Renewable energy: tax credit, budget, and electricity production issues.(CRS Issue Brief for Congress: Received through the CRS Web)

Updated February 17, 2006

 
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 

Renewable Energy: Tax Credit, Budget, and Electricity Production Issues

SUMMARY

Energy security, a major driver of federal renewable energy programs in the past, came back into play as oil and gas prices rose late in the year 2000. The terrorist attack in 2001 and the Iraq war have led to heightened concern about energy security, energy infrastructure vulnerability, and the need for alternative fuels. Further, the 2001 electricity shortages in California, the northeast-midwest blackout of 2003, and continuing high natural gas prices have brought a new emphasis to the role that renewable energy may play in producing electricity, displacing fossil fuel use, and curbing demand for power transmission equipment.

Also, worldwide emphasis on environmental problems of air and water pollution and global climate change, the related development of clean energy technologies in western Europe and Japan, and technology competitiveness may remain important influences on renewable energy policymaking.

The Bush Administration's FY2007 budget request for the Department of Energy's (DOE's) Renewable Energy Program seeks $359.2 million for renewables, which is $84.0 million, or 30.5%, more than the FY2006 appropriation. In support of the President's proposal for an Advanced Energy Initiative, the request includes major funding increases for solar energy (to support the Solar America Initiative) and biomass (to support the Biorefinery Initiative). 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 would eliminate all congressional earmarks under the DOE Renewable Energy Program, which amount to $80.0 million for FY2006.

P.L. 109-102 (H.R. 3057) provides $100 million for clean (renewable) energy and energy efficiency programs in developing countries. P.L. 109-97 (H.R. 2744) provides $23 million for farm-based renewable energy grants and loans. H.R. 2863 (in conference) would authorize $5 million for a wind energy project on an Air Force base.

P.L. 109-58 (H.R. 6) authorizes or reauthorizes several renewable energy programs, sets new goals for renewable energy use in federal facilities and fleets, expands programs for hydrogen fuel cell buses, and sets ([section]1501) a renewable fuels standard of 7.5 billion gallons per year by 2012 to increase use of ethanol and biodiesel. Among the tax measures, [section]1301 extends the renewable energy production tax credit for two years, [section]1303 provides $800 million in renewable energy bonds, [section]1335 establishes a residential solar (heat and electricity) tax credit, and [section]1337 increases a business solar tax credit. However, the enacted law does not include a Senate-proposed provision to set a 10% renewable portfolio standard.

P.L. 109-59 (H.R. 3) contains several provisions for "alterative" and "clean" fuels, including sections 1113, 1121, 3010, 3044, and 6015.

The Deficit Reduction Act of 2005 (H.R. 4241/S. 1932) has passed both chambers. Section 1301 would terminate funding for certain renewable energy programs at USDA, and Section 6514 would create funding for mitigating renewable energy (and other energy) development on federal lands.

MOST RECENT DEVELOPMENTS

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 details, see "FY2006 DOE Budget" and Table 2. Also, the DOE budget document is online at [http://www.cfo.doe.gov/budget/index.htm].)

On January 12, 2006, the Secretary of Energy announced that President Bush will request $52 million in the upcoming FY2007 budget request to support the Asia Pacific Partnership on Clean Development and Climate. Renewable energy technologies are listed as one of several technologies that will be studied by task forces of the six-member organization, which also includes Australia, China, India, Japan, and South Korea. Also on January 12, the California Public Utility Commission launched a $3 billion program of solar energy rebate incentives that aims to spur installation of 3,000 megawatts (millions of watts) of capacity within 10 years.

(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.

BACKGROUND AND ANALYSIS

Renewable Energy Concept

Renewable energy is derived from resources that are generally not depleted by human use, such as the sun, wind, and water movement. These primary sources of energy can be converted into heat, electricity, and mechanical energy in several ways. There are some mature technologies for conversion of renewable energy such as hydropower, biomass, and waste combustion. Other conversion technologies, such as wind turbines and photovoltaics, are already well developed, but have not achieved the technological efficiency and market penetration which many expect they will ultimately reach. Although geothermal energy is produced from geological rather than solar sources, it is often included as a renewable energy resource and this brief treats it as one. Commercial nuclear power is not generally considered to be a renewable energy resource. (For further definitions of renewable energy, see the National Renewable Energy Laboratory's website information on "Clean Energy 101" at [http://www.nrel.gov/clean_energy/].)

Contribution to National Energy Supply

According to the Energy Information Administration's (EIA's) Annual Energy Outlook 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 …