American Recovery and Reinvestment Act of 2009: Summary of provisions 

ARRA, signed into law in mid-February 2009, provides significant new Federal funding, loan guarantees, and tax credits to stimulate investments in energy efficiency and renewable energy. The provisions of ARRA were incorporated initially as part of a revision to the AEO2009 Reference case that was released in April 2009 [5], and they also are included in AEO2010. However, provisions that require 

funding appropriations to be implemented, whose impact is highly uncertain, or that require further specification by Federal agencies or Congress, are not included. Moreover, AEO2010 does not include any provision that addresses a level of detail beyond that modeled in NEMS. 

This section provides a summary of the ARRA provisions and highlights those specific provisions incorporated in AEO2010, including: 

• Weatherization and assisted housing programs 
• Energy efficiency and conservation block grant programs 
• State energy programs 
• Tax credits for plug-in hybrid electric vehicles (PHEVs) 
• Tax credits for electric vehicles 
• Updated tax credits for renewables 
• Loan guarantees for renewables and biofuels 
• Support for carbon capture and storage (CCS) 
• Smart grid expenditures. 

The following discussion provides a summary of the ARRA provisions included in AEO2010 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 ARRA. 

ARRA end-use demand provisions 

Residential and commercial buildings 

Many of the provisions of ARRA target energy efficiency and renewable energy use associated with residential and commercial buildings. Federal funding is provided to assist State and local governments in implementing energy efficiency programs; to improve energy efficiency and renewable energy use in Federal buildings and facilities; and to encourage renovations of schools and college facilities. ARRA also includes provisions that expand and revise tax credits for renewable and energy-efficient property purchased and installed in residential and commercial buildings. 

Weatherization, assisted housing, and energy efficiency and conservation block grants 

ARRA Title IV, “Energy and Water Development,” allocates a total of $9.45 billion to weatherize and/or increase the energy efficiency of low-income housing and assist local governments in implementing energy efficiency programs, with a total of $4.75 billion specifically for weatherization. The regional impacts of weatherization funds are estimated on the basis of DOE’s State allocation formula [6] and Oak Ridge National Laboratory’s weatherization impact analysis. Local governments also are allowed, and assumed, to use some of the Conservation Block Grant funding for PV and wind turbine installations. 

State energy programs 

ARRA Title IV, “Energy and Water Development,” allocates $3.1 billion for States to implement or enhance energy efficiency programs. Although the money can be spent on a variety of programs, Section 410 specifically mentions the adoption of building codes, citing the International Energy Conservation Code (IECC) 2009. To account for the impact of the funding in AEO2010, it is assumed that States will adopt and enforce the IECC 2006 code by 2011 and the IECC 2009 code by 2018. Likewise, States are assumed to adopt and enforce the ASHRAE 90.1-2007 standard for nonresidential construction by 2018. States and local governments also are assumed to use the 10-year Treasury Note rate (3.7 percent in 2011) when purchasing energy-using equipment for government-owned facilities during years when ARRA funding is available. It is also assumed that part of the funding for State energy programs will be used for PV and wind turbine installations. 

Federal buildings and green schools 

ARRA Division A allocates $4.5 billion to the U.S. General Services Administration (GSA) for measures to convert GSA facilities to high-performance green buildings, $2.3 billion for military construction, and $4.3 billion for U.S. Department of Defense (DOD) energy efficiency projects and modernization of facilities. Additional DOD funding is provided for energy efficiency technology demonstrations and research. Under the various titles included in ARRA, money is also allocated to virtually every major Federal agency for construction, repair, and/or modernization of facilities. To account for the funding in AEO2010, schools and Federal facilities are assumed to use the 10-year Treasury Note rate as a hurdle rate for new construction and replacement of equipment in years when ARRA funding is available. The 10-year Treasury Note rate already was assumed for new construction of Federal facilities, based on earlier legislation. ARRA funding also broadens its use to include replacement equipment as well. Photovoltaic installations, wind turbines, and fuel cells also are added where specified in expenditure plans. 

Updated tax credits for renewables and energy-efficient technologies 

ARRA Division B expands and revises tax credits for the purchase of renewable and energy-efficient property purchased and installed in residential and commercial buildings. Section 1103 removes the cap on the 30-percent business ITC for small wind property that was established in EIEA2008. Sections 1121 and 1122 extend by 1 year the tax credits for energy-efficient nonbusiness property while increasing the tax-deductible amount to $1,500. For renewable technologies, such as geothermal heat pumps and solar water heaters, the tax deductible amount is unlimited, up to 30 percent of the cost. 

Transportation sector 

ARRA contains several changes to the PHEV tax credit originally included in EIEA2008. Title I, “Tax Provisions,” Section 1141, allows a $2,500 tax credit for the purchase of qualified PHEVs with battery capacity of at least 4 kilowatthours. Starting at a battery capacity of 5 kilowatthours, PHEVs earn an additional battery credit of $417 per kilowatthour, up to a maximum of $5,000. The maximum total PHEV credit that can be earned is capped at $7,500 per vehicle. 

The PHEV tax credit eligibility and phaseout are tied to the sales of individual vehicle manufacturers. The credits are phased out once a manufacturer’s cumulative sales of qualified vehicles reach 200,000. The phaseout period begins two calendar quarters after the first date in which a manufacturer’s sales reach the cumulative sales maximum after December 31, 2009. The credit is reduced to 50 percent of its total value for the first two calendar quarters of the phaseout period, and then to 25 percent for the third and forth calendar quarters, before being phased out entirely thereafter. The credit applies to vehicles with gross vehicle weight rating (GVWR) less than 14,000 pounds. To capture the phaseout period in AEO2010, the PHEV tax credit has been incorporated across representative manufacturer groups. 

ARRA Title I, “Tax Provisions,” Section 1142, also allows a tax credit of 10 percent against the cost of a qualified electric vehicle with a battery capacity of at least 4 kilowatthours, subject to the same phaseout schedule applied to PHEVs. The new electric vehicle tax credit has also been incorporated in AEO2010 by manufacturer group. 

ARRA electricity provisions 

ARRA establishes Federal loan guarantees for certain renewable fuel, biofuel, and electricity transmission projects. The provisions for renewable projects are included in the electricity modeling for AEO2010. ARRA also extends and modifies Federal tax credit incentives for new renewable generation capacity. The NEMS electricity module also represents the funding provided in ARRA for smart grid demonstration projects. 

Extension of renewable production and investment tax credits 

ARRA Division B, Title 1, “Tax Provisions,” extends and significantly modifies the Federal tax credits for new renewable generation capacity. Before enactment of ARRA, wind, geothermal, landfill gas, and certain hydroelectric and biomass technologies were eligible to receive a PTC of up to 2.1 cents per kilowatthour generated over the first 10 years of plant operation [7]; wind was eligible to receive the PTC for plants constructed before January 1, 2010; and other eligible plants received the PTC if construction was completed before January 1, 2011. ARRA Section 1101 extends those in-service deadlines to January 1, 2013, for wind and January 1, 2014, for other eligible technologies. 

In addition, under Section 1102, ARRA allows projects that are eligible for the PTC to instead receive a 30-percent ITC on plant investment costs. Section 1603 also allows the owners of projects choosing the ITC to receive the payment in the form of an after-tax grant of equivalent value rather than as a tax credit, which presumably will allow project owners with limited tax liabilities to claim the full value of the credit. 

Solar technologies are not eligible for the ARRA PTC, but EIEA2008 established a 30-percent ITC for solar projects built through 2016, and the Energy Policy Act of 1992 provided a permanent 10-percent ITC. 

AEO2010 incorporates the ARRA provisions cited above and generally assumes that renewable electricity projects will claim the more favorable tax credit or grant option available to them during the eligibility period. Provisions extending tax credits for marine-based technologies are not reflected in AEO2010, because EIA assumes that those technologies will not be in significant commercial use by 2035. ARRA also extends funding for Clean Renewable Energy Bonds (CREBs) used to fund renewable energy projects at publicly owned utilities that do not pay taxes and cannot take advantage of tax credits. Because AEO2010 assumes that all new renewable capacity is developed and owned by taxable entities, CREBs are not included in NEMS. 

Loan guarantees for renewables and transmission projects 

ARRA Title IV, “Energy and Water Development,” Section 406, provides $6 billion to pay the cost of guarantees for loans authorized by the Energy Policy Act of 2005 (EPACT2005). The purpose of the loan guarantees is to stimulate the deployment of conventional renewable technologies, conventional transmission technologies, and innovative biofuels technologies. To qualify, eligible projects must be under construction by September 30, 2011, meaning that projects with a long-term construction horizon are unlikely to qualify. The face value of the loans that may be guaranteed by the appropriation will depend on the subsidy costs assigned to the projects eventually selected. For example, if the average subsidy cost were 10 percent of the face value of the loans, the $6 billion appropriated would support loan guarantees on $60 billion of debt financing. The Section 406 provision is represented in AEO2010 by a lower cost of financing (by 2 percentage points) for all eligible renewable projects brought on line by 2015. The 2015 date, 4 years after the September 30, 2011, cutoff date for start of construction, was chosen to allow for the construction period associated with most renewable generating technologies. 

Smart grid expenditures 

ARRA Title IV, “Energy and Water Development,” Section 405, provides $4.5 billion to modernize, secure, and improve the reliability of electric energy and storage infrastructure and to develop a Smart Grid. While somewhat difficult to define, smart grid technologies generally include a wide array of storage, measurement, communications, and control equipment employed throughout the generation, transmission, and distribution system to enable real-time monitoring of the production, flow, and use of power from generator to consumer. Among other things, smart grid technologies, once deployed, are expected to enable more efficient use of the transmission and distribution grid and lower line losses, facilitate greater use of renewables, and provide information to utilities and their customers that will lead to greater investment in energy efficiency and reduction of peak load demands. The funds provided will not cover the cost of widespread implementation of smart grid technologies but could stimulate more rapid investment than otherwise would occur. 

Several changes were made throughout NEMS to represent the impacts of the smart grid funding provided in ARRA. For the electricity module, it was assumed that line losses would decrease slightly, peak loads would fall as customers shifted their usage patterns, and customers would be more responsive to price signals. Historically, line losses (expressed as the percentage of electricity lost in transmission) have fallen as utilities have made investments to expand the grid or replace aging or failing equipment. That trend was incorporated in previous AEO Reference cases. After passage of ARRA, the time period for improvements was extended, allowing for greater declines in line losses. AEO2010 assumes that line losses will be reduced from roughly 6.9 percent in 2008 to 5.3 percent in 2025. 

Smart grid technologies also have the potential to reduce peak demand through the increased deployment of demand response programs. AEO2010 assumes that efforts stimulated by Federal expenditures on smart grid technologies will reduce peak demands in 2035 by 3 percent from what they otherwise would be. Because the load shifted to off-peak hours is not eliminated, net energy consumed remains largely constant. 

It is also assumed that increased investment in smart grid technologies—particularly, smart meters on buildings and homes—will make consumers more responsive to changes in electricity prices. Accordingly, the price elasticity of demand for residential and commercial electricity is increased for certain uses. 

Coal 

ARRA Title IV, “Energy and Water Development,” provides $3.4 billion for additional research and development of fossil energy technologies, including $800 million to fund projects under the Clean Coal Power Initiative program focusing on capture and sequestration of GHGs [8]. In July 2009, a total of $408 million was allocated to two projects—the Basin Electric Power Cooperative’s Antelope Valley Station in North Dakota and the Hydrogen Energy Project in California—to demonstrate the capability to capture 3 million tons of CO₂ per year. In December 2009, two additional project awards were announced through the Clean Coal Power Initiative program, which will be funded in part through ARRA. The projects include American Electric Power’s Mountaineer plant in West Virginia (235-megawatt flue gas stream) and a new plant to be built by Summit Texas Clean Energy in Texas. To reflect the impact of this provision, the AEO2010 Reference case assumes that an additional 1 gigawatt of coal-fired capacity with CCS will be built by 2017. 

Other ARRA provisions 

Additional appropriations under ARRA Title IV, totaling $2.6 billion, are not included in AEO2010, because the activities funded have only indirect or unknown impacts on energy use, or because insufficient program detail has been provided. The additional appropriations include $1 billion for research and development projects to be established by the Secretary of Energy; $80 million for geologic sequestration projects covering site characterization, training, research grants, and other administrative costs; and $1.52 billion for industrial carbon capture and energy efficiency projects or those developing innovative uses for CO₂. As of October 2009, $112 million of the $1.52 billion had been allocated to 14 industrial projects demonstrating various combinations of carbon capture technologies, CO₂ transport activities, sequestration, and EOR.

Footnotes:

5. See U.S. Energy Information Administration, An Updated Annual Energy Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic Outlook, SR-OIAF/2009-03 (Washington, DC, April 2009), web site www.eia.gov/oiaf/servicerpt/ stimulus/pdf/sroiaf(2009)03.pdf.

6. U.S. Department of Energy, “Weatherization Assis-tance Program,” web site http://apps1.eere.energy. gov/weatherization/recovery_act.cfm and M. Schweit-zer, Oak Ridge National Laboratory, Estimating the National Effects of the U.S. Department of Energy’s Weatherization Assistance Program with State-Level Data: A Metaevaluation Using Studies from 1993 to 2005, ORNL/CON-493 (Oak Ridge, TN, September 2005), web site http://weatherization.ornl.gov/pdf/ CON-493FINAL10-10-05.pdf.

7. Certain types of biomass, municipal waste, and hydro-electric generation are eligible for only one-half of the 2.1-cent credit. The ITC alternative is not limited in value for those technologies.

8. For information on the U.S. Department of Energy’s implementation of ARRA through the Office of Fossil Energy, see web site www.energy.gov/recovery.