy Act of 2005 [P.L. 109-58, H.R.
6] and other bills of the 109th Congress are discussed in the “Renewables in the 109th
Congress” and “Legislation” sections below. A list of all renewable energy bills introduced
in the 109th Congress is provided in CRS Report RL32860, Energy Efficiency and Renewable
Energy Legislation in the 109th Congress, by Fred Sissine).
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
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to be a renewable energy resource. (For further definitions of renewable energy, see the
National Renewable Energy Laboratory’s website information on “Clean Energy 101” at
[http://www.nrel.gov/clean_energy/].)
Contribution to National Energy Supply
According to the Energy Information Administration’s (EIA’s) Annual Energy Outlook
2006, renewable energy resources (excluding wood used for home heating) supplied about
5.7 Q (quadrillion Btu’s or quads) of the 99.7 Q the nation used in 2004, 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 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 most of 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 2006 projects that current policies would yield a 1.8%
average annual increase in renewable energy production to 9.0 Q through 2030, resulting in
a 57% total increase. This would amount to about 6.7% of the projected 134 Q total demand
in 2030. (Detailed breakdowns of renewable energy use appear in EIA’s Renewable Energy
Trends 2004.)
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
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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.
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%),
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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
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. 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. Additionally, P.L. 96-223 created an income tax
credit for alcohol fuels; 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. 95-617) 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, Section 1253 of P.L. 109-58 terminated the mandatory purchase and
sale requirements for a new renewable power facility, provided that FERC finds that the new
facility has access to wholesale power markets and transmission services.
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. In 2004, the city of Honolulu approved a $7.85 million solar and energy
efficiency bond.
(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/].)
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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. A growing number of states have enacted an RPS, currently including 19
states and the District of Columbia.
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 was no RPS provision in the House version
of H.R. 6. The Senate version had a 10% RPS provision. During the conference, there was
an idea put out to compromise by including nuclear and hydropower facilities. Nevertheless,
RPS was dropped in conference. (For more background information on RPS, two
memoranda are 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].)
Renewable Energy Production Tax Credit (PTC) and Renewable Energy
Production Incentive (REPI). The House version of H.R. 6 had no PTC extension, the
Senate version had a three-year extension, and the enacted law (§1301) extends the PTC for
two years, through the end of calendar year 2007. (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. The enacted law (§202) expands REPI to include ocean and wave energy and
extends the authorization through FY2016.
Renewable Fuel Standard (RFS). P.L. 109-58 (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 2004, about 4.0 billion gallons of ethanol were blended with gasoline. Biodiesel
is used at a rate of about 50 million gallons per year. In the House version of H.R. 6, the
RFS provision called for renewable fuels (primarily ethanol) production to grow to 3.1
billion gallons a year in 2005, and then increase stepwise to 5.0 billion gallons a year by
2012. In the Senate version of H.R. 6, the RFS called for 4.0 billion gallons in 2006, rising
to 8.0 billion gallons in 2012. The enacted version (§1501) set a standard starting at 4.0
billion gallons in 2006 and rising to 7.5 billion gallons by 2012. Further, an incentive would
encourage the use of cellulosic and waste-derived ethanol to fulfill the RFS target, by raising
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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.
An MTBE “safe harbor” from product liability lawsuits, which had been a major issue
in previous omnibus energy bills, was dropped in conference. For more information on the
bills’ provisions for renewable fuels and MTBE, see CRS Report RL32865, Renewable Fuels
and MTBE: A Comparison of Selected Provisions in H.R. 6, by Brent D. Yacobbuci, et al.;
CRS Report RS21676, The Safe-Harbor Provision for Methyl Tertiary Butyl Ether (MTBE),
by Aaron M. Flynn; and CRS Report RL32787, MTBE in Gasoline: Clean Air and Drinking
Water Issues, by James E. McCarthy and Mary Tiemann.
Renewable Hydrogen. P.L. 109-58 (H.R. 6, §933) 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. Another
section (§812) also calls for use of renewable hydrogen as part of a hydrogen fueling and
infrastructure demonstration program.
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), the
Senate version of H.R. 6, and the enacted law.
Table 1. H.R. 6, Tax Revenue Effect
($ billions)
House
Senate
Conference
Renewable Energy Production Tax Credit (PTC)
—
$4.577
$2.747
Clean Renewable Energy Bonds
—
$0.493
$0.411
Business Investment Tax Credit (Solar & Geo.)
—
$0.059
$0.024
Residential Solar Tax Credit (includes fuel cells)
$0.018
—
$0.031
Biodiesel Tax Credit
—
$0.402
$0.194
Total, Renewables Provisions
$0.018
$5.531
$3.407
Gross Total, All Tax Provisions
$8.090
$18,421
$14.553
Renewables Share of Total
0.2%
30.0%
23.4%
Sources: Joint Committee on Taxation (JCT), Estimated Budget Effects of the Conference Agreement for Title
XIII of H.R. 6, July 27, 2005 (JCX-59-05); 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).
Other Renewables Provisions. P.L. 109-58 (H.R. 6) covers 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. (Additional bills
with renewable energy provisions are identified in CRS Report RL32860, Energy Efficiency
and Renewable Energy Legislation in the 109th Congress, by Fred Sissine.)
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FY2006 DOE Budget
In his State of the Union address, President Bush announced the launch of the American
Competitiveness Initiative (ACI) to stimulate long-term economic growth, in large part by
increased promotion of R&D and technological innovation. A key component of the ACI
is the Advanced Energy Initiative, which DOE says “aims to reduce America’s dependence
on imported energy sources.” The Solar America Initiative and the Biorefinery Initiative are
two themes under the Advanced Energy Initiative that are funded under renewable energy
programs in DOE’s Office of Energy Efficiency and Renewable Energy (EERE). The goals
of the Solar America Initiative are to reduce the cost of photovoltaics (PV) technology and
to increase its deployment so that it can help reduce the demand for natural gas in the electric
power sector. The goal of the Biorefinery Initiative is to develop transportation fuels, such
as cellulosic ethanol, from agricultural waste products and energy crops such as wood chips,
switchgrass, and plant stalks. To support these two initiatives, DOE request for renewable
energy programs proposes major funding increases for solar energy and biomass programs.
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, P.L. 109-58 (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, by Amy Abel.)
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, H.R.
2828, H.R. 4384, and S. 427 have an RPS. The above section on “Renewable Portfolio
Standard” summarizes the RPS action in H.R. 6, including a Senate proposal that was
rejected in conference committee.
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
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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
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. P.L. 109-58 (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.)
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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
Public Laws
P.L. 109-58 (H.R. 6)
Energy Policy Act of 2005 (EPACT 2005). For renewables, Title II has several
provisions: Section 202 reauthorizes REPI, Title II (Subtitle C) authorizes increased
hydropower at existing dams, Section 203 sets a goal for renewables use in federal facilities
and fleets, and Section 206 establishes a residential renewable energy rebate program.
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Section 812 creates a program for using solar energy to produce hydrogen. Title IX provides
funding reauthorizations for renewable energy R&D programs. Section 1253 would, under
certain conditions, terminate PURPA cogeneration and small (renewable) power
requirements. Title XIII has several tax incentives for renewables: Section 1301 extends the
renewable energy production tax credit (PTC) for two years, Section 1303 creates $800
million in renewable energy bonds, Section 1335 creates a 30% residential solar investment
credit for two years, Section 1337 increases the business solar investment credit from 10%
to 30% for two years, and Sections 1345, 1346, 1347, and 1348 create or extend credits for
ethanol and biodiesel fuels. Title XV (Subtitle A) has several renewable fuels provisions
covering ethanol, biofuels, cellulosic biodiesel, and municipal waste. In particular, Section
1501 sets a renewable fuels standard of 7.5 billion gallons per year by 2012 for increased use
of ethanol and biodiesel. Section 1826 requires a study of passive solar energy. Conference
reported (H.Rept. 109-190) July 27, 2005. Signed into law August 8.
P.L. 109-59 (H.R. 3)
Transportation Equity Act: A Legacy for Users (SAFETEA-LU). Section 1113 has a
volumetric excise tax credit for alternative fuels. Section 1121 on High-Occupancy Vehicle
(HOV) Lanes includes provisions for alternative-fueled vehicles. Section 1208 on High-
Occupancy Vehicle (HOV) Lanes includes provisions for alternative-fueled vehicles and
energy-efficient vehicles. Section 3010 on Clean Fuels Formula Grant Program includes
provisions for biodiesel, alcohol fuels, and fuel cells. Section 3044 supports clean fuels, and
Section 6015 supports clean fuel school buses. Conference reported (H.Rept. 109-203) July
28. Signed into law August 10.
P.L. 109-148 (H.R. 2863)
Department of Defense Appropriations Bill, 2006. Title II, regarding Operation and
Maintenance, includes $4.25 million for a wind power demonstration project on an Air Force
base. Conference Committee reported (H.Rept. 109-359, p. 5) December 18, 2005. Signed
into law December 30, 2005.
P.L. 109-171 (S. 1932)
Deficit Reduction Act of 2005. Section 1301 amends section 9006(f) of the Farm
Security Act of 2002 to set a limit of $3 million in FY2007 funding for the USDA
Commodity Credit Corporation to carry out renewable energy and energy efficiency projects.
Section 1402 terminates FY2007 funding authorization for the USDA Value-Added Producer
Program (created by section 6401 of the Farm Security Act of 2002) to provide grants to
renewable energy and energy efficiency projects. Conference reported (H.Rept. 109-362)
December 19, 2005. Signed into law February 8, 2006.
Note: Three other public laws make appropriations for renewable energy programs.
P.L. 109-97 (H.R. 2744), the Agriculture Appropriations Bill for FY2006, includes $23
million for USDA’s renewable energy grant and loan program; P.L. 109-102 (H.R. 3057,
Section 585[a]), the Department of State’s Appropriations Bill for FY2006, provides $100
million for clean (renewable) energy and energy efficiency programs that seek to reduce
greenhouse gas emissions in developing countries; and P.L. 109-103 (H.R. 2419) makes
appropriations for the DOE renewable energy programs. These laws and bills are described
in CRS Report RL32860, Energy Efficiency and Renewable Energy Legislation in the 109th
Congress, by Fred Sissine.
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Legislation
S. 2197 (Domenici)
Protecting America’s Competitive Edge Through Energy Act (PACE-Energy Act) of
2006. Section 4 would create the Advanced Research Projects Authority — Energy (ARPA-
E) at DOE. ARPA-E would implement an innovative energy research, technology
development, and deployment program. Also, Subsection (c) would create at the Department
of Treasury a revolving fund, the Acceleration Fund for Research and Development of
Energy Technologies, with funding of $300 million for FY2007, rising steadily until reaching
$1 billion in FY2011. Introduced January 26, 2006; referred to Committee on Energy and
Natural Resources.
(A more extensive list of more than 140 bills appears in CRS Report RL32860, Energy
Efficiency and Renewable Energy Legislation in the 109th Congress, by Fred Sissine.)
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.
Barry, Courtney. “Winds of Change in Texas.” Public Utilities Fortnightly, v. 141, no. 7,
Apr. 1, 2003. pp. 27-31.
Blankinship, Steve. “A Sunny Outlook for Grid-Connected PV.” Power Engineering, v.
107, no. 1, May 2003. pp. 32-40.
Cato Institute. Policy Analysis. Evaluating the Case for Renewable Energy: Is Government
Support Warranted? 2002.
Energy Future Coalition. Challenge and Opportunity: Charting a New Energy Future,
Report of the Bioenergy and Agriculture Working Group. 2003.
[http://www.energyfuturecoalition.org/]
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European Commission. Directorate General for Research. European Research Spending for
Renewable Energy Sources. 2004. (European Union)
[http://europa.eu.int/comm/research/energy/pdf/res_spending_en.pdf]
International Energy Agency. Renewables Information 2005. Sept. 2005.
[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.
Owens, Brandon. “Does the PTC Work?” Standard and Poor’s. Sept. 2004.
Popular Science. “Wind Power Reconsidered.” November 2004. pp. 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. pp.
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.
The White House. State of the Union. The Advanced Energy Initiative. January 31, 2006.
[http://www.whitehouse.gov/news/releases/2006/01/20060131-6.html]
U.S. Department of Energy. Interlaboratory Working Group. Scenarios for a Clean Energy
Future. 2000. [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].
——. Lawrence Berkeley National Laboratory. Balancing Cost and Risk: The Treatment
of Renewable Energy in Western Utility Resource Plans. [Mark Bolinger and Ryan
Wiser] August 2005. [http://eetd.lbl.gov/ea/ems/re-pubs.html]
——. National Renewable Energy Laboratory. Near-Term Practical and Ultimate
Technical Potential for Renewable Resources. [Draft] January 16, 2006. 7 p.
[http://www.nrel.gov/analysis/tech_potential/pdfs/tech_potential_table.pdf]
——. National Renewable Energy Laboratory. Domestic Energy Scenarios. 2003.
[http://www.nrel.gov/docs/fy03osti/32742.pdf]
——. National Renewable Energy Laboratory. Projected Benefits of Federal Energy
Efficiency and Renewable Energy Programs: FY2006 Budget Request. May 2005.
[http://www.nrel.gov/docs/fy05osti/37931.pdf]
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——. National Renewable Energy Laboratory. Power Technologies Energy Data Book.
April 2005. [http://www.nrel.gov/docs/fy03osti/32742.pdf]
——. Oak Ridge National Laboratory. Biomass as Feedstock for a Bioenergy and
Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply.
[DOE/USDA Biomass Feedstock Gate Review Meeting] March 2005.
[http://feedstockreview.ornl.gov/pdf/perlack_stokes/session1_perlack_stokes.pdf]
——. Office of Science. Basic Research Needs for Solar Energy Utilization. August 2005.
[http://www.sc.doe.gov/bes/reports/files/SEU_rpt.pdf]
——. Enhancing Homeland Security Through Renewable Energy — Richard Truly’s
Remarks to the National Press Club. Mar. 14, 2002.
——. Status Report to Congress on Current and Proposed Activities under the Clean Energy
Technology Exports (CETE) Initiative. 2001.
[http://www.pi.energy.gov/library/cete2001statusreport.html#pdf]
——. The Clean Air Act and Renewable Energy: Opportunities, Barriers, and Options.
(NREL/CP-620-29654). 2001.
U.S. Department of Interior. Bureau of Land Management. Solar Energy Development
Policy. [Instruction Memo No. 2005-006] October 20, 2004.
[http://www.blm.gov/nhp/efoia/wo/fy05/im2005-006.htm]
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. 2002. [http://yosemite.epa.gov/oar/
globalwarming.nsf/content/ResourceCenterPublicationsUSClimateActionReport.html]
U.S. Executive Office of the President. Office of Science and Technology Policy. Domestic
Policy Council. American Competitiveness Initiative. February 2006. 23 p.
[http://www.ostp.gov/html/ACIBooklet.pdf]
U.S. Government Accountability Office (GAO). Renewable Energy: Wind Power’s
Contribution to Electric Power Generation and Impact on Farms and Rural
C o m m u n i t i e s . [ G A O - 0 4 - 7 5 6 ] 2 0 0 4 . [ h t t p : / / w w w . g a o . g o v /
docsearch/abstract.php?rptno=GAO-04-756]
Worldwatch Institute. Mainstreaming Renewable Energy in the 21st Century. May 2004.
[http://www.worldwatch.org/pubs/paper/169/]
CRS Reports
CRS Report RL33294. DOE Budget Earmarks: A Selective Look at Energy Efficiency and
Renewable Energy R&D Programs, by Fred Sissine.
CRS Report RL32860. Energy Efficiency and Renewable Energy Legislation in the 109th
Congress, by Fred Sissine.
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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 RS21442. Hydrogen and Fuel Cell Vehicle R&D: freedomCAR and the
President’s Hydrogen Fuel Initiative, by Brent Yacobucci.
CRS Report RL32865. Renewable Fuels and MTBE: A Comparison of Selected Legislative
Initiatives, by Brent Yacobucci, Mary Tiemann, and James McCarthy.
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/]
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/]
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Electric Power Research Institute (EPRI) and EPRI Journal Online.
[http://www.epri.com/]
Eleventh Session of the Conference of Parties to the United Nations Framework Convention
on Climate Change (Montreal, COP-11 and COP/MOP 1). November 28 — December 9,
2005.
[http://unfccc.int/meetings/cop_11/items/3394.php]
National Association of Regulatory Utility Commissioners.
[http://www.naruc.org/]
Renewable Energy Policy Project.
[http://www.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/]
Tax Incentives Assistance Project.
[http://www.energytaxincentives.org/]
U.S. Department of Energy. Energy Efficiency and Renewable Energy Network.
[http://www.eere.energy.gov/]
U.S. Department of Energy. Green Power Network Clearinghouse.
[http://www.eere.energy.gov/greenpower/]
U.S. Department of Energy. National Renewable Energy Laboratory (NREL).
[http://www.nrel.gov/]
U.S. Department of Energy. Alternative Fuels Data Center.
[http://www.eere.energy.gov/afdc/index.html]
U.S. Environmental Protection Agency. Clean Energy Site.
[http://www.epa.gov/cleanenergy/]
Vote Solar Initiative. San Francisco’s $100 Million Solar Revenue Bond Initiative.
[http://www.votesolar.org/sf.html].
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Table 2. DOE Renewable Energy Budget for FY2005-FY2007
(selected programs, $ millions)
OFFICE OF ENERGY
EFFICIENCY AND
FY2005
FY2006
FY2007
FY2007-
Percent
RENEWABLE ENERGY (EERE)
Appn.
Appn.
Request
FY2006
Change
HYDROGEN TECHNOLOGY
166.8
155.6
195.8
40.2
25.8%
Fuel Cell Technology
81.9
67.8
96.6
28.8
42.4%
BIOMASS & BIOREFINERY
87.5
90.7
149.7
59.0
65.0%
Biochemical Platform (Cellulose)
11.1
10.4
32.8
22.4
215.4%
SOLAR ENERGY
84.3
83.1
148.4
65.3
78.5%
Photovoltaics
65.8
60.0
139.5
79.5
132.6%
Concentrating Solar
5.9
7.4
8.9
1.5
19.9%
Solar Heating & Lighting
2.4
1.5
0.0
-1.5
-100.0%
WIND
40.6
38.9
43.8
5.0
12.8%
GEOTHERMAL
25.3
23.1
0.0
-23.1
-100.0%
SMALL HYDRO
4.9
0.5
0.0
-0.5
-100.0%
VEHICLE TECHNOLOGIES
161.3
182.1
166.0
-16.1
-8.8%
BUILDING TECHNOLOGIES
65.2
69.3
77.3
8.1
11.6%
INDUSTRIAL TECHNOLOGIES
73.4
56.9
45.6
-11.3
-19.9%
DISTRIBUTED ENERGY*
59.1
0.0
—
—
—
FEDERAL ENERGY MGMT
19.9
19.2
16.9
-2.3
-11.8%
FACILITIES & INFRASTRUC.
(National Renewable Energy Lab)
11.4
26.1
5.9
-20.1
-77.2%
WEATHER’N & INTERGOV.
325.5
316.9
225.0
-91.8
-29.0%
International Renewables
6.4
3.9
2.5
-1.4
-36.1%
Tribal Energy
5.5
4.0
4.0
0.0
-0.1%
Renew. Production Incentive
5.0
5.0
4.9
0.0
-0.1%
PROGRAM MANAGEMENT
115.1
111.9
102.0
-9.9
-8.8%
RENEWABLES, SUBTOTAL
270.3
275.2
359.2
84.0
30.5%
Renewables R&D Subtotal
242.5
236.2
341.9
105.6
44.7%
RENEWABLES, EARMARKS
52.0
80.0
0.0
-80.0
-100.0%
Prior Year Balances (EERE)
-5.3
—
—
EERE, TOTAL
1,234.3
1,173.8
1,176.4
2.6
0.2%
Office of Electricity Delivery &
Energy Reliability (OE)*
117.9
161.9
124.9
-36.9
-22.8%
Source: DOE FY2007 Congressional Budget Request, v. 3; Feb. 2006.
*Funding for Distributed Energy was moved to OE.
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