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Friday, June 25, 2010

Energy Tax Policy: Issues in the 111th Congress


Molly F. Sherlock
Analyst in Economics

Donald J. Marples
Section Research Manager

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: June 16, 2010
Number of Pages: 30
Order Number: R40999
Price: $29.95

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Wednesday, June 23, 2010

Landsat and the Data Continuity Mission


Carl E. Behrens
Specialist in Energy Policy

The U.S. Landsat Mission has collected remotely sensed imagery of the Earth's surface for more than 35 years. At present two satellites—Landsat-5, launched in 1984, and Landsat-7, launched in 1999—are in orbit and continuing to supply images and data for the many users of the information, but they are operating beyond their designed life and may fail at any time.

The National Aeronautics and Space Administration (NASA) and the U.S. Geological Survey (USGS) jointly operate Landsat. The two agencies are developing a follow-on initiative known as the Landsat Data Continuity Mission (LDCM). The LDCM spacecraft (LDCM-1), with its instrument payload, is currently planned for launch in December 2012. NASA completed the Critical Design Review of the LDCM on June 1, 2010, allowing the project to proceed with fullscale fabrication, assembly, integration, and test of the mission elements.

Landsat has been used in a wide variety of applications, including climate research, natural resources management, commercial and municipal land development, public safety, homeland security and natural disaster management. Despite its wide use, efforts in the past to commercialize Landsat operations have not been successful. Most of the users of the data are other government agencies. For that reason, funding a replacement for the failing Landsat orbiters has been a federal responsibility. A number of factors have made it difficult for Congress to assure that the project successfully meets the goal of bridging the impending Landsat data gap.

Of particular concern has been the possibility that the new satellite may not include the capability of receiving data in the thermal infrared spectrum, a capability that is now in Landsat 5 and 7 and which some users have found particularly useful. Funding for a Thermal Infrared Sensing Instrument (TIRS) was uncertain and progress on the instrument delayed during the early years of the mission. However, NASA's FY2009 appropriation included $10 million specifically for TIRS. NASA announced in its FY2011 budget request that TIRS would be developed in time to meet the December 2012 launch date, while noting that because of its late start it required an "aggressive development schedule." 
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Date of Report: June 7, 2010
Number of Pages: 10
Order Number: R40594
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The Capitol Power Plant: Background and Greening Options


Jacob R. Straus
Analyst on the Congress

Paul W. Parfomak
Specialist in Energy and Infrastructure Policy

The Capitol Power Plant and its impact on congressional operations are often misunderstood. Although it was originally constructed as an electric power plant, the Capitol Power Plant has not generated electric power for over 50 years. Rather, the facility is used to produce steam and chilled water for heating and cooling of Capitol complex buildings. Because it is a significant source of atmospheric emissions, some Members of Congress are concerned about the operation of the facility and its impact on the environment.

In March 2007, the House leadership asked the Chief Administrative Officer (CAO) and his Senate counterparts to undertake a "Green the Capitol" initiative to reduce the Capitol complex's environmental footprint. As a result of this request, the CAO issued a report in June 2007 which recommended, among other strategies, operating the Capitol Power Plant with natural gas and optimizing operations to reduce energy consumption at the plant. On February 26, 2009, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent a letter to the Architect of the Capitol calling for the facility to be converted to run exclusively on natural gas for all of its steam production. The Architect of the Capitol took immediate action to maximize the use of natural gas and on May 1, 2009, the Speaker and the Majority Leader of the Senate announced that the Capitol Power Plant will no longer burn coal, unless backup capacity is needed.

There are also proposals to further improve Capitol Power Plant efficiency by outsourcing plant management or converting the plant to a combined heat and power (CHP) facility. Each of these options has distinct costs, environmental benefits, implementation requirements, and risks—not all of which have been thoroughly explored. It appears unlikely that outsourcing of the plant's operations could provide environmental benefits of the same magnitude as converting the plant to 100% natural gas or biomass, although such an action could provide incremental environmental benefits. When both steam production and power generation are considered, the overall environmental benefits of a CHP plant could be significant.

Measures taken to date at the Capitol Power Plant have already resulted in significant environmental benefits, but there are operational and plant conversion options which may reduce the plant's environmental impact even further. These options may be costly, however, both in terms of fuel expenses and capital requirements—and may involve price and operational risk. Consequently, careful comparison of all the options for this aspect of "Greening the Capitol" may be required to ensure that the most cost-effective and environmentally beneficial investments are made while ensuring the continued supply of utility services to the Capitol.



Date of Report: June 3, 2010
Number of Pages: 21
Order Number: R40433
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Thursday, June 10, 2010

Nuclear Energy Policy


Mark Holt
Specialist in Energy Policy

Nuclear energy issues facing Congress include federal incentives for new commercial reactors, radioactive waste management policy, research and development priorities, power plant safety and regulation, nuclear weapons proliferation, and security against terrorist attacks.

Significant incentives for new commercial reactors were included in the Energy Policy Act of 2005 (EPACT05, P.L. 109-58). These include production tax credits, loan guarantees, insurance against regulatory delays, and extension of the Price-Anderson Act nuclear liability system. Together with higher fossil fuel prices and the possibility of greenhouse gas controls, the federal incentives for nuclear power have helped spur renewed interest by utilities and other potential reactor developers. Plans for as many as 31 reactor license applications have been announced, although it is unclear how many of those projects will move forward.

In his January 2010 State of the Union Address, President Obama called for "building a new generation of safe, clean nuclear power plants" as a key component of his "clean energy" program. Financing for new reactors is widely considered to depend on the loan guarantees authorized by EPACT05 Title XVII, administered by the Department of Energy (DOE). The total amount of loan guarantees to be provided to nuclear power projects has been a continuing congressional issue. Nuclear power plants are currently allocated $18.5 billion in loan guarantees, enough for three or four reactors. President Obama's FY2011 budget request would nearly triple the loan guarantee ceiling for nuclear power plants, to $54.5 billion. However, opponents of nuclear power contend that the Administration's proposed increases in nuclear loan guarantees would provide an unjustifiable subsidy to a mature industry and shift investment away from environmentally preferable and more cost-effective energy technologies.

DOE's nuclear energy research and development program includes advanced reactors, fuel cycle technology and facilities, and infrastructure support. The Obama Administration's FY2011 funding request for nuclear energy research and development totals $824.1 million—4.8% above the FY2010 appropriation. An additional $88.2 million is requested under Other Defense Activities for DOE's Office of Nuclear Energy to pay for safeguards and security at the Department's Idaho nuclear facilities.

Disposal of highly radioactive waste has been one of the most controversial aspects of nuclear power. The Nuclear Waste Policy Act of 1982 (P.L. 97-425), as amended in 1987, requires DOE to conduct a detailed physical characterization of Yucca Mountain in Nevada as a permanent underground repository for high-level waste. DOE submitted a license application for the Yucca Mountain repository to the Nuclear Regulatory Commission (NRC) on June 3, 2008, with the repository to open by 2020 at the earliest.

The Obama Administration has decided to "terminate the Yucca Mountain program while developing nuclear waste disposal alternatives," according to the DOE FY2010 budget justification. Alternatives to Yucca Mountain are to be evaluated by a "blue ribbon" panel of experts convened by the Administration. President Obama's FY2011 budget request would provide no further funding for the Yucca Mountain project, and DOE filed a motion with NRC to withdraw the Yucca Mountain license application on March 3, 2010. However, the motion to withdraw has prompted substantial opposition, including lawsuits in federal court.


Date of Report: May 27, 2010
Number of Pages: 35
Order Number: RL33558
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Wednesday, June 9, 2010

The Home Star Retrofit Energy Act of 2010: Operational and Market Considerations


Paul W. Parfomak
Specialist in Energy and Infrastructure Policy

The Home Star Energy Retrofit program as proposed is intended to promote both greater residential energy-efficiency and increased employment in the home remodeling, energy services, and related manufacturing industries. Two very similar Home Star programs are detailed in legislation proposed in the House and Senate. The House of Representatives version, the Home Star Energy Retrofit Act of 2010 (H.R. 5019), was introduced on April 14, 2010, by Representative Peter Welch and 44 cosponsors. H.R. 5019 passed with amendments on May 7, 2010, and was referred to the Senate Finance Committee. The latest Senate proposal was introduced under the Home Star Energy Retrofit Act of 2010 (S. 3434) by Senator Jeff Bingaman and 15 cosponsors on May 27, 2010, and also referred to the Finance Committee.

Home Star would employ a two-tiered structure for energy-efficiency rebates. Its Silver Star program tier would provide up to $3,000 per home in prescriptive rebates for straightforward home upgrades, including insulation; efficient heating, ventilation, and air conditioning units; new windows; and other measures. The Gold Star program tier would offer $3,000 rebates for more comprehensive energy retrofits achieving at least 20% energy savings, with rebates increasing up to $8,000 per home for retrofits achieving 45% energy savings. Quality assurance inspectors would visit 10% to 15% of both Silver and Gold Star participating homes to ensure measures are properly installed. H.R. 5019 authorizes $6 billion in funding for the program. S. 3434 authorizes $5 billion, with provisions for a tax credit beyond this amount.

In both the House and Senate versions, the proposed Home Star program may present an opportunity for both energy-efficiency and employment in the United States. The program targets the residential sector, which numerous studies have shown to be among the largest sources of cost-effective energy-efficiency opportunity in the United States. It also targets a wide base of currently unemployed or under-employed residential contractors. Structurally, the Home Star program seeks speedy implementation by building upon prior experience with both federal and state energy-efficiency programs to provide operating models that might be replicated nationwide. Nonetheless, several operational aspects new to such a federal program, or not previously tried for a program of Home Star's scale, may warrant further attention from Congress. These include the use of rebate aggregators, a two-tiered rebate structure, technical standards, and the general availability of rebates to all who may want them. Key market issues include the inclusion of a "Do-it-Yourself" rebate option, high expectations for program participation, and promoting the growth of a self-sustaining home weatherization industry. Given that it would be a new federal program, the level of homeowner participation implied by the rebate funding provisions in the Home Star proposal would far exceed that achieved by comparable programs in their initial years.

Taken together, Home Star's key operational requirements may present greater challenges than some proponents suggest, and may present unanticipated obstacles to speedy and consistent program implementation across the country. As Congress examines details of the Home Star proposal, focusing on tradeoffs between rapid implementation, operational complexity, and energy-efficiency impacts may be important. Balancing the twin goals of short-term job creation and long-term investment in cost-effective energy savings could also be an ongoing challenge.


Date of Report: June 4, 2010
Number of Pages: 12
Order Number: R41273
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