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Wednesday, March 27, 2013

U.S. and World Coal Production, Federal Taxes, and Incentives

Marc Humphries, Coordinator
Specialist in Energy Policy

Molly F. Sherlock
Specialist in Public Finance

Even though U.S. coal production remained strong over the past decade, reaching record levels of production, coal is losing its share of overall U.S. energy production primarily to natural gas. One of the big questions for the industry is how to penetrate the overseas market, particularly in steam coal, to compensate for declining domestic demand. As U.S. energy policy and environmental regulations are constantly debated, there is ongoing congressional interest in the role of coal in meeting U.S. and global energy needs. The question may not be whether the domestic production of coal is here to stay but, rather, how much U.S. coal will be mined, what type, and under what regulatory framework.

Energy Information Administration (EIA) statistics show that more than half (55%) of U.S. coal reserves are located in the West, dominated by Montana and Wyoming, which account for 43%. When including the top five producing states (three of which are in the East), 70% of U.S. coal reserves are accounted for. The United States government owns about one third, or 87 billion short tons (BST), of U.S. domestic reserves.

Coal production in the United States reached an all-time high of 1,174.8 million short tons in 2008, before declining to slightly under 1,100 million short tons from 2009 to 2011. Coal production on federal lands accounts for about 43% of U.S. production, according to the Bureau of Land Management (BLM). World coal production has increased by nearly 60% since 2002, most of the increase coming from China—up 130%.

Overall, U.S. coal production has been very strong over the past decade and if the industry is successful in penetrating the global market, primarily for steam coal, U.S. production may continue to grow faster than consumption. If recent trends continue, the U.S. coal industry will likely become more concentrated and produce more on federal lands. Businesses in the coal industry are subject to federal income taxes, but coal producers benefit from a number of federal tax provisions, commonly referred to as tax expenditures.

There are several congressional concerns related to coal production on federal lands. One concern is the potential for under-market-value coal auctions (sales), e.g., lease offers being accepted by the BLM with few competitive bids. In these cases, the federal government may not receive fair market value for the lease sale.

Date of Report: March 14, 2013
Number of Pages: 25
Order Number: R43011
Price: $29.95

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Monday, March 25, 2013

Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification

Michael Ratner, Coordinator
Specialist in Energy Policy

Paul Belkin
Analyst in European Affairs

Jim Nichol
Specialist in Russian and Eurasian Affairs

Steven Woehrel
Specialist in European Affairs

Europe as a major energy consumer faces a number of challenges when addressing future energy needs. Among these challenges are rapidly rising global demand and competition for energy resources from emerging economies such as China and India, persistent instability in energy producing regions such as the Middle East, a fragmented internal European energy market, and a growing need to shift fuels in order to address climate change policy. As a result, energy supply security has become a key concern for European nations and the European Union (EU).

A key element of the EU’s energy supply strategy has been to shift to a greater use of natural gas. Europe as a whole is a major importer of natural gas. Russia is Europe’s most important natural gas supplier, accounting for 36% of Europe’s natural gas imports. Europe’s natural gas consumption is projected to grow while its own domestic natural gas production continues to decline. If trends continue as projected, Europe’s dependence on Russia as a supplier is likely to grow. And, while it could be in Europe’s interest to explore alternative sources for its natural gas needs, it is uncertain whether Europe as a whole can, or is willing to, replace a significant level of imports of Russian natural gas. Some European countries that feel vulnerable to potential Russian energy supply manipulation may work harder to achieve diversification than others.

Russia has not been idle when it comes to protecting its share of the European natural gas market. Moscow, including the state-controlled company Gazprom, has attempted to stymie Europeanbacked alternatives to pipelines it controls by proposing competing pipeline projects and attempting to co-opt European companies by offering them stakes in those and other projects. It has attempted to dissuade potential suppliers (especially those in Central Asia) from participating in European-supported plans. Moscow has also raised environmental concerns in an apparent effort to hinder other alternatives to its supplies, such as unconventional natural gas.

Successive U.S. administrations and Congresses have viewed European energy security as a U.S. national interest. Promoting diversification of Europe’s natural gas supplies, especially in recent years through the development of a southern corridor of gas from the Caspian region as an alternative to Russian natural gas, has been a focal point of U.S. energy policy in Europe and Eurasia. The George W. Bush Administration viewed the issue in geopolitical terms and sharply criticized Russia for using energy supplies as a political tool to influence other countries. The Obama Administration has also called for diversification, but has refrained from openly expressing concerns about Russia’s regional energy policy, perhaps in order to avoid jeopardizing the “reset” of ties with Moscow. Nevertheless, although supplying natural gas to Europe from the Caspian Region and Central Asia has been a goal of multiple U.S. administrations and the EU, it is far from being achieved in volumes significant to counter Russian exports.

This report focuses on potential approaches that Europe might employ to diversify its sources of natural gas supply, Russia’s role in Europe’s natural gas policies, and key factors that could hinder efforts to develop alternative suppliers of natural gas. The report assesses the potential suppliers of natural gas to Europe and the short- to medium-term hurdles needed to be overcome for those suppliers to be credible, long-term providers of natural gas to Europe. The report looks at North Africa, potentially the most realistic supply alternative in the near-term, but notes that the region will have to resolve its current political, economic, and security instability as well as the internal structural changes to the natural gas industry. Central Asia, which may have the greatest amounts of natural gas, would need to construct lengthy pipelines through multiple countries to move its natural gas to Europe.

Date of Report: March 15, 2013
Number of Pages: 33
Order Number: R42405
Price: $29.95

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Wednesday, March 20, 2013

Meeting the Renewable Fuel Standard (RFS) Mandate for Cellulosic Biofuels: Questions and Answers

Kelsi Bracmort Specialist in Agricultural Conservation and Natural Resources Policy

The Renewable Fuel Standard (RFS) was expanded under the Energy Independence and Security Act of 2007 (EISA; P.L. 110-140) in an effort to reduce dependence on foreign oil, promote biofuel use, and stabilize transportation fuel prices, among other goals. Over 15 years, the RFS requires that increasing amounts of biofuels—36 billion gallons by 2022—be used in transportation fuel. The mandate is to be accomplished in part with advanced biofuels, including cellulosic biofuels—fuels produced from cellulosic materials including grasses, trees, and agricultural and municipal wastes—which would increase over time to comprise some 44% of the RFS in 2022.

The U.S. Environmental Protection Agency (EPA) is required to set the annual standard for cellulosic biofuels under the RFS for the following year by November 30. If projected cellulosic biofuel production is less than the volume specified in the statute, EPA can lower the cellulosic biofuels standard. EPA concluded that the nation lacked sufficient production capacity to meet the RFS cellulosic biofuels mandate for 2010, 2011, 2012, and 2013. EPA reduced the mandate (actual volume) for 2010 (from 100 million gallons to 5 million gallons), 2011 (from 250 million gallons to 6.6 million gallons), and 2012 (from 500 million gallons to 8.65 million gallons, later vacated by a federal court decision). EPA proposes to lower the 2013 mandate from 1.0 billion gallons to 11 million gallons.

The 2010, 2011, and 2012 reduced mandates were not met by actual cellulosic biofuel production, which EPA reports was limited. Instead, these mandates were met with renewable identification numbers (RINs) generated under the original RFS, and with cellulosic biofuel waiver credits. The cellulosic biofuels industry may be able to produce the EPA mandates if certain obstacles are overcome: lowering the cost of conversion technology at the initial stages of commercial application, easing access to financing, removing feedstock supply uncertainties, and creating certainty for tax incentives. EPA reports that the industry front-runners—eight production facilities—have addressed many of these concerns, and that their success “will significantly decrease the perceived risk associated with similar future facilities and could potentially lead to the rapid deployment of cellulosic biofuel production facilities around the United States.” Another challenge for the cellulosic biofuels industry—and all biofuels industries—is the petroleum industry’s opposition to the RFS, in part because it views the RFS as unworkable. Other industries—livestock and poultry in particular—have joined the petroleum industry in requesting that the RFS be modified. Another constraint is the need to comply with the blend wall—the upper limit to the total amount of ethanol that by law can be blended into U.S. gasoline.

Several federal programs assist the cellulosic biofuels industry, including the U.S. Department of Agriculture’s (USDA’s) Biorefinery Assistance Program and Biomass Crop Assistance Program, and the U.S. Department of Energy’s (DOE’s) Loan Guarantee Program. EPA reports that some of the cellulosic biofuels front-runners received or were offered significant federal financial support (approximately $637 million) in the form of grants and loan guarantees from USDA and DOE between 2009 and 2012.

Many questions regarding cellulosic biofuels and the RFS may arise as Congress debates energy legislation. Can the RFS mandate for cellulosic biofuels be met? If so, when would it be met? What impact will the continued lowering of the cellulosic biofuels mandate by EPA have on investment in production? Should Congress continue to provide support for cellulosic biofuels, and if so, how? Might Congress statutorily increase the number of qualified feedstocks for the RFS cellulosic biofuels category, given the 112
th Congress amendment of the definition of cellulosic biofuels to include algae for some tax incentives? What impact will other legislative discussions (e.g., military support for biofuels) have on the RFS cellulosic biofuels mandate?

This report, in a question and answer format, discusses some challenges facing the cellulosic biofuels community, including feedstock supply estimates, and potential legislative options to address cellulosic biofuels production uncertainty for the RFS.

Date of Report: March 11, 2013
Number of Pages: 21
Order Number: R41106
Price: $29.95

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Renewable Fuel Standard (RFS): Overview and Issues

Randy Schnepf
Specialist in Agricultural Policy

Brent D. Yacobucci
Section Research Manager

Federal policy has played a key role in the emergence of the U.S. biofuels industry. Policy measures include minimum renewable fuel usage requirements, blending and production tax credits, an import tariff, loans and loan guarantees, and research grants. One of the more prominent forms of federal policy support is the Renewable Fuel Standard (RFS)—whereby a minimum volume of biofuels is to be used in the national transportation fuel supply each year. This report describes the general nature of the RFS mandate and its implementation, and outlines some emerging issues related to the continued growth of U.S. biofuels production needed to fulfill the expanding RFS mandate, as well as the emergence of potential unintended consequences of this rapid expansion.

Congress first established the RFS with the enactment of the Energy Policy Act of 2005 (EPAct, P.L. 109-58). This initial RFS (referred to as RFS1) mandated that a minimum of 4 billion gallons be used in 2006, rising to 7.5 billion gallons by 2012. Two years later, the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) greatly expanded the biofuel mandate volumes and extended the date through 2022. The expanded RFS (referred to as RFS2) required the annual use of 9 billion gallons of biofuels in 2008, rising to 36 billion gallons in 2022, with at least 16 billion gallons from cellulosic biofuels, and a cap of 15 billion gallons for corn-starch ethanol.

In addition to the expanded volumes and extended date, RFS2 has three important distinctions from RFS1. First, the total renewable fuel requirement is divided into four separate, but nested categories—total renewable fuels, advanced biofuels, biomass-based diesel, and cellulosic biofuels—each with its own volume requirement. Second, biofuels qualifying under each category must achieve certain minimum thresholds of lifecycle greenhouse gas (GHG) emission reductions, with certain exceptions applicable to existing facilities. Third, all renewable fuel must be made from feedstocks that meet an amended definition of renewable biomass, including certain land use restrictions.

The Environmental Protection Agency (EPA) is responsible for establishing and implementing regulations to ensure that the nation’s transportation fuel supply contains the mandated biofuels volumes. EPA’s initial regulations for administering RFS1 (issued in April 2007) established detailed compliance standards for fuel suppliers, a tracking system based on renewable identification numbers (RINs) with credit verification and trading, special treatment of small refineries, and general waiver provisions. EPA rules for administering RFS2 (issued in February 2010) built upon the earlier RFS1 regulations and include specific deadlines for announcing annual standards, as well as greater specificity on potential waiver requests and RIN oversight.

Over the long term, the RFS is likely to play a dominant role in the development of the U.S. biofuels sector, but with considerable uncertainty regarding potential spillover effects in other markets and on other important policy goals. Emerging resource constraints related to the rapid expansion of U.S. corn ethanol production have provoked questions about its long-run sustainability and the possibility of unintended consequences in other markets as well as on the environment. Questions also exist about the ability of the U.S. biofuels industry to meet the expanding mandate for biofuels from non-corn sources such as cellulosic biomass materials, whose production capacity has been slow to develop, or biomass-based biodiesel, which remains expensive to produce owing to the relatively high prices of its feedstocks. Finally, considerable uncertainty remains regarding the development of the infrastructure capacity (e.g., trucks, pipelines, pumps, etc.) needed to deliver the expanding biofuels mandate to consumers.

Date of Report: March 14, 2013
Number of Pages: 35
Order Number: R40155
Price: $29.95

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Monday, March 18, 2013

Historical Development of the Windmill

The wind turbine has had a singular history among prime movers. Its genesis is lost in antiquity, but its existence as a provider of useful mechanical power for the last thousand years has been authoritatively established for recognition as historical fact by most professional historians of technology. The windmill, which once flourished along with the water wheel as one of the two prime movers based on the kinetic energy of natural sources, reached its apogee of utility in the seventeenth and eighteenth centuries. Its use then began to decline, as prime movers based on the thermal energy from the combustion of fuel took precedence. Steam engines, steam turbines, and oil and gas engines provided more powerful and more compact machines, adaptable to a multitude of uses other then just the grinding of grain and the pumping of water. These new heat engines also were continuously available rather then subject tot he vagaries of nature, and they could be located at the job site rather the requiring that the job be brought to them.

Date of Report: March 6, 2013
Number of Pages: 47
Order Number: G1306
Price: $9.95

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