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Friday, January 27, 2012

Alternative Fuels and Advanced Technology Vehicles: Issues in Congress

Brent D. Yacobucci
Section Research Manager

Alternative fuels and advanced technology vehicles are seen by proponents as integral to improving urban air quality, decreasing dependence on foreign oil, and reducing emissions of greenhouse gases. However, major barriers—especially economics—currently prevent the widespread use of these fuels and technologies. Because of these barriers, and the potential benefits, there is continued congressional interest in providing incentives and other support for their development and commercialization.

Key tax incentives for the use of ethanol and biomass-based diesel fuels expired at the end of 2011, along with an added duty on certain ethanol imports. Tax incentives for biofuels (including ethanol) produced from cellulosic feedstocks (e.g., grasses, trees, waste products) expire at the end of 2012.

While tax incentives for these fuels have expired or are expiring, a mandate to use biofuels in transportation that was expanded by the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) is set to increase yearly through 2022. On February 3, 2010, the Environmental Protection Agency (EPA) finalized new rules for this mandate—the Renewable Fuel Standard (RFS). In 2011, the RFS required the use of 13.95 billion gallons of ethanol and other biofuels in transportation fuel. Within that mandate, the RFS required the use of 1.35 billion gallons of advanced biofuels, including 6.6 million gallons of cellulosic biofuels. For 2012, the RFS mandate is 15.2 billion gallons, including 8.65 million gallons of cellulosic fuel. EISA also requires that advanced biofuels (as well as conventional biofuels from newly built refineries) meet certain lifecycle greenhouse gas reduction requirements. EPA’s methodology and conclusions on various biofuels’ lifecycle emissions have been controversial.

In January 2011, EPA finalized a partial waiver petition from Growth Energy to allow blends of up to 15% ethanol in gasoline (E15): before then ethanol content in all gasoline was limited to 10% (E10). EPA approved the use of E15 in model year 2001 and later passenger cars and light trucks, but prohibited its use in all other applications (e.g., motorcycles, heavy trucks, nonroad engines). Allowing higher blends of ethanol under the Clean Air Act removes one component of the “blend wall,” which limits the total amount of ethanol that can be blended in gasoline nationwide; other blend wall components include vehicle and pump certification and warranties, and state and local fire codes and other laws.

Attention has also focused on government-backed loans for the development and deployment of new energy technologies. One such program, the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, has been controversial as some critics question whether other existing policies, such as stricter vehicle fuel economy standards, already promote the same technologies.

The 112th Congress has debated alternative fuels and advanced technology vehicles directly and as it has addressed other key topics. For example, the role of tax incentives for biofuels has been contentious. On June 16, 2011 the Senate approved S.Amdt. 476 which would have eliminated the excise tax credit for blending ethanol in gasoline before its December 31, 2011 expiration date. Although the underlying legislation failed a cloture vote in the Senate, the amendment was approved 73-27. The prospects for further action increasing or extending biofuels and alternative fuels tax incentives may be limited in light of that vote.

Date of Report: January 19, 2012
Number of Pages: 19
Order Number: R40168
Price: $29.95

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