Meeting highway capacity needs while protecting the environment is a challenging task formany states. In order to receive federal highway funding, several environmental requirements mustbe met. The Clean Air Act requires states with poor air quality to demonstrate that plans to expandhighway capacity would conform with their plans to control emissions, referred to as "transportationconformity." A state may be denied access to federal highway funds if conformity is notdemonstrated, or if air quality plans are determined to be inadequate. As required by the NationalEnvironmental Policy Act of 1969 (NEPA), the potential environmental impacts of all highway andtransit projects are also subject to review prior to the approval of federal highway funds for finalproject design, property acquisition, or construction. While air quality impacts are a prominentconsideration in the approval of many projects, other common environmental impacts include waterpollution from contaminated runoff and the loss of wetlands or other natural habitat that may occurfrom clearing the land for construction. Such impacts would need to be mitigated as a condition ofapproval for federal highway funds. Environmental permits or other documentation may also berequired before certain aspects of a project may proceed. To address potential conflicts between surface transportation needs and environmental quality, Congress has established numerous programs and authorities intended to help mitigate pollutionresulting from highway construction and travel. The most recent multi-year funding authorizationfor these activities was provided in the Transportation Equity Act for the 21st Century (TEA-21, P.L.105-178 ), which expired on September 30, 2003. This law authorized a total of $218 billion forfederal highway and transit programs from FY1998 through FY2003. It set aside approximately $9billion of this amount for air quality projects, authorized tax benefits for cleaner-burningalcohol-based fuels, and permitted states to exempt certain low-emission vehicles from HighOccupancy Vehicle (HOV) lane requirements. TEA-21 also made funding available for mitigatingwater pollution from highway runoff, and authorized funding for environmental research and thedevelopment of advanced vehicle technologies. The most controversial issues for the reauthorization of federal highway and transit programs have been the amount of funding to provide for surface transportation infrastructure needs and howto allocate this funding among the states. Demonstration of conformity with air quality requirementsand the performance of environmental reviews are pertinent to these overall funding issues, as theyplay a major role in the approval of federal highway funds for individual projects. Transportationstakeholders, including numerous state departments of transportation and transportation advocacyorganizations, argue that extending the time frame for conformity would provide more time tocontrol emissions and that streamlining the environmental review process would be more efficient,thereby speeding project delivery. On the other hand, some environmental organizations haveexpressed concern that such changes may compromise environmental protection. There also has been significant interest in the adequacy of funding for air quality projects under the Congestion Mitigation and Air Quality Improvement Program (CMAQ). States andenvironmental organizations advocate significantly increasing the funding for this program, in lightof emissions reductions that states may soon need to make in order to attain stricter federal air qualitystandards for ozone and fine particulates. Stakeholders have expressed differing levels of interestin other environmental issues regarding the adequacy of funding for the mitigation of water pollutionfrom highway runoff, research on how surface transportation impacts the environment, and thedevelopment of advanced-vehicle technologies. Whether to extend tax benefits for renewablealcohol-based fuels, and whether to expand the exemption for low-emission vehicles from HOV lanerequirements, are also issues. This report provides background information on activities intended to help mitigate pollution resulting from highway construction and travel, and analyzes key issues for Congress. This reportis a resource document for the reauthorization debate and will not be updated. (For a discussion ofreauthorization legislation, see CRS Report RL32454, Environmental Provisions in SurfaceTransportation Reauthorization Legislation: SAFETEA (S. 1072) and TEA-LU (H.R.3550) ; CRS Report RL32226 , Highway and Transit Program Reauthorization Legislationin the 2nd Session, 108th Congress ; CRS Report RL32032 , Streamlining Environmental Reviewsof Highway and Transit Projects: Analysis of SAFETEA and Recent Legislative Activities ; CRS Report RL32106 , Transportation Conformity Under the Clean Air Act: In Need of Reform? ; andCRS Issue Brief IB10128, Alternative Fuels and Advanced Technology Vehicles: Issues inCongress .) Slower growth in motor fuels excise tax revenues that support the Federal Highway Trust Fundis a significant consideration in determining how much funding is available for surface transportationinfrastructure and related environmental needs. During the previous authorization cycle, robustgasoline sales led to a substantial increase in trust fund revenues. Congress used the greateravailability of funds to significantly expand most highway and transit programs, including numerousenvironmental activities. However, the fiscal climate of the current authorization cycle is morerestrictive, due to a smaller balance in the trust fund as a result of slower growth in motor fuelsexcise tax revenues. The limitation on available funding has made it more challenging to balancehighway capacity needs with protecting the environment and other competing priorities. In addition to deciding how much funding is made available for environmental activities, the category of funding under which these activities would be authorized will be a critical factor indetermining whether their support is insured. TEA-21 established a new budget category ofdiscretionary spending guarantees that function as a "firewall" to ensure a minimum level of fundingfor the majority of highway and transit programs, including most environmental activities. Guaranteed funding is separated from the rest of the discretionary budget in a way that prevents theuse of Federal Highway Trust Fund revenues for any other purpose, and as such, is not subject toreduction in the annual appropriations process. (1) In addition to guaranteed funding, TEA-21 authorized traditional discretionary funding for certain programs, which is entirely subject to the annual appropriations process. In appropriationssubsequent to TEA-21, Congress did not fully support the authorized levels for some of thetraditional discretionary funding for environmental programs, such as those for clean fuel buses,environmental research, and advanced vehicle technologies. Consequently, an issue for thereauthorization of environmental programs is the extent to which funding for them should befirewalled to guarantee support for their implementation. Motor vehicles have become cleaner in operation with the gradual tightening of federalemission standards since 1965. (2) However, the risein the number of vehicle miles traveled has offsetsome of the reductions in air pollution achieved by more advanced emission controls. (3) As a result,motor vehicles continue to be major sources of air pollution, including ground-level ozone,commonly referred to as smog. (4) Emissions frommotor vehicles continue to contribute significantlyto poor air quality in numerous metropolitan areas, making it difficult for some states to comply withemissions limits in their State Implementation Plans (SIPs) to attain and maintain the NationalAmbient Air Quality Standards (NAAQS). (5) Howto meet public needs for greater highway capacitywhile controlling emissions is a major issue for states with areas that are in nonattainment with theNAAQS and areas that must maintain them, as the availability of federal highway funding in theseareas is dependent on the state demonstrating that its transportation plan conforms to the emissionsbudget for motor vehicles in its air quality plan. In order to reduce conflicts between highway capacity needs and air quality requirements, Congress has authorized the use of federal highway funds for various projects that would reducevehicular emissions. The majority of the air quality funding authorized in TEA-21 was allocated tothe CMAQ program. Federal transit funding has also been made available to local transit agenciesfor the purchase of clean fuel buses. Congress has also authorized tax benefits to encourage theproduction and sale of renewable alcohol-based fuels that reduce vehicular emissions and petroleumconsumption. In addition, states have had the flexibility to allow the single-occupant use of certainlow-emission vehicles in High Occupancy Vehicle (HOV) lanes, in order to encourage the purchaseof cleaner vehicles. Further background information on transportation conformity and specific airquality programs and authorities, and key issues for Congress, are discussed below. The Clean Air Act requires states and metropolitan planning organizations to demonstrate that their transportation plans conform to their air quality plans. The purpose of this requirement is toensure that the change in emission levels resulting from new transportation projects would notinterfere with the state's efforts to attain or maintain federal air quality standards. Many states haveexperienced greater challenges in demonstrating conformity as air quality requirements have becomemore stringent. Background. Section 176 of the Clean Air Act prohibits federal agencies from funding projects in nonattainment or maintenance areas, unless thoseprojects conform to a state's SIP. (6) Because newhighways generally lead to an increase in emissions,both the statute and regulations currently require that a metropolitan planning organization'sTransportation Improvement Program (TIP) demonstrate conformity no less frequently than everytwo years. Highway and transit projects cannot receive federal funds unless they are part of aconforming TIP. States also must demonstrate that their long-term transportation plans conform totheir air quality plans over a 20-year time frame. In addition to conformity requirements, Section179 of the Clean Air Act authorizes federal highway funds to be withheld from a state if an adequateSIP is not prepared or implemented properly. (7) (Foradditional discussion of conformityrequirements, refer to CRS Report RL32106 , Transportation Conformity Under the Clean Air Act:In Need of Reform? ) Key Policy Issues. There has been increasing support for allowing states more time to demonstrate conformity, due to the likelihood that theimpact of conformity requirements on states will grow in the next several years. Numerous factorshave made it more challenging for states to control emissions and demonstrate conformity, such as(1) the growth of emissions from sport utility vehicles (SUVs) and other light trucks whoseemissions are not regulated as strictly as passenger vehicles, (2) greater than expected increases invehicle miles traveled, (3) recent court decisions that tightened conformity rules, and (4) theimplementation of more stringent federal air quality standards for ozone and fine particulates,scheduled for 2004, which will result in more areas being subject to conformity demonstrations. Numerous metropolitan areas may face a cutoff of highway and transit funds in the future, unless they impose sharp reductions in emissions to demonstrate conformity. During a lapse inconformity, a state may receive federal highway funds only for a limited set of exempted projects(mostly safety-related or replacement and repair of existing transit facilities). The rules do not evenallow funding of new projects that might reduce emissions, such as new transit lines. Howconformity requirements may affect a state's access to federal highway funds has raised significantconcerns for the reauthorization of federal surface transportation programs. While conformityrequirements could be modified to provide greater compliance flexibility for states, proposals to doso have been controversial because conformity is the only current mechanism to ensure that statesconsider how their transportation planning decisions might affect air quality. Congress established the CMAQ program under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA, P.L. 102-240 ). This program is based on the fundamental conceptthat lowering the number of miles traveled by motor vehicles, and reducing congestion to makevehicles operate more efficiently, can reduce emissions and improve overall air quality. Theprogram has been widely popular among local areas struggling to reduce air pollution, as it is thelargest single source of federal funding for air quality projects. While questions have been raisedabout the program's effectiveness, there appears to be broad support for increasing its funding levelsin response to concern that greater emission reductions will be needed in many states when newnonattainment areas are designated. Background. Congress originally authorized $6 billion for the CMAQ program from FY1992 through FY1997. In enacting TEA-21, Congressauthorized another $8.1 billion for continuing it from FY1998 through FY2003. CMAQ funding isavailable only for projects that would reduce traffic congestion and assist states in complying withthe NAAQS for carbon monoxide, ozone, and particulate matter. States with areas that are innonattainment with the NAAQS for these pollutants, and those that must maintain them, receiveCMAQ funds according to a formula based on the severity of air pollution in those areas and thepopulation residing in them. States that do not have any nonattainment or maintenance areas receive0.5% of the total annual CMAQ apportionment, and have the flexibility to use this amount fortransportation projects that are eligible under CMAQ or the Surface Transportation Program. TEA-21 also allowed each state to transfer a portion of its CMAQ funds to other highway programsthat the state determines to have a higher priority, if certain conditions are met. Most transportation control measures identified in Section 108 of the Clean Air Act are eligible for funding. (8) CMAQ projects generally fall into oneof the following eight categories: (1) masstransit; (2) traffic flow improvements; (3) rideshare programs; (4) traffic demand managementprograms; (5) bicycle and pedestrian projects; (6) public education; (7) vehicle inspection andmaintenance programs; or (8) alternative fuel conversions. According to the Federal HighwayAdministration, more funding has been obligated for conventional mass transit projects than for anyother activity, approximately 44% of total CMAQ funds since FY1992. Key Policy Issues. After more than a decade of implementation, questions have been raised as to whether the CMAQ program has reducedemissions significantly enough to help states comply with the NAAQS. Whether to modify variouselements of the program to improve its effectiveness, or possibly to shift its focus, is an issue forreauthorization. Congress included a provision in TEA-21 that required the National Academy ofSciences (NAS) to study whether the emission reductions from CMAQ projects have been largeenough to help states comply with the NAAQS. The NAS released its report in the spring of 2002. (9) The study indicated that the air quality benefits of CMAQ projects were difficult to assess becauseof the lack of quantitative data for all projects. For those with quantitative data, the NAS concludedthat the emission reductions were relatively small and that these projects were less cost-effective thanother pollution control measures. However, the NAS also concluded that when these emissionreductions are assessed collectively the overall air quality benefits that they provide may be greatenough to help states attain and maintain the NAAQS in areas that are on the margin of compliance. Consequently, the NAS recommended that the program be continued and suggested variousmodifications to improve its effectiveness. The findings of the NAS have raised numerous issues for reauthorization. Since the impact of the program on air quality was difficult to quantify, some argue that the focus should be shifted toreducing traffic congestion in general, rather than linking eligibility to air quality benefits that arequestionable. There also are arguments that the statutory formula should at least be amended toprovide a higher amount of minimum funding to states that do not have any air quality problems, butthat would still benefit from a reduction in traffic congestion. Rising traffic congestion andprogressively lengthier commuting times in some metropolitan areas have motivated support for suchoptions among some transportation stakeholders. On the other hand, proponents of the program argue that areas on the verge of attainment may benefit from the continued use of CMAQ funds for air quality projects, even if the emissionreductions are relatively small. They also argue that more areas will be in need of emissionreductions in order to comply with stricter federal standards for ozone and fine particulates,scheduled to become effective in 2004, and that air quality benefits from CMAQ projects, no matterhow small, would be helpful. However, the current funding formula does not include a factor toaccount for new areas that will be in nonattainment with these stricter standards. Consequently, theformula would need to be changed during reauthorization, in order to allow affected states to receivegreater funding. In general, transit projects provide air quality benefits by reducing the number of motor vehicles on the road and the emissions that are generated from their operation. However, transit vehicles(mainly buses) produce emissions themselves. In many local areas with air quality problems, transitagencies have purchased buses that operate on cleaner-burning fuels as a means to control emissions. In enacting TEA-21, Congress set aside funding for a program to assist transit agencies in purchasingclean fuel buses, but subsequently redirected this funding to a more general fund for bus purchasesnot restricted to fuel type. While this program has not been implemented, many transit agencies have still chosen to purchase clean fuel buses with federal funds at their discretion. The upcoming designation of newnonattainment areas has sparked further interest in the use of clean fuel buses, and some haveadvocated that a dedicated source of funding should be established for acquiring them. This proposalhas been controversial to those who argue that local transit agencies should be allowed to decidewhat kinds of buses best meet their capacity needs, rather than having a portion of federal transitfunds restricted to certain types of buses based on fuel type. Background. TEA-21 authorized the Secretary of Transportation to establish a Clean Fuels Formula Grant Program to assist transit agencies inacquiring low-emission alternative-fueled buses, improving facilities to accommodate them, andrebuilding pre-1993 engines with clean fuel technology. Under this authority, the Secretary ofTransportation may award competitive grants to transit agencies based on a formula that factors inthe number of vehicles in a transit system's fleet, the number of passenger miles traveled, and theseverity of air pollution in a recipient's area. Eligible technologies include compressed natural gas(CNG), liquified natural gas (LNG), biodiesel fuel, battery power, alcohol-based fuel, hybrid electricpower, fuel cells, clean diesel fuel, or similar technologies. To support the program, TEA-21 authorized $200 million annually from FY1999 through FY2003, for a total authorization of $1 billion over five years. Of the $200 million annualauthorization, $100 million was authorized as guaranteed "firewalled" funds, and the remaining $100million was authorized as traditional discretionary funds subject to the annual appropriations process. In appropriations bills subsequent to TEA-21, Congress has not appropriated any of the $100 millionin traditional discretionary funds that were annually authorized for the program, and has redirectedthe $100 million in guaranteed annual funding to traditional capital bus improvement projects. TheFederal Transit Administration reports that data are not available to determine the extent to whichtransit agencies have purchased alternative-fueled buses with the redirected funding. Even though there is no dedicated source of funding for the purchase of clean fuel buses, they do receive preferential treatment under federal matching funds requirements to help local areas attainor maintain federal air quality standards. Generally, federal transit programs provide up to 80% ofthe cost of new bus purchases, and local transit agencies are responsible for securing funding fromstate or local sources to pay the remaining 20%. However, the federal contribution can be increasedto 90% to purchase buses that use "clean" or "alternative" fuels for the purpose of complying withClean Air Act requirements. (10) The major capital assistance programs administered by the Federal Transit Administration that have funded the purchase of alternative-fueled buses include the Capital Investment Grants andLoans Program, Urbanized Area Formula Program, Non-Urbanized Area Formula Program, ElderlyPersons and Persons with Disabilities Program, and the Job Access/Reverse Commute Program. Some funding is also available under the "New Starts" Program. Of these programs, the UrbanizedArea Formula Program has been the largest source of funding for buses that operate on alternativefuels. Alternative-fueled buses have accounted for a significant share of Federal Transit Administration funding obligations in recent years. The agency began compiling data on new buspurchases by fuel type in FY2000. As indicated by the data in the table below, an average of 34%of the federal funding obligated for the purchase of new transit buses from FY2000 to FY2002 hasbeen devoted to those that operate on alternative fuels. Air quality concerns are frequently among the most prominent factors in a transit agency's decision to purchase clean fuel buses, despite their typically higher costs. For example, transitagencies located in metropolitan areas that need emissions reductions to comply with federal airquality standards under the Clean Air Act are more likely to choose cleaner buses that operate onalternative fuels. Other factors may include the extent to which the purchase of cleaner buses wouldimprove the public's perception of transit and increase ridership, and whether there are any state orlocal mandates or incentives for the use of alternative fuels. Apart from air quality concerns, an economic factor that transit agencies typically consider in their planning process is the extent to which the purchase of alternative-fueled buses would help tomaximize the benefits of past investments in the refueling infrastructure necessary for such vehicles. Consequently, transit agencies that have invested in alternative-fueled buses in the past are morelikely to purchase additional ones in the future. Conversely, transit agencies that have not yetinvested in them are less likely to do so, as they would need to invest additional resources in newrefueling infrastructure. Federal Funding Obligated by the Federal Transit Administration for the Purchase of Buses by Type of Fuel from FY2000 to FY2002a Source: Prepared by the Congressional Research Service using data from the Federal TransitAdministration, Statistical Summaries for FY2000, FY2001, and FY2002. a Dollar amounts in the table reflect the amount of federal funding obligated to assist transit agenciesin purchasing buses. Dollar amounts do not include funds provided by transit agencies to meetmatching funds requirements, and therefore do not reflect the total cost of bus purchases. b Alternative fuels include compressed natural gas, liquified natural gas, liquified petroleum gas,methanol, ethanol, electric, biodiesel, dual fuel operation, fuel cell, and hybrid electric. Key Policy Issues. As indicated by the above data, funding obligations for alternative-fueled buses have significantlyexceeded the original $200 million annual authorization for the Clean Fuels FormulaGrant Program. This trend has caused some to argue that setting aside fundingexclusively for the purchase of alternative-fueled buses is not necessary to encouragetheir use, and that the favorable 10% matching funds requirement is sufficientencouragement. Some also point out that stricter standards for heavy-duty dieselengines and fuels, which are scheduled to be phased in beginning in 2007 and 2006respectively, will allow diesel buses to achieve a level of emissions performance thatis equivalent to alternative fuels such as CNG. Such critics say that the cleanerperformance of new diesel buses that are on the way will negate the need forreserving a portion of transit funds for alternative-fueled buses in order to reduceemissions. On the other hand, some environmental organizations have expressedskepticism that diesel buses equipped with cleaner engines will generate as fewemissions in actual operation as those that operate on alternative fuels. They arguethat dedicated funding should be set aside in reauthorization for alternative-fueledbuses to ensure that transit agencies continue to purchase them, as a means toimprove air quality. The federal government currently provides an excise tax reduction and an income tax credit to promote the production, sale, and use of renewablealcohol-based fuels, including ethanol and methanol. (11) Vehicles operated on thesefuels typically produce fewer tailpipe emissions (particularly carbon monoxide) thanthose operated on conventional gasoline or diesel. A reduction in tailpipe emissionscan help to reduce the impact of highway travel on air quality. However,alcohol-based fuels can be more "volatile" than conventional gasoline or diesel, andthe use of these alternative fuels can result in higher evaporative emissions duringrefueling, which could offset tailpipe emission reductions in some cases. Whilealcohol-based fuels have the potential to improve air quality, the preferentialtreatment of these fuels in the U.S. tax code has been controversial. Background. The current authority for the tax benefits that apply to alcohol-based fuels expires at the end of2007. These benefits are available for alcohol-based fuels if they are derived fromrenewable sources. Those produced from petroleum, natural gas, or coal arespecifically excluded from eligibility under the U.S. tax code. (12) Ethanol is producedprimarily from the distillation of corn and is therefore renewable. While methanolcan also be derived from renewable biomass or municipal waste, it usually isproduced from natural gas, which is not renewable. Consequently, the tax benefitsfor alcohol-based fuels apply mostly to the sale of ethanol. Among alternative fuels, ethanol is the most commonly used. The majority of the ethanol sold is not used in its pure form. Rather, it is blended with gasoline toproduce "gasohol," which can be used in any conventional vehicle as a substitute forordinary gasoline. Ethanol is also used as an additive for various purposes. It iscommonly added to "reformulated" gasoline (RFG) to increase the oxygen contentof the fuel. RFG must be made available in certain areas to meet Clean Air Actrequirements to reduce vehicular emissions of precursors to ground-level ozone,commonly referred to as smog. During the winter months, RFG also must be usedin certain areas to reduce emissions of carbon monoxide. In addition to meetingoxygenate requirements for RFG, ethanol is added to gasoline in some areas toincrease octane levels. (For additional information on ethanol, refer to CRS Report RL30369, Fuel Ethanol: Background and Public Policy Issues .) The excise tax reduction for ethanol is most commonly taken at the blended state by either fuel producers or distributors. The amount of the tax reductiondepends on the percentage of the blend that is composed of ethanol. The current taxreduction is 5.2 cents per gallon for gasohol consisting of at least 10% ethanol, 4.0cents per gallon for blends of at least 7.7% ethanol, and 3.0 cents per gallon forblends of at least 5.7% ethanol. These amounts reduce the excise tax levied on thesale of gasohol below the current tax rate of 18.4 cents per gallon for ordinarygasoline. While nearly all of the excise taxes on gasoline are deposited into theFederal Highway Trust Fund, 2.5 cents of the per gallon tax for gasohol are depositedinto general Treasury funds, and are therefore not dedicated to the support of federalsurface transportation programs. Key Policy Issues. Since the wholesale cost of ethanol is relatively high, tax benefits for the sale of ethanol areneeded to make it competitive with other fuel additives and with conventional fuels. However, there has been disagreement as to whether these benefits are appropriate. Proponents argue that ensuring the commercial viability, and resulting availability,of ethanol improves air quality due to reduced vehicle emissions, lowers U.S.dependence on foreign oil, and provides an additional market for corn farmers whogrow the biomass needed to produce ethanol. On the other hand, opponents arguethat gasohol tax benefits are essentially a subsidy for the ethanol industry, whichreduces overall revenues for the Federal Highway Trust Fund. Some also argue thatthe emissions and energy benefits of ethanol can be offset by the energy needed toproduce the fuel and the resulting emissions from generating that energy. Key issuesfor reauthorization include (1) whether to extend the tax benefits beyond this timeframe, (2) whether to increase or decrease the amount of the excise tax reduction andthe income tax credit, and (3) whether to continue the current policy of devoting aportion of alcohol fuel tax revenues to general Treasury funds. Many states have constructed HOV lanes as a means to reduce traffic congestion. Through reducing congestion, these types of lanes also can provide airquality benefits because vehicles typically generate fewer emissions when operatingmore efficiently at steady speeds. In TEA-21, Congress approved a novel approachto using HOV lanes for air quality purposes by allowing states to permit vehicles withextremely low emissions to operate in an HOV lane with only one occupant. Thepremise was to offer a benefit that would possibly encourage the purchase of cleanervehicles, thereby helping to improve air quality. This authority expired on October1, 2003. Some have advocated that it should be renewed and expanded to includeother low-emission vehicles that were not clean enough to qualify under the previousauthority. However, others have expressed concern that expanding this benefit toinclude a greater number of vehicles could cause traffic congestion to rise, impairingthe primary function of HOV lanes. Background. TEA-21 provided the authority for states to permit a vehicle with only one occupant to operate in anHOV lane, if the vehicle is certified under federal regulations as an "inherentlylow-emission vehicle" (ILEV). The law authorized states to implement this policythrough September 30, 2003, and granted each state the right to revoke this policywithin its borders if HOV lane congestion were to increase as a result of this practice. EPA established the ILEV category to recognize the inherently low emissions ofcertain types of fuel and vehicle technologies and to encourage their use. The ILEVstandards are so strict that only those vehicles without evaporative fuel emissions areable to meet them. Consequently, a vehicle that burns any quantity of gasoline ordiesel cannot meet the standards, including hybrid vehicles that operate on acombination of gasoline or diesel and electric batteries. Vehicles that operate entirelyon alternative fuels with no evaporative emissions, such as compressed natural gas(CNG), liquified natural gas (LNG), or purely electric vehicles, are the only ones thatare able to meet the standards. Such vehicles account for a very small percentage ofthe on-road fleet. Due to the limited availability of ILEVs, few motorists have beenable to take advantage of the HOV lane benefit provided in TEA-21. Key Policy Issues. There has been growing interest among motorists, the vehicle industry, and some states in renewingthe HOV lane benefit and expanding it to hybrid vehicles, which are more widelyavailable. Proponents argue that hybrid vehicles are almost as clean as ILEVs, andthat expanding this benefit to include them would encourage additional sales of"cleaner" vehicles that would help to improve overall air quality. Over theshort-term, allowing hybrid vehicles to use HOV lanes with only one occupant maynot cause HOV lanes to become noticeably more congested in areas where there isexcess HOV lane capacity to accommodate them, because they currently representa fairly small percentage of the vehicle fleet. However, HOV lanes could becomemore congested in some areas over the long-term, if the popularity and correspondingsales of these vehicles were to rise, making them a larger share of the on-road fleet. In addition to contributing to air pollution, highway travel and constructionactivities can impair water quality. Runoff from highways can deposit a variety ofpetrochemicals and other potentially hazardous substances into adjacent waterwaysand wetlands, which can migrate over time throughout a watershed and result inviolations of water quality standards. Highway runoff is basically a "nonpoint"source that is more difficult to quantify and control than a conventional "point"source, such as a water discharge pipe from a stationary facility. In seeking federal funds for new highway construction, states must consider the potential impacts of highway runoff on water quality and wetlands during theenvironmental review process, required by NEPA. Depending on the extent of theseimpacts, mitigation, such as storm water management systems, may be required toprevent or minimize the potential for pollution. If wetlands would be lost as a resultof new highway construction, other measures, such as mitigation "banks" may berequired in order to make up for these losses. TEA-21 established a preference forthe use of these banks to address the impact of new highway construction onwetlands. (13) The costs of water pollutionmitigation and the replacement of wetlandsis typically absorbed as part of the total costs for a new highway construction project. However, many highways were constructed prior to more recent requirements for the installation of storm water management systems, or other water pollutionmitigation measures. Consequently, many waterways adjacent to highways havebeen contaminated from years of runoff and are in need of environmental restoration. In response to these needs, Congress has provided authority for states to use federalhighway funds for environmental restoration or mitigation projects to address waterpollution from existing highways. Eligibility for these projects is provided under theSurface Transportation Program in general, and under the TransportationEnhancements set-aside within this program. The conditions of eligibility under eachauthority and key issues for Congress are discussed below. Most federal highway programs are devoted to meeting specific needs, such interstate maintenance, bridge repair, or highway safety, and states are generally notpermitted to use funds allocated to these programs for other purposes. The SurfaceTransportation program is different in that it gives states broad flexibility to usefederal highway funds to meet multiple surface transportation needs. In enactingTEA-21, Congress amended the eligibility requirements of the SurfaceTransportation Program to include projects that would address the impacts ofhighway travel on water quality. Background. Under the Surface Transportation Program, the Federal Highway Administration is authorized to makefunds available to the states for environmental restoration and pollution abatementprojects that address water contamination or environmental degradation attributed torunoff from an existing highway. (14) Forclarification purposes, the construction orretrofit of storm water treatment systems is highlighted as an eligible activity. Surface Transportation Program funds may be spent on environmental restorationand pollution abatement activities only when an existing highway is undergoing"reconstruction, rehabilitation, resurfacing, or restoration." The portion of programfunds that can be spent on environmental restoration and pollution abatementactivities for these types of highway projects is limited to 20% of the total projectcost. The law does not provide the authority for states to expend program funds tomitigate water pollution from past runoff, if improvements are not being made to thehighway at the time. While environmental restoration and pollution abatement activities are eligible for funding, the law does not require states to expend their Surface TransportationProgram funds on these activities. Rather, a state may use program funds for theseactivities at its discretion. Determining how many states have done so, and in whatamount, is not possible because states are not required to comprehensively track thisinformation. However, states may voluntarily supply this information to the FederalHighway Administration. Based on the data that have been provided, the statesreport that they have spent a total of $19 million in Surface Transportation Programfunds on environmental restoration and pollution abatement projects from FY1998through mid-FY2003. However, the actual expenditure may be significantly greaterthan this amount, due to the absence of complete data from all states. States alsomust spend a portion of their federal funds for new highway construction to satisfywater pollution mitigation requirements. Due to the scope of most new constructionand the extent of its impacts, these amounts mostly likely have exceeded the fundingthat has been spent to mitigate pollution from older highways. However, data on thespecific amount of funding are not available because states do not typically separatemitigation costs out from the total costs of new highway construction. Key Policy Issues. Some of the relevant issues for the reauthorization of the Surface Transportation Program are (1)whether to increase the limitation on the portion of the total project cost that can bespent on environmental restoration and pollution abatement activities, in order toaccommodate cases in which mitigation costs may exceed the current 20% cap; (2)whether to establish a comprehensive reporting mechanism for tracking the amountof STP funds expended by states on these activities, so as to gain a betterunderstanding of the extent to which transportation facilities have impacted waterquality and necessitated mitigation; and (3) whether to permit STP funds to be usedto address water pollution from highway runoff, even if no highway improvementsare underway at the time. Although states have the flexibility to fund a wide variety of projects under the Surface Transportation Program, they must set aside 10% of their annualapportionment of funds under this program for "transportation enhancements" thatwould improve the multimodal, environmental, cultural, or aesthetic aspects of thenation's surface transportation system. In enacting TEA-21, Congress modified thedefinition of enhancements to include the mitigation of water pollution from highwayrunoff as an eligible activity. While the use of enhancements funding to addresswater quality needs has not been controversial, some criticisms have been raisedabout the use of federal highway funds for some enhancements that are not directlyrelated to surface transportation infrastructure needs. Background. States may choose to spend their enhancements funds on numerous categories of eligible activities. Thecategories that have received the most funding include bicycle paths and pedestrianwalkways, preservation of historic transportation facilities, and landscaping andscenic beautification. (15) Of the eligible categories,mitigation of water pollution fromhighway runoff has received a relatively small percentage of overall enhancementsfunding. TEA-21 authorized a total of $3.3 billion for transportation enhancementsfrom FY1998 through FY2003. Of this amount, the National TransportationEnhancements Clearinghouse reports that states had expended $66 million (or nearly2%) on water pollution mitigation projects through mid-FY2003. (16) While thisamount represents a small fraction of enhancements funding, it is more than threetimes the amount that states had reportedly spent on these types of projects withgeneral Surface Transportation Program funds. The federal contribution to the cost of projects funded under the Surface Transportation Program, including pollution mitigation, is generally limited to 80%,as is the case with most other federal highway programs. However, states have theflexibility to calculate the nonfederal share of the total cost of TransportationEnhancements based on individual projects, multiple projects, or on a programmaticlevel. States also can use funds from federal agencies other than the Department ofTransportation to count toward the nonfederal share of the cost of enhancements. (17) Consequently, the federal share of the cost of an individual project can be as high as100%, if the federal share for others is low enough to offset that amount and yield afederal share of no more than 80% for an entire group of projects. Key Policy Issues. Whilenumerous states, local communities, historic preservation interests, andenvironmental organizations have expressed support for the diversity of activities thatare supported with enhancements funding, some argue that certain enhancements arean ineffective use of federal highway funds. Opponents believe that federal highwayfunds should only be spent on improvements to surface transportation infrastructure,rather than on projects that may provide some related benefit, but that do not meethighway capacity needs, help to relieve traffic congestion, or meet an environmentalrequirement necessary for project approval. Limitations on federal highway fundsas a result of a recent decline in trust fund revenues have sparked some support forsuch arguments. If the funding for transportation enhancements were reduced oreliminated, states would still be able to use general Surface Transportation Programfunds at their discretion for pollution mitigation projects, assuming that currentauthority were not repealed. The majority of research and development activities that are supported withfederal highway funds focus on how to improve the overall function and safety of thenation's surface transportation system, in order to meet travel needs. A relativelysmall fraction of federal highway funds has been devoted to researching theenvironmental impacts of highway travel or developing environmentally beneficialtechnologies. Some argue that more highway resources should be devoted toenvironmental research and development in light of the impacts of vehicular travelon air and water quality. Others counter that highway capacity and safety needsshould remain the focus of research funded with motor fuels tax revenues, and thatother federal agencies, such as EPA or the Department of Energy, already conducta variety of activities to research pollution from motor vehicles and developadvanced vehicle technologies. While TEA-21 authorized the Secretary ofTransportation to establish an environmental research program, it was neverimplemented due to lack of funding. TEA-21 also authorized a program to developadvanced vehicle technologies, but its implementation has been limited due toinsufficient funding. TEA-21 authorized the Secretary of Transportation to establish a Surface Transportation-Environment Cooperative Research Program to be carried out withother federal agencies, state and local officials, scientists and engineers, andenvironmental organizations. It was designed to examine the complex relationshipsbetween surface transportation systems and the environment, and to improve methodsfor assessing transportation needs and determining the environmental impacts oftransportation. The law authorized $592 million in guaranteed funds for surfacetransportation research from FY1998 to FY2003, but a specific amount was notallocated for the environmental research program. In subsequent appropriations,Congress has not designated funding to implement the program, nor has theAdministration allocated funding for it within its discretion. TEA-21 authorized the Secretary of Transportation to establish an Advanced Vehicle Technologies Program to encourage the development of multimodal andenvironmental technologies to improve the efficiency, safety, and cost-effectivenessof the national transportation system. The law directed the Secretary ofTransportation to promote technological advances through contracts, cooperativeagreements, grants, and other transactions with other federal agencies, state and localgovernments, businesses, and research or educational organizations. TEA-21authorized a total of $250 million in general Treasury revenues to support theprogram from FY1999 to FY2003, which was subject to the annual appropriationsprocess. Of the $250 million authorization, Congress has appropriated $10 millionto date. Consequently, the implementation of the program has been limited. Theprojects that have been funded have focused on the development of low and zeroemission technologies, such as hybrid, all- electric, and fuel cell power trains. (18) Many stakeholders at the state and local level have expressed long-standingconcerns that the environmental review process for highway construction projects can be overly time-consuming and can impose additional costs. Some statetransportation departments and transportation advocacy organizations supportrevisions to certain elements of the process that could speed project delivery.However, environmental organizations have expressed concern that changes to theprocess might weaken environmental protections. They also argue that lengthyenvironmental reviews are sometimes warranted due to the scope of proposedalterations to the natural landscape and the potential effects of increased trafficcapacity on air and water quality. The National Environmental Policy Act of 1969 (NEPA, P.L. 91-190) requires all federal agencies to consider the environmental impacts of their proposed actions.To ensure that these impacts are considered before final decisions are made, NEPArequires federal agencies to provide a detailed statement of environmental impactsfor every proposed federal action significantly affecting the quality of theenvironment. The "detailed statement" has been subsequently referred to as anEnvironmental Impact Statement (EIS). The EIS must include a description of theproject's purpose and need, an analysis of all reasonable project alternatives, adescription of the affected environment, and the environmental consequences ofimpacts to the affected environment of each alternative. (19) The EIS must alsodemonstrate that appropriate comments were solicited from relevant federal, state andlocal agencies and from the public. Relevant agencies obligated to provide commentsare those with jurisdiction by law or special expertise with regard to theenvironmental impacts of the project. If it is not clear whether a project would have significant impacts, an Environmental Assessment (EA) must be prepared. An EIS is required if significantimpacts are identified at any time during preparation of the EA. Otherwise, a Findingof No Significant Impact (FONSI) will be issued. Projects that do not individuallyor cumulatively have a significant social, economic, or environmental impact areexcluded from the requirement to prepare an EA or EIS. Such projects are processedas a Categorical Exclusion (CE), which according to the Federal HighwayAdministration, account for about 91% of all highway projects. State agencies arerequired to provide FHWA with documentation to prove the action qualifies as a CE.The type of documentation required will depend upon the project. Final designactivities, property acquisition, or project construction cannot proceed until one ofthe following occurs: an action is classified as a CE, a FONSI is approved for an EA,or an EIS is approved. (For further discussion, refer to CRS Report RL32024 , Background on NEPA Implementation for Highway Projects: Streamlining theProcess. ) The Federal Highway Administration reports that approximately 3% of all federally funded highway projects have a significant enough impact on theenvironment to require the preparation of an EIS. These projects have received about9% of all federal highway funds. While these amounts represent a relatively smallportion of projects and overall funding, projects requiring an EIS are usually largeand costly and affect sizeable populations. Consequently, construction delays can becontroversial. The Federal Highway Administration has indicated that the planningand construction of a major highway project typically takes between 9 and 19 years,depending on size and complexity. Of these projects, the preliminary design andenvironmental review process accounts for one to five years of this time. To reduce the approval time for highway projects and speed the delivery of federal highway funds to states and local areas, Congress included provisions inSection 1309 of TEA-21 which require the Secretary of Transportation to streamlinethe environmental review process. Environmental streamlining can generally bedescribed as cooperatively establishing realistic project development time framesamong transportation and environmental agencies, and then working together toadhere to those time frames. The Department of Transportation has taken numerousadministrative actions in response to this requirement, but has not issued finalregulations to put streamlining into practice on a national scale. While the Clinton Administration did submit a streamlining regulatory proposal in May 2000, it was widely criticized on numerous grounds by Congress, the states,highway interest groups, and environmental organizations. The principal criticismswere that it did not fully address the requirements of TEA21, and that it would haveadded new elements to the planning and development process that may have resultedin further project delays. Due to the these concerns, the Bush Administration withdrew the proposal in September 2002, and indicated that a new proposal would not be forthcoming untilit is clear how Congress may address the issue during surface transportationreauthorization. In the interim, President Bush has issued an executive order whichdirects federal agencies to expedite environmental reviews for high-prioritytransportation projects, and has established specific goals to reduce the time framesfor review. (20) Hearings were held during the 107th Congress to examine the streamlining issue, and streamlining has been discussed in hearings on surface transportationreauthorization during the 108th Congress. In the conference report on TEA-21( H.Rept. 105-550 ), Congress stated its expectation that the Secretary ofTransportation would implement the streamlining requirements through theregulatory process. Some Members have expressed their disappointment that fiveyears after the enactment of the law, streamlining regulations have yet to be finalized. The lack of final regulations has increased interest in further legislative action tospeed project delivery and meet public demands for transportation infrastructure.

Summary: Balancing public needs for surface transportation infrastructure with protecting the environment has been a long-standing issue among states and local communities. These two objectives can oftenconflict due to the rise in pollution that typically results when new highways or roadways areconstructed, or a highway is expanded, to provide greater traffic capacity. Expanding highwaycapacity can be especially challenging for states, if the resulting rise in pollution would be greatenough to make compliance with federal air quality standards more difficult. In order to receivefederal highway funds, the Clean Air Act requires states with air quality problems to demonstratethat their transportation plans conform to their plans to control emissions, referred to as"transportation conformity." To help reduce potential conflicts between highway capacity needs and environmental requirements, Congress has authorized the use of federal highway funds to alleviate some of thepollution resulting from highway construction and travel. The most recent multi-year fundingauthorization for these activities was provided in the Transportation Equity Act for the 21st Century(TEA-21, P.L. 105-178 ), which expired at the end of FY2003. How to meet state needs for highwayinfrastructure, while ensuring compliance with environmental requirements, is among the key issuesfor reauthorization. TEA-21 authorized a total of $218 billion for federal highway and transit programs from FY1998 to FY2003. It set aside $9 billion for air quality projects, including $8 billion for theCongestion Mitigation and Air Quality Improvement Program (CMAQ) to offset some of theemissions from highway travel, as a means to assist states in complying with federal air qualitystandards. The other $1 billion was authorized for the purchase of clean fuel transit buses. TEA-21also expanded funding eligibility to allow states to use federal highway funds for mitigating waterpollution from highway runoff. The law also authorized funding for environmental research and thedevelopment of advanced vehicle technologies, and it included several other provisions related toenvironmental protection. The use of federal highway funds to address environmental needs has focused mostly on air quality projects, due primarily to requirements for states to demonstrate conformity as a conditionfor receiving federal highway funds. Most of this funding has been provided under the CMAQprogram. While the program's effectiveness has been questioned, there is broad support forincreasing its funding in response to an upcoming rise in air quality needs among the states. Otherair quality issues involve the use of transit funding for the purchase of clean fuel buses, offering taxbenefits for cleaner-burning alcohol-based fuels, and exempting certain low-emission vehicles fromHigh Occupancy Vehicle (HOV) lane requirements. The extent to which water pollution mitigationprojects and environmental research and development activities should be eligible for federalhighway funds are issues as well. This report provides background information and analysis of key issues to serve as a resource document for the reauthorization debate. It will not be updated.