Energy Policy Act of 2005

1. Energy Policy Act of 2005 • Over 1700 pages • 8 years in the making • Tax incentives passed the House 5 times and the Senate 4 times • Energy Bill to be signed by President on 8/8 • Highway Bill to be signed by President 8/14(?) • Some provisions of interest to Clean Cities are in both bills • This is the START of a long process with appropriations committees and Federal agencies as they struggle to develop budgets, rules, and procedures, and interpret legislative intent.

2. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 701 – Federal Fleet Dual Fuel Vehicles – Fed dual fuel vehicles must use alt fuel unless waiver is given. Waivers given if fuel is not reasonably available or cost is unreasonably expensive. • Sec. 702 – Federal Fleets Incremental Cost Distribution – Requires GSA and other agencies that buy vehicles for other fleets to spread the incremental cost across all vehicles. • Sec. 704– Review of EPAct 1992 Program – DOE must report after 1 year on 1) number of vehicles acquired by covered fleets, 2) amount of AF used in AFVS by covered fleets, 3) amount of petroleum displaced, 4) cost of compliance (including benefits), 5) existence of obstacles preventing compliance, and 6) impacts of amendments in HR6. • Sec. 706 – Joint Flexible Fuel/Hybrid Vehicle Commercialization Initiative – Establishes a research and grant program to advance the commercialization of hybrid/flex-fuel vehicles and plug in hybrid/flex fuel vehicles. Vehicles must achieve not less than 250 miles per gasoline gallon. $3M authorized for 2006, $7M in 2007, $10M in 2008, and $20M in 2009.

3. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 712 – Efficient Hybrid & Advanced Diesel Vehicles – DOE is directed to encourage the domestic production and sale of efficient hybrid and advanced diesel vehicles. No funds authorized. [check on whether these are grants to industry] • Sec 721-723 – Advanced Vehicles Pilot Demonstration Program – Competitive grant program to fund up to 30 geographically dispersed advanced vehicle demonstration projects administered by Clean Cities. The goal is to reduce emissions, displace fossil fuel, promote advanced technology vehicles and promote sustainable transportation options. Grant recipients will be limited to state and local government agencies and MTAs. Applications must include a registered participant in the Clean Cities program. Participants can be public or private entities. Projects limited to $15M with 50% cost share. Grant funds can pay for: • AFVs (including neighborhood electric vehicles) • HEVs (only MDV and HDV) • Fuel cell vehicles • ULS diesel vehicles • Acquisition and installation of fueling infrastructure • Operation and maintenance of vehicles, infrastructure and equipment • $200M authorized until expended

4. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 741 – Clean School Bus Program – EPA in consultation with DOE, provides funds to school districts and related organizations to replace, repower, or retrofit buses. EPA must “achieve an appropriate balance between replacement and retrofit. For replacement buses, grantees receive 50% of the cost of the new bus if it meets: • For MY 2005 & 2006, 1.8 grams NOx plus NMHC and 0.01 PM (which is the minimum standard for diesel engines) • For MY 2007, 08, 09, “regulatory requirements” by EPA. This is assumed to mean the phase in requirement to 2010 which is 0.2 grams NOx plus NMHC and 0.01 PM • Grantees receive 25% of the cost of the new bus if they meet less strict emissions standards: • For MY 2005 and 2006, 2.5 grams NOx plus NMHC and 0.01 PM (minimum standard for diesel buses) • For MY 2007, 2008, and 2009, regulatory requirements by EPA. Assumed to mean the phase-in requirement to 2010 which is 1.8 grams NOx plus NMHC and 0.01 PM

5. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Grantees can receive 100% of retrofit costs. • No state can receive more than 10% of the monies made available each year. $55M authorized for 2006, $55M for 2007, and such sums as are necessary for 2008-2010. Sec.742 – Diesel Truck Retrofit and Fleet Modernization Program – EPA, in consultation with DOE, administers a competitive grant program for fleet modernization and retrofit of diesel trucks. Grants go to state or local governments who will allocate funds with preference for ports and other major hauling operations. 50% cost share required. Replaced trucks must be 1998 or older. [NGVC believes that alt fuel technologies will qualify.] • Authorization: 2006 - $20M, 2007 - $35M, 2008 - $45M, 2009-2010 – such sums as are necessary.

6. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 754 – Diesel Fueled Vehicles: Meeting Tier 2 Standards – DOE accelerates efforts to ensure that diesel vehicles meet Tier 2 standards. Focuses on improving combustion and after treatment technologies. Goal is to enable diesel technologies by 2010 to meet the 2007 HD standards and the Tier 2 standards for LDV. No $ authorized. • Sec. 756. - Heavy Duty Vehicle Idle Reduction Analysis and Deployment Program – • Requires EPA to conduct analysis on emissions, fuel savings, etc. • Deployment Program: EPA, in consultation with DOT (not DOE) to: • support deployment of IR technologies • promote improved air quality and reduced emissions • authorization 2006 - $19.5M, 2007 - $30M, 2008 - $45M • Costing – 50% provided by non federal entitities • IR means TSE and auzillary power unites that reduce idle and allow shut down of main drive engine or aux. refrigeration engine. • Weight increase – allows trucks to increase weight by 400 pounds w/o penalty if associated with added weight of IR technology.

7. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 757 – Biodiesel Engine Testing Program – DOE will work with engine manufacturers and fuel injection manufacturers to: • test advanced diesel fuel engines with biodiesel • determine impact of different biodiesel blendstocks • focus on emissions and warranty impacts of different blendstocks • review options for optimizing engines for biodiesel use • review impact on blends with ULSD • Sec. 759 – Fuel Economy Incentive Requirements – Requires auto manufacturers to put a label on all dual fuel (bi-fuel and flex fuel) vehicles to inform owners that the vehicle can be operating on an alteranative fuel. Applies to autos manufactured after 9/1/06. • Sec. 772 – Extension of Maximum Fuel Economy Increase for AFVs (CAFÉ) – Modifies the incentives for dual fuel AFVs by extending the current CAFÉ credits for dual-fuel AFVs through 2010 and authorizes NHTSA to consider extending them through 2014.

8. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 773 – Study of Reducing Use of Fuel for Autos (CAFÉ) – NHTSA will study feasibility and effects of significantly reducing fuel consumed by autos by MY 2014 and make recommendations regarding: • current CAFÉ requirements • alternative methods for achieving fuel economy reductions • impacts of FCVs on achieving significant reductions in fuel economy by 2014 • the effects that the reductions would have on gasoline supplies, the auto industry, motor vehicle safety, and air quality. • Sec. 774 – Update Fuel Economy Test Procedures – Requires EPA to evaluate/adjust fuel economy test procedures to reflect reality – higher speeds, faster acceleration, temp. variation, use of A/c, etc.

9. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 1341 - Alternative Motor Vehicle Credit – Provides a tax credit to the buyer for the purchase of a new, dedicated alternative fuel vehicle of 50% of the incremental cost of the vehicle, plus an additional 30% if the vehicle meets certain tighter emissions standards. These credits range from $5000- $40,000 depending on the size of the vehicle. For non-tax paying entities, the seller of the vehicle can take the credit. Credit is effective on purchases made after 12/31/05 and expires 12/31/10. This provision makes credits available for the acquisition of LD, MD and HD fuel cell vehicles, hybrids, and dedicated natural gas, propane, hydrogen and M85 alt fuel vehicles and LD lean burn diesel vehicles (less than 8500 lbs.) • Sec. 1342 – Credit for Installation of Alternative Fueling Stations – Provides a tax credit equal to 30% (Highway Bill says 50%) of the cost of alt fuel refueling equipment, up to$30,000 in the case of large stations and $1,000 for home refueling appliances. For non-tax-paying entities, the seller of the fueling equipment can take the credit. Credit applies to E85, natural gas, LPG, hydrogen, and biodiesel (at blends of at least 20%). Credit is effective on purchases placed in service after 12/31/05 and expires 12/31/09.

10. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec. 1344 – Extension of Excise Tax Provisions and Income Tax Credit for Biodiesel – Extends the current biodiesel excise tax provisions and income tax credit from 2006 to 2008. • Sec. 1348 – Sunset of Deduction for Clean fuel Vehicles and Certain Fueling Property. Repeals the existing $100,000 tax deduction for refueling property after 12/31/05. • Sec. 791-797: Diesel Emission Reductions • Establishes a program to make grants and loans available to State and local government agencies and non-profit organizations for reducing emissions from diesel engines. The program focuses on replacing/retrofitting engines in non-attainment areas and would require that at least 50 percent of the federal program funds be used on public fleets. EPA or CARB certified or verified technologies qualify. NGV repowers and replacements will be eligible. Legislation authorizes $200 million per year for FY 2006 through 2010.

11. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities • Sec 1421-1424: Set America Free: United States Commission On North American Energy Freedom • Establishes a United States commission to make recommendations for a coordinated and comprehensive North American energy policy that will achieve energy self-sufficiency by 2025 within the three contiguous North American nation areas of Canada, Mexico, and the United States. • Sec. 1818: Natural Gas Supply Shortage Report • Requires the DOE Secretary to study and develop recommendations for achieving a balance between natural gas supply and demand to, in part, facilitate the attainment of national ambient air quality standards under the Clean Air Act. In performing the study, the Secretary is directed to develop scenarios for decreasing natural gas demand and increasing natural gas supplies that compare the relative economic and environmental impacts of Federal policies that encourage or require the use of natural gas to meet air quality, carbon dioxide emission reduction, or security goals.

12. Provisions of the Energy Policy Act of 2005 (HR6) of Interest to Clean Cities Sec. 1823: Alternative Fuels Reports Requires the DOE Secretary to carry out a study on the potential for biodiesel and hythane to become major, sustainable, alternative fuels. The hythane report shall provide a detailed assessment of potential hythane markets and the research and development activities that are necessary to facilitate the commercialization of hythane as a competitive, environmentally friendly transportation fuel. THE FOLLOWING CLEAR ACT-RELATED PROVISION IS INCLUDED IN HIGHWAY BILL (H.R. 3): • Sec. 1113: Volumetric Excise Tax Credit for Alternative Fuels • Provides an excise tax credit (referred to as VEETC) to the seller of CNG or LNG. This credit is different than the fuel credit that had been included in previous versions of the CLEAR ACT. The credit is 50-cent per gasoline-gallon-equivalent for CNG and 50-cents per liquid gallon for LNG for the sale of CNG and LNG for use as a motor vehicle fuel. It begins on October 1, 2006 (delayed for budget reasons) and expires on September 30, 2009. Partially offsetting the value of the excise tax credit, however, is an increase in the motor fuels excise tax rate for both CNG and LNG. The CNG rate would increase from 4.3 cents per gge to 18.3 cents. The LNG rate would increase from 11.9 cents to 24.3 cents on a LNG gallon basis. The increased tax rate will go into effect on October 1, 2006. Under this approach, CNG and LNG will pay the same rate of tax into the Highway Trust Fund as all other transportation fuels, but then CNG and LNG would receive an excise tax credit paid out of the general fund. The credit will be paid to eligible recipients on a regular basis without regard to the actual amount of excise tax paid. Propane, hydrogen and some minor fuels also are eligible for this credit.

13. Energy Policy Act of 2005 • For a copy of the complete bill go to: • http://energy.senate.gov/public