Vehicle Electrification: Federal and State Issues Affecting Deployment

Summary: Most of the 270 million cars, trucks, and buses on U.S. highways are powered by internal combustion engines using gasoline or diesel fuel. However, improvements in technology have led to the emergence of vehicle electrification as a potentially viable alternative to internal combustion engines. Several bills pending in the 116 th Congress address issues and incentives related to electric vehicles and charging infrastructure.

Summary: Experience with fully electric vehicles is relatively recent: While a few experimental vehicles were marketed in the United States in the 1990s, the first contemporary all-electric passenger vehicles were introduced in 2010. Since then, newer models have increased the range an electric vehicle can travel on a single charge, and charging stations have become more readily available. These developments have been spurred by a range of government incentives, both in the United States and abroad. Transit buses are the fastest-growing segment of vehicle electrification in China, while in the United States and the European Union, the pace of bus electrification is slower.

Summary: In the United States, federal incentives for electric passenger vehicle purchases have remained largely unchanged for more than a decade and are based primarily on tax credits for electric vehicle purchases and recharging infrastructure investments, and spending on battery chemistry research to develop less-expensive technologies:

Summary: The plug-in electric tax credit permits a taxpayer to take a credit of up to $7,500 for each vehicle that can be recharged from the electricity grid; it phases out after a manufacturer has sold 200,000 eligible vehicles, a threshold that has been met by Tesla and General Motors. A tax credit for installation of alternative fuel vehicle refueling property expired in 2017; it had allowed a tax credit of $1,000 for equipment installed at a residence and up to $30,000 for business installations. I nvestment in transportation electrification research and development (R&D) , which has led to the gradual reduction in the cost of producing lithium-ion batteries, is administered by the U.S. Department of Energy (DOE) in cooperation with private industry. Although the Trump Administration has recommended large reductions in these programs, Congress has maintained annual funding for sustainable transportation of nearly $700 million in the past two fiscal years.

Summary: Other programs that directly influence the level of vehicle electrification include the DOE Clean Cities Program, which supports local efforts to reduce fossil fuel-powered transportation, and the Department of Transportation's Alternative Fuel Corridors, which are designated Interstate Highway corridors with a sufficient number of alternative fueling stations, including electric vehicle chargers, to allow alternative fuel vehicles to travel long distances. The federal government also funds municipal transit bus electrification through Federal Transit Administration grants, which may be used for the purchase of all-electric buses. The pace of electrification also may be affected by proposals for less stringent federal standards for Corporate Average Fuel Economy (CAFE) and greenhouse gas emissions from vehicles.

Summary: Beyond these federal programs, states and electric utilities provide a range of incentives for electrification. The National Conference of State Legislatures reports that 45 states and the District of Columbia offer incentives such as income tax credits for electric vehicle and charger purchases, reduced registration fees, and permitting solo drivers of electric vehicles to use carpool lanes. The California Zero Emission Vehicle program is spurring sales of electric vehicles in 10 states. Utilities can provide incentives to charge during off-peak hours, install public electric charging infrastructure, and utilize vehicle-to-grid (V2G) storage. V2G storage would allow idle vehicle batteries to supply electricity to the grid rather than drawing power from it during peak demand periods.

Motor vehicle electrification has emerged in the past decade as a potentially viable alternative to internal combustion engines. Although only a small proportion of the current motor vehicle fleet is electrified, interest in passenger vehicle electrification has accelerated in several major industrial countries, including the United States, parts of Europe, and China. Despite advances in technology, electric vehicles (EVs) continue to be significantly more expensive than similarly sized vehicles with internal combustion engines. For this reason, governments in many countries have adopted policies to promote development and sales of electric vehicles. This report discusses federal and state government policies in the United States to support electrification of light vehicles and transit buses, as well as proposals to reduce or eliminate such support.

Background on Motor Vehicle Electrification

More than 92 million light vehiclesâpassenger cars, pickup trucks, and SUVsâwere sold worldwide in 2018. The three largest markets were China (27 million vehicles sold), Europe (20 million), and the United States (17 million). Most of these vehicles are powered by internal combustion engines.

The global market for electrified vehicles is small but growing: In 2018, more than 2 million plug-in hybrid and battery electric vehicles were sold worldwide, a 64% increase over 2017. These account for about 2% of all passenger vehicle sales, both worldwide and in the United States. Demand for electric vehicles is expected to continue to grow, as some countries have called for a complete shift away from sales of new fossil-fuel vehicles by 2030.

The market for urban transit buses is smaller than the passenger car and SUV markets, but electric vehicles make up a larger part of its footprint. China leads in this category, with 106,000 electric buses put in service in 2017, bringing its total electric bus fleet to 384,000. It has been forecast to remain the largest electric bus market going forward. In the European Union (EU) and the United States, the pace of electrification is slower: More than 200 electric buses were sold in the EU in 2017, bringing the total in service to 1,700; in the United States, approximately 100 electric buses were sold, bringing the total to 300.

Two basic types of electric vehicles are now in use:

Hybrid electric vehicles (HEVs) have both internal combustion engines and electric motors that store energy in batteries. They do not plug into external sources of electricity, but use regenerative braking and the internal combustion engine to recharge. Plug-in electric vehicles, of which there are two types: plug-in hybrid electric vehicles (PHEVs) use an electric motor and an internal combustion engine for power, and they use electricity from an external source to recharge the batteries. Battery electric vehicles (BEVs) use only batteries to power the motor and use electricity from an external source for recharging. In this report, electric vehicles refer to these two types of plug-in vehicles, unless otherwise noted.

Electrification of vehicles has been limited by three factors: (1) the high cost of producing the lithium ion batteries (currently the preferred battery chemistry) that propel them; (2) their limited range; and (3) vehicle charging time and location. Not all motorists have easy access to charging stations at home or at work, and it can take several hours to fully charge the battery that powers the vehicle, depending on the type of charger used.

In 2018, more than 361,000 plug-in electric passenger vehicles (including PHEVs and BEVs) were sold in the United States, as well as more than 341,000 hybrid electric vehicles. This was the first year in which total sales of plug-in vehicles exceeded sales of hybrids ( Figure 1 ). Nearly all automakers offer electric vehicles for sale: 42 different models were sold in 2018, with Tesla and Toyota recording the largest number of vehicle sales. Sales of plug-in hybrid and battery electric vehicles in 2018 rose by over 80% from the previous year, bringing the total sales of plug-in vehicles since 2010 to just over 1 million. The plug-in hybrid and battery electric share of the U.S. light vehicle market in 2018 was 2.1%.

The price of new electric vehicles is one factor inhibiting faster adoption. For example, the Leaf, a battery electric vehicle produced by Nissan, has a manufacturer's suggested retail price (MSRP) of $29,990, whereas the Nissan Sentra, a conventional vehicle similar in size and specifications to the Leaf, has an MSRP of $17,990. A smaller, less powerful vehicle with an internal combustion engine, the Nissan Versa, has an MSRP of $12,360; no electric counterpart is available in this price range. Electric vehicles are generally more expensive because of the high cost of producing the lithium-ion batteries that power them.

The federal government has supported vehicle electrification in several ways. There have been tax incentives for the purchase of vehicles as well as for construction of vehicle infrastructure, such as charging stations. Federal research and development investments have sought to reduce battery costs, increase vehicle range, and decrease charging times. The federal government has also made other investments to build out EV infrastructure.

Federal Tax Incentives for Electrification

Two types of tax incentives have been used to promote electric vehicles: consumer incentives for the purchase of plug-in electric vehicles and individual and business incentives to install electric-vehicle charging stations to expand the charging network.

The credit for plug-in electric vehicles (Internal Revenue Code [IRC] Â§30D) is the primary federal tax incentive for electric vehicles. The credit ranges from $2,500 to $7,500 per vehicle, depending on the vehicle's battery capacity. The tax credit is not a function of the vehicle's price. Therefore, the subsidy amount is larger (as a percentage of a vehicle's price) for less-expensive vehicles. Generally, taxpayers claim tax credits for vehicle purchases. If the purchaser or lessee is a tax-exempt organization, the seller of the vehicle may be able to claim the credit.

The plug-in electric vehicle credit begins phasing out after a vehicle manufacturer has sold 200,000 qualifying vehicles for use in the United States. General Motors (GM) and Tesla have reached the 200,000-vehicle limit, and tax credits for their vehicles have begun to phase down.

Empirical studies have found that tax incentives lead to increased EV purchases. However, particularly for higher-income taxpayers, the tax credit may be claimed for purchases that would have occurred absent a federal tax incentive. Some studies have also found that incentives given closer to the point of sale, such as a rebate given at the time of purchase, are more effective in stimulating vehicle sales than tax credits.

The Joint Committee on Taxation (JCT) projects that the plug-in electric vehicle credit will reduce federal tax revenues by $7.5 billion between FY2018 and FY2022. Any extensions to or expansions of the credit could increase this amount. About half of the forgone revenue is from credits claimed on corporate tax returns. Additionally, the tax credits tend to be claimed by higher-income taxpayers. For 2016, 78% of the claimants filed returns with adjusted gross income (AGI) of $100,000 or more, and such returns accounted for 83% of the amount claimed. (By comparison, of all returns filed, about 17% have AGI above $100,000.)

Legislation has been introduced in the 116 th Congress that would modify the plug-in electric vehicle tax credit. Some bills propose expanding the credit. For example, the Driving America Forward Act ( S. 1094 / H.R. 2256 ) would increase the per-manufacturer cap to 600,000 vehicles and modify the credit during the phase-out period. The Electric Credit Access Ready at Sale (Electric CARS) Act of 2019 ( S. 993 / H.R. 2042 ) would extend the credit through December 31, 2029, and would also allow the credit to be transferred to the financing entity.

Other proposals would eliminate the credit. The Fairness for Every Driver Act ( S. 343 / H.R. 1027 ) would eliminate the credit and impose federal highway user fees on alternative fuel vehicles.

The primary federal tax incentive for EV infrastructure has been the tax credit for alternative fuel vehicle refueling property (IRC Â§30C), which expired in 2017. The credit was generally 30% of the cost of qualified property, with the credit limited to $30,000 for businesses at each separate location and $1,000 for property installed at a taxpayer's primary residence. For property sold to a tax-exempt entity, such as a school or a hospital, the seller of the property may have been able to claim the credit. Qualifying property included electric charging infrastructure as well as other forms of clean-fuel refueling property.

The credit for alternative fuel vehicle refueling property has been a temporary tax credit since first enacted in 2005. The credit has been extended six times, often retroactively. The credit most recently expired at the end of 2017, but could be extended again. The uncertainty surrounding temporary tax incentives that are often retroactively reinstated diminishes their effectiveness as an investment incentive. The Electric CARS Act of 2019 ( S. 993 / H.R. 2042 ) would extend the credit through 2029.

Data are not available on how much of the revenue loss associated with this provision is for EV infrastructure. The most recent one-year extension of this incentive, for all types of alternative fuel refueling property, was estimated to reduce federal tax revenues by $67 million over the 10-year budget window. Making the credit permanent for all types of qualifying property would reduce federal revenue by an estimated $332 million between FY2018 and FY2027.

The tax credits for EV charging infrastructure that expired at the end of 2017, if extended, could support additional investment in Level 2 charging infrastructure. Expanded access to Level 2 charging at homes and workplaces could be a cost-effective solution to building out EV infrastructure in the near term. However, if electric vehicles are to be widely used for long-distance trips, a network of direct-current fast charger (DCFC) infrastructure (Level 3) is likely necessary. The tax credit is relatively small compared to the cost of a DCFC charging station. The high cost of this infrastructure, even if tax credits are extended, may continue to pose a barrier, especially if utilization rates are low.

Given the differences in the costs and benefits associated with Level 2 and DCFC chargers, tax incentives could be provided that reflect some of these differences. There are few DCFC public chargers, yet having access to such infrastructure may have strong network benefits. Broadly, access to charging infrastructure has been shown in some studies to be a driver of demand for EVs. If Congress wanted to encourage greater EV use, tax credits could be designed to provide a larger incentive for investments in public DCFC infrastructure, relative to Level 2 charging stations.

Storage incentives are another policy option that could support investment in EV infrastructure. On-site battery storage systems can be installed to allow solar power to be used for EVs. Tax incentives for batteries that facilitate EV use could encourage more of this activity. The Energy Storage Tax Incentive and Deployment Act of 2019 ( S. 1142 / H.R. 2096 ) would provide an investment credit for business or home use of energy storage.

Tax-preferred bond financing options could also be used to support EV infrastructure investment. State and local financing for infrastructure solely or partially dedicated to EV charging projects may use tax-exempt bonds so long as the project is classified as serving a "public purpose" as defined in the federal code (IRC Â§141). A federal infrastructure bank or "green bank" might also be used to support EV infrastructure investment. One option to capitalize this type of bank would be to issue tax-favored bonds.

Since 1956, federal surface transportation programs have been funded largely by taxes on motor fuels that flow into the highway account of the Highway Trust Fund (HTF). A steady increase in the revenues flowing into the HTF due to increased motor vehicle use and occasional increases in fuel tax rates accommodated growth in surface transportation spending over several decades. In 2001, though, trust fund revenues stopped growing faster than spending. In 2008, Congress began providing Treasury general fund transfers to keep the highway account solvent.

Electric vehicles do not burn motor fuels, and hence users do not pay motor fuels taxes. Several states have imposed some form of tax or fee on electric vehicles that is dedicated to transportation, such that EV drivers also contribute to paying for highway infrastructure. Legislation has been introduced in the 116 th Congressâthe Fairness for Every Driver Act ( S. 343 / H.R. 1027 )âthat would, in addition to repealing the existing tax credit for plug-in electric vehicles, impose an annual fee on alternative-technology vehicles that draw power from a source not subject to fuel excise taxes. This fee would be designed to compensate for plug-in electric vehicles not paying the gas tax (or other fuel excise tax). Imposing a fee on electric vehicles or other alternative vehicles would increase their cost of ownership, although as a share of the vehicle's total cost, the amount would likely be small. Exempting electric vehicles from taxes or fees imposed on other types of vehicles is one option for encouraging the purchase of electric vehicles.

Investment in transportation electrification R&D is one approach to reducing the overall cost of electric vehicle technologies. The Obama Administration made vehicle electrification a national goalâincluding increased spending on battery R&D, stimulus funding for construction of battery manufacturing plants in the United States, and development of DOE electric vehicle research and demonstration programs such as the "EV Everywhere Grand Challenge." The Trump Administration requested reductions in funding levels for vehicle technologies R&D for FY2018 and FY2019, but Congress instead increased the program's funding levels for those years.

Federal R&D funding for electric vehicles and electric vehicle charging infrastructure is primarily administered through the DOE's Office of Energy Efficiency and Renewable Energy (EERE). Within EERE, the Office of Transportation oversees the sustainable transportation R&D portfolio, which includes R&D programs in vehicle technologies, bioenergy technologies, and hydrogen and fuel cell technologies. Activities related to electric vehicles and charging infrastructure are within the Vehicle Technologies Office.

In the 116 th Congress, some legislative proposals would support R&D programs. The Vehicle Innovation Act of 2019 ( S. 1085 / H.R. 2170 ) would authorize R&D programs and other activities to develop innovative vehicle technologies (including electric vehicles and charging infrastructure).

Appropriations for Electric Vehicle Research

Congress provides funding for electric vehicle technologies R&D through annual appropriations to EERE in the Energy and Water Development appropriations bill. The Trump Administration's budget request for EERE was $343 million for FY2020, $2,036 million (86%) less than the FY2019 enacted level of $2,379 million ( Table 1 ). The budget request, which "focuses DOE resources toward early-stage R&D and reflects an increased reliance on the private sector to fund later-stage research, development, and commercialization of energy technologies," would provide $73.4 million to vehicle technologies for FY2020, $279.6 million (79%) less than the $344 million that was directed to vehicle technologies within the Joint Explanatory Statement of the FY2019 appropriations conferees.

The FY2019 joint explanatory statement included support for various vehicle technologies to advance transportation electrification research:

$163.2 million for the battery and electrification technologies subprogram ($38.1 million for electric drive research and developmentâincluding $7 million to enable extreme fast charging and advanced battery analytics); $10 million for continued funding of Section 131 of the 2007 Energy Independence and Security Act ( P.L. 110-140 ) for transportation electrification; and $37.8 million for the Clean Cities program, which provides competitive grants to support alternative fuel, infrastructure, and vehicle deployment activities.

According to the FY2020 DOE budget request, the vehicle technologies program has set goals that "are necessary for new technology options to be more efficient and at least as affordable compared to [the] baseline while also accounting for consumer pay- back period expectations." To advance vehicle electrification, DOE established the following research priorities:

identify new battery chemistry and cell technologies with the potential to reduce the cost of electric vehicle batteries by more than half, to less than $100 per kilowatt hour (kWh) (with an ultimate goal of $80/kWh); increase vehicle range to 300 miles; and decrease charge time to 15 minutes or less by 2028.

The request for FY2020 would reduce funding and prioritize "early-stage activities," including the development of critical materials-free battery technologies. The request would eliminate funding for battery safety testing, battery thermal performance testing, and Clean Cities coalition support, training and technical assistance, and partnership activities.

The DOE Clean Cities program supports local actions to reduce petroleum use in transportation. The program funds transportation projects nationwide through a competitive application process, and leverages these funds with additional public- and private-sector matching funds and in-kind contributions. While the program supports a variety of alternative fuels and vehicles in an effort to reduce petroleum use, funding opportunities by Clean Cities that directly support EVs include the EV Everywhere PlugâIn Electric Vehicle Local Showcases.

EV Everywhere PlugâIn Electric Vehicle Local Showcases were selected in 2016 and are in progress. The three projects were selected to promote and demonstrate plug-in electric vehicle (PEV) use by "establishing local showcases that provide a hands-on consumer experience and in-depth education in a conveniently located, brand-neutral setting." The awardees plan to establish showcases in at least 14 states, including states in the Upper Midwest, California, the Pacific Northwest, and New England.

In the FY2019 joint explanatory statement, Congress directed DOE "to continue to support the Clean Cities program, including competitive grants to support alternative fuel, infrastructure, and vehicle deployment activities." In the FY2020 budget request, the Trump Administration proposed eliminating funding for the Clean Cities program. In the 116 th Congress, two bills that pertain to electric vehicles would establish competitive grant programs within the Department of Transportation for electric vehicle charging infrastructure ( H.R. 2616 and S. 674 ).

Purchases of electric vehicles in the near future will depend to some extent on the steps state and local governments and private entities take to build a reliable network of charging stations. Section 1413 of the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ) seeks to address that goal; it requires the Department of Transportation (DOT) to designate by 2020 national alternative fuel corridors (AFCs) to promote vehicle use of electricity, hydrogen, propane, and natural gas. The Federal Highway Administration (FHWA) has been working with other federal, state, and local officials and industry groups to plan AFC designations on interstate corridors ( Figure 2 ). FHWA has assigned designations to highways as either "corridor ready"âthey have enough fueling stations to serve a corridorâor "corridor pending," where alternative fueling is insufficient. In the case of electric vehicles, a corridor-ready designation would apply if there were EV charging stations at 50-mile intervals, with a goal of establishing Level 3 DC Fast Charge infrastructure.

Under this program, FHWA has developed standardized AFC signage and other forms of public education, and encouraged regional cooperation in planning new fueling networks. FHWA has undertaken three rounds of AFC nominations, the latest announced in April 2019. FHWA has identified building out alternative corridors on the most traveled Interstates, such as I-95 and I-80, as priorities for third-round funding. An additional goal is to secure nominations for areas targeted for EV investments by Electrify America in its Zero Emission Vehicle (ZEV) investment plan.

Signage and installation of alternative fueling infrastructure along these corridors have been determined to be eligible expenses under FHWA's Congestion Mitigation and Air Quality Improvement (CMAQ) Program. In addition, the Department of Energy's Clean Cities program provides funding for fueling infrastructure, and some states have similar programs.

Federal Support for Municipal Bus Electrification

Until recently, the operation of battery electric buses in U.S. cities was seen as a long-term prospect because of their relatively high cost, range limits, and recharging infrastructure needs. But with technological improvements, public transportation agencies have begun to show interest in electric buses to replace vehicles powered by diesel and other fossil fuels. This interest is especially strong in metropolitan areas with air quality problems. The Federal Transit Administration (FTA) provides substantial support to transit agencies to purchase buses. Federal funds can be spent on most types of bus technology; the choice of technology is up to the transit agency concerned.

Transit buses typically operate over short distances with fixed routes and frequent stops. In 1996, 95% of the buses in service were powered by diesel fuel ( Figure 3 ). More recently, transit agencies have integrated buses fueled by compressed natural gas (CNG), liquefied natural gas (LNG), and biodiesel into their fleets. Since the end of the last recession, the share of lower-emission hybrid busesâincluding diesel buses with electric motorsâhas also increased, rising from just under 5% of buses in use in 2009 to nearly 15% in 2016. Diesel-electric buses are powered by both an electric motor and a smaller-than-normal internal combustion engine; regenerative braking systems store energy from use of the bus's mechanical systems, giving the bus greater range. The purchase price of hybrids is less expensive than a fully electric bus, and hybrids reduce emissions compared to conventional diesel buses.

There were 300 battery electric buses in operation domestically at the end of 2017, less than 0.5% of the 65,000 buses in public transit agencies' fleets. However, the two biggest transit bus systems in the United States, Los Angeles Metro and New York City Transit, have announced plans to move to zero-emission bus fleets, most likely using battery electric buses, by 2030 and 2040, respectively.

Electric buses are typically expensive to purchase, costing as much as $300,000 more than conventional diesel buses, and require additional investment to build recharging infrastructure. On the other hand, electric buses are quieter than internal combustion engine vehicles, may have lower operating costs due to the absence of engines and transmissions requiring maintenance, and have low or zero direct emissions. The range an electric bus can travel on one charge has in the past been a limiting factor, but newer models can travel more than 200 miles, still short of the 600-mile or more range that conventional and other alternative fuel buses can travel. A study by Carnegie Mellon University found that when social costs, such as the health effects of diesel emissions, are taken into account, battery electric buses have lower total annualized costs than conventional diesel buses over the typical 12-year life cycle of a transit bus.

Electric buses are generally eligible for FTA funding under several programs, including the Bus and Bus Facilities Program. One discretionary component of the FTA bus program is the Low or No Emission Vehicle (Low-No) program, which provides funding to state and local authorities for the purchase or lease of zero-emission and low-emission transit buses as well as acquisition, construction, and leasing of required supporting facilities. Electric buses are purchased through the Low-No bus program; mandatory spending of $55 million per year through FY2020 was authorized in the FAST Act. An additional $29.5 million was appropriated for FY2018.

School buses generally have diesel engines, and they are primarily funded locally. FTA does not fund school buses, but the Environmental Protection Agency (EPA) administers the School Bus Rebate Program, which assists school districts in reducing diesel emissions. In 2017, nearly $9 million was provided to replace diesel buses with diesel-electric hybrids.

In the 116 th Congress, some legislative proposals would support vehicle fleet electrification, including transit buses. The Green Bus Act of 2019 ( H.R. 2164 ) would require that any bus purchased or leased with funds provided by the Federal Transit Administration for public transportation purposes be a zero-emission bus. The Federal Leadership in Energy Efficient Transportation (FLEET) Act ( H.R. 2337 ) would authorize the U.S. Postal Service to enter into energy savings performance contracts to purchase or lease low-emission and fuel-efficient vehicles (including electric vehicles) and to construct or maintain infrastructure, including electric vehicle charging stations, among other provisions. Â

Other Federal Policies Affecting Electrification

The following policies were generally established for purposes not directly related to vehicle electrification, but they have dimensions that may support that goal.

In 2016, Volkswagen Group reached a number of legal settlements concerning violations of the Clean Air Act. As part of its settlement terms, Volkswagen pledged to invest $2 billion over a 10-year period in zero-emissions vehicle infrastructure and education in select U.S. cities through its Electrify America initiative. Of that amount, $800 million is to be spent in California. As an additional condition, Volkswagen was also required to fund a $2.7 billion national Environmental Mitigation Trust, funds from which are available to states and other beneficiaries for mitigating the negative impacts of the excess diesel emissions that were released by Volkswagen's noncompliant vehicles. States could choose to spend some of this special funding on bus electrification, including school buses.

Federal Motor Vehicle Environmental Regulations

The first motor vehicle fuel economy standards were enacted in 1975 in response to the oil embargo of 1973-1974 (Energy Policy and Conservation Act of 1975; P.L. 94-163 , as amended). The National Highway Traffic Safety Administration (NHTSA) sets and enforces the Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks, which were most recently legislatively set in the Energy Independence and Security Act of 2007 ( P.L. 110-140 ) at 35 miles per gallon (mpg) by 2020. Because EPA has authority to regulate greenhouse gas (GHG) emissions, it joined with NHTSA during the Obama Administration to promulgate new, stricter combined CAFE/GHG standards for motor vehicles. These new standards established targets for reduced GHG emissions and rising CAFE fuel economy of nearly 50 mpg by model year (MY) 2025. Electrification was seen as one means of reaching the new CAFE/GHG targets.

The Trump Administration has proposed to leave the current CAFE/GHG standards in place through model year 2026, based on its analysis that economic and technological factors have changed since the standards were put in place in 2010. EPA asserted in April 2018 that the goals established for MY2026 could be achieved only with more extensive vehicle electrification than now anticipated, and rejected previous EPA determinations that EV sales in future years would grow rapidly enough to enable automakers to comply with the MY2022-MY2025 standards: "Based on consideration of the information provided, the Administrator believes that it would not be practicable to meet the MY 2022â2025 emission standards without significant electrification and other advanced vehicle technologies that lack a requisite level of consumer acceptance."

Prospects for Electrification of Autonomous Vehicles

Fully autonomous passenger vehicles hold the potential for safer transportation and new mobility for the elderly, the disabled, and those who cannot afford to purchase a car. The projected timeline for emergence of fully autonomous vehicles varies from several years to several decades.

It is often assumed that autonomous vehiclesâincluding those providing ride-sharing servicesâwill employ electric motors instead of internal combustion engines, but that assumption is based on the types of federal and state policies that are put in place. In the absence of policies favoring EVs, future autonomous vehicles could be powered by fossil fuels.

There are several reasons why electrification may not be the ultimate choice for autonomous vehicles. Analyses by Ford and Volvo have for the following reasons led them to retain internal combustion engines for their ride-sharing ventures for the present:

Expense and I nconvenience . Electric vehicles remain expensive compared to conventional vehicles, and many models have short driving ranges and long refueling times. Shared vehicles, which may be on the road for many hours a day, magnify these shortcomings. Battery L ife . Frequent use of battery fast charging is known to lead to faster degradation of the battery. Energy- I ntensity . Autonomous vehicles rely on energy-intensive technologies. It has been estimated that operation of an autonomous driving system for two hours in an electric vehicle could use as much as 10% of its stored energy before the vehicle moves, requiring even more frequent recharging.

These drawbacks are countered by the following factors that could make electrification of autonomous vehicles the more attractive power source:

Compatibility . The extensive use of computers and sensors in autonomous vehicles may be easier to embed in electric vehicles, which have fewer mechanicalâand more electronicâparts than a conventional vehicle. Operability . Electricity is generally less expensive than gasoline or diesel, and maintenance costs for electric vehicles, with many fewer parts, may be considerably lower. Emissions . The power demands of autonomous vehicle equipment and computers will reduce the fuel economy of gasoline and diesel vehicles and increase emissions. It has been estimated that increased power requirements will increase emissions from combustion vehicles by over 60 grams of CO 2 equivalent per mile, equal to reducing fuel economy of a 35 mpg vehicle to 29 mpg. Switching to electricity would diminish the direct emissions.

Acceptance of electric vehicles and related infrastructure is affected by legislation, regulations, and policies adopted by state agencies and electric utilities.

Incentives vary widely from state to state. The National Conference of State Legislatures tracks vehicle and charger incentives on a state-by-state basis. Forty-five states and the District of Columbia currently offer incentives for certain hybrid or electric vehicles, or both. Those incentives include

permitting solo drivers of electric and hybrid vehicles to use high-occupancy (carpool) lanes, income tax credits and rebates for the purchase of an electric vehicle, reduced registration fees, parking fee exemptions, excise tax and emission test waivers, and income tax credits for installation of a home or business charger.

These incentives have been found to vary in their effectiveness. Several analyses have shown that tax incentives for electric vehicles and infrastructure are the "dominant factors in driving PEV adoption." Rebatesâwhich happen at the point of sale or within a short time after a vehicle purchaseâhave been identified as the most effective incentive because their value is clear to buyers at the time of a vehicle transaction.

The California Air Resources Board (CARB) adopted low-emission vehicle regulations in 1990, requiring automakers to sell light vehicles in that state that meet progressively cleaner emissions standards. As part of these emission regulations, CARB also established the Zero-Emission Vehicle (ZEV) program, which requires automakers to offer for sale the lowest-emission vehicles available, with a focus on battery electric, plug-in hybrid electric, and hydrogen fuel cell vehicles. The number of ZEVs each automaker is required to sell is based upon its total light-vehicle sales in California. CARB has set ZEV sales percentages through a vehicle credit system, increasing annually to 2025. Nine other states have adopted the California ZEV regulations. The states affected by the regulations represent over one-third of all U.S. new light vehicle sales.

Utilities and EVs and EV Infrastructure: Tax and Regulatory Issues

Electric utilities, which are regulated by the state in which they are located, are in a unique position as the primary providers of electricity to aid in integrating EVs into the grid. Utilities can provide incentives to consumers to charge EVs during off-peak hours when there is excess generation. Utilities may also be in the position to install public electric charging infrastructure, assuming that there are no limits on their owning these assets. Many of the barriers utilities face with respect to electrification infrastructure are regulatory, and the role of tax policy in addressing such barriers may be limited.

Sluggish growth in energy demand has posed a challenge for the electric utility sector. The industry has recognized EVs as an opportunity for growth. For this reason, electric utilities may have their own market-based incentives (absent federal intervention) to invest in EV infrastructure and take measures to support consumer EV adoption. Further, electric utilities may support extending current-law vehicle and infrastructure tax credits. At the same time, preparing the grid for a surge in electric car ownership could require substantial capital investments, if peak demand is increased.

Tax Incentives to Utilities for Electric Vehicle Infrastructure

A number of challenges are associated with providing tax incentives to utilities that provide EV infrastructure. While 65% of electricity customers across the United States are customers of investor-owned utilities, most other users purchase electricity from cooperatives or municipal power providers. There are limited options for providing a direct federal tax benefit to cooperative or municipal utilities that do not pay federal income taxes. Further, in many states customers may purchase electricity from competing suppliers and pay the local electric utility for delivering it. A tax incentive to provide EV infrastructure might be made available only to utilities, to other electricity suppliers, or to both. Applicability of such an incentive would vary according to state policies or the type of utility.

State regulatory commissions typically establish prices or rates that allow utilities to earn a rate of return that the regulator determines to be reasonable. This rate of return is fixed, such that additional tax incentives do not necessarily increase the return that a utility can realize. Federal taxes are an operating expense. In some states, tax incentives that reduce utilities' operating expenses result in lower rates for electricity customers (not higher returns for utilities). Hence, federal tax incentives may provide a limited near-term incentive for utilities to increase capital spending on EV infrastructure.

In the United States, the sale of electricity is governed by many different federal, state, and local regulations. When it comes to the sale of electricity for the purpose of charging EVs, the states generally have regulatory jurisdiction over retail electricity transactions, though federal and municipal authorities may also play a role. State approaches to regulation vary considerably.

Rules and regulations governing the retail sale of electricity generally originate with a state public utility commission. An electric utility is defined in federal law as any person, state, or federal agency "which sells electric energy." This definition could potentially be interpreted to mean that electric vehicle charging station operators are electric utilities by virtue of the fact that they sell electricity, and are therefore subject to all laws, requirements, and regulations pertaining to electric utilities.

Should charging station operators be subject to regulation as electric utilities, or is regulatory reform necessary to accommodate this new class of electricity transactions? Faced with the question of whether or how to regulate the operators, states have taken a variety of approaches:

Some states have issued new guidelines or regulations that define the requirements for regulated utilities to operate charging stations. For example, some states (e.g., Oregon) allow existing regulated utilities to invest in and operate EV charging stations as separate, nonregulated ventures. Others (e.g., Texas) have effectively limited the operation of charging stations to electric distribution utilities by requiring operators to meet high technical and financial standards. Still others (e.g., Kansas) have prevented electric utilities from owning and operating charging stations altogether. Other states (e.g., New York) have exempted charging station operators from public utility regulations. This leaves questions as to which regulatory agency, if any, is responsible for regulating the charging station operators, as well as whether additional regulation is needed in order to ensure fair market practices. Finally, some states have refrained from taking action altogether. Without regulatory changes, private charging station operators in these states may be subject to regulation as a utility by the state's public commission. Lack of clarity about how operators will be regulated is seen by some as an impediment to the spread of the technology in these states. In some cases, EV service providers have avoided regulation as a utility by providing charging services for free, or by charging customers by the minute rather than by the amount of electricity used.

Whether public utilities or private companies may operate electric vehicle charging stations and whether station operators are subject to regulation as a utility may affect deployment of EV charging infrastructure. State jurisdiction over retail electricity transactions may limit the potential role of the federal government in regulating the provision of EV charging services.

An additional consideration is the potential for electric vehicle batteries to be used for storage, referred to as vehicle-to-grid (V2G) storage. V2G storage would allow idle vehicle batteries to be used for grid services, such as demand response. The batteries could reduce vehicle owners' electricity demand during peak periods or provide electricity to the grid during peak periods in response to time-based rates or other financial incentives. In the United States, utilities are beginning to test V2G performance in demonstration projects. In addition to technology, other identified challenges include regulation, market, and end-user acceptance.


The Strategic Petroleum Reserve: Background, Authorities, and Considerations

Summary: Crude oil price volatility has consequences for the U.S. and global economy. The Strategic Petroleum Reserve (SPR), the U.S. stockpile of petroleum, has played a role in U.S. energy policy for over 40 years. The need for a stockpile of petroleum to help protect against supply disruptions became apparent after the 1973-1974 Arab oil embargo, during which time the average price of imported crude oil tripled.

Summary: The oil embargo also fostered the establishment of the International Energy Agency (IEA), an intergovernmental organization, and the development of coordinated plans and measures among IEA members for emergency responses to energy crises. Strategic petroleum stock holdings are one policy included in the agency's International Energy Program (IEP) agreement. As an IEA member and IEP signatory, the United States must meet certain stock holding thresholds and be prepared for a coordinated response during an emergency. In 1975, Congress passed the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) authorizing the creation of the SPR for storage of petroleum products to reduce the impact of supply disruptions and to carry out IEP obligations.

Summary: The United States uses the SPR to meet its IEP requirements. The U.S. federal government, through the U.S. Department of Energy (DOE), manages the SPR. EPCA authorizes the SPR to hold stocks of crude oil or any refined petroleum product. However, the SPR currently only holds crude oil.

Summary: Since 1975, Congress has enacted several laws that have expanded the role of the SPR. Through 2019, the SPR has released over 230 million barrels of crude oil for various authorized purposes. Presidents have ordered releases on three occasions in response to severe energy supply interruptions in coordination with other IEA member countries. Other sales authorized for various reasons (e.g., to generate revenue to reduce the budget deficit as well as to modernize the SPR) have reached around 88 million barrels through 2019. Three test sales have confirmed SPR operability. The Secretary of Energy has several authorized methods to acquire petroleum for the SPR: direct purchases, royalty-in-kind transfers (RIK), deferrals and exchanges, or other means.

Summary: Government analysis indicates that the United States has been a net exporter of crude oil and petroleum products from September 2019 through January 2020. The IEP does not require net exporters to maintain a petroleum stockpile. IEA members can use both public and commercial stocks to meet their obligation. Both public and privately held oil stocks have important roles to play in providing security in times of oil market disruptions. Similarly, both public and private oil stocks have some role in oil price determination and movements. However, there may be benefits to maintaining SPR oil stockpiles, as the oil market can often be unpredictable, as demonstrated by dramatic demand/supply shifts and subsequent low oil prices experienced in early 2020. Several signs have suggested oil markets may be more able to adjust to supply disruptions (though not necessarily an oversupply).

Summary: The changing role of the United States in world petroleum markets has driven a debate on how best to utilize the SPR. Congress's motivation in creating the SPR focused on a deliberate and dramatic physical supply disruption and on mitigating the economic effects of a shortage stemming from international events. As market conditions continue to evolve, and the United States experiences new market conditions, Congress may consider options for utilizing the SPR in an oversupplied, low oil price environment.

The Strategic Petroleum Reserve (SPR), the world's largest supply of emergency crude oil, has played a role in U.S. energy policy for over 40 years. The SPR's focus has evolved as conditions in the U.S. and world oil markets have changed. As created, the SPR's purpose was to "diminish the vulnerability of the United States to the effects of a severe energy supply interruption, and provide limited protection from the short-term consequences of interruptions in supplies of petroleum products." Additionally, as a signatory to the International Energy Program (IEP) agreement, the United States is obligated to maintain strategic petroleum stock holdings in preparation for a coordinated response during an emergency. Due to changes to the oil market over the past several years, the role of the SPR may be of congressional interest.

From the mid-1970s through the present day, the United States has absorbed a number of significant spikes in the price of crude oil and petroleum products from supply disruptions. Whether driven by disruptions in the physical supply of petroleum, unexpected demand growth, or by uncertainties owing to international conflicts and instabilities, oil price volatility has had consequences for the U.S. economy. The price of crude oil historically rises or falls with the world economy. However, supply generally does not smoothly follow demand, and numerous factors can impact crude oil prices (e.g., supply, demand, available supply, value of the dollar, geopolitical risks). Thus, oil prices can be volatile. Volatility in crude oil prices can disrupt or enable oil industry investments and productionâfactors that can have a ripple effect on the global economy. The oil market also responds to geopolitical events. Crude oil and petroleum products are globally traded commodities and as such, global price fluctuations affect U.S. prices and the economy.

Several signs suggest an oil market that may be better equipped to respond to supply disruptions: a trend in lower crude oil prices beginning in 2014, the role of Organization of the Petroleum Exporting Countries (OPEC), new U.S. capacity in the market, and evolving consumption patterns. Technological advancements employed in the United States have added significantly to U.S. crude oil production. In December 2015, Congress lifted restrictions on U.S. crude oil exports. The United States is exporting crude oil at record levels, causing U.S. crude oil and petroleum product net imports to decline. According to U.S. Energy Information Administration (EIA) data, the United States was a net exporter of crude oil and petroleum products from September 2019 through January 2020, the most recent data.

However, oil markets remain volatile. An oversupplied oil market, as experienced in early 2020, can contribute to lower crude oil prices. While low crude oil prices can often mean lower gasoline prices for consumers, it also can create economic challenges for oil producers and others along the supply chain, some of which may lead to long-term impacts. During a time of oversupply and low prices, some policymakers have discussed the possibility of having the Department of Energy (DOE) purchase crude oil to increase oil stockpiles in the SPR. However, such a purchase would require appropriations from Congress.

The creation of the SPR came about because of events during the 1973 Arab-Israeli War. The Organization of Arab Petroleum Exporting Countries (OAPEC) reduced crude oil production and imposed an embargo on the United States and other countries supporting Israel. While some Arab crude oil did reach the United States, the average actual nominal price of imported crude oil tripled from 1973 to 1974.

Petroleum, a globally traded commodity, is subject to international demand and supply conditions; in the absence of additional regulations, a petroleum-consuming nation pays the market price for petroleum, even in a supply emergency. However, the availability of strategic stocks can help mitigate the magnitude of the market's reaction to a crisis or guarantee supply to certain consumers (e.g., the military, strategic industries). Congress's motivation in creating the SPR focused on a deliberate and dramatic physical supply disruption and on mitigating the economic effects of a shortage stemming from international events. In the event of a supply interruption, proponents reasoned that introducing petroleum into the U.S. market from the SPR could offset the lost supply and in doing so help calm markets, mitigate sharp price spikes, and reduce economic disruptions. Congress did not necessarily design the SPR to provide price support in the event of an oversupplied market. However, 42 U.S.C. Â§6240 does authorize the Secretary of Energy to acquire crude oil for the SPR with the objective of minimizing costs, so long as there are appropriated funds to do so.

The OAPEC embargo fostered the establishment of the International Energy Agency (IEA). The IEA develops coordinated plans and measures among member countries for emergency responses to energy crises. Strategic reserves are one of the policies included in the agency's International Energy Program (IEP) agreement. Signatories to the agreement, including the United States, are committed to maintain petroleum stocks equivalent to 90 days of their prior year's net imports, developing programs for demand restraint in the event of emergencies, and agreeing to participate in allocation of oil deliveries to balance a shortage among IEA members. Net-exporting members do not have a stock-holding obligation. These measures of days of protection assume a total curtailment of oil supply to importing nations, a scenario that is highly unlikely.

IEA member countries can meet the 90-day obligation through a combination of stock holdings by industry, a separate agency, and the government. Numerous oil industry firms hold commercial stocks of crude oil at refineries, bulk terminals, and in pipelines. The purpose of these stocks is to ensure the continuous operation of the refining industry, which transforms crude oil into petroleum products used by consumers. In the United States, commercial stocks do not necessarily provide a level of security proportional to that of the SPR, as they are inherently market driven, not government operated. Companies may have an economic rationale to lower commercial stocks in spite of a security context. In some other countries, this may not necessarily be the case, as the government may own or be the major shareholder in the oil companies (e.g., Equinor in Norway), also known as national oil companies (NOCs). NOCs operate under government ownership or are under the influence of national governments.

In response to the embargo, and to fulfill IEP obligations, Congress authorized the creation of an SPR in 1975 under the Energy Policy and Conservation Act (EPCA, P.L. 94-163 ). In 1975, U.S. crude oil production averaged at 8.3 million barrels per day, while U.S. consumption of petroleum was nearly double, at 16.3 million barrels per day. The EPCA originally established the SPR to hold up to 1 billion barrels of "petroleum products," defined in 42 U.S.C. Â§6202(3) as "crude oil, residual fuel oil, or any refined petroleum product (including any natural liquid and any natural gas liquid product)." Congress intended the SPR to help prevent or mitigate a repetition of the economic disruption that the 1973 Arab embargo had caused.

The U.S. federal government, through the U.S. Department of Energy (DOE), manages the SPR. According to IEA data for January 2020, the SPR held emergency petroleum stocks equivalent to approximately 274 days of the previous year's net imports and U.S. industry had 423 days' worth of commercial stocks, for a total of around 697 days of net imports when combined, well above the IEA obligation.

The SPR's current capacity is physically limited to 713.5 million barrels, with current inventory at about 635 million barrels. In 1975, EPCA required that the SPR provide enough storage for at least 150 million barrels of petroleum and up to 1 billion barrels. In 1978, Congress authorized an expansion of the SPR's physical capacity to 750 million barrels, and in 2005 directed further expansion to the authorized 1 billion barrels. Advocates for expansion argued that the SPR would need to be larger for the United States to be able to maintain stocks equivalent to 90 days of net imports. At this time the United States was viewed as a growing importer of crude oil. In 2005, DOE evaluated several sites in the Gulf Coast as a possible location for an additional 160 million barrels of new capacity. However, oil produced using hydraulic fracturing and horizontal drilling techniques started coming to market in significant amounts in 2010. In FY2011, the Obama Administration cancelled SPR expansion plans, citing a U.S. Energy Information Administration (EIA) projection that, "U.S. petroleum consumption and dependence on imports will decline in the future and the current Reserve's projection will gradually increase to 90 days by 2025."

EPCA authorizes use of the SPR to hold stocks of crude oil or any refined petroleum product. However, the SPR only holds crude oil. It does not hold refined petroleum products, as some other countries' reserves do. According to DOE, this decision was based on findings from an analysis conducted in preparation for the 1977 SPR Plan. The findings suggested that then, as now, the United States had sufficient domestic refining capacity to meet domestic demand. The SPR could also buy time for the crisis to resolve or for diplomacy to seek some resolution before a potentially severe oil shortage escalated the crisis. Additionally, according to DOE, petroleum products are less flexible and degrade more quickly as compared to crude oil. Further, U.S. import dependency recently has largely been on crude oil, not petroleum productsâthe United States has been a net exporter of petroleum products since late 2010. As a result, potential supply disruptions would most likely affect the United States through the disruption of crude oil, and not necessarily petroleum products.

Generally, two key characteristics, density (i.e., specific gravity) and sulfur content, are the metrics used to classify crude oil types. The density is measured using API gravity, a scale developed by the American Petroleum Institute, that expresses the "lightness" or "heaviness" of crude oils on an inverted scale (i.e., the lower the API gravity, the heavier or denser the crude oil). The SPR does not contain heavy crude oil (i.e., crude oil with an API gravity below 22.3 degrees).

Sulfur content of crude oil is generally rated on a scale of "sweet" to "sour"âsour crude oils have a higher sulfur content compared to sweet crude oils. The SPR contains both sweet and sour crude oils. Should the prospect of releasing SPR oil arise, the relevant question may be whether to release sweet or sour crude oil to the market. For example, in 2011, President Obama ordered a sale of 30 million barrels of light sweet crude oil to offset a curtailment in Libya's production of a similar crude during the First Libyan Civil War. In other situations, it may be more strategic to release heavier crude, as most U.S. Gulf Coast refineries are optimized to process heavy crude.

The SPR physically comprises four sites, two in Texas and two in Louisiana. The sites offer access to both marine terminals and pipeline systems needed for moving crude oil to and from the SPR ( Figure 1 ). Crude oil at each site is stored in salt caverns created within naturally occurring geologic salt deposits along the coast. According to DOE, these sites provide a higher level of security and affordability, compared to other options such as above-ground tanks or rock mines.

A life extension program (LEP I), initiated in 1993, cost $324 million and addressed essential improvements to ensure drawdown capability across the four sites. While LEP I did address its objective of assuring maximum rate for drawdown capability, it did not address significant equipment needs across the systems. In 2015, a second life extension program (LEP II) began upgrading equipment at the four SPR sites.

The SPR has a maximum drawdown rate of roughly 4.4 million barrels per day for 90 days (396 million barrels over the 90-day period) due to capacity constraints in the pipelines and marine terminals servicing the reserve. After 90 days, the rate would begin to decline as the caverns deplete. According to DOE, the crude oil takes about 13 days from a presidential decision to enter the market, due to processing sales and preparation for distribution assets. The first major drawdown was in early 1991 (the Persian Gulf War). During the Persian Gulf War the peak lost production was around 4.3 million barrels per day of combined Iraqi and Kuwaiti crude oil.

Refilling the SPR after an ordered drawdown remains at presidential discretion. This might be done at a time when the price of crude oil declines, or political and market conditions make it economically advantageous to do so. For example, to replace inventories sold in 2005 in response to Hurricane Katrina, DOE purchased crude oil on the open market in 2009. More recently, DOE purchased crude oil in 2015 to refill sold inventory during the 2014 test sale.

The IEA obligates its members to hold a 90-day supply equivalent to net imports. The SPR infrastructure has a drawdown maximum of 396 million barrels over a 90-day period. If the U.S. obligation (previous year's net imports) were to exceed 396 million barrels, it could not draw it all down within 90 days. As long as the supply disruption remains below the maximum drawdown rate and others (countries or industry) are able to supply the market, there may not be cause for concern. Alternatively, Congress could authorize an expansion of SPR infrastructure to increase the maximum drawdown rate.

Authority for drawdown and sale of petroleum from the SPR is codified into law under 42 U.S.C. Â§6241. There are several authorized reasons to release oil from the SPR. Presidential authority to authorize a drawdown depends on (1) making the determination that a severe energy supply interruption exists or (2) a finding that a drawdown would prevent an impact of a severe domestic supply disruption. Further, IEP obligates the United States to join in an IEA-coordinated response to a supply disruption. Other sales have been authorized for various reasons including to generate revenue to reduce the budget deficit, to test the functionality of the SPR, and to fund the modernization of the SPR. Additionally, authorities exist for the acquisition of crude oil to fill the SPR, and the option for exchanges in specific scenarios outlined below.

Once a drawdown is authorized, DOE releases SPR oil by conducting a public sale to the highest bidder in a competitive auction. DOE publishes a "notice of sale" that includes the volume, characteristics, and location of the petroleum for sale; delivery dates and procedures for submitting offers; and measures for assuring performance and financial responsibility. Bids are reviewed by DOE and awards offered. DOE estimates that oil could enter the market roughly two weeks after the appearance of a notice of sale.

Through 2019, the SPR released over 230 million barrels for various purposes ( Figure 2 ). Presidents have ordered releases on three occasions, some 58.9 million barrels in total, in response to severe energy supply interruptions in coordination with other IEA member countries. The SPR has also provided exchanges totaling around 75 million barrels through 2019 to mitigate temporary supply interruptions. The borrowers repay their loans by replacing the crude oil plus an additional smaller volume as a premium. The SPR has had three test sales. In 2014, DOE initiated a test sale to determine if recent infrastructure changes could impact the SPR's drawdown capabilities and to exercise sales procedures. The test ran successfully with some lessons learned, including some pipeline and storage capacity limitations. A number of other sales reached around 88 million barrels through 2019 were authorized for various reasons (e.g., to generate revenue to reduce the budget deficit as well as to modernize the SPR).

The 1975 EPCA authorizes drawdown of the SPR by obligation under the IEP or upon a finding by the President that there is a "severe energy supply interruption." Codified in law under 42 U.S.C. Â§6241(d)(2), such an interruption exists when the President determines that

A. An emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;

B. A severe increase in the price of petroleum products has resulted from such emergency situation; and

C. Such price increase is likely to cause a major adverse impact on the national economy.

One recent example of a coordinated IEA release occurred in 2011 to offset a curtailment in Libya's supply of crude during the First Libyan Civil War. The IEA announced a total release from all member countries of 60 million barrels. In accordance with IEA obligations and as directed by the President under the authority of 42 U.S.C. Â§6241(d)(2), the U.S. Department of Energy Secretary Chu announced a sale of 30 million barrels from the SPR.

In 1990, Congress amended EPCA via P.L. 101-383 to extend SPR drawdown and sales in the event of a domestic supply interruption. In 1989, the Exxon Valdez oil spill interrupted the shipment of Alaskan oil, triggering spot shortages and price increases. The amendment expanded authorities under EPCA by providing options for an SPR drawdown to prevent or reduce the impact of a severe domestic supply interruption if the President finds that

A. a circumstance, other than those described in subsection (d), exists that constitutes, or is likely to become, a domestic or international energy supply shortage of significant scope or duration;

B. action taken under this subsection would assist directly and significantly in preventing or reducing the adverse impact of such shortage;

C. the Secretary has found that action taken under this subsection will not impair the ability of the United States to carry out obligations of the United States under the international energy program; and

D. the Secretary of Defense has found that action taken under this subsection will not impair national security.

This authority limits the Secretary of Energy to selling no more than 30 million barrels of SPR petroleum over a maximum 60-day period. Additionally, the authority permits a drawdown only when the SPR inventory is above 340 million barrels.

Under 42 U.S.C. Â§6241(g), the Secretary of Energy is authorized to test a drawdown and sale or exchange from the SPR to conduct an evaluation of the procedures. Tests have a maximum limit of up to 5 million barrels. Under law, the Secretary of Energy determines the appropriate sale price and it may not be at a price less than 95% of comparable crude oil sold at the time. The statute requires the Secretary of Energy to notify Congress 14 days before a test.

Since 1975, the Secretary of Energy has had several authorized methods to acquire petroleum for the SPR: direct purchases, royalty-in-kind transfers (RIK), deferrals and exchanges, or other means. The Secretary of Energy is authorized specific powers (including oil acquisition) outlined in 42 U.S.C. Â§6239 in order to maintain and operate the SPR. Initially, through an interagency agreement, the Department of Defense, on behalf of DOE, acquired crude oil for the SPR using appropriated funds to meet congressionally mandated target fill rates until those funds were exhausted.

By December 1994, the SPR had been filled to 591.7 million barrels. Purchases for the SPR were then suspended to divert funds to SPR maintenance and life extension. Starting in 1999, filling of the SPR resumed via an RIK program. As an alternative to appropriated funds, DOE proposed accepting transfers of a portion of the royalty payments collected by the Department of the Interior (DOI) for Gulf of Mexico crude oil leases in the form of RIK crude oil rather than as revenues. While RIK avoided the necessity of making outlays for purchasing crude oil, it equivalently reduced royalty revenues by settling obligations in oil rather than in payments to the U.S. Treasury. In mid-November of 2001, President George W. Bush ordered the SPR filled to 700 million barrels, principally through crude oil acquired as RIK. Between fiscal year (FY) 2000 through FY2007, DOI estimates that RIK deliveries totaled roughly $4.6 billion. In 2009, Secretary of the Interior Ken Salazar announced the end of the RIK program.

Additionally outlined in 42 U.S.C. Â§6240 are the various objectives and procedures for the Secretary of Energy to acquire crude oil for the SPR. Within the parameters codified into law, the Secretary may acquire petroleum products through purchase or exchange. For purchase, Congress must appropriate funds to the SPR. During an exchange (also sometimes referred to as a loan), an entity borrows SPR crude and later replaces it with a similar quality crude, "plus payment of an in-kind premium determined according to the period negotiated for return." An entity can request an exchange if unexpected circumstances impede crude oil supplies and no other alternative is available.

In 2015, Congress began mandating sales of SPR oil. Mandated sales direct the Secretary of Energy to sell a specified quantity of SPR oil. There are mandated quantities prescribed for specific fiscal years from 2017 through 2028. Proceeds from mandated sales are deposited into the general fund of the U.S. Treasury. Since 2015, Congress has enacted seven laws containing provisions mandating the sale of SPR oil. These mandated sales from the SPR have committed 271 million barrels of oil for sale through FY2028. Actual sales through FY2019 total 34.93 million barrels, nearly consistent with the mandated sales required by enacted legislation of 35 million barrels.

In addition to mandated sales, modernization sales under various laws authorize the Secretary of Energy to draw down and sell SPR oil with sales restricted by a total dollar amount, rather than volume of oil, from FY2017 through FY2020. Proceeds from these sales are to be deposited in the Energy Security and Infrastructure Modernization Fund (ESIMF). Law requires the fund to be used for construction and maintenance of SPR facilities. Statutes that authorized SPR modernization crude oil sales, and appropriated money to the ESIMF, are for fiscal years 2017 through 2019.

Congress originally created the SPR to provide security against severe petroleum supply interruptions and to adhere to IEP obligations. The SPR's role has expanded over the years as conditions in the U.S. and world oil market have changed. Today those market conditions continue to shift and as such, Congress may consider further modifications to SPR legislation.

If the United States maintains net export status, should Congress reconsider the size of the SPR? Further, U.S. public and commercial oil stocks are well over the 90-day IEP obligation. However, some view the oil in the SPR as a national security asset that the United States should maintain at current levels. Releases from oil reserves tend to balance supply disruptions in the short term and provide psychological support to the market that may stabilize oil prices. Should Congress consider expanding the role of the SPR to provide economic security by alleviating extreme price volatility?

Given the change in conditions, Congress may consider different options for utilizing the SPR. The section that follows discusses some of these developments and possible policy options.

The role of the United States in the global oil market has shifted since the 1970s during a time of rapidly rising prices and perceived resource scarcity. In addition to creating the SPR, Congress, through the EPCA, restricted U.S.-produced crude oil exports. Trade policy with respect to oil has undergone significant changes in recent years to accommodate technological and market developments. As the U.S. oil market moved toward higher production levels, some policies have come into question. Consequently, in December 2015, Congress passed the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) which repealed Section 103 of EPCA ( P.L. 94-163 ), removing any restrictions to crude oil exports.

Net-exporters of oil do not have a stockholding obligation under the IEP. Some have noted that with the reduction of net imports, the size of the SPR could be reconsidered. For similar reasons to lifting restriction on crude oil exports, and with the relatively recent increases in domestic crude oil production, some stakeholders see less need for an oil stockpile. They contend the change in oil markets warrants a reduction in the size of that stockpile. U.S. crude oil and petroleum product imports have been in decline. The EIA reports that in September 2019, the United States exported 89,000 million barrels per day more crude oil and petroleum products than it imported. The EIA further projected that, in most forecasts, the United States will be a net petroleum exporter on an annual basis around 2020. However, even if the United States reaches net export status, EIA and IEA projections indicate that the United States may return to a net importer between 2040 and 2050.

Some contend maintaining the stockpile has value, regardless of net export status. For instance, Keisuke Sadamori, IEA's Director for Energy Markets and Security, testified during a Senate hearing in 2019,

oil security is not only an issue for net-importers, and security concerns such as regional extreme weather events and terrorist attacks can affect all countries. In a global market, even in net exporting countries, oil consumers will be economically harmed by spiking oil prices, and if a disruption tips the world economy into recession, the pain will be felt by exporting and importing countries alike.

Finally, the United States is not guaranteed to remain a net exporter indefinitely. In May 2018, the Government Accountability Office (GAO) released a report on the future of the SPR analyzing DOE's planning approach. GAO recommended that DOE should expand or amend their planning approach to include "an additional analysis that takes into account private-sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes."

Additionally, market conditions may be changing. Since January 2020, oil prices have fallen due to of a number of factors including overproduction and constrained demand, largely due to a reduction in travel from the COVID-19 pandemic. Prolonged periods of depressed prices could affect U.S. oil production, exports, employment, and industry consolidation. If U.S. production and subsequently exports were to decline, the prospect of the United States becoming a net exporter may be delayed or eliminated.

IEA members can use both public and commercial stocks to meet their 90-day obligation. In January 2020, the United States had 423 days of net imports of commercial crude oil stocks, equaling around 697 days when combined with SPR stocks, according to IEA methodology. Both public and privately held oil stocks have important roles to play in providing security in times of oil market disruptions. Similarly, both public and private oil stocks have some role in oil price determination and movements. As the world oil market and the U.S. market evolve, it is reasonable to reassess the role of each of these components of U.S. energy security.

Management of commercial stocks can affect the price of oil in multiple ways. These effects are limited by the storage capacity of the system as a whole, but that capacity can be augmented or reduced. Numerous oil industry firms hold commercial stocks of crude oil at refineries, bulk terminals, and in pipelines. The purpose of these stocks is to ensure the continuous operation of the refining industry, which transforms crude oil into petroleum products used by consumers. Commercial oil companies are more likely to store oil for the short-term, rather than as a long-term security stock. Some experts contend that commercial stocks cannot provide a level of security proportional to that of the SPR.

The role of sales from the SPR into the commercial market during a supply disruption is linked to the size of commercial stocks and the availability of additional production capacity. Generally, the level of private oil stocks closely follows the level of oil production and changes in the price of oil. If global supply is greater or less than current demand, commercial stocks of oil may rise or fall accordingly. In a market where there is no physical shortage, oil companies may have limited interest in purchasing SPR oil unless they want to build crude oil stocks or have spare refining capacity to turn the crude into useful products. Conversely, during a supply disruption, commercial stocks would likely move to market before the SPR, as DOE must solicit buyers through a Notice of Sale. Further, the SPR takes approximately 13 days from an initial decision to hold a sale to ultimate delivery of that oil. For instance, in response to the attack against Saudi Arabia's oil production in September 2019, President Trump authorized the release of oil from the SPR, as needed. In response to prior events, presidents have ordered a release in coordination with other IEA member countries. In this case, the IEA did not announce a coordinated release, but monitored the situation closely. Although the United States had the capacity to replace most of the Saudi oil taken off the market by the attack, no release from the SPR occurred as commercial stocks supplied the market and prices stabilized.

Generally, according to GAO, most experts interviewed in the May 2018 report agreed that the private sector is in a better position to respond to supply disruptions than they were in the 1970s. Conversely, DOE noted in the same report that the United States does not have a requirement for the private sector to respond to a supply disruption. Further, according to GAO, DOE does not have analysis on how the private sector would respond to supply disruptions.

Petroleum is a globally traded commodity and subject to international demand and supply conditions. Volatility in crude oil prices can disrupt or enable oil industry investments and productionâfactors that can have a ripple effect on the global economy. However, the storage of petroleum can provide some price relief or even alleviate a physical shortage of supply to certain consumers (e.g., the military, strategic industries). Congress's motivation in creating the SPR focused on a deliberate and dramatic physical supply disruption and on mitigating the economic effects of a shortage stemming from international events. As market conditions continue to change, Congress may consider options for utilizing the SPR in an oversupplied low oil price environment.

Global oil prices declined nearly 60% between January and mid-April 2020, as a result of a number of factors. These factors included reduced demand and economic impacts related to the evolving COVID-19 pandemic, and the failure of OPEC and a group of non-OPEC countries (OPEC+), including Russia, to come to an agreement regarding oil production during their March 2020 meeting. While low oil prices are generally positive for consumers (translating into lower gasoline prices) and oil refiners (translating into lower costs), sustained low prices could result in financial stress for companies operating in the U.S. oil exploration and production (E&P) sector. Due to these recent developments, a plan to sell crude oilâas required in FY2020 by P.L. 116-94 âfrom the SPR was suspended.

Discussions transitioned from selling oil from the SPR to purchasing oil to fill it to capacity. Acquiring crude oilâdirect purchases or royalty-in-kindâfor SPR storage could absorb a limited amount of market oversupply. Physical SPR capacity is approximately 713.5 million barrels, while actual inventories are 635 million barrels. At the direction of President Trump, DOE issued a solicitation to purchase an initial 30 million barrels of crude oil as part of a plan to acquire 77 million barrels. However, on March 25, 2020, DOE cancelled this solicitation, noting, "Given the current uncertainty related to adequate Congressional Appropriations for crude oil purchases associated with the March 19, 2020 solicitation, the Department is withdrawing the solicitation. Should funding become secure for the planned purchases, the Department will reissue the solicitation."

Whether increasing SPR inventories might contribute to oil market rebalancing is uncertain. Even if Congress appropriated funding to purchase crude oil, the SPR's available capacity is limited (currently around 77 million barrels) and the impact could be marginal depending on a number of factors (i.e., duration and volume of crude oil oversupply). However, Congress authorized the SPR to store up to 1 billion barrels. While not an immediate solution, Congress could consider appropriating funds to expand the SPR's physical capacity to the authorized 1 billion barrels.

On April 2, 2020, DOE (under exchange authority 42 U.S.C. Â§6239(f)(5)) announced a solicitation for the storage of 30 million barrels in exchange for a fixed premium of barrels, returning the difference by March 31, 2021. This would allow crude oil to be temporarily stored in the SPR sites, potentially providing some financial relief to some U.S. producers. Several petroleum associations applauded the effort, stating, for example, "The oil producers of Louisiana praise the President, his administration, and Louisiana's federal delegation for taking swift, decisive action to help support the nation's energy producers with the SPR's exchange for storage."

However, challenges remain, as spare storage capacity at Cushing, OK (the designated delivery point for NYMEX crude oil futures contracts) is limited or unavailable. The futures price is a contract, usually monthly, for delivery of a certain amount of crude oil, on a specified date in the future, and at a particular location (Cushing, OK, for West Texas Intermediate (WTI) crude oil). As available storage becomes more limited, futures prices may continue to fall as owners of crude oil discount their price in order to entice buyers. This apparently was the case with WTI where some traders grew concerned over storage availability in Cushing, forcing some to sell their futures contracts. Despite federal efforts to make capacity available at the SPR and other measures, Cushing storage capacity is a key factor for WTI prices.

When acquiring petroleum for the SPR, the Secretary is to consider, to the extent possible, four objectives under 42 U.S.C. Â§6240. Among these, the Secretary is to minimize market impacts from purchases. Acquiring SPR crude oil to reduce oversupply and increase prices could conflict with that objective. However, the degree of impact on the market may be hard to determine, and a threshold level is not explicitly defined. Furthermore, included in DOE's objectives is to minimize the cost and presumablyâdepending on prices in March 2021 when the above noted exchange expiresâDOE's exchange could result in a comparatively low-cost petroleum acquisition.

Crude oil price increases generally result from actual or anticipated market tightening; that is, an increase in demand, a reduction in supply, or both. There is a general recognition that a release from the SPR would likely only provide temporary relief from rising prices; however, high prices alone are not an authorized circumstance to trigger a release from the SPR. High prices are generally a consequence of a severe supply interruption. For instance, in 2011, the price increases were thought to be largely attributable to the loss of Libyan production during the revolution in that country.

The judgment that a release of crude oil from the SPR provides some temporary relief from rising prices seems well founded. The U.S. government bases its notice of sale on the previous five-day average of the price of the grade of crude oil it intends to sell, and accepts bids it considers responsive. If the notice itself does not prompt, or contribute to, a softening of prices, there may be limited interest on the part of the oil industry in bidding on SPR supply. Although the possibility exists that prices might decline if additional refined product is released into the market, it is impossible to predict what long-term quantitative effect an SPR crude drawdown would have. For example, in response to prolonged oil supply disruption from the Libyan Civil War, the IEA coordinated a petroleum release on June 23, 2011. Following the announcement of a 30 million barrel release of oil from the SPR, the price of crude oil declined by about 5% that day. About one week later, prices began to exceed pre-announcement levels.

The announcement of the SPR release stated that the oil would be delivered to market by the end of August 2011. Oil prices began to decline in that month and generally declined through September 2011. However, several other factors may have contributed to the price of crude oil. For instance, the prices of crude oil declined in May 2011 following the death of Osama bin Laden and a rise in the U.S. dollar.

Some observers do not support use of the SPR to mitigate high crude oil prices. These observers prefer allowing the market to resolve itself and for government not to intervene. Further, observers may contend that market conditions and current and anticipated geopolitical events are affecting prices more than short-term physical supply concerns or that speculative bidding in the oil commodity futures market has driven price volatility more than the current supply-demand balance. In this context, use of the SPR would have limited impact on market conditions.

Congress could reduce the size of the SPR and sell off excess petroleum for the benefit of other programs while still maintaining the 90-day net import requirement. However, determining the optimal level of oil holdings in the SPR is likely to remain controversial. Analytical tools common in public policy analysis, such as cost-benefit analysis, dynamic programming, or other optimization techniques, depend on determining the value of variables that are highly uncertain in this case. The responsiveness of the adjustment of oil quantities on both the demand and the supply sides of the market, the price volatility of oil, and the probabilities of different degrees of political/military disruption in the oil market are all uncertain. In addition the 90-day net import requirement is a dynamic calculation based on a combination of market factors.

The Bayou Choctaw storage site is located in Iberville Parish, LA. The site has six storage caverns, with a storage capacity of 76 million barrels, and an inventory of 71.8 million barrels, as of April 2020. The Bayou Choctaw site began full operation in 1987 and has remained operational since then. In November 2011, DOE acquired a replacement cavern for Cavern 20, after it had experienced leaching, which posed an environmental risk. Bayou Choctaw has a design drawdown rate of 0.5 million barrels per day, and a design fill rate of 110 thousand barrels per day. (The other three SPR storage sites have a combined fill rate specified as 225 thousand barrels per day.)

The Big Hill storage site is located in Jefferson County, TX. The site has 14 storage caverns, a combined storage capacity of 170 million barrels, and a cavern inventory of 143.3 million barrels as of April 2020. The Big Hill site began full operation in 1991 and has remained operational since then. Big Hill has a design drawdown rate of 1.1 million barrels per day.

Section 168 of the EPCA authorizes foreign oil to be stored in unused space to increase world oil stockpiling. In 1998, the U.S. Commerce Department designated Big Hill as a special purpose Foreign Trade Zone, which exempts foreign oil storage from customs or certain taxes. DOE noted in their SPR calendar year 2016 annual report to Congress that despite this designation, Big Hill has not stored foreign oil.

The Bryan Mound storage site is located in Brazoria County, TX. The site has 19 storage caverns with a total storage capacity of 247.1 million barrels, and a cavern inventory of 230.2 million barrels as of April 2020. The Bryan Mound site began operation in 1986 and has remained operational since then.

In 2013, after failing a Mechanical Integrity Test (MIT), one of Bryan Mound's then-20 storage caverns was determined to be at risk. It was subsequently emptied, bringing the total to 19 caverns. Pumping to transfer the oil to other caverns began in March 2015 and completed in December 2016. Additionally, in 2018, two of the three aboveground storage tanks at Bryan Mound were unusable and required maintenance. This reduces the site's drawdown rate from 1.5 million barrels per day to 1.35 million barrels per day. According to DOE's Strategic Petroleum Reserve Annual Report for Calendar Year 2018 , these tanks are to be converted to external floating roof tanks during the SPR Modernization ProgramâLife Extension 2 Project.

The West Hackberry storage site is located in Cameron Parish, LA. The site has 21 operable storage caverns with a combined storage capacity of 220.4 million barrels, and a cavern inventory of 189.7 million barrels as of April 2020. The West Hackberry site began full operation in 1988 and has remained operational since then.

In 2012, Cavern 6 had a well stability issue and plans to remove oil from the cavern were instituted. In December 2017, all accessible oil was transferred out of Cavern 6 to the other 21 storage caverns.