The U.S. House of Representatives passed H.R. 6 EH, the Energy Policy Act of 2005, on April 21, 2005, and the Senate passed H.R. 6 EAS on June 28, 2005. A conference committee was convened to resolve differences between the two bills, and a report was approved and issued on July 27, 2005. The House approved the conference report on July 28, 2005, and the Senate followed on July 29, 2005. EPACT2005 was signed into law by President Bush on August 8, 2005, and became Public Law 109-058 [1]. 

Consistent with the general approach adopted in the AEO, provisions in EPACT2005 that require funding appropriations to implement, whose impact is highly uncertain, or that require further specification by Federal agencies or Congress are not included in AEO2006. For example, EIA does not try to anticipate policy responses to the many studies required by EPACT2005, nor to predict the impact of R&D funding authorizations included in the bill. Moreover, AEO2006 does not include any provision that addresses a level of detail beyond that modeled in EIA’s National Energy Modeling System (NEMS), which was used to develop the AEO2006 projections. AEO2006 includes only about 30 sections of EPACT2005, which establish specific tax credits, incentives, or standards in the following areas: 

• Mandatory energy conservation standards for torchiere lamps, dehumidifiers, and ceiling fan light kits in the residential sector and for lighting equipment, packaged air conditioning and heating equipment, refrigerator and freezer equipment, automatic icemakers, pre-rinse spray valves, exit signs, distribution transformers, and traffic signals in the commercial sector 
• Tax credits for businesses and builders investing in energy efficiency and renewable energy properties; for purchasers of energy-efficient equipment, including water heaters, air conditioners, heat pumps, furnaces, boilers, windows, and other energy-efficient building shell products; for producers of energy-efficient clothes washers, dishwashers, and refrigerators; for purchasers of solar water heaters, solar photovoltaic (PV) equipment, and fuel cells; for businesses investing in fuel cells and microturbines; and for businesses investing in solar energy properties 
• Tax credits for the purchase of vehicles with lean burn engines or with hybrid or fuel cell propulsion systems 
• An RFS that requires the production and use of defined amounts of renewable fuel by specific dates 
• Elimination of the oxygen content requirement for RFG 
• Extension of tax credits for biodiesel producers and small ethanol producers 
• A tax credit for small agri-biodiesel producers 
• Royalty relief for oil and natural gas production in water depths greater than 400 meters in the Gulf of Mexico 
• Restrictions on new oil and natural gas drilling in or under the Great Lakes 
• Reduction of the existing capital recovery period for new electric transmission and distribution assets from 20 years to 15 years 
• Expansion of the amortization period for pollution control equipment on coal-fired power plants from 5 years to 7 years 
• A PTC of 1.8 cents per kilowatthour for up to 6,000 megawatts of new nuclear capacity brought online before 2021 
• An investment tax credit for the construction and development of new or repowered coal-fired generating projects 
• Extension, modification, and expansion of the PTC for renewable electricity generation. 

The following discussion provides a summary of the provisions in EPACT2005 that are included in AEO2006 and some of the provisions that could be included if more complete information were available about their funding and implementation. This discussion is not a complete summary of all the sections of EPACT2005. More extensive summaries are available from other sources [2]. 

End-Use Demand 

This section summarizes the provisions of EPACT2005 that affect the end-use demand sectors. 

Buildings 

EPACT2005 includes provisions with the potential to affect energy demand in the residential and commercial buildings sector. Many are included in Title I, “Energy Efficiency.” Others can be found in the renewable energy, R&D, and tax titles. 

Sections 101 through 105 and Section 109 address Federal energy use, allowing for energy conservation measures in congressional buildings (Section 101); updating Executive Order mandates regarding Federal purchasing requirements and energy intensity reductions (Sections 102 through 104); extending the use of Energy Savings Performance Contracts to finance projects through 2016 (Section 105); and updating performance standards for Federal buildings (Section 109). The Federal purchasing requirements and performance standards are represented in NEMS as a result of earlier Executive Orders. Other aspects of these provisions address a level of detail that is not modeled in NEMS. 

Sections 135 and 136 establish or tighten mandatory energy conservation standards for a number of residential products and appliances and commercial equipment, affecting projected residential and commercial energy use. Standards for torchiere lamps are explicitly modeled in NEMS, allowing for a direct accounting of energy savings from a maximum watt allowance. Savings resulting from standards for residential dehumidifiers and ceiling fan light kits, based on shipment estimates, are phased in over the AEO2006 forecast period to account for capital stock turnover. Standards for explicitly modeled commercial equipment, including lighting equipment, packaged air conditioning and heating equipment, refrigerator and freezer equipment, and automatic icemakers, are directly represented in the AEO2006 projections. Savings resulting from standards for exit signs, traffic signals, distribution transformers, and pre-rinse spray valves are estimated and phased in over the AEO2006 forecast period to account for capital stock turnover. 

Provisions under Title XIII provide tax credits to businesses and individuals for investment in energy efficiency and renewable energy properties. Section 1332 provides a tax credit of $1,000 or $2,000 to builders of homes that are 30 or 50 percent more efficient than current code in 2006 and 2007. Section 1333 allows tax credits for purchasers of energy-efficient equipment, including water heaters, air conditioners, heat pumps, furnaces, boilers, windows, and other energy-efficient building shell products. The credit is available in 2006 and 2007, and the amount varies with the technology purchased. Section 1334 provides a tax credit for producers of energy-efficient clothes washers, dishwashers, and refrigerators. Section 1335 provides tax credits for purchasers of solar water heaters, solar PV equipment, and fuel cells for the years 2006 and 2007. All these tax credits are represented in AEO2006. For modeling purposes, it is assumed that the credits will be passed on to consumers in the form of lower first costs for purchases of the products specified. 

Section 1336 provides a business investment tax credit of 30 percent for fuel cells and 10 percent for microturbines, and Section 1337 increases the business investment tax credit for solar property from the current level of 10 percent to 30 percent. These provisions, which apply to property installed in 2006 or 2007, are included in AEO2006. 

Industrial 

EPACT2005 includes few provisions that specifically affect industrial sector energy demand. Provisions in the R&D titles that may affect industrial energy consumption over the long term are not included in AEO2006. 

Section 108 requires that federally funded projects involving cement or concrete increase the amount of recovered mineral component (e.g., fly ash or blast furnace slag) used in the cement. Such use of mineral components is a standard industry practice, and increasing the amount could reduce both the quantity of energy used for cement clinker production and the level of process-related CO₂ emissions. Because the proportion of mineral component is not specified in the legislation, this provision is not included in AEO2006. When regulations are promulgated, their estimated impact could be modeled in NEMS. 

Section 1321 extends the Section 29 PTC for nonconventional fuel to facilities producing coke or coke gas. The credit is available for plants placed in service before 1993 and between 1998 and 2010. Each plant can claim the credit for 4 years; however, the total credit is limited to an annual average of 4,000 barrels of oil equivalent (BOE) per day. The value of the credit is currently $3.00 per BOE, and it will be adjusted for inflation in the future indexed to 2004. Previously, the $3.00 credit had been indexed to 1979, and its value in 2004 was estimated at $6.56 per BOE [3]. Because the bulk of the credits will go to plants already operating or under construction, there is likely to be little impact on coke plant capacity. 

Transportation 

EPACT2005 includes many provisions with potential effects on energy demand, alternative fuel use, and vehicle emissions in the transportation sector. These provisions provide for research, development, and demonstration (RD&D) of technologies and alternative fuels. These provisions are not reflected in AEO2006 because of the uncertainty associated with the impacts of RD&D programs. The act also calls for policy studies and tax incentives to promote improved energy efficiency and increase alternative fuel use. Provisions specific to the supply of alternative transportation fuels are discussed below, in the sections on petroleum and renewable energy. 

EPACT2005 provides a tax credit for the purchase of vehicles that have lean burn engines or employ hybrid or fuel cell propulsion systems. The amount of the credit is based the vehicle’s inertia weight, improvement in city-tested fuel economy relative to an equivalent 2002 base year value, emissions classification, and type of propulsion system. The tax credit is also sales-limited, by manufacturer, for vehicles with lean burn engines or hybrid propulsion systems. A phaseout period begins with the first calendar quarter after December 31, 2005, in which a manufacturer’s sales of lean burn or hybrid vehicles reach 60,000 units. Reduction of the credits begins in the following quarter. For that quarter and the next, the applicable tax credit will be reduced by 50 percent. For the next two quarters, the tax credit will be reduced to 25 percent of the original value. These tax credits are included in AEO2006. 

Petroleum, Ethanol, and Biofuel Provisions 

This section summarizes the numerous provisions of EPACT2005 affecting the supply, composition, and refining of petroleum and related products that are included in AEO2006. 

Renewable Fuels Standard 

Section 1501 includes an RFS that requires the production and use of 4.0 billion gallons of renewable fuels in 2006, increasing to 7.5 billion gallons in 2012. For calendar year 2013 and each year thereafter, the minimum required volume of renewable fuels would be an amount equal to the percentage of total gasoline sold in the Nation in that year that was represented by 7.5 billion gallons in 2012. In addition, starting in 2013, the required amount of renewable fuels must include a minimum of 250 million gallons derived from cellulosic biomass. Small refineries with a capacity not exceeding 75,000 barrels per calendar day are exempted from the RFS until 2011. Noncontiguous States or territories (Alaska, Hawaii, Puerto Rico, Guam, etc.) are not covered but could petition to join the renewable fuels program. Both ethanol and biodiesel are considered to be renewable fuels, and a 2.5-gallon credit toward the RFS is provided for every gallon of cellulosic biomass ethanol produced. A program of renewable fuels credits would allow refiners, blenders, and importers flexibility to comply with the RFS across geographical regions and over successive years. 

The RFS is modeled in AEO2006, both for the minimum required volumes and for ethanol derived from cellulosic biomass. Actual renewable fuel supplies may or may not exceed those minimum requirements, depending on the relative costs of renewable fuels and competing petroleum products. In the AEO2006 reference case, ethanol consumption is projected to exceed the RFS, because it is projected to be available at relatively low cost. AEO2006 implicitly reflects the ethanol production and consumption behavior that resembles the effect of a national RFS credit trading system, resulting in ethanol blending in gasoline that varies by region. 

Elimination of Oxygen Requirement for Reformulated Gasoline 

Section 1504 eliminates the oxygen content requirement for RFG. This provision takes effect immediately in California and 270 days after enactment of EPACT2005 in the rest of the RFG regions. Without the oxygen content requirement, refiners are likely to phase out MTBE in gasoline as soon as practical to minimize exposure to environmental liabilities in the future. Several refiners have announced plans to stop making MTBE when the oxygen content requirement expires. Also in Section 1504, volatile organic compound (VOC) Control Regions 1 (southern) and 2 (northern) for RFG would be consolidated by eliminating the less stringent requirements applicable to gasoline designated for VOC Control Region 2. 

Elimination of the oxygen requirement for RFG is included in AEO2006. MTBE is assumed to be phased out in all regions by the end of 2008. Ethanol is likely to be favored in RFG blending in most regions, based on economics and its other attractive blending characteristics, such as high octane value. 

Biofuel Tax Credits 

Currently, gasoline and highway diesel fuel excise taxes are 18.4 and 24.4 cents per gallon, respectively. For each gallon of highway fuel, 0.1 cent is deposited in the Leaking Underground Storage Tank Trust Fund, which is extended through 2011 under Section 1362 of EPACT2005. The volumetric excise tax credit program, established in the American Jobs Creation Act of 2004, covers both ethanol and biodiesel. It allows producers to claim the tax credit directly on biofuels: 51 cents per gallon of ethanol, $1 per gallon of biodiesel made from agricultural commodities such as soybean oil, and 50 cents per gallon of biodiesel made from recycled oil such as yellow grease. The biodiesel tax credit is extended through 2008 under Section 1344 of EPACT2005, and the ethanol tax credit was previously extended through 2010 under the American Jobs Creation Act of 2004. Historically, the ethanol tax credit has been extended when it expired; AEO2006 assumes that it will remain in force indefinitely. The biodiesel tax credits are included in AEO2006, but it is not assumed that they will be extended indefinitely, because they are relatively new and have only a short history of legislative extension. 

Section 1345 provides for an additional credit up to 10 cents per gallon for small agri-biodiesel producers with annual production of 15 million gallons or less. Small ethanol producers currently cannot have production capacity above 30 million gallons per year to qualify for the special credit. Section 1347 raises the capacity limit to 60 million gallons per year. AEO2006 includes both the credit for small agri-biodiesel producers and the change in the application of the credit for small ethanol producers. 

Tax Incentives Related to Petroleum Refining 

Section 1323 provides temporary expensing for refinery investments, which would allow taxpayers to depreciate immediately 50 percent of the cost of all investment that increases the capacity of an existing refinery by at least 5 percent or increases the throughput of qualified fuels by at least 25 percent. Qualified fuels include oil from shale and tar sands. As a condition of eligibility, refiners of liquid fuels must report the details of refinery operations to the Internal Revenue Service. Section 392 also authorizes the EPA, in a cooperative agreement with a State, to streamline the review of a refinery permit application. Because NEMS does not model individual refinery investment decisions, this provision is not included in AEO2006. 

Natural Gas Provisions 

EPACT2005 contains several provisions intended to encourage or facilitate the development of domestic oil and natural gas resources and the domestic infrastructure for importing LNG. Most are in Title III, “Oil and Gas.” Others, covering R&D and tax measures, are included in Titles IX and XIII. 

Section 311 clarifies the role of the Federal Energy Regulatory Commission (FERC) as the final decisionmaking body on the construction, expansion, or operation of any facility that exports, imports, or processes LNG. Although it grants final authority to FERC, it directs the commission to consult with the States on safety issues. Section 317 requires the U.S. Department of Energy (DOE), in cooperation with the U.S. Departments of Transportation and Homeland Security, to conduct at least three forums on LNG, which are to be held in areas where LNG terminals are being considered for construction and to be designed to promote public education and encourage cooperation between State and Federal officials. Because the AEO2006 reference case already assumes that siting issues for LNG terminals are not insurmountable, no changes were made in NEMS to address the LNG-related provisions in EPACT2005. In addition, it is unclear to what degree this provision will affect the siting of regasification terminals. 

Under Section 312, FERC is given the authority to permit a natural gas company to provide facilities for natural gas storage at market-based rates if it believes the company will not exert market power. NEMS already assumes some market impact as a result of incentive-based rates. 

Sections 321, 322, and 323 clarify provisions of the Outer Continental Shelf Lands Act, the Safe Drinking Water Act, and the Federal Water Pollution Control Act. Sections 341 and 342 provide clarifications of existing programs. Sections 343 through 347 address royalty relief. Specifically, Sections 343 and 344 address incentives for natural gas production from marginal wells and from deep wells in the shallow waters of the Gulf of Mexico; Section 346 suspends royalties on offshore production in Alaska; and Section 347 provides royalty relief for production from the National Petroleum Reserve, at the discretion of the Secretary of Energy. Sections 353 and 354 deal with royalty relief for natural gas extracted from methane hydrates and for enhanced oil and natural gas production through CO₂ injection. None of these provisions is modeled in NEMS, and they are not included in AEO2006. 

Section 345, which provides royalty relief for oil and natural gas production in water depths greater than 400 meters in the Gulf of Mexico from any oil or natural gas lease sale occurring within 5 years after enactment, is modeled in NEMS. The minimum production volumes for which royalty payments would be suspended are as follows: 

• 5,000,000 BOE for each lease in water depths of 400 to 800 meters 
• 9,000,000 BOE for each lease in water depths of 800 to 1,600 meters 
• 12,000,000 BOE for each lease in water depths of 1,600 to 2,000 meters 
• 16,000,000 BOE for each lease in water depths greater than 2,000 meters. 

For AEO2006, the water depth categories specified in Section 345 were adjusted to be consistent with the depth categories in the Offshore Oil and Gas Supply Submodule of NEMS. The suspension volumes are 5,000,000 BOE for leases in water depths 200 to 800 meters; 9,000,000 BOE for leases in water depths of 800 to 1,600 meters; 12,000,000 BOE for leases in water depth of 1,600 to 2,400 meters; and 16,000,000 BOE for leases in water depths greater than 2,400 meters. Examination of the resources available at 200 to 400 and 2,000 to 2,400 meters showed that the differences between the depths used in the model and those specified in the act would not materially affect the model results. 

Section 386, which prohibits new oil and natural gas drilling in or under the Great Lakes, is included in AEO2006. Specifically, it states that no Federal or State permit or lease shall be issued for new oil or natural gas slant, directional, or offshore drilling in or under one or more of the Great Lakes. To reflect this provision, oil and natural gas resources underlying the Great Lakes were removed from the resource base of the Oil and Gas Supply Module in NEMS. 

In Title XIII, Sections 1325 through 1327 provide tax incentives for the oil and natural gas industries that include treatment of natural gas distribution lines as 15-year property, treatment of natural gas gathering lines as 7-year property, and exclusion of prepayments on natural gas supply contracts with government utilities from arbitrage rules. NEMS does not include sufficient detail for modeling these provisions. 

Electricity Provisions 

EPACT2005 includes provisions to improve the reliability and operation of the electricity transmission grid, reduce regulatory uncertainty, and increase consumer protection. These electricity provisions are included under Title XII, “Electricity Modernization Act of 2005.” Most of them cannot be addressed at the level of detail included in NEMS or can be included only with additional specification not provided in EPACT2005. Title XIII, “Energy Tax Incentive Act of 2005,” also includes tax incentives targeted toward electricity generation or transmission properties. 

Section 1211 calls for the creation of mandatory reliability standards for the electricity grid to replace the voluntary standards in place today. The new standards would be administered by “electric reliability organizations” (EROs), which would be certified by FERC and would be responsible for developing and enforcing reliability standards for their regions. It is implicitly assumed in AEO2006 that electricity will be provided reliably. 

Several sections under Title XIII would affect the electric power industry. Section 1308 shortens the existing capital recovery period for new transmission and distribution assets from 20 years to 15 years. The property must have been placed in use after April 11, 2005, to qualify for the new recovery period. Section 1309 expands amortization of pollution control equipment on coal-fired plants from 5 years to 7 years. Only plants that came online after January 1, 1976, would qualify for the new amortization period. These tax changes are represented in AEO2006. Tax credits for nuclear and renewable energy production and for coal production and investment are discussed below. 

Nuclear Energy Provisions 

Title VI of EPACT2005 includes several provisions designed to ensure that nuclear energy will remain a major component of the Nation’s energy supply. Sections 601 through 610 update the Price-Anderson Act Amendment to the Atomic Energy Act of 1954, which ensures that adequate funds are available to the public to satisfy liability claims in the event of a nuclear accident, while limiting the liability of any individual reactor owner. EPACT2005 extends the coverage to all nuclear units brought on line through 2025, adjusts the maximum assessment and liability limit, and addresses incidents that might occur outside the United States. Section 608 allows small, modular reactors to be combined and treated as a single unit for liability purposes. These provisions are not explicitly modeled in NEMS, but AEO2006 implicitly assumes that Price-Anderson coverage will be extended to any new nuclear units built in the United States. 

Under Title XIII, Section 1306 provides a PTC for new nuclear reactors brought online through 2020. The PTC is worth 1.8 cents per kilowatthour for the first 8 years of operation, subject to an annual limit of $125 million per gigawatt of capacity. It is restricted to a total of 6 gigawatts of new nuclear capacity. This provision is included in AEO2006. Section 1310 modifies the rules for qualified decommissioning funds and requires that a new ruling on the amounts funded be made whenever a plant receives a license renewal. 

Coal Provisions 

EPACT2005 includes numerous provisions that authorize funding for coal-related activities. Because they depend on future appropriations, they are not included in AEO2006. 

Sections 431 through 438, referred to as the Coal Leasing Act, ease or remove certain requirements for coal leases on Federal lands. These provisions are not included in AEO2006, because specific lease requirements cannot be modeled directly in NEMS. 

Title XIII includes several provisions that alter the tax treatment of certain coal-related activities. For example, Section 1301 sets qualifications for receipt of a PTC of $1.50 per ton between 2006 and 2009 and $2.00 per ton through 2013 for coal produced on Indian lands. This provision is not included in AEO2006, because only limited data are available on coal resources and production on Indian lands. (In 2000, coal was mined from Indian lands in Arizona, New Mexico, and Montana.) One possible outcome of this provision would be to accelerate production of coal from Indian lands while the credit is available; however, given the relatively short time horizon of the provision (qualifying mines must be in service before 2009) and the small share of total coal production made up by coal from Indian lands (3.6 percent in 2004), the impact on national average minemouth prices for coal is likely to be small. 

Section 1307, Subsection 48A, establishes a $1.3 billion investment tax credit for the construction of new or repowered coal-fired generation projects, including $800 million for coal gasification projects and $500 million for other projects that achieve certain targets, such as 99 percent SO₂ removal and 90 percent mercury removal from plant emissions. For integrated gasification combined-cycle (IGCC) technologies a 20-percent investment tax credit may be applied to qualifying investments, and for other qualifying advanced technologies a 15-percent investment tax credit is applicable. Repowering projects must improve the thermal design efficiency of coal-fired plants by 4 to 7 percent. This provision is modeled in NEMS by allowing up to 3 gigawatts of IGCC and another 3 gigawatts of advanced coal-fired capacity to take advantage of the tax credit. 

Renewable Energy Provisions 

EPACT2005 contains several provisions intended to encourage or facilitate the use of renewable energy resources for electricity production. Most are included in Title II, “Renewable Energy.” Others are in the R&D, electricity, and tax titles. In addition, the act contains provisions to encourage the use of renewable energy for transportation and in end-use applications, as described above. 

Section 203 requires the Federal Government, to the extent that it is “economically feasible and technically practical,” to purchase a minimum amount of electricity generated from renewable resources. The Federal purchase requirement starts at 3 percent of the total amount of electricity consumed by the Federal Government in 2007 and increases stepwise to 7.5 percent of the total in 2013 and thereafter. Renewable energy used at a Federal facility that is produced on-site at the facility, on Federal lands, or on Indian land will count double toward the requirement. Although the Federal Government is a major purchaser of electricity, the required purchases are not expected to affect the projections of renewable electricity demand in AEO2006. 

Several sections specifically address the production of hydroelectricity at proposed or existing facilities. Section 241 revises the appeals process for the licensing of hydropower projects by FERC. Appeals on license conditions and fishway rulings will now be heard in a trial-type hearing. Applicants may also propose alternatives to the conditions specified by FERC to achieve the purposes of the original license conditions. The impacts of these provisions on the cost of developing or relicensing hydroelectric projects are not clear, and they are not included in AEO2006. 

Under Title XII, a number of electricity market provisions directly address the use of renewable resources within the Nation’s electricity grid. Section 1251 requires utilities to offer net metering upon customer request. Net metering means that eligible customer-sited generation resources may be used to offset gross customer electricity purchases during the billing cycle; that is, customer generation in excess of instantaneous demand will be fed back to the utility distribution system, causing the customer’s meter to effectively “run backward.” Eligible resources and applicable billing cycles are not defined in the provision, but credit will be given to States that have adopted or voted on comparable standards. Current State net metering standards typically allow renewable generation (solar and sometimes wind or other renewable fuels) and sometimes allow other favored technologies, such as fuel cells, to qualify. Generation is typically netted on a monthly basis, but netting may be allowed over longer periods. AEO2006 assumes that excess generation from customer-sited sources will offset purchased electricity at retail rates. 

Section 1253 eliminates the requirement for eligible utilities to purchase electricity from qualified facilities under the Public Utility Regulatory Policies Act (PURPA), which previously required utilities to purchase generation from small cogenerators and renewable plants at a rate equal to their avoided cost of generation. Eligible utilities must have open electricity markets, including nondiscriminatory access to wholesale generation markets and to transmission and interconnection services. AEO2006 assumes that all generation resources will compete in a nondiscriminatory market for generation, capacity, and transmission services. 

Several changes to the tax code, all involving the PTC for renewable generation, are expected to have significant impacts on the growth of renewable electricity markets. Section 1301 extends the eligibility date for new renewable generation facilities to qualify for the inflation-adjusted tax credit for the first 10 years of plant operation. Eligibility was set to expire after December 31, 2005, but will now expire after December 31, 2007. Although some eligible resources will continue to get the full, inflation-adjusted credit of 1.5 cents per kilowatthour and others one-half of that amount, all new eligible facilities—including efficiency improvements or additions of capacity at existing facilities—will receive the full credit for the first 10 years of their operation. AEO2006 specifically accounts for the extension of the eligibility period for renewable resources and the expansion of the credit to hydroelectric facilities. 

In addition to the PTC modifications discussed above, Section 1302 will allow agricultural cooperatives to allocate renewable energy production tax credits to their members, based on the “amount of business” done by each member with the cooperative. Eligible cooperatives include those that are more than 50 percent owned by agricultural producers or entities owned by agricultural producers, thus allowing otherwise tax-exempt electricity cooperatives to take advantage of the PTC by transferring the benefit directly to their membership. Although this provision is not specifically modeled, AEO2006 assumes that all eligible renewable capacity is built by tax-paying entities and thus is entitled to take the PTC. 

Incentives for Innovative Technologies 

EPACT2005 Title XVII, “Incentives for Innovative Technologies,” authorizes the Secretary of Energy, after consultation with the Secretary of the Treasury and subject to budget appropriations, to provide Federal loan guarantees for a wide variety of projects related to energy consumption and production technologies. Although EPACT2005 includes several other technology incentives, the Title XVII program has particular potential to influence the development of future energy technologies. The guarantees can cover up to 80 percent of the cost of a project over a period of up to 30 years (or 90 percent of a project’s useful life, whichever is less). To be eligible, projects must avoid, reduce, or sequester air pollutants or anthropogenic greenhouse gas (GHG) emissions and must employ new or significantly improved technologies, as compared with those that are commercially available when the guarantee is issued. The eligible project categories include: 

• Renewable energy systems 
• Advanced fossil energy technologies, including coal gasification meeting certain requirements 
• Hydrogen fuel cell technologies for residential, industrial, or transportation applications 
• Advanced nuclear energy facilities 
• Carbon capture and sequestration practices and technologies 
• Technologies for efficient generation, transmission, and distribution of electric power 
• Efficient end-use energy technologies 
• Production facilities for fuel-efficient vehicles, including hybrids and advanced diesel vehicles 
• Pollution control equipment 
• Refineries. 

Loan guarantees will also be available for gasification facilities that meet certain criteria. Eligible gasification projects include IGCC plants where 65 percent of the fuel used is a combination of coal, biomass, and petroleum coke and 65 percent of the energy output is used to produce electricity. IGCC plants with a capacity of at least 100 megawatts using western coal are also eligible. To receive loan guarantees, the IGCC projects must emit no more than 0.05 pound of SO₂, 0.08 pound of nitrogen oxides (NO_x), and 0.01 pound of particulates per million Btu of fuel input and must remove 90 percent of the mercury in any coal that is used. 

Because funding levels and specific rules for this program are not yet known, its potential impacts are not represented in AEO2006. The program could provide a flexible tool for stimulating investment in a wide array of promising technologies [4]. The leverage achieved by the program will depend on the risks associated with the projects supported and the expected loss that would occur if a loan default occurred. For loans of the same size, riskier projects require more Federal funding.

[1] For the complete text of the Energy Policy Act of 2005, see web site http://frwebgate.access.gpo.gov/cgi-bin/ getdoc.cgi?dbname=109_cong_public_laws&docid=f: publ058.109.pdf.

[2] See, for example, web site http://energy.senate.gov/ public/_files/PostConferenceBillSummary.doc.

[3] Joint Committee on Taxation, Description and Techni-cal Explanation of the Conference Agreement of H.R.6, Ti-tle XIII, The “Energy Tax Incentives Act of 2005,” JCX-60-05 (Washington, DC, July 28, 2005), pp. 6-8, web site www. house.gov/jct/x-60-05.pdf.

[4] Other Federal credit assistance programs, such as that created by the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA), have used loan guar-antees to leverage limited Federal resources and stimu-late private capital investment. With a budget authoriza-tion of $130 million for fiscal year 2003, the TIFIA program was able to support loans valued at $2.6 billion. See web site http://tifia.fhwa.dot.gov.

Contact: Paul Holtberg
Phone: 202-586-1284
E-mail: paul.holtberg@eia.doe.gov