Department of Defense Energy Management: Background and Issues for Congress

Summary: The U.S. Department of Defense (DOD) consumes more energy than any other federal agencyâ77% of the entire federal government's energy consumption. Energy management is integral to DOD operations. From running bases and training facilities to powering jets and ships, DOD relies on energy to maintain readiness and resiliency for mission operations. Energy efficiencyâproviding the same or an improved level of service with less energyâover time can reduce agency expenses, particularly at an agency like DOD, where energy represents roughly 2% of the department's annual budget.

Summary: Since the 1970s, Congress mandated energy requirements for federal agencies. Legislation required reductions in fossil fuel consumption and increases in renewable energy use and efficiency targets for government fleets and buildings. The National Energy Conservation Policy Act (NECPA, P.L. 95-619 ) requires federal agencies to report annually on energy management activities. The Energy Policy Act of 2005 (EPAct05, P.L. 109-58 ) and the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ) amended and addressed additional energy management targets for the federal government. As the largest energy consumer in the federal government, DOD drives total federal energy management goal achievements. The annual National Defense Authorization Act (NDAA) has included provisions related to DOD energy management and authorities. With one exception, the NDAA for FY2018 ( P.L. 115-91 ), each NDAA since 1993 contains a section on "authorized energy conservation projects." Further, NDAAs have contributed to internal DOD energy management protocol. Throughout several administrations, Presidents have issued executive orders to establish energy management guidelines and targets for the federal government. The Trump Administration's Executive Order 13834, "Efficient Federal Operations" (E.O. 13834), directs the heads of agencies to maintain annual energy reductions and efficiency measures that reduce costs and meet statutory requirements for renewables, among other things, but does not set specific targets.

Summary: DOD categorizes energy into two typesâ installation energy and operational energy . DOD's installation energy (i.e., energy for fixed installations and non-tactical vehicles) is subject to federal energy management requirements. Although DOD energy use has trended downward since the 1970s, DOD has not met all federally mandated targets and reporting on progress has been challenging. DOD's operational energy (e.g., energy required for sustaining military forces and weapons platforms for military operations) is not subject to federal energy management requirements. This represents around 70% of total DOD energy use. Operational energy consists largely of petroleum products purchased on the open market by the Defense Logistics Agency. This leaves DOD and its spending susceptible to oil price volatility.

Summary: Reviewing how these federal energy management goals impact DOD's mission could be an overarching consideration for Congress. Making operational equipment more fuel efficient could increase range and decrease refueling convoys; however, the challenge is maintaining combat readiness and mission operations. Congress may consider legislation addressing operational energy, such as setting a standard fuel efficiency target or a requirement for alternative fuel use. Congress may also consider continuing to leave operational energy efficiency goals to be determined by DOD or each military branch.

Summary: In many cases, federal energy management goals in statute or executive order established targets for FY2015 (e.g., EISA petroleum and alternative fuel consumption targets were due no later than October 1, 2015). Several agencies, including DOD, did not reach the targeted goals. Congress may assess how and whether setting specific targets enhances the agency's mission and reduces costs for DOD. This approach may include addressing target dates or baselines. Congress may consider removing statutory targets altogether, and direct heads of federal agencies to establish protocols that foster efficiency and cost reductions that serve the mission of the agency.

Summary: Managing an organization as large and complex as DOD presents certain challenges. One of the challenges DOD faces in meeting these targets is implementing appropriate financing mechanisms. The Energy Policy Act of 1992 (EPAct92, P.L. 102-486 ) amended NECPA and authorized alternative financing methods for federal energy projects, including energy savings performance contracts (ESPCs) and utility energy service contracts (UESCs). ESPCs have become a preferred means of making energy efficiency improvements because, in part, funds do not have to be directly appropriated (or programmed). With $2.9 billion awarded in FY2017, these contracts can assist with increasing efficiency and meeting renewable energy management goals. Training and guidance for utilizing ESPCs and UESCs is provided to all federal agencies through the Federal Energy Management Program (FEMP). However, challenges remain, particularly in data collection and consistent measurements. One option may be to increase training and awareness of UESCs and ESPCs.

The federal government is the largest energy consumer in the United States. Within the federal government, the U.S. Department of Defense (DOD) consumes more energy than any other agency. In FY2017, DOD consumed 707.9 trillion British thermal units (Btu) of energyâroughly 16 times that of the second largest consumer in the federal government, the U.S. Postal Service ( Figure 1 ). In FY2017, DOD spent approximately $11.9 billion on energy, roughly 76% of the entire federal government's energy expenditures, and roughly 2% of DOD's FY2017 budget.

Energy efficiencyâproviding the same or an improved level of service with less energyâover time can lead to a reduction in agency expenses. DOD uses energy for a variety of purposes across the various services of the military. For example, DOD's efficient management of energy can also lead to less refueling and fewer fuel convoys. Reducing the frequency and duration of fueling in combat zones could reduce exposure and risk which could save lives.

This report provides an introduction to federal energy management rules applicable to DOD. The report includes an overview of federal statutes and executive orders that govern DOD energy management, and presents data on the status and trends for DOD energy use. Further, the scope of this report excludes nuclear energy for the propulsion of aircraft carriers, submarines, and energy used for military space operations. The report also references agency level guiding documents that provide the basis for how DOD implements these policies. Finally, this report identifies selected considerations for Congress.

Federal energy management requirements include reductions in fossil fuel consumption, increases in renewable energy use, and energy efficiency targets for government fleets and buildings. In addition to the energy management requirements that apply to federal agencies, DOD's energy policy is designed to ensure the readiness of U.S. armed forces through energy security and resilience. DOD, through statute (e.g., 10 U.S.C. Â§2922e), has authority to suspend certain requirements to meet established operational military demands.

In the 1970s, Congress began mandating energy use reductions for federal agencies, directing agencies to improve the efficiency of buildings and facilities and reduce fossil fuel dependence. Legislation aimed at reducing federal agency energy consumption can be traced back to the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) as shown in Table 1 . Among other provisions, EPCA directed the President to implement a 10-year plan for energy conservation and efficiency standards for government procurement. In 1977, Congress passed into law an act establishing the Department of Energy ( P.L. 95-91 ). The following year, Congress enacted the National Energy Conservation Policy Act (NECPA, P.L. 95-619 ), which, among other actions, established a program to retrofit federal buildings to improve energy efficiency.

The Energy Policy Act of 1992 (EPAct92, P.L. 102-486 ) amended NECPA and authorized alternative financing methods for federal energy projects, including energy savings performance contracts (ESPCs) and utility energy service contracts (UESCs), among other provisions. Since NECPA and EPAct92, two laws contain provisions that set energy management requirements for all federal agenciesâthe Energy Policy Act of 2005 (EPAct05, P.L. 109-58 ) and the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140 ). EPAct05 and EISA amended and addressed additional energy management targets for the federal government, among other things.

Federal agencies report energy consumption annually to the Department of Energy's (DOE) Federal Energy Management Program (FEMP). EISA Section 527 (42 U.S.C. Â§17143), requires federal agencies to report to the Office of Management and Budget (OMB) on the status and implementation of energy efficiency improvements, energy reduction costs, and greenhouse gas (GHG) emissions. Subsequently, EISA Section 528 (42 U.S.C. Â§17144) directs OMB to provide a summary of this information and an evaluation of progress for the federal government to the Committee on Oversight and Government Reform of the House of Representatives and the Committee on Governmental Affairs of the Senate. The Director of OMB compiles the compliance status of the EISA requirements and description of each into an agency scorecard. Appendix B contains a selected compilation of federal energy management requirements for all agencies.

The annual National Defense Authorization Act (NDAA) has included provisions related to DOD energy management and authorities. For example, Congress, by enacting the Department of Defense Authorization Act for FY1985 ( P.L. 98-525 ), granted the Secretary of Defense waiver authority for the acquisition of petroleum. NDAA for FY2000 Section 803 ( P.L. 106-65 ) amended this waiver authority to extend beyond petroleum to "a defined fuel source." This authority permits the Secretary of Defense to waive any provision that would otherwise prescribe terms and conditions of a defined fuel purchase contract if market conditions have affected or will adversely affect the acquisition of the fuel source; and if the waiver will expedite acquisition for government needs (10 U.S.C. Â§2922e).

With one exception, the NDAA for FY2018 ( P.L. 115-91 ), every NDAA since 1993 contains a section on "authorized energy conservation projects." For instance, NDAA for FY2007 ( P.L. 109-364 ) added a section regarding renewable energy production or procurement goals to 10 U.S.C. Â§2911. As amended by several NDAAs, this DOD specific goal requires DOD to consume 25% of total facility energy from renewable sources by FY2025 ( Appendix A ).

Further, NDAAs have contributed to a number of internal DOD energy management protocols. For instance, the NDAA for FY2011 Section 2832 ( P.L. 111-383 ) directs the Secretary of Defense to develop an Energy Performance Master Plan (including metrics for measurement, use of a baseline standard, separate plans for each branch, etc.) to achieve performance goals set by law, executive orders, and DOD policies. The NDAA for FY2015 requires an annual report that certifies whether or not the President's budget is adequate to meet objectives of the Operational Energy Strategy as outlined in 10 U.S.C. 2926.

NDAAs continue to address energy security and resilience for DOD. In 2018, for example, Congress enacted the NDAA for FY2019 ( P.L. 115-232 ), authorizing appropriations of $193 million for energy resilience and conservation investment programs. Multiple statutes, in addition to those above, establish the legislative authority for DOD energy management. Selected sections of the U.S. Code applicable to DOD energy management are delineated in Appendix A .

Over several administrations, Presidents have issued executive orders to establish energy management guidelines and targets for the federal government. Executive orders applied specifically to government vehicles, buildings, and computer equipment. Since 1991, 12 executive orders have been issued on federal energy management ( Appendix C ). Only Executive Order 13834, "Efficient Federal Operations" (E.O. 13834), is currently in effect. All the others have been revoked by subsequent orders.

On May 17, 2018, President Trump issued E.O. 13834, revoking E.O. 13693 and its specific targets for federal agencies. E.O. 13834 directs the heads of agencies to meet "statutory requirements in a manner that increases efficiency, optimizes performance, eliminates unnecessary use of resources, and protects the environment," but contains no specific targets. The White House Council on Environmental Quality Office of Federal Sustainability issued implementing instructions for E.O. 13834 in April 2019.

The Office of Federal Sustainability's website provides resources, guidance documents, and reported energy performance data across federal agencies to support implementation of E.O. 13834. The Office of Federal Sustainability also lists other relevant U.S. code provisions, public laws, and other resources that federal agencies are required to follow.

DOD issues directives, memorandums, manuals, and guidance instructions to military departments and agencies on complying with statues and executive orders. For instance, DOD Instruction (DODI) 4170.11, Installation Energy Management, and DOD Directive (DODD) 4180.01, DOD Energy Policy , provide guidance for energy planning, use, implementation and management. These and other guidance documents outline best practices to meet federal goals within the context of the agency's mission, while giving flexibility to military departments for achieving goals.

Military departments within DOD are tasked with following agency policies and procedures to issue internal energy strategies to meet the specific needs of their mission. The Energy Performance Master Plan tasks each military department and defense agency to develop their own master plans toward meeting federal requirements. Military departments can have their own goals and guiding documents within the parameters of statute and executive order (e.g., the Army's Energy Security and Sustainability Strategy or the Secretary of the Navy's Energy Goals).

Further, 10 U.S.C. 2925 mandates DOD to submit to Congress two annual reports on the progress of meeting federal and executive energy targets: the Operational Energy Annual Report and the Annual Energy Management and Resilience Report (AEMRR), which includes the Energy Performance Master Plan. These reports compile energy use information from the various DOD departments on their progress toward meeting federal requirements.

For federal-wide requirements, implementing instructions and guidance documents are often issued by DOE. For instance, EPAct05 has a renewable electricity consumption requirement of 7.5% for the federal government by FY2013. The President, acting through the Secretary of DOE, under Section 203 of EPAct05, is to ensure that the federal government meets the requirement. In order to ensure this, DOE issued guidance to federal agencies on how to meet the requirement.

DOD categorizes energy as either "installation" or "operational." Installation energy refers to "energy needed to power fixed installations and enduring locations as well as non-tactical vehicles (NTVs)." Installation energy historically represents roughly 30% of DOD total energy and is subject to federal energy efficiency and conservation requirements, as reported to Congress in the AEMRR. In FY2017, DOD spent $3.48 billion on installation energy and NTV fuels. Operational energy (e.g., jet fuel) is "the energy required for training, moving, and sustaining military forces and weapons platforms for military operations and trainingâincluding energy used by tactical power systems and generators at non-enduring locations." Federal energy management requirements outlined in Appendix A and Appendix B do not apply to operational energy. However, under 10 U.S.C. 2926, DOD does have an operational energy policy to promote readiness of military missions.

From FY2003 to FY2017 the federal government reduced total site-delivered energy use by 19.2% compared to the FY2003 baseline in all sectors. During the same time period, DOD reduced site-delivered energy use by 20.9%. While overall, DOD has reduced energy use, its energy use has not necessarily been consistent from one year to the next. For example, during the War in Iraq (FY2003 to FY2004), energy use increased from 895 trillion Btu to 960 trillion Btu, as shown in Figure 2 .

Representing roughly 30% of DOD total energy use, installation energy is subject to federal energy management requirements. Federal energy management requirements include energy efficiency targets for government buildings, renewable energy use goals, and fossil fuel reductions for the NTV fleet. According to the AEMRR FY2017, energy and cost savings compared to an FY2005 baseline resulted in $5.67 billion in total savings through FY2017. The AEMRR also notes that the DOD increased installation energy consumption levels by 0.3% from FY2016 to FY2017.

42 U.S.C. Â§8253(a) requires federal agencies to achieve a 30% reduction from FY2003 levels in energy consumption per gross square foot (GSF) for goal federal buildings by FY2015 ( Appendix B ). Goal buildings are federal buildings subject to federal energy performance requirements. DOD examples of goal buildings include the Army's Holston Ammunition Plant in Tennessee and the Navy's Camp Lemonnier in Djibouti. Excluded facilities are federal buildings not required to meet the federal building energy performance requirement for the fiscal year according to the criteria under Section 543(c)(3) of NECPA. Federal agencies may typically exclude buildings that have a dedicated energy process that overwhelms other building consumption, such as one designed for a national security function or for the storage of historical artifacts.

DOD manages nearly 300,000 buildings, most of which are subject to federal energy management. In FY2015, DOD did not meet the 30% reduction target, as DOD reduced building energy intensity by 16.5% relative to FY2003 levels. In FY2017, DOD consumed 91,709 Btu/GSF, a 21.8% decrease from baseline FY2003.

Increasing building efficiencies and reducing energy intensity can be supported through alternative funding mechanisms (e.g., ESPCs, UESCs, power purchase agreements). In FY2017, the Army, for example, awarded $289.3 million in ESPC and UESC projects estimated to save 1,132 billion Btu annually. According to the AEMRR FY2017, these projects could avoid costs of $17.2 million annually from the project savings.

In addition to the energy efficiency requirement, EISA Section 433 requires federal agencies to reduce fossil fuel consumption in new or majorly renovated buildings ( Table B-1 ) by specified amounts. By FY2020, these buildings are supposed to reduce fossil fuel consumption by 80% relative to a similar building's consumption levels in FY2003. DOE proposed a rulemaking for comment on this legislation on October 15, 2010. However, the rulemaking was not finalized, and no further action has been taken since December 2014 when the comment period closed. DOD has not reported on this requirement.

EPAct05 requires federal agencies to reach 7.5% total renewable electricity consumption by FY2013. According to implementing instructions to comply with EPAct05, agencies must maintain ownership of renewable energy credits (RECs). If DOD sells a REC to meet state requirements, and it is not replaced with another REC, then the renewable electricity DOD produced does not receive credit toward the EPAct05 goal. Within these reporting requirements, in FY2013, DOD reached 5% renewable electricity consumption, and in FY2017, DOD reached nearly 6% of total electricity consumption from renewables. Solar photovoltaic sources contributed to this increase reaching 627,783 megawatt-hours (MWh) up from 396,268 MWh in FY2016.

RECs are created when a renewable source of energy generates a megawatt-hour of electricity. Each REC has a unique identification number and provides data (e.g., the resource type, service date, location, etc.) that is traceable and certifiable. RECs can be traded and have monetary value. They are used by utilities to comply with state renewable electricity standards. Thus, RECs can help improve the return on investment for renewable projects. The ownership of these credits is often a contract stipulation associated with the project for the developer. State and/or local renewable requirements play a role in determining the contract stipulations for the credit ownership.

In addition to EPAct05 goal of 7.5% renewable electricity by FY2013, DOD in accordance with 10 U.S.C. Â§2911(g) is required to "produce or procure" 25% renewable energy (electrical and non-electrical) by FY2025. The purchasing of RECs is not mandatory for DOD to comply with this goal. DOD's 2011 Energy Performance Master Plan set an interim goal of 15% renewable energy consumption by FY2018. Under Â§2911(g), in FY2017 DOD's renewable energy consumption reached approximately 8.7% of total facility energy use.

In FY2017, DOD consumed around 8,764 billion Btu of NTV fuel, roughly 4.3% of DOD installation energy. EISA requires federal vehicle fleets to reduce petroleum consumption from the FY2005 baseline by 20% no later than October 1, 2015 ( Appendix B ). In FY2015, DOD complied with the EISA target with a reduction in NTV fleet petroleum consumption of 27% compared to FY2005 baseline. DOD has continued to reduce installation vehicle fleet petroleum consumption and reached a 34.5% reduction in FY2017. At the branch level, the FY2017 AEMRR states that the Air Force experienced an increase of 9.3% in consumption compared to the FY2005 baseline. Despite this increase, the Air Force, according to the AEMRR, does continue to implement programs to reduce consumption and increase alternative fuel use in research and development.

In addition to the petroleum consumption reduction goal, federal agencies under EISA are to increase alternative fuel consumption by 10% compared to a FY2005 baseline no later than October 1, 2015 ( Appendix B ). According to the Office of Federal Sustainability, DOD met the alternative fuel consumption target in FY2015 reaching 10.6% of total fuel consumption. However, in FY2017, DOD's alternative fuel consumption decreased to 9.4% of the total installation fleet fuel consumed. These requirements apply only to installation energy and do not apply to operational energy.

Operational energy constitutes roughly 70% of DOD's total energy use. In FY2017, DOD spent $8.2 billion on operational energy expenditures. The largest portion of this came from jet fuel at nearly 394 trillion Btu or roughly 56% of total DOD energy consumption for FY2017. DOD depends on jet fuel and other petroleum products to perform mission operations. According to DOD's FY2017 Operational Energy Annual Report , from FY2013 to FY2017, total operational energy demand remained relatively stable, around 87 million barrels of fuel per year (roughly 500 trillion Btu), while the price of crude oil fluctuated. The price of oil declined by roughly 60% in 2014, which contributed to a decrease in fuel expenditures from $14.8 billion in FY2013 to $8.2 billion in FY2017, around a 45% reduction.

DOD's efficient management of fuel can also lead fewer fuel convoys. Reducing the frequency and duration of fueling in combat zones could reduce exposure and risk which could save lives. According to a 2009 report by the Army Environmental Policy Institute, for every 24 fuel-related convoys in Afghanistan there was roughly one casualty. A challenge is balancing mission operations (i.e., increasing weapons systems and combat performance) while also increasing efficiency.

Some questions Congress may be interested in considering include:

What kind of federal energy efficiency requirements should DOD have for operational energy, if any? To what extent do federal energy management targets need to be updated? What role is there for Congress to clarify or provide oversight on implementing federal energy management goals? How are alternative financing mechanisms supporting DOD's attainment of federal energy management goals? To what extent should Congress support these mechanisms?

As noted, existing statutory energy management goals do not apply to operational energy, but DOD's operational energy policy is mandated by 10 U.S.C. 2926. As part of the operational energy policy, DOD establishes a strategy including plans and performance metrics. Further, DOD is mandated to submit to Congress both a report on the strategy (Operational Energy Strategy) and a report certifying that the proposed Presidential budget supports the implementation of the strategy (Operational Energy Budget Certification Report).

Operational energy comprises 70% of energy use within DOD, much of which consists of petroleum-based fuels. Federal energy management goals do not apply to most of DOD's energy use. Congress may consider setting mission priorities for DOD. Congress could also consider mandating whether or not DOD should prioritize energy access over energy conservation, or vice versa. While making operational equipment more fuel efficient could increase range and decrease refueling convoys, the challenge is how to prioritize maintaining combat readiness and mission operations. Congress may consider legislation addressing operational energy, such as setting a standard fuel efficiency target or a requirement for alternative fuel use.

Congress may also consider continuing to leave operational energy efficiency goals to be determined by DOD or each military branch. While this option could provide more flexibility, it could also lead to some challenges. For instance, in 2009, Navy Secretary Ray Mabus announced plans for the Navy to consume half of all fuel from alternative sources by 2020 (see textbox on Secretary of the Navy Energy Goals). The announcement also included a 2016 goal to deploy a carrier strike group using alternative fuels (e.g., nuclear power, biofuels) and energy conservation measures, an initiative known as the Great Green Fleet. The Great Green Fleet deployed in 2016 and conducted operations using alternative fuels and energy-efficient technologies and operating procedures.

Some critics of the Navy energy goals noted that the Navy implemented these energy targets based on limited analysis. For instance, a House Armed Services Committee hearing in March 2012 inquired how the Navy determined the 50% goal for biofuel use, how it was determined that 50% was the amount the Navy should have, whether it could be attained by 2020, and what metrics were used to make this determination. A 2011 study by Logistics Management Institute (LMI) was referenced as a source that outlined the attainability of the goal; however, it had been released two years after the announcement of the energy plan.

Supporters of the Navy's energy goals noted the benefits of a more diverse fuel supply and utilizing domestically produced biofuels. DOD is subject to oil price volatility, as such a more diverse fuel supply could potentially reduce dependence on the volatile market (see textbox on Department of Defense Fuel Procurement). According to Assistant Secretary of the Navy, Energy, Installations, and Environment Jackalyne Pfannenstiel's 2012 testimony, "without more domestically produced fuels, the [Navy] will continue to be subjected to fuel price volatility and be compelled to trade training, facility sustainment, and needed programs to pay for unplanned bills."

If Congress were to set a target, reporting data and status updates could also be included in legislation to provide increased accountability of these programs. According to a 2016 naval announcement, the alternative fuel used for the Great Green Fleet was cost competitive and was made from 10% beef tallow and 90% marine diesel.

In many cases, federal energy management goals in statute or executive order established targets for FY2015 (e.g., EISA petroleum and alternative fuel consumption targets were due no later than October 1, 2015). Several agencies, including DOD, did not reach the targeted goals. Congress may consider establishing new targets. Alternatively, Congress may instead remove statutory targets altogether, instead directing heads of federal agencies to establish protocols that foster efficiency and cost reductions that serve the mission of the agency.

If given the flexibility, agencies may opt to set more easily attainable targets based on budget and mission needs, which may not have as much of an impact on total federal energy use. In March 2015, then-Secretary of Energy Ernest Moniz convened a Task Force of members from the private sector, universities, and nonprofit organizations to review various components of E.O. 13693, including target setting. The Task Force argued that setting energy goals across all agencies "may drive some agencies to over-invest in the targeted area of energy-performance improvement to the detriment of other operational priorities. Conversely, uniform energy goals may understate the potential for cost-effective investments in energy efficiency for other agencies." Primary agency concerns may include their potential cost and mission impact. Congress and agencies may have different perspectives regarding these concerns. Successful attainment of established targets have varied from agency to agency. Some agencies may inherently be more energy intensive than others and as such may face challenges financing projects to reach certain targets.

Leaving targets to agencies may provide some flexibility, as not all agencies have the same energy needs. Agencies might choose to set ambitious targets that some may consider too costly and may not be based on consistent data. In some cases, meeting targets could come at a high cost, particularly in the early stages of development. Some may argue that the high cost for early research and development (R&D) may be acceptable, especially if in the long term it drives costs down. If Congress were to direct DOD to set a standard, DOD may set a goal that could require additional R&D to develop equipment that meets the standard, but also does not diminish combat readiness. For instance, a test of the Great Green Fleet in the summer of 2012 reportedly cost the Navy nearly $27 a gallon for 450,000 gallons of biofuel. By 2016, the Navy achieved competitive prices with conventional fuels with a 90% diesel blend with 10% biofuel. The Navy reportedly contracted with a California firm to purchase 77 million gallons of biofuel from beef fat at $2.05, including a 15 cent per gallon subsidy. The 2016 DOE Task Force report also noted the historical role of the federal government as an adopter of new technologies, providing a faster pathway toward commercial viability. While this may not always be the most economic approach, it could provide a greater benefit to a technology's deployment into the commercial market.

Further, Congress may consider readjusting the baselines, as some argue that the baselines may not have been properly informed using consistent data. For instance, according to a 2014 DOE report, "goals must be based on well-informed estimates of savings potential." The 2014 DOE report recommended that several criteria should be taken into consideration when establishing a baseline, such as weather, data quality and availability, consistency of agency mission operations, and varying degrees of savings. The report also noted that perhaps a three-year average should be taken to set a baseline, as this helps reduce abnormal factors experienced in any particular year. If Congress establishes a new baseline, agency reporting data and perceived progress could be affected. For example, the DOE report explains, "using a more recent baseline yearâand setting a lower percent reduction goalâmay give the impression that the federal government is not doing enough to reduce energy use, when in fact significant reductions have already been made."

In regards to EISA Section 433, federal agencies are mandated to reduce fossil fuel consumption by 80% by FY2020, with an ultimate goal of 100% by FY2030. As noted, the rulemaking for this legislation has not been finalized. Without a finalized rule it is difficult to track and evaluate the progress toward this goal. DOD has not included this metric in annual reports. Congress may consider in its oversight role directing DOE to finalize this rule. Alternatively, Congress may consider updating the legislation, perhaps by either adjusting the targets, or removing the requirement entirely.

While tracking energy management compliance may come at a cost (e.g., labor, data collecting, etc.), the data can be used to indicate progress toward greater efficiency and could demonstrate whether or not a program has proven effective and provided cost savings. The 2016 DOE Task Force report notes that one of the major challenges in evaluating the energy efficiency of projects in the federal government is the lack of data concerning, "building profiles, energy usage, and energy spending over time."

Additionally, Congress may consider clarifying REC ownership in legislation, instead of directing DOE to issue guidance on qualifications to meet federal targets. For instance, DOE's implementation guidance for EPAct05 requires DOD and all federal agencies to retain ownership of RECs to count toward the 7.5% renewable electricity consumption goal. However, 10 U.S.C. Â§2911(g), a 25% renewable energy production goal for DOD, does not make purchasing RECs mandatory.

Further, according to a 2016 Government Accountability Office (GAO) report, DOD project documentation of renewable energy goals was not always clear, especially when determining whether or not a project contributed toward a particular goal. If Congress opts to require DOD to maintain ownership of RECs to meet all relevant energy goals, proper data and measurement collection may be a factor to consider. Additionally, if Congress were to require agency ownership of RECs, DOD's progress toward 10 U.S.C. Â§2911(g) may decline. For instance, the 2016 GAO report reviewed documentation of 17 DOD renewable energy projects. All 17 projects contributed to 10 U.S.C. Â§2911(g), but 8 of those projects did not contribute to EPAct05.

In practice, military services may not necessarily retain ownership of RECs associated with all projects. Some DOD services may find that relinquishing REC ownership is within the best interest of the service and the particular contract, despite not qualifying for the EPAct05 requirement. The Navy, for instance, has had difficulty meeting renewable energy consumption targets under EPAct05, noting in the FY2017 AEMRR : "The Navy's performance regarding the renewable electricity goal is a function of the strategic decision to allow other parties to monetize the value of RECs associated with its financed energy projects." In certain projects, military services might decide to relinquish REC ownership. In some instances of ESPC/UESC contracts, RECs can be leveraged to finance additional project improvements.

DOD has steadily decreased its buildings' energy intensity in response to mandated energy reduction goals through investment in energy conservation projects. One of the challenges DOD faces in meeting these targets is implementing appropriate financing mechanisms. ESPCs have become a preferred means of making energy efficiency improvements because, in part, funds do not have to be directly appropriated (or programmed). However, as Energy Savings Contractors (ESCOs) assume a certain risk in guaranteeing savings through ESPCs, the risk is factored into their cost. DOD has been increasing reliance on UESCs and ESPCs. With $2.9 billion awarded in FY2017, these contracts can assist with increasing efficiency and meeting renewable energy management goals without up-front appropriated funds for the investment. Congress may consider options to increase the effectiveness of these mechanisms in attaining federal energy management goals.

One option may be to increase training and awareness of UESCs and ESPCs. A Senate Committee on Armed Services report ( S.Rept. 115-125 ) accompanying NDAA FY2018 ( S. 1519 ) directed the Secretary of Defense to assess ESPCs and the potential savings through increased training. DOD disagreed with the need for more training, noting in the AEMRR FY2017, "the financial risk is too high to implement these training improvements based on assumptions about future savings and therefore [DOD] will not commit limited resources to an assessment that would draw from efforts focused on energy resilience and mission assurance." Further, DOD has stated that training improvements do not necessarily guarantee behavioral changes that would contribute to energy and costs savings.

It is difficult to determine project savings if data is not being collected appropriately and consistently. Eight reports since 2013 by GAO, DOD Inspector General (DOD IG), and U.S. Army Audit Agency evaluated challenges with DOD utilizing ESPCs. The recommendations highlighted a lack of developed guidance for ESPC training, data management, and contract administration. According to a summary DOD IG report in February 2019, the Assistant Secretary of Defense for Energy, Installation, and Environment, as well as Navy, Air Force, and DLA ESPC program managers, did not collect ESPC project data due to decentralization and not requesting performance and savings data, despite DOD instruction. Five reports noted that base contracting officials were not complying with the measurement and verification requirements under Section 432 of EISA for a number of reasons, including a lack of awareness of the requirements.

Training and guidance for utilizing ESPCs and UESCs is provided to all federal agencies through FEMP. However, challenges remain. During a December 2018 House Committee on Energy and Commerce, Subcommittee on Energy hearing, Leslie Nicholls, Strategic Director for FEMP, noted that measurement and verification is "not necessarily consistently applied and utilized throughout the federal government." She further noted that FEMP would like to continue training both at the technical level and for contracting officers. As noted in the February 2019 DOD IG report, DOD branches were implementing the IG recommendations regarding ESPC guidance. Congress may consider the value of training and guidance for proper measurement and data verification, and whether better data would demonstrate accurate cost savings of ESPCs and USECs relative to the cost of training.

Appendix A. Summary of DOD Energy Goals and Contracting Authority in 10 U.S.C.

(t) Permits up to $1,000,000,000 in Working Capital Fund, Defense for petroleum market volatility.

Â§ 2 410q . Multiyear Contracts: Purchase of Electricity from Renewable Energy Sources

(a) Multiyear Contracts Authorized: Authorizes the use of multiyear contracts for the Secretary of Defense for a period of 10 years from a renewable energy source, as defined in 42 U.S.C. 15852(b)(2).

(b) Limitations on Contracts for Periods in Excess of Five Years: The Secretary of Defense may enter into a contract over five years on the basis that the contract is cost effective and purchasing electricity from the source would not be economic without a contract for over five years.

(c) Relationship to Other Multiyear Contracting Authority: this section does not preclude DOD "from using other multiyear contracting authority of the Department to purchase renewable energy."

Â§ 2911. Energy P olicy of the Department of Defense

(a) General Energy Policy: directs the Secretary of Defense to "ensure the readiness of the armed forces for their military missions by pursuing energy security and energy resilience."

(b) Authorities: permits the Secretary of Defense to establish metrics and standards for measuring energy resilience; authorizes the selection of facility energy projects using renewables, as well as "giving favorable consideration to projects that provide power directly to a military facility or into the installation electrical distribution network."

(c) Energy Performance Goals: directs the Secretary of Defense to "submit to congressional defense committees energy performance goals" for DOD annually.

(d) Energy Performance Master Plan: directs the Secretary of Defense to develop a plan annually (including metrics for measurement, use of a baseline standard, separate plans for each branch, etc.) to achieve the performance goals set by law, executive orders, and DOD policies.

(e) Special Considerations: directs the Secretary of Defense to consider a set of specified factors (e.g., energy resilience, economies of scale, conservation measures) when developing the Performance Goals and Master Plan.

(f) Selection of Energy Conservation Measures: the energy conservation measures are to be limited to ones that "are readily available; demonstrate an economic return on the investment; are consistent with the energy performance goals and energy performance master plan for the Department; and are supported by the special considerations specified in subsection (c)."

(g) Goal Reg arding Use of Renewable Energy t o Meet Facility Energy Needs : "to produce or procure not less than 25 percent of the total quantity of facility energy it consumes within its facilities during fiscal year 2025 and each fiscal year thereafter from renewable energy sources."

Â§ 2913. Energy Savings Contracts and Activities

(a) Shared Energy Savings Contracts: directs the Secretary of Defense to develop a simple method to accelerate contracts for shared energy savings services.

Â§Â§2922 -2922h. Energy-Related Procurement : outlines contracting and procurement specifications for various energy types (e.g., natural gas, renewables, fuel derived from coal).

Â§ 2922e. Acquisition of C ertain F uel S ources: A uthority to W aive C ontract P rocedures; A cquisition by E xchange; S ales A uthority : permits the Secretary of Defense to waive any provision that would otherwise prescribe terms and conditions of a fuel purchase contract if market conditions have affected or will adversely affect the acquisition of the fuel source; and if the waiver will expedite the acquisition for government needs.

Â§ 2 926 Operational Energy Activities: provides DOD with an operational energy policy; delineates authorities for operational energy procurement; establishes the role for the Assistant Secretary of Defense for Energy, Installations, and Environment (ASD EI&E); requires the ASD EI&E to establish an operational energy strategy and to review and make recommendations to the Secretary of Defense on budgetary operational energy matters, as well as grants access to records and studies on military initiatives related to operational energy.

Appendix B. Summary of Federal Energy Goals and Contracting Authority in 42 U.S.C.

Â§ 6374e. Federal Fleet Conservation R equirements : each federal agency is directed to increase alternative fuel use and decrease petroleum fuel consumption for federal fleets, with the goal of achieving a 10% increase in annual alternative fuels and a 20% reduction in annual petroleum consumption as compared to a FY2005 baseline by October 1, 2015.

Â§ 6834 . Federal Building Energy Efficiency Standards : starting August 2006, if cost-effective over the life cycle, new federal buildings must be designed to achieve energy consumption levels at least 30% below ASHRAE Standard 90.1 (for commercial buildings) or the International Energy Conservation Code (for residential buildings). In addition, starting December 2008, new federal buildings and those undergoing major renovations are to be designed so that fossil fuel consumption is reduced by 80% in 2020 compared to a similar building in FY2003, and 100% by 2030, as specified in Table B-1 .

Â§ 8253. Energy Management R equirements: directs federal agencies to reduce building energy consumption per square foot by 30% compared to the FY2003 baseline by FY2015.

Â§ 8256(c) Utility Incentive Program: authorizes and encourages agency participation in programs (Utility Energy Savings Contracts, or UESCs) to "increase energy efficiency and for water conservation or the management of electricity demand conducted by gas, water, or electric utilities and generally available to customers of such utilities."

Â§ 8287. Authority to Enter into Contracts: authorizes the head of a federal agency to enter Energy Savings Performance Contracts (ESPCs). Each contract may be for a period not to exceed 25 years. The contract directs the contractor to incur the costs of energy savings measures, in exchange for a share of the savings resulting from the measures taken.

Â§ 13212. Minimum Federal Fleet Requirement : the total percentage of alternative-fueled or "low greenhouse gas emitting" light-duty vehicles acquired by a federal fleet annually are 75% in FY1999 and thereafter.

Â§ 15852 . Federal Purchase Requirement : the President, acting through the Secretary of Energy, is directed to "ensure that, to the extent economically feasible and technically practicable, of the total amount of electric energy the Federal Government consumes during any fiscal year" not less than 7.5% is renewable energy in FY2013 and each fiscal year thereafter.

Â§ 16122. Federal and State P rocurement of Fuel Cell V ehicles and Hydrogen E nergy S ystems : requires the federal government to adopt fuel cell vehicles and hydrogen energy systems as soon as practicable.


Dynamic Scoring in the Congressional Budget Process

Summary: When Congress considers legislation, it takes into account the proposal's potential budgetary effects. Although this information may come from numerous sources, Congress generally relies on estimates provided by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) when determining whether legislation complies with congressional budgetary rules.

Summary: Generally, CBO and JCT estimates include projections of the budgetary effects that would result from proposed policy changes, and incorporate anticipated individual behavioral responses to the policy. The estimates, however, do not typically include the macroeconomic effects of those individual behavioral responses that would alter gross domestic product (GDP).

Summary: In recent decades, however, Congress has sometimes required that JCT and CBO provide estimates that incorporate such macroeconomic effects (effects on overall economic outputâGDP). These estimates are often referred to as dynamic estimates or dynamic scores .

Summary: Proponents of dynamic estimates have argued that such estimates provide a more accurate assessment of budgetary impact than conventional scoring, and that they can improve Congress's ability to compare competing policy proposals. Proponents argue that dynamic estimates are important for the sake of consistency, and that by not including dynamic effects, the legislative process is biased against policy proposals designed to encourage productive economic activity. Opponents of dynamic estimates argue that estimates of macroeconomic feedback effects are too uncertain to be relied upon as accurate projections of budgetary outcomes. Opponents of dynamic estimates have stated that, with assumptions about the behavioral responses that determine macroeconomic feedback being so uncertain, there is consistency in assuming, for all legislative proposals, that GDP remains the same, regardless of changes in tax or spending policy.

Summary: Between 1997 and 2018, congressional rules existed that required JCT or CBO to provide dynamic estimates under certain circumstances. These congressional rules and requirements varied, sometimes permitting the creation of dynamic estimates, and sometimes requiring it. During this period, some dynamic estimates provided a range of potential budgetary outcomes, while some included a point estimate . During this period, dynamic estimates were used only for informational purposes, as opposed to being used to determine whether Congress was complying with its budgetary rules. In some cases, published estimates showed wide variation in estimated results depending on the model type and assumptions.

Summary: While committees and Members continue to have the ability to request that CBO or JCT provide dynamic estimates for certain policies or legislative proposals, for the first time in decades there are no explicit congressional rules or requirements that pertain specifically to the preparation or use of such estimates. If Congress were to reinstitute explicit rules related to dynamic estimates, it may choose to consider many facets of such a potential rule, such as whether a threshold should exist for the creation of such estimates (i.e., should such estimates be provided only for "major legislation"); whether dynamic estimates should be provided for spending as well as revenue proposals; what types of information should be included in such estimates; whether dynamic estimates should be used only for informational purposes, or also for enforcement purposes; and whether additional resources ought to be provided to CBO and JCT so that they might develop greater capacity for providing dynamic estimates.

When Congress considers legislation, it takes into account the proposal's potential budgetary effects . This helps Members to weigh the legislation's merits, and to consider whether it complies with the budgetary rules that Congress has created for itself.

While information on the potential budgetary effects of legislation may come from numerous sources, the authority to determine whether legislation complies with congressional budgetary rules is given to the House and Senate Budget Committees. In this capacity, the budget committees generally rely on estimates provided by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).

As described in the following section, cost estimates provided by CBO and JCT are guided by certain requirements that Congress has articulated in different forms. These requirements are not completely prescriptive, however, and as a result both CBO and JCT adopt practices and conventions that guide the creation of cost estimates. Generally, CBO and JCT estimates include projections of the budgetary effects that would result from a proposed policy and incorporate anticipated individual behavioral responses to the policy. The estimates, however, do not typically include the macroeconomic effectsâeffects on the overall size of the economyâof those individual behavioral responses. Congress has sometimes required that JCT and CBO provide estimates that incorporate such macroeconomic effects. These estimates are often referred to as dynamic estimates or dynamic scores .

This report provides information on the authorities and requirements under which cost estimates are prepared, as well as a summary of the debate surrounding dynamic cost estimates, and previous rules and requirements related to dynamic estimates. Currently, no congressional rules explicitly require dynamic estimates, and Congress may examine what rules changes, if any, are needed in the area of dynamic estimates. This report, therefore, includes information on options for the creation of dynamic scoring rules, and general considerations for Congress related to dynamic estimates.

Authorities and Requirements Under Which Cost Estimates are Prepared

Cost estimates provided by CBO and JCT are guided, in part, by certain requirements that have been articulated by Congress in different forms, as described below.

The Congressional Budget Act (CBA) requires that CBO prepare cost estimates for all bills reported from committee, "to the extent practicable." The CBA also requires that (1) CBO rely on estimates provided by JCT for revenue legislation and (2) CBO include in its estimates "the costs which would be incurred" in carrying out the legislation in the fiscal year in which the legislation is to become effective, as well as the four following years, together with "the basis for such estimate."

When conducting cost estimates, CBO and JCT measure the budgetary effect of a legislative proposal in relation to projections of revenue and spending levels that are assumed to occur under current law, typically referred to as baseline levels. This means that the way a policy is reflected in the baseline will affect how CBO and JCT estimate a related policy.

In calculating the baseline, CBO makes its own technical and economic assumptions, but the law generally requires that CBO assume that spending and revenue policies continue or expire based on what is currently slated to occur in statute. For example, CBO's baseline must assume that temporary tax cuts such as those enacted in 2017 actually do expire. The baseline, therefore, shows an increase in the level of revenue expected to be collected after the tax cut provisions expire in law. Therefore, a legislative proposal to continue those tax cut provisions would be scored as increasing the deficit.

Although baseline calculations generally require that direct (mandatory) spending program levels reflect what is scheduled to occur in law, important exceptions exist for many direct spending programs. In particular, any program with estimated current year outlays greater than $50 million is assumed to continue to operate under the terms of the law at the time of its expiration. This means that some programs that are slated in law to expire are assumed to continue in the baseline. A legislative proposal that sought to merely continue those expired programs would therefore not be scored as new spending.

When creating cost estimates, CBO adheres to scorekeeping guidelines, which are "specific rules for determining the budgetary effects of legislation." These general guidelines are used by the scorekeepersâthe House and Senate Budget Committees, CBO, and the Office of Management and Budget (OMB)âto ensure that each group uses consistent and established practices. The 17 scorekeeping guidelines include general principles, such as a requirement that mandatory spending provisions included in appropriations bills be counted against the Appropriations Committee spending allocation, and direction on how asset sales are to be scored. The guidelines have been revised and expanded over the years, and any changes or additions to the scorekeeping guidelines are first approved by each of the scorekeepers.

Congress sometimes directs the creation and content of cost estimates through chamber rules and provisions contained in budget resolutions. As described subsequently, House rules have sometimes explicitly required CBO and JCT to include in cost estimates information on a policy proposal's projected macroeconomic feedback effects. Similarly, Congress has also used the budget resolution to provide direction on how a policy ought to be estimated. For example, budget resolutions have included provisions requiring that transfers from the Treasury's general fund to the Highway Trust Fund be counted as new spending. Similarly, budget resolutions have stated that certain policies cannot be counted as offsets, such as Federal Reserve System surpluses transferred to the Treasury's general fund, as well as increases or extensions of Freddie Mac and Fannie Mae guarantee fees.

The Budget Committees and Tax Committees

Congressional committees may also shape the content or creation of cost estimates. The House and Senate Budget Committees have jurisdiction over CBO, and the CBA specifies that CBO's "primary duty and function" is to assist the budget committees. Oversight of CBO, as well as the creation and content of cost estimates is, therefore, under the jurisdiction of the House and Senate Budget Committees, and the budget committees provide related guidance to CBO. For the JCT, the creation and content of its estimates may be shaped by the committee itself, or by guidance or assumptions of the tax committeesâthe House Committee on Ways and Means and the Senate Committee on Finance.

Generally, CBO and JCT estimates include projections of the budgetary effects that would result from proposed policy changes, and incorporate anticipated individual behavioral responses to the policy. The estimates, however, do not typically include the macroeconomic effects of those individual behavioral responses (such as changes in labor supply and the capital stock) that would alter GDP. For example, if an increase in the corporate tax rate caused corporations to use more debt, conventional estimates would take into account the loss of revenue since the returns from debt are taxed more lightly than the returns from equity, and this loss in revenue would offset the revenue gain calculated by multiplying the change in the tax rate by corporate income. The conventional estimate would not, however, take into account the lost revenue from a reduction in income if the rate increase caused a decline in investment, which affects production. These estimates without macroeconomic effects are sometimes imprecisely referred to as "static," but are referred to in this report as conventional estimates because they take into account many behavioral responses.

In contrast, a dynamic score aims to account for legislation's macroeconomic effect, by incorporating changes to (1) aggregate demand for goods and services to increase output in an underemployed economy and/or (2) aggregate supply of goods and services ( supply - side effects ) to increase potential output. For example, dynamic scoring can include fiscal stimulus effects that increase aggregate demand. These effects occur when the economy is underemployed (for example, during and after a recession), and increased spending either by the government or from taxpayers after a tax cut can expand the economy through multiplier effects and cause output to move closer to potential output. These effects are referred to subsequently as demand - side effects . Supply-side effects occur if potential output is altered due to changes in investment or savings that increase the capital stock, labor supply, or productivity. The crowding-out (or -in) effect occurs when an increase (or decrease) in the deficit reduces (or increases) funds available for private investment and hence reduces (or increases) the capital stock.

Increased Interest in Dynamic Estimating

Congressional interest in dynamic estimating has increased in recent decades. This interest may be attributed to the increase in the number of House and Senate rules restricting budgetary legislation. Because bills and resolutions are expected to comply with these congressional rules, estimates of a measure's fiscal impact arguably become more important. Interest in dynamic scoring is also likely related to recent advancements in economic analysis and economic modeling that make estimating macroeconomic feedback effects possible.

Both proponents and opponents of dynamic estimating point to accuracy and consistency as their primary objectives. Some have suggested that dynamic scoring is useful, but only under certain circumstances.

Arguments in favor of dynamic scoring include the view that dynamic scoring provides a more accurate assessment of budgetary impact than conventional scoring, particularly for some types of legislative proposals, and that conventional estimating methods produce a projection that does not reflect the actual expected impact on revenues. Under this argument, dynamic scoring makes use of all available information, and excluding macroeconomic feedback effects "amounts to throwing away valuable information." It has also been argued that including macroeconomic effects can improve Congress's ability to compare competing policy proposals.

Arguments in favor of dynamic scoring state that these estimates are required for the sake of consistency, especially for large legislative packages that would likely affect the economy. As stated above, a legislative proposal's budgetary impact is measured against a baseline, and that baseline takes into account macroeconomic assumptions. It is, therefore, argued that certain legislative proposals should also take into account economic assumptions. If such legislation were to be enacted into law, CBO would then build that policy into its baseline, and would have to make assumptions about the macroeconomic feedback effects that would be expected to occur under those policies. It is only consistent, the argument goes, to use macroeconomic feedback effects in the initial estimate of the legislation as well.

Advocates for dynamic scoring also state that not using a dynamic approach to measure the impact of policy changes biases the legislative process against policy proposals that are designed to encourage productive economic activity. Some have argued that under conventional estimating methods, the impact of a cut in the marginal tax rates, for example, is viewed (through the lens of budgetary outcomes) less favorably than it should be.

It has also been argued that, methodologically, the production of quality dynamic estimates is now possible due to technical advances in modeling and analysis, and an increase in evidence showing public responses to policy changes. Some have pointed out that both CBO and JCT are capable of producing dynamic estimates, and JCT staff have stated that, with regard to macroeconomic estimates, "we think we have been producing reasonable results for over a decade (though we welcome comments and discussion)."

Likewise, arguments against dynamic estimates also point to concerns about accuracy and consistency. Those who oppose the use of dynamic scoring argue that projected macroeconomic feedback effects are too uncertain to be relied upon as accurate projections of budgetary outcomes.

Projecting macroeconomic feedback effects requires economic modeling, and it has been said that "because reasonable people can disagree about what model, and what parameters of that model, are best, the results from dynamic scoring will always be controversial." Previous macroeconomic analyses by CBO and JCT have yielded a range of estimates depending on what type of model is used and the underlying behavioral assumptions in each model.

With assumptions about the behavioral responses that determine macroeconomic feedback being so uncertain, it has been argued that there is consistency in assuming, for all legislative proposals, that GDP remains the same, regardless of changes in tax or spending policy.

Arguments against dynamic scoring often point to potential problems with cost estimating in general, but note that under dynamic scoring these vulnerabilities may be exacerbated. For example, as mentioned above, all cost estimates are inherently uncertain. Dynamic estimates are always subject to more uncertainty, even for relatively simple tax changes, because of the uncertainty of taxpayer responses (such as consumer spending and labor supply). In contrast, many conventional estimates (such as the effect of rate changes in the tax code or changes to exemptions and deductions) may be estimated quite precisely because data are readily available on income levels and family characteristics.

Similarly, while cost estimates generally might always have the potential to be perceived as subject to manipulation by political forces, it has been argued that this possibility is exacerbated with dynamic scoring, which might damage the budget process's credibility.

Arguments for Dynamic Estimating Under Certain Circumstances

Some have argued that dynamic estimates would be useful for Congress but only in certain situations. It has been argued that dynamic estimates should be provided by CBO and JCT but only for "major proposals" such as those that have a large estimated budgetary impact or those designated as "major" by either majority or minority committee and/or chamber leadership. (Recent dynamic scoring rules [discussed below] used a similar threshold.) It has been stated that neither CBO nor JCT have sufficient time or staff to carefully estimate the macroeconomic effects of every proposal for which they must conduct an estimate. (To this end, it has also been argued that dynamic estimates should be conducted only when CBO and JCT have the time and tools necessary to conduct the analysis.)

Further, it has been stated that dynamic estimates should be conducted for spending as well as revenue proposals because each have the potential to produce notable macroeconomic effects. (As stated below, in some years dynamic estimates were required only for revenue legislation.) It has also been argued that dynamic estimates should be provided for discretionary spending as well as direct/mandatory spending. As stated below, even when dynamic scoring requirements applied to spending as well as revenue, these rules excluded discretionary spending legislation (i.e., appropriations legislation).

Previous Dynamic Scoring Rules and Requirements

As described below, rules related to dynamic estimates have varied over the years.

In January 1997, the House first adopted a rule that explicitly mentioned dynamic estimates. It stated that a dynamic estimate provided by JCT could be included in the committee report accompanying "major tax legislation" (as designated by the House majority leader), but that the estimate could be used "for informational purposes only." The rule, which was in effect through 2002, defined a dynamic estimate as "a projection based in any part on assumptions concerning probable effects of macroeconomic feedback" and required that the estimate include a statement identifying all such assumptions.

When the new rule was adopted in January 1997, JCT staff hosted a symposium entitled "Modeling the Macroeconomic Consequences of Tax Policy." According to JCT

This symposium presented the results of a year-long modeling experiment by economists noted for their work in developing models of the U.S. economy. The purpose of this experiment was to explore the predictions of a variety of models regarding the macroeconomic feedback effects of major changes in the U.S. tax code with a focus on evaluating the feasibility of using these types of results to enhance the U.S. budgeting process.

In January 2003, the House replaced its previous dynamic scoring rule with a more extensive rule, which remained in effect through 2014. Whereas the previous rule had permitted a dynamic estimate to be included in a committee report, the new House rule required it. Further, whereas the previous rule had applied only to bills designated as "major tax legislation," the new rule applied to any bill reported by the House Committee on Ways and Means that proposed to amend the Internal Revenue Code. The new rule also omitted the previous provision that explicitly required the estimate be "used for informational purposes only."

The new rule no longer used the term "dynamic estimate" but instead used the term "macroeconomic impact analysis," which the rule defined as an estimate provided by JCT "of the changes in economic output, employment, capital stock, and tax revenues expected to result from enactment of the proposal." The estimate was required to identify critical assumptions and the source of data underlying that estimate.

Around the time of the rule's adoption in 2003, the JCT released a report providing an overview of the joint committee's efforts to model macroeconomic effects of proposed tax legislation. While varying in length and detail, the macroeconomic analyses provided by JCT during this period (2003-2014) included information on the expected macroeconomic effects (if any) of the proposed legislation, provided general conclusions, and sometimes provided a range of potential budgetary effects using different models and different assumptions within models. The analyses did not include a specific dollar amount or point estimate . These analyses also reported details of the effects on different aspects of the economy (such as labor supply, output, and capital stock). In addition, the estimates often referenced the model(s) used for the analysis.

During this time the JCT used four different types of models. Crucially, all of these models incorporated the impact of supply-side effects in their dynamic estimates. Only the MEG and GI model also incorporated demand-side effects (for a brief discussion of these effects, see " Overview of Dynamic Estimating "). The models are briefly described below:

1. MEG: a macroeconomic growth (MEG) model that incorporates aggregate demand effects similar to those in most economic forecasting models and includes labor and savings responses. (This model falls into a class of steady state growth models called Solow models, discussed below.) 2. OLG: an overlapping generations (OLG) life-cycle model that assumes that generations of individuals optimize choices of consumption and leisure over a lifetime and cannot include demand-side effects. 3. GI: a Global Insight (GI) private econometric forecasting model that captures demand-side effects. 4. DSGE: a domestic stochastic general equilibrium (DSGE) model that assumes that individuals optimize over infinite lifetimes and often does not, without modification, capture aggregate demand effects to decrease unemployment.

During this period, the JCT prepared five published macroeconomic estimates of legislative proposals: one (in 2003, for the Jobs and Growth Tax Relief Reconciliation Act, P.L. 108-27 ) that used MEG, GI, and OLG; two that used MEG only (the 2009 economic stimulus legislation and the 2009 Affordable Care Act) and two that used MEG and OLG (a bill extending bonus depreciation in 2014 and the Tax Reform Act of 2014). Several bills were examined but were too small for a macroeconomic analysis. The GI model was dropped after 2003, and the DSGE model was introduced in 2006. That model did not allow unemployment. None of the published analyses of legislation used the DSGE model. The JCT also provided illustrative analysis for different types of proposals on two occasions: to compare individual rate cuts, corporate rate cuts, and increases in the personal exemption in 2005 and to examine a revenue-neutral tax cut that broadened the individual income tax base and lowered the rate in 2006. The first analysis used MEG and the second used the MEG, OLG, and DSGE models.

During this period, dynamic estimates were required to be conducted for revenue and mandatory spending legislation that met the threshold of "major legislation" under both a House rule and budget resolutions.

In 2015, the House replaced its former rule with House Rule XIII, clause 8. The new rule, which was in effect through 2018, expanded the type of legislation for which dynamic estimates were to be conducted to include not just revenue proposals, but also mandatory spending proposals. This meant that the rule now required dynamic estimates from CBO as well as JCT, but only for "major legislation," which was defined as (1) legislation that would be projected (in a conventional cost estimate) to cause an annual gross budgetary effect of at least 0.25% of projected U.S. GDP, (2) mandatory spending legislation designated as major legislation by the chair of the House Budget Committee, or (3) revenue legislation designated as major legislation by the chair or vice chair of the JCT. Although not explicitly stated in the new rule, the rules change resulted in dynamic estimates, for the first time, including a point estimate (i.e., a specific dollar amount) as opposed to a range of potential budgetary outcomes.

Under this rule, the estimates would incorporate the budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables resulting from such legislation. The estimate was, to the extent practicable, to include a qualitative assessment of the long-term budgetary effects and macroeconomic variables of such legislation, and to identify critical assumptions and the source of data underlying the estimate.

During this period, Congress also used the budget resolution to direct CBO and JCT to provide dynamic estimates. The budget resolutions agreed to by both the House and Senate for fiscal years 2016 and 2018 included provisions that required dynamic estimates in both houses for the 114 th and 115 th Congresses.

The requirements included in these provisions were very similar to the House rule described above. The dynamic estimates were required to be conducted for revenue and mandatory spending legislation that met the threshold of "major legislation." Major legislation was again described as legislation that would be projected (in a conventional cost estimate) to cause an annual gross budgetary effect of at least 0.25% of projected U.S. GDP, but this version of the rule excluded any legislation that met this criterion as a result of a timing shift. To accommodate the Senate's constitutional authority to approve treaties, the rule expanded the definition of major legislation to include any treaty with an impact of at least $15 billion in that fiscal year. And the definition of major legislation also included any mandatory spending legislation designated as major legislation by the chair of the House or Senate Budget Committee, or revenue legislation designated as major legislation by the chair or vice chair of the JCT.

As with the House rule, these estimates were required to incorporate the budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables resulting from such legislation. The estimate was, to the extent practicable, to include a qualitative assessment of the long-term budgetary effects and macroeconomic variables of such legislation, and to identify critical assumptions and the source of data underlying the estimate. For the Senate provision applying to the 115 th Congress, the estimates were to include the distributional effects across income categories, to the extent practicable.

Although not explicitly stated in the provisions, the requirements resulted in dynamic estimates, including a point estimate (i.e., a specific dollar amount) as opposed to a range of potential budgetary outcomes. Although the House and Senate Budget Committees might presumably have used such point estimates as the official estimate for the purposes of budget enforcement (under the authority granted by Section 312 of the CBA), the Senate Budget Committee communicated that the dynamic estimates would be used for informational purposes only.

Estimates during the 2015-2018 period included a point estimate that provided a conventional estimate and the macroeconomic effects for a 10-year period. The JCT currently uses the three models previously discussed: MEG, OLG, and DSGE. In the past the JCT also had different behavioral responses within models (e.g., a high and low labor supply response in MEG). In 2014 JCT had only the MEG and OLG models; the first introduction of the DSGE model in a published estimate for legislation was in 2017. Discussions of the DSGE model in 2018 suggested that it now allowed unemployment. CBO has two models that assume full employment. One is a long-term model that CBO refers to as a "Solow growth model" and the other is a life cycle model. (The Solow growth model is similar to the long-term growth aspects of MEG and the life cycle model is an OLG model. The similarities reflect the way they incorporate behavioral responses.) The Solow model has stronger and weaker labor supply responses and the OLG model has alternative assumptions about how the model was to be closed and whether local or worldwide interest rates predominated. CBO also has a separate short-term model that can capture fiscal stimulus that reduces unemployment, while JCT combines short-term and long-term effects in its MEG and DSGE models.

Beginning in 2003, JCT and CBO presented results from more than one model and with different behavioral assumptions within models. Beginning in 2015, when point estimates were provided, the JCT reported a single estimate that was a weighted average of the various models' point estimates. JCT provided information on the weights used, but did not separately report the different models' point estimates when more than one model was used. Also, in contrast to past informational macroeconomic modeling, there was no reported sensitivity analysis within the models (sensitivity analysis effectively measures how macroeconomic effects may change under different behavioral assumptions, such as how much a change in tax rates affects labor supply). In the four analyses that JCT reported on, in the first two cases (in 2015) only MEG, with the high rather than the low labor response assumption, was used. In the case of the major 2017 tax revision, MEG was weighted at 40%, OLG at 40%, and DSGE at 20%. In the final case, MEG was weighted at 40% and OLG and DSGE were each weighted at 30%. CBO and JCT jointly estimated the effects of some bills associated with repeal of the Affordable Care Act or modification of that act (JCT estimated certain tax provisions and CBO estimated the other provisions). JCT used the MEG model and CBO used its Solow model along with its short-term model, each with a single set of labor supply responses.

CBO had been preparing macroeconomic analyses of the President's budget since 2003, reporting the results from multiple models and assumptions. When CBO prepared its standard analysis of the President's budget in 2015 and 2016, the analysis continued to report the results from both models, along with estimates of immigration's effect on productivity, with sensitivity analysis within the models leading to 16 different estimated effects on GDP over 10 years ranging from 0.7% to 2.8%. CBO has not prepared any subsequent macroeconomic analyses of the President's budget.

Currently, no House or Senate rules explicitly require the preparation or use of dynamic estimates, and Congress may choose to examine what rules changes, if any, are needed in the area of dynamic estimates.

While committees and Members continue to have the ability to request that CBO or JCT provide dynamic estimates for certain policies or legislative proposals, at some point Congress may choose to reinstitute explicit rules related to such dynamic estimates. These requirements could be articulated as formal direction from the committees of jurisdiction or leadership to JCT and CBO. Alternatively, as was done previously, these requirements might be included in chamber rules or in budget resolutions, or might be included in a standing order or in statute.

If Congress were to reinstitute explicit rules related to dynamic estimates, it may choose to consider many facets of such potential rules:

Will there be a threshold for the creation of such estimates? Should the proposal also allow the legislation to be designated as "major" by either majority or minority committee and/or chamber leadership? Should CBO and JCT provide dynamic estimates only for "major proposals," such as those that have a large estimated budgetary impact? If so, what will be the threshold for major? Past rules have used a measure equal to 0.25% of GDP. Would the effect on GDP be measured by the entire legislation, or would it be triggered by an individual provision or group of provisions (such as revenue raisers or revenue losers in a tax bill) that met the threshold? The latter approach would capture revenue-neutral legislation that nevertheless made significant changes that could affect GDP. Should rules for dynamic estimates apply to spending as well as revenue proposals since both have the potential to cause notable macroeconomic effects? And if the rule applies to spending, will it apply to discretionary spending that varies from the baseline as well as direct/mandatory spending? What information should be included in such estimates? Practices prior to 2015 provided insight into how sensitive the results were to choice of model and parameters. The JCT has also continued to present information on the parameters of its models that lead to behavioral responses. The justification for assigning model weights might also be addressed in more detail. Should dynamic estimates be used only for informational purposes, or also for enforcement purposes? Dynamic estimates allow Congress to weigh the merits of the legislationâshould they also be used to determine whether the legislation complies with the budgetary rules that Congress has created for itself? Should additional resources be provided to CBO and JCT so that they might develop greater capacity for providing dynamic estimates?