Oil Industry Tax Issues in the Fiscal Year 2011Budget Proposal

Robert Pirog
Specialist in Energy Economics

President Obama, in a speech on April 22, 2009 (Earth Day), addressed the linkage between the problems he associated with U.S. reliance on oil, especially imported oil, and the importance of a future based more on alternative energy sources. To move in the direction of accomplishing these goals, the Administration, in the Fiscal Year 2011 Budget Proposal, proposes that certain tax expenditures designed to increase domestic production of oil and natural gas be revised, thus reducing what the Administration sees as favorable treatment of the oil and natural gas industries. 

The Fiscal Year 2011 Budget Proposal outlined a set of proposals, framed in terms of deficit reduction, or termination of tax preferences, that would potentially increase the taxes of the oil and natural gas industries, especially the independent producers. These proposals included repeal of the enhanced oil recovery and marginal well tax credits, repeal of the expensing of intangible drilling costs, repeal of the deduction for tertiary injectants, repeal of passive loss exceptions for working interests in oil and natural gas properties, elimination of the manufacturing tax deduction for oil and natural gas companies, increase of the amortization periods for certain expenses, and repeal of the percentage depletion allowance for independent oil and natural gas producers. In addition, a variety of inspection fee increases and a per-acre fee on unused leases were proposed to generate revenue for the Department of the Interior (DOI). 

The Administration estimates that the tax changes would provide $18.2 billion in deficit reduction, or new revenues, over the period 2011 to 2015. The changes, if enacted, also would reduce the tax advantage enjoyed by independent oil and natural gas producers over the major integrated oil companies. On what would likely be a small scale, the proposals also would make oil and natural gas more expensive for U.S. consumers, likely achieving the intended effect of reducing consumption of those fuels.


Date of Report: March 24, 2010
Number of Pages: 10
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Outer Continental Shelf Moratoria on Oil and Gas Development

Curry L. Hagerty
Specialist in Energy and Natural Resources Policy

Outer Continental Shelf (OCS) moratoria provisions, enacted as part of the Department of the Interior appropriations over the last 26 years, prohibited federal spending on oil and gas development in certain locations and for certain activities. Annual congressional moratoria restrictions expired on September 30, 2008. While the expiration of this restriction does not make leasing and drilling permissible in all offshore areas, it is a significant development in conjunction with other changes in offshore leasing activity. Change in moratoria policy signals a shift in policy that may affect other OCS policies as well. 

The goal to increase domestic OCS energy production was the chief policy justification for not restoring annual moratoria beyond FY2008. Other factors in not restoring moratoria restrictions include policies to diversify domestic energy production including the launch of OCS renewable energy programs, and the availability of new OCS technology that would allow OCS activity in deeper waters beyond clear jurisdictional boundaries. These developments, taken together, reflect transformative change in OCS policy alternatives. The impact of these developments during periods of volatility in oil markets and during an exceptionally weak economy, focuses congressional attention on federal priorities for OCS development. 

In the past, Congress has addressed OCS oil and gas development by balancing numerous factors, including (1) economic feasibility; (2) environmental risk; (3) technology; and (4) ocean sovereignty. Disagreement tends to arise in each of these four issue areas because of conflicting concerns over policy objectives between those in favor of offshore oil and gas development and those opposed. Positions are sharply divided on national and coastal state goals associated with OCS activities in former moratoria areas, and in prospective areas where drilling activities or renewable energy projects are permissible in the Gulf of Mexico and the Arctic. 

Around the world, offshore activities are changing and these changes are reflected in international offshore policy disagreements that are not dissimilar to domestic policy disagreements. Economic opportunity and technological advances are driving the global search for energy sources in deeper ocean waters. These activities may clash with national or international environmental policies. Within the framework of the United Nations Convention on the Law of the Sea (UNCLOS) a number of countries are active in establishing parameters for offshore activities, including preparing claims for extended continental shelf areas. Although the United States has not ratified UNCLOS, U.S. efforts are underway to address extended continental shelf areas in a manner not inconsistent with the UNCLOS process. 

Expiration of moratoria is part of a series of changes in domestic and international OCS energy development policy. Moratoria policy impacted federal-state co-ordination on issues such as economic and environmental concerns. As a result of changes in moratoria policies federal-state coordination concerns and nation-to-nation coordination concerns related to addressing such issues as economic and environmental concerns may emerge as issues for Congress.


Date of Report: March 23, 2010
Number of Pages: 22
Order Number: R41132
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Legal Issues Associated with the Development of Carbon Dioxide Sequestration Technology

Adam Vann
Legislative Attorney

James E. Nichols
Law Clerk

Paul W. Parfomak
Specialist in Energy and Infrastructure Policy

In the last few years there has been a surge in interest in the geologic sequestration of carbon dioxide (CO2), a process often referred to as carbon capture and storage, or carbon capture and sequestration (CCS), as a way to mitigate man-made CO2 emissions and thereby help address climate change concerns. The Energy Independence and Security Act of 2007 (EISA; P.L. 110- 140) contains measures to promote research and development of CCS technology, to assess sequestration capacity, and to clarify the framework for issuance of CO2 pipeline rights-of-way on public land. Other legislative proposals have also sought to encourage the development of CO2 sequestration, capture, and transportation technology. A number of measures have been introduced in the 111th Congress that could further development and deployment of CCS technology, including H.R. 2454, the American Clean Energy and Security Act of 2009 (ACES), which was passed by the House in June of 2009.

This report discusses the myriad legal issues associated with the development of CCS technology. These issues include, but are not limited to: determinations of ownership and control of the underground pore space where the CO2 would be "sequestered" under most of the contemplated technology; the question of which federal and state agencies would permit and regulate CO2 pipelines transporting the gas to the sequestration site; a lack of clarity concerning the status of CO2 for purposes of environmental regulation; and concerns over liability exposure that may hinder the development of CCS technology.


Date of Report: March 19, 2010
Number of Pages: 23
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Energy Tax Policy: Issues in the 111th Congress

Donald J. Marples
Specialist in Public Finance

Molly F. Sherlock
Analyst in Economics

Energy tax policy involves the use of one of the government's main fiscal instruments, taxes (both as an incentive and as a disincentive) to alter the allocation or configuration of energy resources and their use. In theory, energy taxes and subsidies, like tax policy instruments in general, are intended either to correct a problem or distortion in the energy markets or to achieve some economic (efficiency, equity, or even macroeconomic) objective. In practice, however, energy tax policy in the United States is made in a political setting, being determined by the views and interests of the key players in this setting: politicians, special interest groups, bureaucrats, academic scholars, and fiscal dictates. As a result, enacted tax policy embodies compromises between economic and political goals, which could either mitigate or compound existing distortions.

The economic rationale for government intervention in energy markets is commonly based on the government's perceived ability to correct for market failures. Market failures, such as externalities, principal-agent problems, and informational asymmetries, result in an economically inefficient allocation of resources—in which society does not maximize well-being. To correct for these market failures governments can utilize several policy options, including taxes and regulation, in an effort to achieve policy goals.

Current energy policy reflects efforts to achieve both current and past policy objectives. Recent legislative efforts have primarily focused on renewable energy production and conservation to address environmental concerns. In contrast, past efforts attempted to reduce reliance on foreign energy sources through increased domestic production of fossil fuels. Recently enacted legislation focusing on encouraging renewable energy production and conservation reduces reliance on imported, foreign oil, while also addressing environmental concerns by reducing the use of fossil fuels. Favorable tax preferences given to domestic fossil fuel energy sources also promote domestic energy production, reducing the demand for imported oil.

In the 111th Congress energy tax legislation continues to be focused on increasing incentives for renewable energy production and conservation. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) expanded and extended a number of tax incentives designed to promote renewable energy, conservation, and alternative technology vehicles. In addition, the President's 2010 and 2011 Budget Proposals contain a number of provisions that would, if enacted, continue to move energy policy toward promoting alternative energy sources by eliminating a number of the tax subsidies currently available to the oil and gas industry while also imposing additional taxes that would be borne—at least partially—by these industries. The President's 2011 Budget Proposal continued this policy direction through the proposed removal of a number of subsidies currently available to the coal industry.


Date of Report: March 8, 2010
Number of Pages: 29
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The Yucca Mountain Litigation: Liability Under the Nuclear Waste Policy Act (NWPA)of 1982

Todd Garvey
Legislative Attorney

Over 25 years ago, Congress addressed growing concerns regarding nuclear waste management by calling for federal collection of spent nuclear fuel (SNF) for safe, permanent disposal. To this end, the Department of Energy (DOE) was authorized by the Nuclear Waste Policy Act (NWPA) to enter into contracts with nuclear power providers to gather and dispose of their SNF in exchange for payments by the providers into the statutorily established Nuclear Waste Fund (NWF). Congress subsequently named Yucca Mountain in the state of Nevada as the sole candidate site for the permanent underground geological storage of collected SNF. Congress also mandated that federal disposal of SNF begin no later than January 31, 1998. Over 10 years ago, DOE breached these contracts by failing to begin the acceptance and disposal of SNF by the statutory deadline established in the NWPA. As a result, nuclear utilities have spent hundreds of millions of dollars on temporary storage for toxic SNF that DOE was contractually and statutorily required to collect for disposal. The breach has triggered a prolonged series of suits by nuclear power providers, many of which continue unresolved to this day.

At least 72 breach of contract claims have been filed against DOE since 1998, resulting in the awarding of approximately $1.2 billion in damage awards and settlements thus far. Many of these awards, however, remain on appeal in the U.S. Court of Appeals for the Federal Circuit and are not yet final. Estimates for the total potential liability incurred by DOE as a result of the Yucca Mountain litigation range as high as $50 billion. Moreover, after decades of political, legal, administrative, and environmental delays, the Obama Administration's FY2011 proposed budget eliminates all funding for the Yucca Mountain project, seeks to close the Office of Civilian Radioactive Waste Management, and reemphasizes an intention to pursue other alternatives for the disposal of SNF by establishing the Blue Ribbon Commission on America's Nuclear Future. Accordingly, contract damages will continue to build as delays in the disposal of SNF continue.

DOE's liability for breach of contract was first established in 1996 by the U.S. Court of Appeals for the District of Columbia in Indiana Michigan Power Co. v. U.S. After DOE hesitated to act on its legal obligations, citing the absence of a completed SNF storage facility, the court issued a writ of mandamus mandating that DOE "proceed with contractual remedies in a manner consistent with NWPA's command that it undertake an unconditional obligation to begin disposal of SNF by January 31, 1998." The mandamus, issued in Northern States Power Co. v. U.S., essentially prohibited DOE from deflecting liability by arguing that the lack of an existing storage facility constituted an "unavoidable delay."

In 2006, the U.S. Court of Federal Claims (CFC) held that the D.C. Circuit mandamus order in Northern States was void for lack of jurisdiction and could not preclude DOE from raising the "unavoidable delay" defense in the former's court. The case was appealed to the Federal Circuit, where the court, en banc, overturned the CFC decision and affirmed the D.C. Circuit's jurisdiction in both Indiana Michigan and Northern States. Accordingly, DOE continues to be prohibited from raising the "unavoidable delay" defense in future litigation.

This report will present a brief overview of the NWPA and its subsequent amendments, provide a survey of key issues that have emerged from the protracted waste storage litigation, describe the jurisdictional conflict between the D.C. Circuit and the U.S. Court of Federal Claims, and consider the potential for future liability arising from delays relating to the storage and disposal of nuclear waste. .


Date of Report: March 8, 2010
Number of Pages: 27
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Managing the Nuclear Fuel Cycle: Policy Implications of Expanding Global Access to Nuclear Power

Mary Beth Nikitin, Coordinator
Analyst in Nonproliferation

Anthony Andrews
Specialist in Energy and Energy Infrastructure Policy

Mark Holt
Specialist in Energy Policy

After several decades of widespread stagnation, nuclear power is attracting renewed interest. New license applications for 30 reactors have been announced in the United States, and another 160 are under construction or planned globally. In the United States, interest appears driven, in part, by tax credits, loan guarantees, and other incentives in the 2005 Energy Policy Act, as well as by potential greenhouse gas controls that may increase the cost of fossil fuels. Moreover, the U.S. Department of Energy is spending several hundred million dollars per year to develop the next generation of nuclear power technology. 

Expanding global access to nuclear power, nevertheless, has the potential to lead to the spread of nuclear technology that could be used for nuclear weapons. Despite 30 years of effort to limit access to uranium enrichment, several undeterred states pursued clandestine nuclear programs, the A.Q. Khan black market network's sales to Iran and North Korea representing the most egregious examples. Concern over the spread of enrichment and reprocessing technologies, combined with a growing consensus that the world must seek alternatives to dwindling and polluting fossil fuels, may be giving way to optimism that advanced nuclear technologies may offer proliferation resistance. 

Proposals offering countries access to nuclear power and thus the fuel cycle have ranged from a formal commitment by these countries to forswear sensitive enrichment and reprocessing technology, to a de facto approach in which a state would not operate fuel cycle facilities but make no explicit commitment, to no restrictions at all. Countries joining the U.S.-led Global Nuclear Energy Partnership (GNEP) signed a statement of principles that represented a shift in U.S. policy by not requiring participants to forgo domestic fuel cycle programs. Whether developing states will find existing proposals attractive enough to forgo what they see as their "inalienable" right to develop nuclear technology for peaceful purposes remains to be seen. 

GNEP has continued as an international forum under the Obama Administration, but the Bush Administration's plans for constructing nuclear fuel reprocessing and recycling facilities in the United States have been halted. Instead, the Obama Administration is supporting fundamental research on a variety of potential waste management technologies. Other ideas for limiting the expansion of nuclear fuel cycle facilities include placing all enrichment and reprocessing facilities under multinational control, developing new nuclear technologies that would not produce weapons-usable fissile material, and developing a multinational waste management system. Various systems of international fuel supply guarantees, multilateral uranium enrichment centers and nuclear fuel reserves have also been proposed. 

Congress will have a considerable role in at least four areas of oversight related to fuel cycle proposals. The first is providing funding and oversight of U.S. domestic programs related to expanding nuclear energy in the United States. The second area is policy direction and/or funding for international measures to assure supply. A third set of policy issues may arise in the context of implementing the international component of GNEP or related initiatives. A fourth area in which Congress plays a key role is in the approval of nuclear cooperation agreements. Significant interest in these issues is expected to continue in the second session of the 111th Congress.


Date of Report: March 5, 2010
Number of Pages: 45
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Greenhouse Gas Emission Drivers: Population, Economic Development and Growth, and Energy Use

John Blodgett
Specialist in Environmental Policy

Larry Parker
Specialist in Energy and Environmental Policy

In the context of climate change and possible responses to the risk associated with it, three variables strongly influence the levels and growth of greenhouse gas (GHG) emissions: population, income (measured as per capita gross domestic product [GDP]), and intensity of emissions (measured as tons of greenhouse gas emissions per million dollars of GDP). 

(Population) × (per capita GDP) × (Intensityghg) = Emissionsghg 

This is the relationship for a given point in time; over time, any effort to change emissions alters the exponential rates of change of these variables. This means that the rates of change of the three left-hand variables, measured in percentage of annual change, sum to the rate of change of the right-hand variable, emissions. 

For most countries, and for the world as a whole, population and per capita GDP are rising faster than intensity is declining, so emissions are rising. Globally, for the variables above over the period 1990-2005, the rates of change (Δ) in annual percent sum as follows (numbers do not add precisely because of rounding): 

Population Δ + per capita GDP Δ + Intensityghg Δ = Emissionsghg Δ 
(+1.4) + (+1.7) + ( -1.6) = (+1.6) 

As can be seen, global emissions have been rising at a rate of about 1.6% per year, driven by the growth of population and of economic activity. 

Within this generalization, countries vary widely. (Unless otherwise noted, comments about countries refer to the top-20 emitters as of 2005, who accounted for about 75% of world emissions that year.) Between 1990 and 2005, in some countries, including Brazil, Mexico, Indonesia, and South Africa, population growth alone exceeded the decline in intensity. For most countries, and for the world as a whole, per capita GDP growth exceeded the intensity improvement each achieved. Countries for whom intensity improvements were greater than their per capita GDP increases included Germany, the United Kingdom, the United States, France, and South Africa. And both the Russian Federation and the Ukraine, following their economic contractions in the 1990s, posted negative numbers for population, per capita income, intensity, and GHG emissions between 1990 and 2005. Besides the Russian Federation and the Ukraine, only the United Kingdom and Germany reduced their GHG emissions for the period (Germany being helped by reductions in the former East Germany). 

Stabilizing greenhouse gas emissions would mean the rate of change equals zero. Globally, with a population growth rate of 1.4% per year and an income growth rate of 1.7% per year, intensity would have to decline at a rate of -3.1% per year to hold emissions at the level of the year that rate of decline went into effect. Within the United States, at the 1990-2005 population growth rate of 1.1% per year and income growth rate of 1.8% per year, intensity would have had to decline at a rate of -2.9% per year to hold emissions level; however, U.S. intensity declined at a rate of -1.9%, leaving emissions to grow at 1.0% per year. 

Looking to the future, under auspices of the Copenhagen Accord, the United States has submitted a target of reducing emissions from the 2005 level by 17% in 2020. This would require the United States to reduce the intensity of its emissions by some -4.6% per year during the 2010-2020 decade. This implies that the rate of intensity decline needs to better than double. .


Date of Report: March 5, 2010
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Calculation of Lifecycle Greenhouse Gas Emissions for the Renewable Fuel Standard (RFS)

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Kelsi Bracmort
Analyst in Agricultural Conservation and Natural Resources Policy

The Energy Independence and Security Act of 2007 (EISA; P.L. 110-140) significantly expanded the renewable fuel standard (RFS) established in the Energy Policy Act of 2005 (EPAct 2005; P.L. 109-58). The RFS requires the use of 9.0 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons in 2022. Further, EISA requires an increasing amount of the mandate be met with "advanced biofuels"—biofuels produced from feedstocks other than corn starch and with 50% lower lifecycle greenhouse gas emissions than petroleum fuels. Within the advanced biofuel mandate, there are specific carve-outs for cellulosic biofuels and biomass-based diesel substitutes (e.g., biodiesel). 

To classify biofuels under the RFS, the Environmental Protection Agency (EPA) must calculate the lifecycle emissions of each fuel relative to gasoline or diesel fuel. Lifecycle emissions include emissions from all stages of fuel production and use ("well-to-wheels"), as well as both direct and indirect changes in land use from farming crops to produce biofuels. Debate is ongoing on how each factor in the biofuels lifecycle should be addressed, and the issues surrounding direct and indirect land use are particularly controversial. How EPA resolves those issues will affect the role each fuel plays in the RFS. 

EPA issued a Notice of Proposed Rulemaking on May 26, 2009, for the RFS with suggested methodology for the lifecycle emissions analysis. EPA issued a final rule on February 3, 2010. The final rule includes EPA's methodology for determining lifecycle emissions, as well as the agency's estimates for the emissions from various fuels. In its proposed rule, EPA found that many fuel pathways did not meet the threshold requirements in EISA. However, its methodology was criticized by biofuels supporters. In the final rule, EPA modified its methodology to reflect some of those comments. However, some biofuels opponents counter that the final rules went too far in the opposite direction. In most cases, estimated emissions decreased (i.e., emissions reductions increased), leading to more favorable treatment of biofuels in the final rule. 

Because of the ongoing debate on the lifecycle emissions from biofuels, including finalized regulations by the state of California for a state low carbon fuel standard (LCFS) in January 2009, there is growing congressional interest in the topic. Congressional action could take the form of oversight of EPA's rulemaking process, or could result in legislation to amend the EISA RFS provisions. Further, related legislative and regulatory efforts on climate change policy and/or a low-carbon fuel standard would likely lead to interactions between those policies and the lifecycle determinations under the RFS.


Date of Report: March 12, 2010
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Clean Air After the CAIR Decision: Multi-Pollutant Approaches to Controlling Powerplant Emissions

James E. McCarthy
Specialist in Environmental Policy

Larry Parker
Specialist in Energy and Environmental Policy

Robert Meltz
Legislative Attorney

In April 2010, the Environmental Protection Agency (EPA) expects to propose a new Clean Air Transport Rule to control powerplant emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx). When finalized, this rule will replace the Clean Air Interstate Rule (CAIR); CAIR, which was promulgated in May 2005, established a regional cap-and-trade program for SO2 and NOx emissions from electric generating units (EGUs) in 28 eastern states and the District of Columbia. On July 11, 2008, in North Carolina v. EPA, the U.S. Court of Appeals for the D.C. Circuit vacated CAIR, saying that it had "more than several fatal flaws." The court subsequently modified its decision: on December 23, 2008, it reversed itself by allowing CAIR to remain in effect until a new rule is promulgated by EPA. 

From a policy standpoint, the court's July 2008 decision seriously undermined EPA's approach to clean air over the previous eight years. CAIR was the lynchpin that held together the Bush Administration's strategy for attainment of the ozone and fine particulate National Ambient Air Quality Standards (NAAQS), for achieving reductions in mercury emissions from coal-fired powerplants, for addressing regional haze impacts from powerplants, and for responding to state petitions to control upwind sources of ozone and fine particulates under Section 126 of the Clean Air Act. As discussed in this report, the potential impact on communities attempting to achieve NAAQS and the impact on mercury emissions could be substantial, and has prompted some to call for congressional action to address the issue. On February 4, 2010, Senator Carper and 11 cosponsors introduced S. 2995, a multipollutant bill that would replace the CAIR requirements, and require standards for powerplant emissions of mercury. 

EPA's only short-term option, other than letting the decision stand, was to seek further judicial review, a step the agency took on September 24, 2008. This led to the aforementioned D.C. Circuit ruling allowing CAIR to remain in effect until replaced. But the court's July 2008 decision strongly suggests that there is no simple "fix" that will make CAIR acceptable to the court. This left EPA with three clear long-term options: (1) starting anew with a new strategy with respect to mitigating transported air pollution based on the decision; (2) allowing the states to sort out the issue through Section 126 petitions; and (3) seeking new legislation providing EPA with the statutory authority to implement either CAIR in some form, or an alternative. The agency is proceeding with the first of these options, but has indicated that it views congressional efforts to address the issue as "mutually reinforcing." 

For Congress, the decision raises several issues: 

• Should Congress consider providing EPA with the authority to implement CAIR or other cost-based, market-oriented approaches to address NAAQS? 

• Should Congress consider multi-pollutant legislation as a supplement or substitute for the current regulatory regime, at least for electric generating units? 

• Should Congress consider a more comprehensive revision to the Clean Air Act to address the full scope of ozone and PM2.5 NAAQS non-attainment and related issues, as well as mercury emissions from coal-fired powerplants, and emerging environmental issues such as climate change? .


Date of Report: March 4, 2010
Number of Pages: 16
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Regulating a Carbon Market: Issues Raised By the European Carbon and U.S. Sulfur Dioxide Allowance Markets

Mark Jickling
Specialist in Financial Economics

Larry Parker
Specialist in Energy and Environmental Policy

Both the European Union's Emissions Trading Scheme (EU-ETS) and the U.S. Title IV sulfur dioxide (SO2) program provide insights into regulatory issues that may face any future U.S. carbon market. From the initial operations of the EU-ETS, the 2006 price crash raised questions about the adequacy of market regulation. In particular, some suspect that information about allocations leaked before official publication, and that certain traders profited from this knowledge. 

Title IV's longer trading history reveals two important trends: (1) an increasing trend toward diverse and non-traditional participants that is likely to continue under a carbon market; (2), an increasing use of financial instruments to manage allowance price risk that is likely to expand under a carbon market as a hedge against price uncertainty. Indeed, a carbon market may look more like other energy markets, such as natural gas and oil, than the somewhat sedate SO2 allowance market. 

Regulation of emissions trading would have to consider two kinds of fraud and manipulation: fraud by traders or intermediaries against other investors, and sustained price manipulation. Four agencies could have roles in the regulation of an emissions market, each with its own attributes that may contribute to effective regulation. 

The Commodities Futures Trading Commission (CFTC) currently oversees the Title IV program and its mission most closely resembles what a regulator of a future carbon market would do, including market surveillance to prevent or detect fraud and manipulation. The major weakness of the CFTC, according to some, is that it lacks resources and the statutory mandate to do its job. Current derivatives reform proposals would greatly enlarge its regulatory scope. 

The Securities and Exchange Commission (SEC) is much larger than the CFTC, but it also faces resource and capability issues. While the CO2 market will resemble commodities markets more closely than securities, SEC has some appropriate regulatory tools applicable to an emissions market. 

The Environmental Protection Agency (EPA) would likely be responsible for the primary market in allowances. However, EPA lacks experience comparable to that of the CFTC and SEC in regulating trading markets, although the data it gathered in the primary market could be critical to oversight of the secondary market. 

Federal Energy Regulatory Commission (FERC) was granted oversight authority over bulk electricity and interstate natural gas markets in 2005. Its experience with market surveillance and enforcement is thus limited in comparison to the SEC and CFTC, and it does not play an active role in overseeing the Title IV market. 

It is possible that no single regulator would have clear jurisdiction, as is the case in the Title IV program. This kind of regulatory fragmentation has not always worked well. An umbrella group to monitor markets and provide a forum for regulatory coordination might help to prevent regulatory gaps or conflicts in the market. .


Date of Report: February 26, 2010
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Small Hydro and Low-Head Hydro Power Technologies and Prospects

Richard J. Campbell
Specialist in Energy Policy

Climate change concerns have brought a renewed focus on increased hydropower production as a potential replacement for electricity from fossil fuels. Hydropower currently accounts for about 6% of the electricity produced in the United States, and the generation of electricity from hydropower produces essentially no emissions of carbon. However, since most of the larger, more traditional hydroelectric resources have already been developed, a clean energy rationale for development of small and low-head hydropower resources may now exist. Power generation from rivers and streams is not without controversy, and the capability to produce energy from these sources will have to be balanced against environmental and other public interest concerns. That balance can be aided by research into new technologies and forward-thinking regulations that encourage the development of these resources in cost-effective, environmentally friendly ways which recognize that such facilities, once built, can last for at least 50 years. 

A feasibility study by the Idaho National Laboratory in 2006 presented an assessment of the potential for development of small and low-head power resources for hydroelectric generation in the United States. Approximately 5,400 of 100,000 sites were determined to have potential for small hydro projects (i.e., providing between 1 and 30 Megawatts of annual mean power). The U.S. Department of Energy estimated that these projects (if developed) would result in a greater than 50% increase in total hydroelectric power generation. Low-head hydropower usually refers to sites with a head (i.e., elevation difference) of less than five meters (about 16 feet). 

Run-of-river hydropower facilities generally rely on the natural flow of rivers and streams, and are able to utilize smaller water flow volumes without the need to build large reservoirs. Infrastructure designed to move water in conduits such as canals, irrigation ditches, aqueducts, and pipelines can also be harnessed to produce electricity. Pressure reducing valves used in water supply systems and industry to reduce the buildup of fluid pressure in a valve or to reduce pressure to a level appropriate for use by water system customers offer additional opportunities for power generation. 

Several bills currently pending in Congress for climate change mitigation and clean energy seek to establish a federal renewable energy (or electricity) standard (RES). Foremost among these are H.R. 2454, the American Clean Energy and Security Act of 2009, and S. 1462, the American Clean Energy Leadership Act of 2009. Under current proposals, the RES would require retail electric suppliers to obtain increasing percentages of renewable electricity for the power they provide to customers. Although hydropower is generally considered as a clean source of electric power, only hydrokinetic technologies (which rely on moving water) and limited applications of hydropower would qualify for the RES. Given the current language in pending bills, it is unlikely that most new run-of-river low-head and small hydropower projects would meet the requirements for "qualified hydropower" unless these projects are installed at existing non-hydropower dams. 

Given the smaller size of projects relative to the costs for development for small and low-head hydropower, incentive rates for electricity produced over time may increase the feasibility of a project based on power sales. As such, with clean energy policy as a driver, government incentives may be helpful. Further development of small and low-head hydropower on a wide scale will likely come only as a result of a national policy intended to promote clean energy goals.


Date of Report: March 1, 2010
Number of Pages: 20
Order Number: RL41089
Price: $29.95

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Pipeline Safety and Security: Federal Programs

Paul W. Parfomak
Specialist in Energy and Infrastructure Policy

Nearly half a million miles of oil and natural gas transmission pipeline crisscross the United States. While an efficient and fundamentally safe means of transport, many pipelines carry hazardous materials with the potential to cause public injury and environmental damage. The nation's pipeline networks are also widespread, running alternately through remote and densely populated regions; consequently, these systems are vulnerable to accidents and terrorist attack. 

The 109th Congress passed the Pipeline Safety Improvement Act of 2006 (P.L. 109-468) to improve pipeline safety and security practices. The 110th Congress passed the Implementing Recommendations of the 9/11 Commission Act of 2007 (P.L. 110-53), which mandated pipeline security inspections and potential enforcement (§ 1557) and required federal plans for critical pipeline security and incident recovery (§ 1558). The 111th Congress is overseeing the implementation of these acts and considering new legislation related to the nation's pipeline network. Recent legislative proposals include the Clean, Affordable, and Reliable Energy Act of 2009 (S. 1333), which would change natural gas pipeline integrity assessment intervals (§ 401); the Transportation Security Administration Authorization Act (H.R. 2220), which would mandate a new federal pipeline security study (§ 406); and the Hazardous Material Transportation Safety Act of 2009 (H.R. 4106), which seeks to improve the collection and use of hazardous material transportation incident data (§ 203) and increase staffing at the Pipeline and Hazardous Material Safety Administration (§304). 

The Pipeline and Hazardous Materials Safety Administration (PHMSA), within the Department of Transportation (DOT), is the lead federal regulator of pipeline safety. PHMSA uses a variety of strategies to promote compliance with its safety regulations, including inspections, investigation of safety incidents, and maintaining a dialogue with pipeline operators. The agency clarifies its regulatory expectations through a range of communications and relies upon a range of enforcement actions to ensure that pipeline operators correct safety violations and take preventive measures to preclude future problems. The Transportation Security Administration (TSA), within the Department of Homeland Security (DHS), is the lead federal agency for security in all modes of transportation—including pipelines. The agency oversees industry's identification and protection of pipelines by developing security standards; implementing measures to mitigate security risk; building stakeholder relations; and monitoring compliance with security standards, requirements, and regulation. While PHMSA and TSA have distinct missions, pipeline safety and security are intertwined. 

Although pipeline impacts on the environment remain a concern of some public interest groups, both federal government and industry representatives suggest that federal pipeline programs have been on the right track. As oversight of the federal role in pipeline safety and security continues, Congress may focus on the effectiveness of state pipeline damage prevention programs, the promulgation of low-stress pipeline regulations, federal pipeline safety enforcement, and the relationship between DHS and the DOT with respect to pipeline security, among other provisions in federal pipeline safety regulation. In addition to these specific issues, Congress may wish to assess how the various elements of U.S. pipeline safety and security activity fit together in the nation's overall strategy to protect transportation infrastructure. .


Date of Report: February 18, 2010
Number of Pages: 23
Order Number: RL33347
Price: $29.95

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The Low Income Home Energy Assistance Program (LIHEAP): Program and Funding

Libby Perl
Specialist in Housing Policy

The Low Income Home Energy Assistance program (LIHEAP), established in 1981 as part of the Omnibus Budget Reconciliation Act (P.L. 97-35), is a block grant program under which the federal government makes annual grants to states, tribes, and territories to operate home energy assistance programs for low-income households. The LIHEAP statute authorizes two types of funds: regular funds, which are allocated to all states using a statutory formula, and emergency contingency funds, which are allocated to one or more states at the discretion of the Administration in cases of emergency as defined by the LIHEAP statute. 

States may use LIHEAP funds to help households pay for heating and cooling costs, for crisis assistance, weatherization assistance, and services (such as counseling) to reduce the need for energy assistance. According to the most recent data available from the Department of Health and Human Services (HHS), in FY2006, 49.6% of funds went to pay for heating assistance, 3.6% of funds was used for cooling aid, 17.8% of funds went to crisis assistance, and 10.0% was used for weatherization. The LIHEAP statute establishes federal eligibility for households with incomes at or below 150% of poverty or 60% of state median income, whichever is higher, although states may set lower limits. However, in both the FY2009 and FY2010 appropriations acts, Congress gave states the authority to raise their LIHEAP eligibility standards to 75% of state median income. In FY2006, the most recent year for which HHS data are available, an estimated 34.4 million households were eligible for LIHEAP under the federal statutory guidelines. According to HHS, 5.5 million households received heating or winter crisis assistance and approximately 500,000 households received cooling assistance that same year. 

On December 16, 2009, the President signed the FY2010 Consolidated Appropriations Act (P.L. 111-117), which provided a total of $5.1 billion for LIHEAP, the same amount that was appropriated in FY2009. Of this amount, approximately $4.5 billion was appropriated as regular funds and $590 million as emergency contingency funds. The FY2010 appropriation also maintained the distribution of regular funds set out in the FY2009 appropriations act, with approximately $840 million allocated according to the "new" LIHEAP formula and the remainder—approximately $3.67 billion—distributed according to the proportions of the "old" formula. Unlike the FY2009 appropriation, however, where Congress required HHS to release the emergency contingency funds within 30 days of the law's enactment, P.L. 111-117 did not specify that funds must be released within a certain time frame. 

For FY2011, the President has proposed to provide $2.51 billion for LIHEAP regular funds and $790 million for emergency contingency funds. In addition, the Administration would create a trigger for additional LIHEAP funds to be released when energy prices or participation in the Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps) increase above certain levels. According to the budget, this trigger would result in an estimated $2 billion in mandatory budget authority in FY2011. 

This report describes LIHEAP funding, current issues, legislation, program rules, and eligibility. .


Date of Report: February 5, 2010
Number of Pages: 27
Order Number: RL31865
Price: $29.95

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