A Message from theSecretary of Energy

ON THE ROAD TO ENERGY SECURITY 1

WHEN PRESIDENT George W.Bush signed the Energy Policy

Act of 2005 (EPAct) into lawon August 8, 2005, he declared that“... one day all Americans will lookback on this bill as a vital step towarda more secure and more prosperousnation that is less dependent on for-eign sources of energy.” Increasing ourenergy security has been and will con-tinue to be a priority of the BushAdministration. EPAct, America’s first compre-hensive energy legislation in over a de-cade, was passed with overwhelmingbipartisan support. In the past year, thePresident has continued to work withCongress to lead the nation on a pathtoward increased energy security anddecreased dependence on foreignsources of energy. Since the passage of EPAct, theDepartment of Energy – along withpartners across the government and inthe private sector – has been workingaggressively to implement its keyprovisions. And, to complementEPAct’s goals, the President proposedtwo new initiatives in his 2006 State ofthe Union Address: the AmericanCompetiveness Initiative (ACI) and theAdvanced Energy Initiative (AEI). The ACI recognizes the need tosubstantially increase investment inscience and technology in order toensure our nation’s future economichealth and energy security. At the coreof the President’s initiative is a majorincrease in federal funding for basicresearch in the physical sciences alongwith new programs to improve mathand technical education. The AEI seeks to significantlyincrease our national investment inalternative fuel and clean energytechnologies that, over time, can fund-amentally transform the way America

produces and uses energy. PresidentBush requested $2.1 billion for FiscalYear 2007 – a 22 percent budget in-crease – to develop new technologiesand alternative sources of energy tohelp diversify and strengthen ournation’s energy mix. Taken together, the Energy PolicyAct of 2005, the American Comp-etiveness Initiative and the AdvancedEnergy Initiative provide a compre-hensive strategy for tackling our mostpervasive and long-term energy chal-lenges. This strategy acknowledgesthat the energy issues we are dealingwith today did not develop overnight;and so, we are aggressively pursuingnear and long-term measures to ad-dress the challenges we face. Thanks to the investments madepossible by this strategy, our nation ison the cusp of commercializing newand innovative technologies that willhelp us strengthen our energy securityin an environmentally clean way forgenerations to come. Important steps toward energysecurity have been taken in the yearsince EPAct’s passage and I am proudof the progress we’ve made. We areengaged in a long-term effort, butAmerica is now on the road to acleaner, more secure energy future.

Samuel W. BodmanSecretaryU.S. Department of Energy

On the Road to Energy Security

Implementing a ComprehensiveEnergy Strategy: A Status Report

2 ON THE ROAD TO ENERGY SECURITY

TAKEN TOGETHER, the Energy Policy Act, the American Competitiveness Initiative andthe Advanced Energy Initiative pro-vide an aggressive strategy for tack-ling the long-term energy chal-lenges we face. Implementing thisstrategy will take years, but we nowhave a road map for achieving it. Over the past year, significantprogress has been made to imple-ment the comprehensive set of en-ergy reforms and programs calledfor in EPAct supported by two new,related initiatives. The critical firststeps that have already been takenare described in this report. Theseactions support major national goalsrelated to energy diversification, ef-ficiency, conservation and infra-structure.

THE ENERGY POLICY ACTOF 2005

The passage of the EnergyPolicy Act of 2005 (EPAct) provided

On the Road to Energy SecurityImplementing a Comprehensive Energy Strategy:A Status Report

something the United States hadbeen lacking for more than a decade:a long-term strategy to confront ourenergy challenges in a balanced,comprehensive and environmentallysensitive way. The EPAct strategy ad-vances important national goals andputs our country on a path to in-creased energy security. EPAct recog-nizes that we must diversify America’senergy supply and reduce our depen-dence on foreign sources of energy;increase energy efficiency and conser-vation in our homes and businesses;improve the energy efficiency of ourvehicles; and modernize our nationalenergy infrastructure. To meet ourobjectives, America will rely on one ofher greatest assets – the talent andingenuity of our scientists and engi-neers.

THE AMERICANCOMPETITIVENESS INITIATIVE

The American CompetitivenessInitiative (ACI), highlighted by Presi-

dent Bush in his 2006 State of theUnion Address, recognizes that wemust fund a national science portfoliothat corresponds to the nature andvariety of the challenges we face as anation. Through the ACI, PresidentBush has proposed doubling the fed-eral commitment for research pro-grams in the physical sciences overthe next ten years.

THE ADVANCED ENERGYINITIATIVE

The President’s Advanced EnergyInitiative (AEI), also highlighted in theState of the Union Address, proposesto significantly increase our nationalinvestment in alternative fuel andclean energy technologies. This willfundamentally transform the way weproduce and use energy and reduceour dependence on foreign energysources. As part of the AEI, the Presi-dent asked Congress to increase fund-ing for clean energy technologiesby 22 percent in Fiscal Year 2007.

President Bush signed the Energy Policy Act in a ceremony at theDepartment of Energy’s Sandia National Laboratories inAlbuquerque, New Mexico, on August 8, 2005. During his visit, thePresident toured the Solar Thermal Test Facility at Sandia with (fromleft to right) Senator Jeff Bingaman, Lab Director Tom Hunter,Secretary Bodman and Senator Pete Domenici.

Comprehensive Energy Strategy: Key Goals

1. Diversify America’s energy supply by:

• promoting alternative and renewable sources of energy

• encouraging the expansion of nuclear energy in a safeand secure manner

• increasing domestic production of conventional fuels, and

• investing in science and technology

2. Increase energy efficiency and conservation in our homesand businesses

3. Improve the energy efficiency of our cars and trucks

4. Modernize our electric power infrastructure

5. Expand the Strategic Petroleum Reserve

4. ModernizeOur Electric Power

Infrastructiure

1. Diversify America’sEnergy Supply

G lobal demand for energy is rising rapidly. The Energy

Information Administration(EIA) estimates that by 2015, globalenergy consumption will increase byover 34 percent, with the strongestgrowth expected in the developingeconomies of China, India and otherAsian nations. At the same time, theAmerican economy and many othereconomies around the world willcontinue to increase their reliance onfossil fuels.

The United States must lead theway in developing and utilizing newsources of clean, safe and reliableenergy while producing existing sourcesmore efficiently. In short, we mustdiversify. If we do, we will not onlybecome less dependent on unstablesources of fossil fuels, we will alsoincrease our national security, ensureour future economic health, andimprove our environment. If we do not,the competition for resources will onlygrow more intense, and our supplyoptions more restrictive.

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G LOBAL DEMAND FOR energy is rising rapidly. The Department of Energy’s Energy InformationAdministration (EIA) estimates that by2015, global energy consumption willincrease by over 34 percent, with thestrongest growth expected in thedeveloping economies of China, Indiaand other Asian nations. At the sametime, the American economy andmany other economies around theworld are expected to increase theirreliance on fossil fuels. The United States must lead theway in developing and utilizing newsources of clean, safe and reliableenergy while producing existingsources more efficiently. In short, wemust diversify. If we do, we will notonly become less dependent on fossilfuels, but we will also increase our na-tional security, ensure our future eco-nomic health and improve our envi-ronment. If we do not, the competi-tion for resources will only grow moreintense and our supply options morelimited. EPAct recognizes the importanceof diversifying our energy supply andcontains important measures to helpAmerica move in this direction.

PROMOTING ALTERNATIVE ANDRENEWABLE SOURCES OF ENERGY

If the U.S. is to truly diversify, wemust develop and promote the use ofalternative and renewable energysources. EPAct contains key provisionsto do just that. These measures aredesigned to encourage the productionand use of energy from hydropower,wind, the sun and cellulosic biomass. Key implementation actions todate include:

EPAct extended tax credits for electricityproduced by wind power and other forms ofrenewable energy including solar and biomass.

• Developing new biorefineries EPAct directs the Department ofEnergy to take steps to advance thedevelopment of biorefineries in theUnited States for the production ofbiofuels, bioproducts and biomass-based heat and power. The Depart-ment will fund demonstration projectsto help bring new technologies tomarket. EPAct envisions that once ad-vanced biorefineries are operationaland the initial construction costs arepaid, they should operate without fed-eral subsidies. Progress: DOE announced a $50million funding opportunity for thisdemonstration project on February22, 2006. Currently, the Departmenthas received more than 50 letters ofintent to participate. The Departmentexpects to make up to three awardsunder this program in Fiscal Year2007. The projected three-year

1. DiversifyAmerica’s

Energy Supply

Switchgrass is a thick-stemmed grass that can be grown throughout the U.S. and can be harvestedlike hay. DOE scientists believe it could be an excellent feedstock for ethanol and are researchingways to more efficiently convert it into fuel.

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funding for this program is $160million.

• Using loan guarantees toencourage private investment innew energy technologies To encourage early commercialprojects that employ new or signifi-cantly improved energy technologies,EPAct authorizes DOE to issue loanguarantees for qualifying projects.These include: clean coal projects thatgenerate electricity and produce fuels;new nuclear power plants; productionfacilities for fuel efficient vehicles;plants that convert cellulosic biomassinto ethanol and other commercialproducts; and renewable energyprojects that employ innovativetechnologies. Loan guarantees offer a signifi-cant tool to help address a majorcapital market gap as lenders may bereluctant to provide loans to projectsutilizing new technologies. Theseguarantees allow the government to

create value by sharing the “firstmover” risk with private sector invest-ors who develop alternative energyprojects. Progress: DOE established aLoan Guarantee Program Office andissued program guidelines that willgovern the first round of loan guar-antee applications. The program willprovide backing for up to $2 billionof loans to finance new energy pro-jects. By sharing some of the financialrisks associated with new energytechnologies, DOE hopes to spur in-dustry to invest in new technologies.

Within the next several weeks,draft regulations for public commentdesigned to govern future solicita-tions will be offered for public com-ment. The Department views thefirst-round solicitation as a learningopportunity that will assist in buildingcapability and expertise at the Depart-ment and in developing permanentregulations. Learn more atwww.lgprogram.energy.gov.

• Producing energy from wind,solar, biomass and hydroelectricsources Among other key measuresfocused on increasing the availabilityof power from renewable sources,EPAct provides for an extension offederal tax credits for renewableenergy production that reduce thecost of electricity generated fromwind, the sun and biomass. EPActalso streamlines the licensing processfor hydroelectric power plants. Progress: EPAct is already havinga positive impact on biofuels produc-tion. For example, 27 new ethanolplants have broken ground since theenactment of EPAct, and the ethanolindustry expects that more than 2.2billion gallons of new productioncapacity will be in operation in thenext 18 months. This should bringthe total U.S. ethanol productioncapacity to more than 8 billiongallons by the end of 2007. In addition, in March of 2006,the Geothermal Energy Association

conducted a survey that showed asubstantial surge in geothermal powerprojects in the United States. Some 45projects are under development inAlaska, Arizona, California, Hawaii,Idaho, New Mexico, Nevada, Oregonand Utah. These projects, when dev-eloped, will provide between 1,778and 2,055 megawatts of new electricpower. To complement the goals of EPActand to fulfill solar energy’s promise,the President’s Fiscal Year 2007 bud-get proposed the Solar AmericaInitiative (SAI). Solar energy is clean,abundant, widely available and renew-able and it is a critical component ofAmerica’s energy strategy. The SAI will accelerate the devel-opment of advanced solar electrictechnologies, including photovoltaicsand concentrating solar power sys-tems, with the goal of making themcost-competitive with other forms ofrenewable electricity by 2015. As aresult of this research, it is expectedthat photovoltaic materials will pro-vide enough electricity to power over1 million homes, reducing CO2

emissions by 10 million metric tonsper year. In June 2006, DOE an-nounced a funding opportunity for$170 million over 3 years for cost-shared, public-private partnerships toadvance solar energy technologies.Learn more at www.eere.energy.gov/solar/.

ENCOURAGING THE EXPANSIONOF NUCLEAR ENERGY IN A SAFEAND SECURE MANNER

Today, nuclear power is the onlymature technology with significantpotential to supply large amountsof power without emissions ofpollutants or carbon dioxide. However,the United States has not licensed anew nuclear plant in over 30 years;and, as EPAct recognizes, that mustchange. We need more nuclear power– in the United States and around theworld – but we must develop it in away that fosters economic devel-

EPAct includes several measures to encouragethe expansion of nuclear power in the U.S.including up to $2 billion in federal insurance toprotect the builders of up to six new plants fromthe risks of regulatory delays and uncertainties.

ON THE ROAD TO ENERGY SECURITY 5

opment, is environmentally responsible,effectively manages nuclear waste andminimizes the dangers posed by nu-clear proliferation and terrorism. EPActcontains critical provisions that encour-age this type of safe, secure expansion. Key implementation actions todate include:

• Encouraging the construc-tion of advanced nuclear powerfacilities

EPAct contains important provi-sions to reduce uncertainties in the li-censing of advanced nuclear powerfacilities in the United States by autho-rizing federal risk insurance for utilitycompanies building the next sixnuclear power plants. Companies thattake risks and enter the market first,after a 30-year hiatus, should not bepenalized by hold-ups that are nottheir fault.

This risk insurance will provide animportant incentive to begin the li-censing and construction of the newnuclear power plants essential tomeeting our future energy needssafely, economically and in an environ-mentally sound manner. The programwill cover costs associated with certainregulatory or litigation related delays –that are no fault of the company –that stall the start-up of these plants.

EPAct also authorizes the Depart-ment’s Nuclear Power 2010 programaimed at demonstrating key regulatoryprocesses associated with siting andbuilding new nuclear power plants.

Progress: On August 4, 2006, thefinal rule was announced that estab-lishes the process for utility companiesbuilding the next six new nuclearpower plants in the United States toqualify for a portion of $2 billion in fed-eral risk insurance. Up to $500 millionin coverage is available for the initialtwo plants and up to $250 million isavailable for the next four plants.

Events that will be covered by thefederal insurance include delays asso-ciated with the Nuclear RegulatoryCommission’s reviews of inspections,tests, analyses and acceptance criteria

or other licensing schedule delays aswell as certain delays associated withlitigation in federal, state or tribalcourts. Covered losses would includeprincipal and interest on debt andlosses resulting from the purchase ofreplacement power to satisfy contrac-tual obligations. In formulating the fi-nal rule, DOE evaluated and took intoaccount comments received from in-dustry and public interest groups, in-cluding comments on the need forgreater clarity on how premiums forthe risk insurance will be calculated.

• Establishing the GlobalNuclear Energy Partnership (GNEP) To complement the EPAct Initia-tives, and as a component of PresidentBush’s Advanced Energy Initiative, theGlobal Nuclear Energy Partnership(GNEP) was announced by DOE onFebruary 6, 2006. GNEP seeks to de-velop worldwide consensus on en-abling expanded use of safe, economi-cal, emissions-free nuclear energy tomeet growing electricity demands.

GNEP, an international public-pri-vate partnership, aims to increase ac-cess to clean, non-emitting nuclearenergy throughout the world; in-crease the amount of energy gener-ated by nuclear fuel while decreasingthe amount of material that must bedisposed of in a waste repository and;reduce the risk of proliferation by pro-viding fuel cycle services to develop-ing countries so they do not need todevelop uranium enrichment or spentfuel reprocessing capabilities.

DOE intends to continue to en-gage countries worldwide regardingthe best way to attain the GNEP vi-sion, which is making nuclear poweravailable to every country without de-veloping countries having to constructfuel cycle facilities for enrichment orreprocessing. GNEP’s vision involvesreusing spent nuclear fuel in ad-vanced burner reactors to increase theamount of energy available from fueland to reduce the amount of materialthat must be disposed of in a perma-nent repository. Because the separa-

tions process will not isolate pure,weapons-grade plutonium and it willconsume plutonium in the reactor,the risk of weapons proliferations isreduced.

GNEP also calls for “fuel cycle”nations (countries that already havethe ability to enrich nuclear fuel andrecycle it) to provide these services todeveloping economies, so they canenjoy the benefits of nuclear powerwithout having to develop expensiveand potentially proliferant technolo-gies. GNEP will develop the techno-logical capability to recycle spentnuclear fuel and increase the energyextracted from it by repeatedly cyclingit through advanced burner reactors.The U.S. currently gets 20 percent ofits electricity from nuclear energy inthe United States and we look for-ward to getting more nuclear powerplants up and running soon. The en-ergy benefits of technology could beimmense.

Progress: The Department ofEnergy announced a funding opportu-nity in early August 2006 for sitesinterested in hosting GNEP facilities,including an advanced burner reactorand a consolidated fuel treatmentfacility. Groups can receive up to $5million to conduct site evaluationstudies. The Department expects to awardgrants for site evaluation studies byOctober 2006, to be completed in 90days thereafter.

On August 3, 2006, DOE also an-nounced that it is seeking expressionsof interest to obtain input from theU.S. and international nuclear industryon the feasibility of accelerating devel-opment and deployment of advancedrecycling technologies by proceedingwith commercial scale demonstrationfacilities, specifically a ConsolidatedFuel Treatment Facility and an Ad-vanced Burner Reactor.

• Funding research to supportadvanced reactor technologies

EPAct authorizes a research,development and construction project

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for the Next Generation Nuclear Plant(NGNP), a demonstration reactor atthe Idaho National Laboratory. TheNGNP will serve as a national test-bedfor advanced reactor technologies thatprovide improved attributes over exist-ing nuclear plants and for cogenerationof hydrogen by nuclear energy. Progress: The Department has sub-mitted a report to Congress thatdocuments an independent review ofthe NGNP project by the NuclearEnergy Research Advisory Committee.The report recommended greaterindustry participation and an acceler-ated schedule for the project. DOEalso issued a request for expressionsof interest for industry participation inthe design of the NGNP. Contractawards to one or more groups will bemade by the end of 2006.

• Generation IV InternationalForum (GIF) The Generation IV InternationalForum is a multilateral partnership of10 countries and the European Com-mission that is fostering internationalcooperation in research and develop-ment for the next generation of safer,more affordable, and more prolifera-tion-resistant nuclear energy systems.This new generation of nuclear powerplants is being designed to produce

electricity, hydrogen and other energyproducts with substantially less wasteand without emitting any air pollutantsor greenhouse gasses. Progress: Since the Forum wasformally established in July 2001, theUnited States has led the developmentof a technology roadmap and increasedsupport for R&D projects carried out insupport of the Forum’s goals. The GIFhas a significant role to play in the Glo-bal Nuclear Energy Partnership as atechnology developer and as a forumfor international cooperation.

INCREASING DOMESTICPRODUCTION OFCONVENTIONAL FUELS

To decrease our reliance on foreignsources of energy, we must diversify ournational energy supply and increase ourdomestic production of fuels. And, wemust do so in an efficient and environ-mentally responsible way. EPAct recog-nizes this need for balance and includesimportant provisions related to domes-tic oil, gas and coal production. Key implementation actions todate include:

• Creating an adequateLiquefied Natural Gas (LNG)infrastructure By 2030, U.S. LNG imports are

anticipated to increase from approxi-mately 0.6 trillion cubic feet (tcf) peryear to 4.4 tcf per year. This increasewill require significant expansion of ex-isting U.S. LNG import terminal infra-structure. The Department recognizesthe importance of streamlining theregulatory review process to expeditethe siting of new LNG import termi-nals. EPAct specified that the FederalEnergy Regulatory Commission (FERC)has sole jurisdiction as the lead agencyin the regulatory review process. Since2002, when existing U.S. LNG capacitytotaled approximately four billion cubicfeet per day (bcfd), FERC has autho-rized more than 21 bcfd of new LNGcapacity. Progress: Since EPAct was passed,FERC has approved three new LNG im-port facilities and expansions at twooperating or previously authorized im-port facilities. EPAct also establishedtimelines for all required federal andstate agency reviews and called forDOE to conduct a series of nationalpublic education and information fo-rums on LNG. In March and June of2006, DOE hosted three LNG forumson both coasts and may hold addi-tional forums to address this importantsubject.

• Expanding the availability ofpower from clean coal technologies

EPAct authorizes funding for theClean Coal Power Initiative (CCPI),focused on accelerated coal research,development and demonstration.New technologies will help us use coal– our nation’s most abundant fossilfuel – in an environmentally sensitiveway for generations to come. EPActauthorizes $200 million of annualfunding to help develop cutting-edgeresearch. The goal is to dramatically re-duce emissions of pollutants such assulfur dioxide, nitrogen oxides andmercury, and improve the coal-to-product efficiency for all types of coalby 2020. While CCPI is focused on demon-strations of new and improved

Maintaining a stable supply of natural gas in the future will require more terminals to handleLiquefied Natural Gas imports. EPAct streamlined the regulatory review process for siting new LNGterminals.

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technologies, EPAct also authorizesinvestment tax incentives that provide$1.6 billion in investment tax creditsfor the deployment of early commercialcoal gasification and other advancedcoal technologies. Taken together, theCCPI and investment tax incentivesprovide a clear path for advanced coaltechnologies to progress from R&Dthrough demonstration to affordablecommercial deployment. Progress: EPAct directs DOE toconduct coal R&D programs and, incarrying out such programs, to iden-tify proposed cost and performancegoals that would permit the contin-ued cost-competitive use of coal forelectricity, chemical feedstocks, andtransportation fuels. These initiativesare underway and a program reportwas issued on April 28, 2006. Addi-tional information is available atwww.fossil.energy.gov. Central to the Administration’sclean coal efforts is the ongoingFutureGen project that will create theworld’s first zero-emissions fossil fuelplant – a technology-based solution toenergy needs that will ensure thatcoal continues to be used to provideaffordable electricity. When operationalin 2012, this plant will remove and se-quester CO2 while simultaneously pro-ducing both electricity and commercial-grade hydrogen from coal.

FutureGen’s suite of innovativetechnologies will ultimately be avail-able throughout the world, spurringeconomic development while protect-ing the environment. These technolo-gies will convert our abundant coalresources into clean energy,strengthen our energy security andreduce our dependence on morecostly forms of energy. Progress: The FutureGen Alliance,a non-profit organization representingsome of the world’s largest coal com-panies and electric utilities, is part-nering with DOE to design and buildthe facility. The Alliance recently an-nounced a “short list” of candidatescompeting to host the $1 billion, firstof-its-kind, 275-megawatt prototypeplant. Following DOE reviews requiredby the National Evironmental PolicyAct, a final site will be selected. TheU.S. has been joined in this demonstra-tion project by India and South Korea.Other international partners are ex-pected to participate.

• Enhancing oil and naturalgas production through carbondioxide (CO2 ) injection EPAct calls for the establishmentof a competitive grant program to sup-port projects that use CO2 injection forthe purposes of enhancing oil and gasrecovery and increasing the sequestra-tion of CO2.

Progress: Project selection an-nouncements are expected this sum-mer. In addition, the Departmentreleased a series of reports in February2006 indicating that through the wide-spread use of state-of-the-art CO2-en-hanced oil recovery, an additional 89billion barrels of oil could be recoveredin the United States.

• Accelerating the developmentof oil shale, oil sands and other un-conventional fuels

EPAct directs the establishment ofa task force to coordinate and acceler-ate the commercial development ofstrategic unconventional fuels such asoil shale and oil sands. In addition, it di-rects the Secretary of the Interior tolease federal land to conduct R&D ac-tivities with respect to oil shale and oilsands development. Progress: This task force has beenestablished and is composed of de-signees of the Secretaries of Energy,the Interior and Defense; the governorsof Colorado, Kentucky, Mississippi,Utah, Wyoming; and several local gov-ernments. The task force is expected tomake its initial analysis and recommenda-tions on methods to accelerate shortly. Adraft commercialization plan is expectedto be completed by fall 2006. Through interagency coordination,DOE provided technical support to theDepartment of the Interior in evaluat-ing industry proposals for leases of fed-eral lands for research purposes. OnJanuary 17, 2006, the Bureau of LandManagement (BLM) announced the se-lection of applicants whose proposalsfor oil shale leases were judged eligiblefor continued consideration (currentlysix proposals). The BLM is conductingadditional analysis and complianceactivities for the projects.

• Advancing methane hydrateresearch The United States’ methanehydrate resources are estimated atabout 200,000 trillion cubic feet, manytimes the volume of conventional natu-ral gas. Development of this resource

An artist concept of FutureGen Plant, a $1 billion - 10-year demonstration project to create theworld’s first coal-based, zero-emissions electricity and hydrogen power plant.

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could provide a large new source ofnatural gas as early as 2015- 2020.However, significant research is neededto make that a reality. Recognizing thispotential, EPAct reauthorizes the Meth-ane Hydrate Research and Develop-ment Program to undertake importantresearch. Progress: DOE is leading a coordi-nated research effort by the Depart-ments of Commerce, Defense, and theInterior and the National Science Foun-dation. The Interagency Roadmap forMethane Hydrate Research and Devel-opment, which lays out a plan of actionto fully address the goals of EPAct, wasreleased in July 2006 and is available atwww.fossil.energy.gov. A 5-year re-search plan will be developed based onthis roadmap. In addition, DOE’s Meth-ane Hydrate Advisory Committee (apanel of experts from private industry,the non-profit community and acade-mia) will submit a report to Congressassessing the methane hydrate researchprogram and the 5-year research planin 2007.

INVESTING IN SCIENCE ANDTECHNOLOGY

Science and technology play acrucial role in the energy challengesthat America faces. Scientific researchcarries the potential to fundamentallytransform the way we produce anduse energy and to reduce our depen-dence on imports from around theworld. EPAct strongly supports thisgoal and contains many importantprovisions to advance this nation’sscientific enterprise. Key implementation actions todate include:

• Moving toward a hydrogeneconomy EPAct authorizes $1.2 billion infunding for the President’s HydrogenFuel Initiative. This initiative is intend-ed to accelerate the development ofhydrogen fuel cell components andthe infrastructure needed for hydro-gen production, delivery, storage anduse. The President requested $289

million in funding for 2007 for hydro-gen technology. Progress: Significant technicalprogress has been made. The Depart-ment of Energy’s research has re-duced the high-volume cost of auto-motive fuel cells, doubled the lifetimeof the automotive fuel cell stack, re-duced the cost of hydrogen and iden-tified materials that can deliver morethan a 50 percent improvement in hy-drogen storage capacity. As called forby EPAct, Secretary Bodman formallyestablished a Hydrogen and Fuel CellTechnical Task Force in December2005 and created a Hydrogen Techni-cal Advisory Committee in June 2006to coordinate and oversee the Hydro-gen Fuel Initiative. In addition, the De-partment of Energy is producing acomprehensive 5-year plan for hydro-gen and fuel cell development that isexpected to be published in Decem-ber 2006. EPAct requires a report on recom-mendations for promoting theavailability of solar and wind tech-nologies for the production ofhydrogen. That report was completed

in January 2006 and is available atwww.hydrogen.energy.gov/congressreports.html. EPAct also requires astudy of the likely effects of a transi-tion to a hydrogen economy on over-all employment in the United States,which is underway; and a study toprovide a budgetary roadmap for thedevelopment of fuel cell technologiesand the transition from petroleum tohydrogen in a significant percentageof fleet vehicles. A contract for thisstudy was recently awarded to theNational Academy of Sciences.

• Leading the way on biofuelsresearch EPAct authorizes the creation ofnew programs to advance researchthat will improve the technology andreduce the cost of biofuels production. Progress: DOE recently an-nounced that it will spend $250 mil-lion to fund the creation and opera-tion of two new Bioenergy ResearchCenters to accelerate basic researchon the development of cellulosic etha-nol and other biofuels. Universities,national laboratories, non-profit orga-nizations and private firms are eligible

EPAct authorized full funding for the President’s Hydrogen Fuel Initiative. In the coming fiscal year,$286 million will be spent to accelerate the development of hydrogen fuel cells and to help developinfrastructure, such as this hydrogen fueling station, that will be needed to help the nation make thetransition to hydrogen powered vehicles.

ON THE ROAD TO ENERGY SECURITY 9

to compete for an award to establishand operate a center. Successful pro-posals will be chosen and awardedbased on evaluation by scientific peerreview. Centers will be established dur-ing 2008 and are expected to be fullyoperational by 2009. Additional information is available at www.doegenomestolife.org/center/.

• Harnessing the potential offusion energy Fusion energy holds tremendouspromise to supply the world withabundant, safe and environmentallyclean energy. Ensuring the develop-ment of the scientific knowledge andtechnical expertise for a commerciallyviable fusion power industry is a keyelement of EPAct. EPAct directs DOE todevelop a Fusion Energy SciencesProgram, that includes a broad dom-estic research agenda, as well as U.S.participation in the burning plasmaexperiment known as ITER. The purpose of ITER is to demon-strate that fusion can be used togenerate electrical power and to gainthe necessary data to design andoperate the first electricity-producingplant. The reactor will produce about10 times the energy it consumes andwill also test a number of key technol-ogies that will be needed for reliablepower generation. Progress: Working with our sixinternational partners – China, theEuropean Union, India, Japan, Russiaand South Korea – the United Stateswill continue to work to build a cost-shared international fusion reactorlocated in Cadarache, France. In FiscalYear 2006, DOE allocated $19.3 millionfor the U.S. contributions to the ITERproject. President Bush, as part of theAdvanced Energy Initiative, has requested$319 million for ITER and other fusionresearch in Fiscal Year 2007. • Elevating the importanceand management of energy-related science programs EPAct calls for the creation of anew position, Under Secretary forScience, to advise the Energy Secre-

tary on the fundamental scienceresearch that supports the Depart-ment’s mission. It also directs DOE toexplore ways to further integrate its ba-sic and applied energy research pro-grams and to issue a report on this re-view. The goal of the report is to iden-tify opportunities for strengthening theuse of science to drive technological in-novations and spur faster delivery oftechnologies to the marketplace. Progress: Dr. Raymond L. Orbachwas nominated by President Bush andlater confirmed by the U.S. Senate asDOE’s first Under Secretary for Sci-ence in December 2005.

As required by EPAct, a report onintegration of the Department’s re-search programs was issued on July31, 2006. More information can befound at www.science.doe.gov .

I F WE ARE TO MEET this nation’s energy needs in a cost-effective way, we must increase energyefficiency and conservation practices.EPAct contains dozens of provisionsaimed at improving the energyefficiency of our homes, our busi-nesses and our government agenciesand for increasing conservation acrossthe United States. EPAct establishesenergy efficiency standards for federalbuildings and extends the EnergySavings Performance Contractprogram. It also establishes energyconservation standards for a numberof consumer products, supports amodel building energy code compli-ance program and promotes incen-tives for smart energy practices. Key implementation actions todate include:

• Improving the energy effi-ciency of consumer products

EPAct sets new minimum energyefficiency standards for a range ofconsumer and commercial productsincluding unit heaters, air condition-ers, commercial refrigerators and somelighting technologies. Progress: On October 18, 2005,DOE issued a number of efficiencystandards prescribed by EPAct. And,on January 31, 2006, the Departmentsubmitted a report to Congress an-nouncing a schedule for all upcomingappliance efficiency standards. The re-port documents that over the next fiveyears, the Department will publish newor amended appliance standards for 23different products including residentialfurnaces and boilers, air conditioners,ceiling fan light kits, commercial clotheswashers, residential dishwashers, rangesand ovens.

• Tax incentives for encourag-ing smart energy practices To increase energy efficiency andencourage conservation, EPActestablishes new tax incentives forconsumers who buy and use ENERGYSTAR® products, and businesses andmanufacturers who use energy effic-ient building products and practices.Consumers who upgrade thermostats,install exterior windows, or buy highlyefficient central air conditioners, heatpumps and water heaters, can nowclaim these credits. Progress: As of January 2006,(and continuing through December2007), consumers can receive a taxcredit of up to $500 if they buy andinstall products such as energy-efficientwindows, insulation, doors, roofs, andheating and cooling equipment in theirhomes. They can also receive a taxcredit equal to 30 percent of qualifyingexpenditures up to $2,000 for buyingand installing qualified photovoltaicproperty and solar-powered waterheaters. Special incentives for commer-cial builders allow a tax deduction forenergy-efficient commercial buildingsthat reduce annual energy consumption

2. Increase EnergyEfficiency and

Conservation in OurHomes

and Businesses

• Reducing industrial energyconsumption EPAct provides for the establish-ment of voluntary agreements withindustries that consume significantamounts of energy. For more informa-tion, see www.energysavers.gov. Progress: DOE is working withlarge industrial users of energy toestablish voluntary agreements toreduce energy consumption. InOctober 2005, Secretary Bodmanannounced a campaign to save energyin 200 of the most energy-consumingplants in the country by providing forvoluntary energy savings assessments.These assessments allow DOE to betterunderstand energy usage in specific in-dustries. They also identify importantenergy savings opportunities and pro-vide the basis for negotiating long-termvoluntary agreements with industry. Asof July 14, 2006, 124 energy savingsassessments had been completed. Inthe 80 plants where reports have beenfinalized, 24.6 trillion BTUs – or about$225 million in potential energy savings– have been identified.

10 ON THE ROAD TO ENERGY SECURITY

by 50 percent as compared to 2001standards. And, manufacturers ofenergy-efficient dishwashers, clotheswashers and refrigerators are alsoeligible for tax credits. The Internal Revenue Serviceprovided tax credit guidance forexisting homes, new homes and newmanufactured housing in February2006 and for commercial buildings inJune 2006 to implement these impor-tant provisions. They can be viewed atwww.energytaxincentives.org.

• Promoting energy efficiencyand savings at federal agencies EPAct calls on federal agencies tolead by example and improve theirenergy efficiency. The Energy SavingsPerformance Contract program, whichwas reauthorized by EPAct, allows pri-vate contractors to help federal agen-cies improve the energy efficiency oftheir facilities. Progress: During fiscal year 2006alone, federal agencies have executedcontracts for energy efficiency savingsworth an estimated $86 million.EnergySavings Performance Contracts areimplemented exclusively by the privatesector, are privately financed, achieveoptimal savings, and are provided atzero risk to the taxpayer. WithoutEPAct, these programs would haveended and would have lapsed in amanner that significantly curtailed en-ergy efficiency efforts across the gov-ernment. DOE is leading the effort toencourage and facilitate these con-tracts throughout all federal agencies.

3. Improve theEnergy Efficiency

of OurCars and Trucks

EPAct provides tax credits of up to $3,400 for the purchase of fuel-efficient hybrid vehicles like theFord Escape.

IMPROVING THE EFFICIENCY of our vehicles and encouraging the development and use of alternativefuels is another important dimension ofenergy efficiency. To advance thesegoals, EPAct establishes a RenewableFuels Standard. It also contains tax in-centives for the purchase of alternativefuel vehicles, such as hybrids andstrengthens requirements that federalvehicle fleets use alternate fuels. Key implementation actions todate include: • Establishing a renewablefuel standard EPAct requires that by 2012, atleast 7.5 billion gallons per year ofrenewable fuel (such as ethanol andbiodiesel) be blended into the nation’sfuel supply.

Progress: By setting an escalatingrequirement for biofuel production,EPAct has sustained and acceleratedthe current pace for ethanol plantdevelopment and construction. Priorto this provision, growth in the bio-fuels industry was hampered by alack of capital. Capital to build thesefacilities is now readily available. In2006, drivers in the U.S. will useabout 6 billion gallons of ethanol off-setting a substantial amount of fossilfuel and putting us on target to meetthe EPAct goal of 7.5 billion gallonsper year by 2012.

• Providing consumer taxcredits for energy-efficientvehicles EPAct contains important provi-sions to encourage American consum-ers to purchase energy-efficient ve-hicles, including qualified hybrid, fuelcell and alternative fuel motor vehicles. Progress: These tax credits areavailable for eligible cars purchasedon or after January 1, 2006. Thecredits extend over the next 6-10years and may be worth as much as$3,400. For more information, seewww.energytaxincentives.org .

IMPORTANT PROVISIONS OF EPAct aim to modernize our nation’s aging electric power infrastructureto help reduce the risk of large-scaleblackouts and minimize transmissionproblems. Among other things, EPActcontains measures that: repeal out-dated rules that discourage investmentin new infrastructure; offer tax incen-tives for new transmission con-struction; and encourage the develop-ment of new technologies to improvethe efficiency and reliability of thepower grid.

emerging congestion problems. Theseare: New England, the Phoenix-Tucsonarea, the Seattle-Portland area, and theSan Francisco Bay area.

The third group, “ConditionalCongestion Areas,” consists of areaswhere congestion is not acute now, butit may become so if large amounts ofnew electric generation were to bebuilt without proper transmission cap-acity. These include Montana Wyo-ming, Dakotas-Minnesota, Kansas-Oklahoma, Illinois, Indiana, Upper Ap-palachia, and the Southeast.

DOE is seeking comments on thepossible designation of national interestelectric transmission corridors (“NationalCorridors”) in relation to all three groupsof congestion areas. If appropriate, theSecretary of Energy will designate certainareas as National Corridors in accordancewith the statute. This study, and com-ments on it from stakeholders, will informfuture decisions by the Department con-cerning the designation of NationalCorridors. DOE also seeks commentson the congestion study itself, toaid in improving future DOE analyses ofelectric transmission congestion.

The Study and additional informa-tion regarding the designationof National Corridors are available atwww.oe.energy.gov .

Key implementation actions todate include: • Reporting on electric energytransmission congestion and thedesignation of National InterestElectric Transmission Corridors EPAct calls on DOE to conduct astudy of electric transmission conges-tion in the United States and to publishit by August 2006 (and every threeyears thereafter). On the basis of thestudy, and after considering input frominterested parties, the Secretary of En-ergy may designate certain geographicareas as National Interest Electric Trans-mission Corridors. Progress: The Department of En-ergy published the National ElectricTransmission Congestion Study on Au-gust 8, 2006. The report identifiesthree groups of congestion areas thatmerit further federal attention. Themost severely congested areas arecalled “Critical Congestion Areas.”There are two of them: Southern Cali-fornia and the Atlantic coastal areafrom the New York City region tonorthern Virginia.

A second group, “Congestion Ar-eas of Concern,” consists of four areasthat appear to require close observationand further study to determine themagnitude of their existing or

ON THE ROAD TO ENERGY SECURITY 11

EPAct took important steps to strengthen the nation’s electric power grid. It created new taxincentives for the construction of new transmission lines and authorized mandatory reliability andinterconnection standards.

4. ModernizeOur Electric Power

Infrastructiure

ONE YEAR AFTER THE enact- ment of the Energy Policy Act, America is on its way toimplementing a comprehensive energystrategy. This strategy recognizes thatto confront the challenges we face,we must diversify our national energysupply, increase energy efficiency andconservation in our homes and busi-nesses, improve the energy efficiencyof our transportation systems, andmodernize our national energy infra-structure, especially our electric trans-mission system. We are on the road to a cleaner,more secure, and prosperous energyfuture.

ment of a comprehensive research,development and demonstrationprogram. Development of the ad-vanced technologies will ensure thereliability, efficiency, and environmen-tal integrity of the electric transmis-sion and distribution system. Progress: An industry workshopwas held in February 2006 to obtaininput from stakeholders and to developa plan. DOE completed a 5-year R&Dplan on August 7, 2006 and has begunto restructure its research priorities tosupport the plan.

THE ENERGY POLICY ACT directs the Secretary of Energy to ac- quire petroleum to fill theStrategic Petroleum Reserve (SPR) toits authorized one-billion-barrel capac-ity and sets forth certain conditions forexercising that authority. EPAct also di-rected DOE to select sites that will al-low the government to expand the SPRfrom its current 727 million-barrel ca-pacity. Expanding the reserve will en-sure the U.S. is able to respond to sig-nificant disruptions in oil supplies. Progress: Since August 8, 2005,DOE has worked to develop theprocedures to acquire oil for the SPRand to prepare an environmentalimpact statement (EIS) that will fullyassess five potential storage sites inTexas, Louisiana, and Mississippi. Apublic survey for new storage siteswas completed in December 2005,and a draft EIS was issued in May2006. The Department anticipatesthat the environmental review andsite selection process will be com-pleted by September 2006.

12 ON THE ROAD TO ENERGY SECURITY

5.Expand theStrategic

Petroleum Reserve

Conclusion

• Coordinating federal pro-cesses for authorizing newtransmission facilities

As a result of EPAct, DOE mayissue regulations for implementing itsrole as the lead agency for federalauthorizations and environmentalreviews for new transmission facilities.

Progress: A report, developed bythe Departments of Energy, theInterior and Agriculture and theCouncil for Environmental Quality,which identified all existing designatedtransmission and distribution corridorson federal land, was completed inNovember 2005 and can be found atwww.oe.energy.gov. In addition, tobetter coordinate and expedite theprocess for siting new transmissionfacilities, a memorandum of under-standing among all federal agencieswith authority to issue permits fortransmission facilities was completedon August 7, 2006.

• Designating energy corridors EPAct directs the Departments ofEnergy, the Interior, Agriculture andDefense to designate multipurposeenergy corridors (for oil, gas andhydrogen pipelines and electricitytransmission and distribution facilities)on federal lands by August 2007 forthe western states, and by August2009 for the rest of the nation. Progress: Since enactment ofEPAct, the four designated agencieshave held meetings in eleven westernstates; gathered and analyzed relevantdata; drafted alternatives to be con-sidered in a programmatic environ-mental impact statement; and devel-oped maps showing potential corri-dors. One such map, detailing thepreliminary corridors in the west,was published on June 9, 2006 and isavailable at www.oe.energy.gov.

• Modernizing the nation’selectric energy infrastructurethrough advanced technologies EPAct instructs DOE to develop aplan for modernizing the electricinfrastructure through the establish-