Legislation and Regulations.

Introduction 

Because analyses by the Energy Information Administration (EIA) are required to be policy-neutral, the projections in this Annual Energy Outlook 2004 (AEO2004) are based on Federal and State laws and regulations in effect on September 1, 2003. The potential impacts of pending or proposed legislation, regulations, and standards—or of sections of legislation that have been enacted but that require funds or implementing regulations that have not been provided or specified—are not reflected in the projections. 

Examples of Federal and State legislation incorporated in the projections include the following: 

• The Energy Policy Conservation Act of 1975 

• The National Appliance Energy Conservation Act of 1987 

• The Clean Air Act Amendments of 1990 (CAAA90), which include new standards for motor gasoline and diesel fuel and for heavy-duty vehicle emissions 

• The Energy Policy Act of 1992 (EPACT) 

• The Omnibus Budget Reconciliation Act of 1993, which added 4.3 cents per gallon to the Federal tax on highway fuels 

• The Outer Continental Shelf Deep Water Royalty Relief Act of 1995 and subsequent provisions on royalty relief for new leases issued after November 2000 on a lease-by-lease basis 

• The Federal Highway Bill of 1998, which included an extension of the ethanol tax incentive 

• The Maritime Security Act of 2002, which amended the Deepwater Port Act of 1974 to include offshore natural gas facilities 

• State of Alaska’s Right-Of-Way Leasing Act Amendments of 2001, which prohibit leases across State land for a “northern” or “over-the-top” natural gas pipeline route running east from the North Slope to Canada’s MacKenzie River Valley 

• State renewable portfolio standards, including the California renewable portfolio standards passed on September 12, 2002 

• State programs for restructuring of the electricity industry. 

AEO2004 assumes that State taxes on gasoline, diesel, jet fuel, and E85 (fuel containing a blend of 70 to 85 percent ethanol and 30 to 15 percent gasoline by volume) will increase with inflation, and that Federal taxes on those fuels will continue at 2002 levels in nominal terms. AEO2004 also assumes the continuation of the ethanol tax incentive through 2025. Although these tax and tax incentive provisions include “sunset” clauses that limit their duration, they have been extended historically, and AEO2004 assumes their continuation throughout the forecast. 

Examples of Federal and State regulations incorporated in AEO2004 include the following: 

• Standards for energy-consuming equipment that have been announced 

• The new corporate average fuel economy (CAFE) standards for light trucks published by the National Highway Traffic Safety Administration (NHTSA) in 2003 

• Federal Energy Regulatory Commission (FERC), Orders 888 and 889, which provide open access to interstate transmission lines in electricity markets 

• The December 2002 Hackberry Decision, which terminated open access requirements for new onshore liquefied natural gas (LNG) terminals. 

AEO2004 includes the CAAA90 requirement of a phased in reduction in vehicle emissions of regulated pollutants. In addition, AEO2004 incorporates the CAAA90 requirement of a phased in reduction in annual emissions of sulfur dioxide by electricity generators, which in general are capped at 8.95 million tons per year in 2010 and thereafter, although “banking” of allowances from earlier years is permitted. AEO2004 also incorporates nitrogen oxide (NO_x) boiler standards issued by the U.S. Environmental Protection Agency (EPA) under CAAA90. The 19-State NO_x cap and trade program in the Northeast and Midwest is also represented. Limits on emissions of mercury, which have not yet been promulgated, are not represented. 

AEO2004 reflects “Tier 2” Motor Vehicle Emissions Standards and Gasoline Sulfur Control Requirements finalized by the EPA in February 2000. The Tier 2 standards for reformulated gasoline (RFG) will be required by 2004 but will not be fully realized in conventional gasoline until 2008 due to allowances for small refineries. AEO2004 also incorporates the “ultra-low-sulfur diesel” (ULSD) regulation finalized by the EPA in December 2000, which requires the production of at least 80 percent ULSD (15 parts sulfur per million) highway diesel between June 2006 and June 2010 and a 100-percent requirement for ULSD thereafter (see Appendix G for more detail). Because the new rules for nonroad diesel have not yet been finalized, they are not reflected in the AEO2004 projections. The AEO2004 projections reflect legislation that bans or limits the use of the gasoline blending component methyl tertiary butyl ether (MTBE) in the next several years in 17 States and assumes that the Federal oxygen requirement for RFG in Federal nonattainment areas will remain intact.

The provisions of EPACT focus primarily on reducing energy demand. They require minimum building efficiency standards for Federal buildings and other new buildings that receive Federally backed mortgages. Efficiency standards for electric motors, lights, and other equipment are required, and Federal, State, and utility vehicle fleets are required to phase in vehicles that do not rely on petroleum products. The AEO2004 projections include only those equipment standards for which final actions have been taken and for which specific efficiency levels are provided. 

The AEO2004 reference case projections include impacts of the programs in the Climate Change Action Plan (CCAP)—44 actions developed by the Clinton Administration in 1993 to achieve the stabilization of greenhouse gas emissions (carbon dioxide, methane, nitrous oxide, and others) in the United States at 1990 levels by 2000. Of the 44 CCAP actions, 13 are not related either to energy combustion or to carbon dioxide and, consequently, are not incorporated in the AEO2004 projections. Although CCAP no longer exists as a unified program, most of the individual programs, which generally are voluntary, remain. 

The projections do not include carbon dioxide mitigation actions that may be enacted as a result of the Kyoto Protocol, which was agreed to on December 11, 1997, but has not been ratified or submitted to the U.S. Senate for ratification.

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Notes and Sources

Released: January 2004