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.