HR 2392 IH

To amend the Internal Revenue Code of 1986 to provide, expand, or extend tax incentives for renewable and alternative electric energy, alternative fuels and alternative fuel vehicles, energy efficiency and conservation, and demand management and distributive energy generation.

June 28, 2001

Mr. INSLEE (for himself, Mr. SHAYS, Mr. UDALL of Colorado, Mr. WAMP, Mr. BAIRD, Mr. ALLEN, Mr. OLVER, Mr. SMITH of Washington, and Mr. HOLT) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide, expand, or extend tax incentives for renewable and alternative electric energy, alternative fuels and alternative fuel vehicles, energy efficiency and conservation, and demand management and distributive energy generation.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Clean Energy Incentives Act'.

(b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

(c) TABLE OF CONTENTS- The table of contents of this Act is as follows:

Sec. 1. Short title; references; table of contents.

TITLE I--RENEWABLE AND ALTERNATIVE ELECTRIC ENERGY

Sec. 101. Five-year extension of qualified facilities for renewable resource credit.

Sec. 102. Expansion of renewable resource credit to include additional alternative resources.

Sec. 103. Tradable renewable resource credit for public utilities and other tax exempt organizations.

TITLE II--ALTERNATIVE FUELS AND ENERGY EFFICIENT VEHICLES

Sec. 201. Credit for alternative motor vehicles and modification of credit for qualified electric vehicles.

Sec. 202. Credit for retail sale of alternative fuels as motor vehicle fuel.

Sec. 203. Extension of deduction for certain refueling property.

Sec. 204. Credit for installation of alternative fueling stations.

Sec. 205. Credit for property to convert waste to fuel.

TITLE III--ENERGY EFFICIENCY AND CONSERVATION

Sec. 301. Energy-efficient commercial building property deduction.

Sec. 302. Credit for construction of new highly energy-efficient homes.

Sec. 303. Credit for energy efficient appliances.

Sec. 304. Credit for adjustable speed drives.

Sec. 305. Credit for energy efficient recycling or remanufacturing equipment.

TITLE IV--DEMAND MANAGEMENT AND DISTRIBUTED ENERGY GENERATION

Sec. 401. Credit for distributed energy generation and demand management property used in business.

Sec. 402. Credit for distributed energy generation and demand management property used in residences.

Sec. 403. Credit for energy management systems using residential real time metering systems.

Sec. 404. Credit for flywheel property.

TITLE I--RENEWABLE AND ALTERNATIVE ELECTRIC ENERGY

SEC. 101. FIVE-YEAR EXTENSION OF QUALIFIED FACILITIES FOR RENEWABLE RESOURCE CREDIT.

(a) WIND AND POULTRY WASTE FACILITIES- Subparagraphs (A) and (C) of section 45(c)(3) (relating to definitions) are each amended by striking `2002' and inserting `2007'.

(b) CLOSED-LOOP BIOMASS FACILITIES- Subparagraph (B) of section 45(c)(3) is amended to read as follows:

`(B) CLOSED-LOOP BIOMASS FACILITY- In the case of a facility using closed-loop biomass to produce electricity, the term `qualified facility' means any facility owned by the taxpayer which is originally placed in service--

`(i) after December 31, 1992, and before January 1, 2007, or

`(ii) before January 1, 1993, and modified to use closed-loop biomass to co-fire with coal after December 31, 1992, and before January 1, 2007.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to electricity and other energy produced in taxable years beginning after the date of the enactment of this Act.

SEC. 102. EXPANSION OF RENEWABLE RESOURCE CREDIT TO INCLUDE ADDITIONAL ALTERNATIVE RESOURCES.

(a) IN GENERAL- Section 45(c)(1) (relating to qualified energy resources) is amended by striking `and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting `, and', and by adding at the end the following:

`(D) alternative resources.'.

(b) DEFINITION OF ALTERNATIVE RESOURCES- Section 45(c) (relating to definitions) is amended by adding at the end the following:

`(5) ALTERNATIVE RESOURCES-

`(A) IN GENERAL- The term `alternative resources' means--

`(i) solar,

`(ii) biomass (other than closed loop biomass),

`(iii) incremental hydropower,

`(iv) incremental geothermal, and

`(v) geothermal energy.

`(B) BIOMASS- The term `biomass' means any nonhazardous, cellulosic waste material, which is segregated from other waste materials, and which is derived from--

`(i) any of the following forest-related resources: mill residues, precommercial thinnings, slash, and brush, but not including old-growth timber or black liquor,

`(ii) agriculture sources, including orchard tree crops, vineyard, grain, legumes, sugar, and other crop by-products or residues,

`(iii) waste pallets, crates, dunnage, manufacturing and construction wood wastes (other than pressure-treated, chemically treated, or lead-painted wood wastes), and landscape or right-of-way tree trimmings, but not including--

`(I) unsegregated municipal solid waste (garbage), or

`(II) postconsumer wastepaper which can be recycled affordably,

`(iv) landfill gas, or

`(v) animal waste (other than poultry waste).

`(C) INCREMENTAL HYDROPOWER- The term `incremental hydropower' means additional generating capacity achieved from increased efficiency at a non-Federal hydroelectric facility in existence on January 1, 2001, and licensed by the Federal Energy Regulatory Commission.

`(D) INCREMENTAL GEOTHERMAL- The term `incremental geothermal' means additional generating capacity achieved from--

`(i) increased efficiency, or

`(ii) additions of new capacity,

at a geothermal power plant originally placed in service before the date of the enactment of this paragraph.

`(E) LANDFILL GAS- The term `landfill gas' means gas generated from the decomposition of any household solid waste, commercial solid waste, and industrial solid waste disposed of in a municipal solid waste landfill unit (as such terms are defined in regulations promulgated under subtitle D of the Solid Waste Disposal Act (42 U.S.C. 6941 et seq.)).'.

(c) QUALIFIED FACILITY-

(1) IN GENERAL- Section 45(c)(3) (defining qualified facility) is amended by adding at the end the following:

`(D) ALTERNATIVE RESOURCES FACILITY- In the case of a facility using alternative resources to produce electricity, the term `qualified facility' means--

`(i) any facility owned by the taxpayer which is originally placed in service after December 31, 2001, and before January 1, 2007,

`(ii) in the case of incremental hydropower and incremental geothermal, any facility originally placed in service before December 31, 2001, and modified with incremental hydropower or incremental geothermal after that date and before January 1, 2007, and

`(iii) in the case of biomass (other than closed-loop biomass), any facility owned by the taxpayer which is originally placed in service before January 1, 2007, or any facility modified to use biomass to co-fire with coal after December 31, 2001, and before January 1, 2007.'.

(2) SPECIAL RULE- Section 45(d) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:

`(8) SPECIAL RULE RELATING TO BIOMASS FACILITIES- In the case of a qualified facility described in subsection (c)(3)(D)(iii)--

`(A) subsection (b)(3) shall not apply to any such facility originally placed in service before January 1, 1997, and

`(B) if such facility is leased and the operator thereof is the lessee, such lessee (and not the owner) shall be treated for purposes of this section as owning such facility.'.

(d) GOVERNMENT-OWNED FACILITY- The text and heading of section 45(d)(6) (relating to credit eligibility in the case of government-owned facilities using poultry waste) is amended by inserting `or alternative resources' after `poultry waste' each place it appears.

(e) QUALIFIED FACILITIES WITH CO-PRODUCTION- Section 45(b) (relating to limitations and adjustments) is amended by adding at the end the following:

`(4) INCREASED CREDIT FOR CO-PRODUCTION FACILITIES-

`(A) IN GENERAL- In the case of a qualified facility described in subsection (c)(3)(D)

which has a co-production facility or a qualified facility described in subparagraph (A), (B), or (C) of subsection (c)(3) which adds a co-production facility after the date of the enactment of this paragraph, the amount in effect under subsection (a)(1) for an eligible taxable year of the taxpayer shall (after adjustment under paragraphs (1), (2), and (3)) be increased by .25 cents.

`(B) CO-PRODUCTION FACILITY- For purposes of subparagraph (A), the term `co-production facility' means a facility which--

`(i) enables a qualified facility to produce heat, mechanical power, or minerals from qualified energy resources in addition to electricity, and

`(ii) produces such energy on a continuous basis.

`(C) ELIGIBLE TAXABLE YEAR- For purposes of subparagraph (A), the term `eligible taxable year' means any taxable year in which the amount of gross receipts attributable to the co-production facility of a qualified facility are at least 10 percent of the amount of gross receipts attributable to electricity produced by such facility.'.

(f) QUALIFIED FACILITIES LOCATED WITHIN QUALIFIED INDIAN LANDS- Section 45(b) (relating to limitations and adjustments), as amended by subsection (e), is amended by adding at the end the following:

`(5) INCREASED CREDIT FOR QUALIFIED FACILITY LOCATED WITHIN QUALIFIED INDIAN LAND- In the case of a qualified facility described in subsection (c)(3)(D) which--

`(A) is located within--

`(i) qualified Indian lands (as defined in section 7871(c)(3)), or

`(ii) lands which are held in trust by a Native Corporation (as defined in section 3(m) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m))) for Alaska Natives, and

`(B) is operated with the explicit written approval of the Indian tribal government or Native Corporation (as so defined) having jurisdiction over such lands,

the amount in effect under subsection (a)(1) for a taxable year shall (after adjustment under paragraphs (1), (2), (3), and (4)) be increased by .25 cents.'.

(g) ELECTRICITY PRODUCED FROM BIOMASS CO-FIRED IN COAL PLANTS- Paragraph (1) of section 45(a) is amended by inserting `(1.0 cents in the case of electricity produced from biomass, other than closed-loop biomass, co-fired in a facility which produced electricity from coal)' after `1.5 cents'.

(h) COORDINATION WITH OTHER CREDITS- Section 45(d) (relating to definitions and special rules), as amended by subsection (c), is amended by adding at the end the following:

`(9) COORDINATION WITH OTHER CREDITS- This section shall not apply to any qualified facility with respect to which a credit under any other section is allowed for the taxable year unless the taxpayer elects to waive application of such credit to such facility.'.

(i) TREATMENT OF QUALIFIED FACILITIES NOT IN COMPLIANCE WITH POLLUTION LAWS- Section 45(c)(3) (relating to qualified facilities), as amended by subsection (c), is amended by adding at the end the following:

`(E) NONCOMPLIANCE WITH POLLUTION LAWS- For purposes of this paragraph, a facility which is not in compliance with the applicable State and Federal pollution prevention, control, and permit requirements for any period of time shall not be considered to be a qualified facility during such period.'.

(j) EFFECTIVE DATE- The amendments made by this section shall apply to electricity and other energy produced in taxable years beginning after the date of the enactment of this Act.

SEC. 103. TRADABLE RENEWABLE RESOURCE CREDIT FOR PUBLIC UTILITIES AND OTHER TAX EXEMPT ORGANIZATIONS.

(a) CREDITS FOR CERTAIN TAX EXEMPT ORGANIZATIONS AND GOVERNMENTAL UNITS-

(1) IN GENERAL- Section 45(d) (relating to definitions and special rules), as amended by section 102, is amended by adding at the end the following:

`(10) CREDITS FOR CERTAIN TAX EXEMPT ORGANIZATIONS AND GOVERNMENTAL UNITS-

`(A) ALLOWANCE OF CREDIT- Any credit which would be allowable under subsection (a) with respect to a qualified facility of an entity if such entity were not exempt from tax under this chapter shall be treated as a credit allowable under subpart D to such entity if such entity is--

`(i) an organization described in section 501(c)(12)(C) and exempt from tax under section 501(a),

`(ii) an organization described in section 1381(a)(2)(C),

`(iii) an entity the income of which is excludable from gross income under section 115, or

`(iv) a State, the District of Columbia, any territory or possession of the United States, or any political subdivision thereof.

`(B) USE OF CREDIT-

`(i) TRANSFER OF CREDIT- An entity described in subparagraph (A) may assign, trade, sell, or otherwise transfer any credit allowable to such entity under subparagraph (A) to any taxpayer.

`(ii) USE OF CREDIT AS AN OFFSET- Notwithstanding any other provision of law, in the case of an entity described in clause (i) or (ii) of subparagraph (A), any credit allowable to such entity under subparagraph (A) may be applied by such entity, without penalty, as a prepayment of

any loan, debt, or other obligation the entity has incurred under subchapter I of chapter 31 of title 7 of the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.).

`(C) CREDIT NOT INCOME- Neither a transfer under clause (i) nor a use under clause (ii) of subparagraph (B) of any credit allowable under subparagraph (A) shall result in income for purposes of section 501(c)(12).

`(D) TRANSFER PROCEEDS TREATED AS ARISING FROM ESSENTIAL GOVERNMENT FUNCTION- Any proceeds derived by an entity described in subparagraph (A)(iii) from the transfer of any credit under subparagraph (B)(i) shall be treated as arising from an essential government function.

`(E) CREDITS NOT REDUCED BY TAX-EXEMPT BONDS OR CERTAIN OTHER SUBSIDIES- Subsection (b)(3) shall not apply to reduce any credit allowable under subparagraph (A) with respect to--

`(i) proceeds described in subparagraph (A)(ii) of such subsection, or

`(ii) any loan, debt, or other obligation incurred under subchapter I of chapter 31 of title 7 of the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.),

used to provide financing for any qualified facility.

`(F) TREATMENT OF UNRELATED PERSONS- For purposes of this paragraph, sales among and between entities described in subparagraph (A) shall be treated as sales between unrelated parties.'.

(2) INCLUSION OF INDIAN TRIBAL GOVERNMENTS- Section 7871(a)(7) is amended by striking `and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B), and by adding at the end the following:

`(C) section 45 (relating to credit for electricity produced from certain renewable resources).'.

(b) CREDIT ALLOWABLE AGAINST REGULAR AND MINIMUM TAX-

(1) IN GENERAL- Section 38(c) (relating to limitation based on amount of tax) is amended by redesignating paragraph (3) as paragraph (4) and inserting after paragraph (2) the following:

`(3) SPECIAL RULES FOR RENEWABLE ELECTRICITY PRODUCTION CREDIT-

`(A) IN GENERAL- In the case of the renewable electricity production credit--

`(i) this section and section 39 shall be applied separately with respect to the credit, and

`(ii) in applying paragraph (1) to the credit--

`(I) subparagraphs (A) and (B) thereof shall not apply, and

`(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the renewable electricity production credit).

`(B) RENEWABLE ELECTRICITY PRODUCTION CREDIT- For purposes of this subsection, the term `renewable electricity production credit' means the credit allowable under subsection (a) by reason of section 45(a).'.

(2) CONFORMING AMENDMENT- Subclause (II) of section 38(c)(2)(A)(ii) is amended by inserting `or the renewable electricity production credit' after `employment credit'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to electricity and other energy produced in taxable years beginning after the date of the enactment of this Act.

TITLE II--ALTERNATIVE FUELS AND ENERGY EFFICIENT VEHICLES

SEC. 201. CREDIT FOR ALTERNATIVE MOTOR VEHICLES AND MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

(a) CREDIT FOR ALTERNATIVE MOTOR VEHICLES-

(1) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 (relating to foreign tax credit, etc.) is amended by adding at the end the following:

`SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

`(a) ALLOWANCE OF CREDIT- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of--

`(1) the new qualified fuel cell motor vehicle credit determined under subsection (b),

`(2) the new qualified hybrid motor vehicle credit determined under subsection (c), and

`(3) the new qualified alternative fuel motor vehicle credit determined under subsection (d).

`(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE CREDIT-

`(1) IN GENERAL- For purposes of subsection (a), the new qualified fuel cell motor vehicle credit determined under this subsection with respect to a new qualified fuel cell motor vehicle placed in service by the taxpayer during the taxable year is--

`(A) $4,000, if such vehicle has a gross vehicle weight rating of not more than 8,500 pounds,

`(B) $10,000, if such vehicle has a gross vehicle weight rating of more than 8,500 pounds but not more than 14,000 pounds,

`(C) $20,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and

`(D) $40,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.

`(2) INCREASE FOR FUEL EFFICIENCY-

`(A) IN GENERAL- The amount determined under paragraph (1)(A) with respect to a new qualified fuel cell motor vehicle which is

a passenger automobile or light truck shall be increased by--

`(i) $1,000, if such vehicle achieves at least 150 percent but less than 175 percent of the 2000 model year city fuel economy,

`(ii) $1,500, if such vehicle achieves at least 175 percent but less than 200 percent of the 2000 model year city fuel economy,

`(iii) $2,000, if such vehicle achieves at least 200 percent but less than 225 percent of the 2000 model year city fuel economy,

`(iv) $2,500, if such vehicle achieves at least 225 percent but less than 250 percent of the 2000 model year city fuel economy,

`(v) $3,000, if such vehicle achieves at least 250 percent but less than 275 percent of the 2000 model year city fuel economy,

`(vi) $3,500, if such vehicle achieves at least 275 percent but less than 300 percent of the 2000 model year city fuel economy, and

`(vii) $4,000, if such vehicle achieves at least 300 percent of the 2000 model year city fuel economy.

`(B) 2000 MODEL YEAR CITY FUEL ECONOMY- For purposes of subparagraph (A), the 2000 model year city fuel economy with respect to a vehicle shall be determined in accordance with the following tables:

`(i) In the case of a passenger automobile:

The 2000 model year city fuel economy is:

43.7 mpg

38.3 mpg

34.1 mpg

30.7 mpg

27.9 mpg

25.6 mpg

22.0 mpg

19.3 mpg

17.2 mpg

15.5 mpg

14.1 mpg

12.9 mpg

11.9 mpg

11.1 mpg.

`(ii) In the case of a light truck:

The 2000 model year city fuel economy is:

37.6 mpg

33.7 mpg

30.6 mpg

28.0 mpg

25.9 mpg

24.1 mpg

21.3 mpg

19.0 mpg

17.3 mpg

15.8 mpg

14.6 mpg

13.6 mpg

12.8 mpg

12.0 mpg.

`(C) VEHICLE INERTIA WEIGHT CLASS- For purposes of subparagraph (B), the term `vehicle inertia weight class' has the same meaning as when defined in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.).

`(3) NEW QUALIFIED FUEL CELL MOTOR VEHICLE- For purposes of this subsection, the term `new qualified fuel cell motor vehicle' means a motor vehicle--

`(A) which is propelled by power derived from--

`(i) one or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel which is stored on board the vehicle in any form and may or may not require reformation prior to use, or

`(ii) one or more cells described in clause (i) used in conjunction with a rechargeable energy storage system.

`(B) which, in the case of a passenger automobile or light truck--

`(i) for 2002 and later model vehicles, has received a certificate of conformity under the Clean Air Act and meets or exceeds the equivalent qualifying California low emission vehicle standard under section 243(e)(2) of the Clean Air Act for that make and model year, and

`(ii) for 2004 and later model vehicles, has received a certificate that such vehicle meets or exceeds the Bin 5 Tier II emission level established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle,

`(C) the original use of which commences with the taxpayer,

`(D) which is acquired for use or lease by the taxpayer and not for resale, and

`(E) which is made by a manufacturer.

`(c) NEW QUALIFIED HYBRID MOTOR VEHICLE CREDIT-

`(1) IN GENERAL- For purposes of subsection (a), the new qualified hybrid motor vehicle credit determined under this subsection with respect to a new qualified hybrid motor vehicle placed in service by the taxpayer during the taxable year is the credit amount determined under paragraph (2).

`(2) CREDIT AMOUNT-

`(A) IN GENERAL- The credit amount determined under this paragraph shall be determined in accordance with the following tables:

`(i) In the case of a new qualified hybrid motor vehicle which is a passenger automobile or light truck and which provides the following percentage of the maximum available power:

$250

$500

$750

$1,000.

`(ii) In the case of a new qualified hybrid motor vehicle which is a heavy duty hybrid motor vehicle and which provides the following percentage of the maximum available power:

`(I) If such vehicle has a gross vehicle weight rating of not more than 14,000 pounds:

$1,500

$1,750

$2,000

$2,250

$2,500.

`(II) If such vehicle has a gross vehicle weight rating of more than 14,000 but not more than 26,000 pounds:

$4,000

$4,500

$5,000

$5,500

$6,000.

`(III) If such vehicle has a gross vehicle weight rating of more than 26,000 pounds:

$6,000

$7,000

$8,000

$9,000

$10,000.

`(B) INCREASE FOR FUEL EFFICIENCY-

`(i) AMOUNT- The amount determined under subparagraph (A)(i) with respect to a passenger automobile or light truck shall be increased by--

`(I) $500, if such vehicle achieves at least 125 percent but less than 150 percent of the 2000 model year city fuel economy,

`(II) $1,000, if such vehicle achieves at least 150 percent but less than 175 percent of the 2000 model year city fuel economy,

`(III) $1,500, if such vehicle achieves at least 175 percent but less than 200 percent of the 2000 model year city fuel economy,

`(IV) $2,000, if such vehicle achieves at least 200 percent but less than 225 percent of the 2000 model year city fuel economy,

`(V) $2,500, if such vehicle achieves at least 225 percent but less than 250 percent of the 2000 model year city fuel economy, and

`(VI) $3,000, if such vehicle achieves at least 250 percent of the 2000 model year city fuel economy.

`(ii) 2000 MODEL YEAR CITY FUEL ECONOMY- For purposes of clause (i), the 2000 model year city fuel economy with respect to a vehicle shall be determined using the tables provided in subsection (b)(2)(B) with respect to such vehicle.

`(C) INCREASE FOR ACCELERATED EMISSIONS PERFORMANCE- The amount determined under subparagraph (A)(ii) with respect to an applicable heavy duty hybrid motor vehicle shall be increased by the increase credit amount determined in accordance with the following tables:

`(i) In the case of a vehicle which has a gross vehicle weight rating of not more than 14,000 pounds:

The increase credit amount is:

$3,500

$3,000

$2,500

$2,000

$1,500.

`(ii) In the case of a vehicle which has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds:

The increase credit amount is:

$9,000

$7,750

$6,500

$5,250

$4,000.

`(iii) In the case of a vehicle which has a gross vehicle weight rating of more than 26,000 pounds:

The increase credit amount is:

$14,000

$12,000

$10,000

$8,000

$6,000.

`(D) DEFINITIONS-

`(i) APPLICABLE HEAVY DUTY HYBRID MOTOR VEHICLE- For purposes of subparagraph (C), the term `applicable heavy duty hybrid motor vehicle' means a heavy duty hybrid motor vehicle which is powered by an internal combustion or heat engine which is certified as meeting the emission standards set in the regulations prescribed by the Administrator of the Environmental Protection Agency for 2007 and later model year diesel heavy duty engines or 2008 and later model year ottocycle heavy duty engines, as applicable.

`(ii) HEAVY DUTY HYBRID MOTOR VEHICLE- For purposes of this paragraph, the term `heavy duty hybrid motor vehicle' means a new qualified hybrid motor vehicle which has a gross vehicle weight rating of more than 10,000 pounds and draws propulsion energy from both of the following onboard sources of stored energy:

`(I) An internal combustion or heat engine using consumable fuel which, for 2002 and later model vehicles, has received a certificate of conformity under the Clean Air Act and meets or exceeds a level of not greater than 3.0 grams per brake horsepower-hour of oxides of nitrogen and 0.01 per brake horsepower-hour of particulate matter.

`(II) A rechargeable energy storage system.

`(iii) MAXIMUM AVAILABLE POWER-

`(I) PASSENGER AUTOMOBILE OR LIGHT TRUCK- For purposes of subparagraph (A)(i), the term `maximum available power' means the maximum power available from the battery or other electrical storage device, during a standard 10 second pulse power test, divided by the sum of the battery or other electrical storage device and the SAE net power of the heat engine.

`(II) HEAVY DUTY HYBRID MOTOR VEHICLE- For purposes of subparagraph (A)(ii), the term `maximum available power' means the maximum power available from the battery or other electrical storage device, during a standard 10 second pulse power test, divided by the vehicle's total traction power. The term `total traction power' means the sum of the electric motor peak power and the heat engine peak power of the vehicle, except that if the electric motor is the sole means by which the vehicle can be driven, the total traction power is the peak electric motor power.

`(3) NEW QUALIFIED HYBRID MOTOR VEHICLE- For purposes of this subsection, the term `new qualified hybrid motor vehicle' means a motor vehicle--

`(A) which draws propulsion energy from onboard sources of stored energy which are both--

`(i) an internal combustion or heat engine using combustible fuel, and

`(ii) a rechargeable energy storage system,

`(B) which, in the case of a passenger automobile or light truck--

`(i) for 2002 and later model vehicles, has received a certificate of conformity under the Clean Air Act and meets or exceeds the equivalent qualifying California low emission vehicle standard under section 243(e)(2) of the Clean Air Act for that make and model year, and

`(ii) for 2004 and later model vehicles, has received a certificate that such vehicle meets or exceeds the Bin 5 Tier II emission level established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle,

`(C) the original use of which commences with the taxpayer,

`(D) which is acquired for use or lease by the taxpayer and not for resale, and

`(E) which is made by a manufacturer.

`(d) NEW QUALIFIED ALTERNATIVE FUEL MOTOR VEHICLE CREDIT-

`(1) ALLOWANCE OF CREDIT- Except as provided in paragraph (5), the credit determined under this subsection is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle placed in service by the taxpayer during the taxable year.

`(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the applicable percentage with respect to any new qualified alternative fuel motor vehicle is--

`(A) 50 percent, plus

`(B) 30 percent, if such vehicle--

`(i) has received a certificate of conformity under the Clean Air Act and meets or exceeds the most stringent standard available for certification under the Clean Air Act for that make and model year vehicle (other than a zero emission standard), or

`(ii) has received an order from an applicable State certifying the vehicle for sale or lease in California and meets or exceeds the most stringent standard available for certification under the State laws of California (enacted in accordance with a waiver granted under section 209(b) of the Clean Air Act) for that make and model year vehicle (other than a zero emission standard).

`(3) INCREMENTAL COST- For purposes of this subsection, the incremental cost of any new qualified alternative fuel motor vehicle is equal to the amount of the excess of the manufacturer's suggested retail price for such vehicle over such price for a gasoline or diesel fuel motor vehicle of the same model, to the extent such amount does not exceed--

`(A) $5,000, if such vehicle has a gross vehicle weight rating of not more than 8,500 pounds,

`(B) $10,000, if such vehicle has a gross vehicle weight rating of more than 8,500 pounds but not more than 14,000 pounds,

`(C) $25,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and

`(D) $40,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.

`(4) QUALIFIED ALTERNATIVE FUEL MOTOR VEHICLE DEFINED- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified alternative fuel motor vehicle' means any motor vehicle--

`(i) which is only capable of operating on an alternative fuel,

`(ii) the original use of which commences with the taxpayer,

`(iii) which is acquired by the taxpayer for use or lease, but not for resale, and

`(iv) which is made by a manufacturer.

`(B) ALTERNATIVE FUEL- The term `alternative fuel' means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.

`(5) CREDIT FOR MIXED-FUEL VEHICLES-

`(A) IN GENERAL- In the case of a mixed-fuel vehicle placed in service by the taxpayer during the taxable year, the credit determined under this subsection is an amount equal to--

`(i) in the case of a 75/25 mixed-fuel vehicle, 70 percent of the credit which would have been allowed under this subsection if such vehicle was a qualified alternative fuel motor vehicle, and

`(ii) in the case of a 95/5 mixed-fuel vehicle, 95 percent of the credit which would have been allowed under this subsection if such vehicle was a qualified alternative fuel motor vehicle.

`(B) MIXED-FUEL VEHICLE- For purposes of this subsection, the term `mixed-fuel vehicle' means any motor vehicle described in subparagraph (C) or (D) of paragraph (3), which--

`(i) is certified by the manufacturer as being able to perform efficiently in normal operation on a combination of an alternative fuel and a petroleum-based fuel,

`(ii) either--

`(I) has received a certificate of conformity under the Clean Air Act, or

`(II) has received an order from an applicable State certifying the vehicle for sale or lease in California and meets or exceeds the low emission vehicle standard under section 88.105-94 of title 40, Code of Federal Regulations, for that make and model year vehicle,

`(iii) the original use of which commences with the taxpayer,

`(iv) which is acquired by the taxpayer for use or lease, but not for resale, and

`(v) which is made by a manufacturer.

`(C) 75/25 MIXED-FUEL VEHICLE- For purposes of this subsection, the term `75/25 mixed-fuel vehicle' means a mixed-fuel vehicle which operates using at least 75 percent alternative fuel and not more than 25 percent petroleum-based fuel.

`(D) 95/5 MIXED-FUEL VEHICLE- For purposes of this subsection, the term `95/5 mixed-fuel vehicle' means a mixed-fuel vehicle which operates using at least 95 percent alternative fuel and not more than 5 percent petroleum-based fuel.

`(e) APPLICATION WITH OTHER CREDITS- The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of--

`(1) the regular tax for the taxable year reduced by the sum of the credits allowable under subpart A and sections 27, 29, and 30, over

`(2) the tentative minimum tax for the taxable year.

`(f) OTHER DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) CONSUMABLE FUEL- The term `consumable fuel' means any solid, liquid, or gaseous matter which releases energy when consumed by an auxiliary power unit.

`(2) MOTOR VEHICLE- The term `motor vehicle' has the meaning given such term by section 30(c)(2).

`(3) 2000 MODEL YEAR CITY FUEL ECONOMY- The 2000 model year city fuel economy with respect to any vehicle shall be measured under rules similar to the rules under section 4064(c).

`(4) OTHER TERMS- The terms `automobile', `passenger automobile', `light truck', and `manufacturer' have the meanings given such terms in regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.).

`(5) REDUCTION IN BASIS- For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed (determined without regard to subsection (e)).

`(6) NO DOUBLE BENEFIT- The amount of any deduction or credit allowable under this chapter--

`(A) for any incremental cost taken into account in computing the amount of the credit determined under subsection (d) shall be reduced by the amount of such credit attributable to such cost, and

`(B) with respect to a vehicle described under subsection (b) or (c), shall be reduced by the amount of credit allowed under subsection (a) for such vehicle for the taxable year.

`(7) PROPERTY USED BY TAX-EXEMPT ENTITIES- In the case of a credit amount which is allowable with respect to a motor vehicle which is acquired by an entity exempt from tax under this chapter, the person which sells or leases such vehicle to the entity shall be treated as the taxpayer with respect to the vehicle for purposes of this section and the credit shall be allowed to such person, but only if the person clearly discloses to the entity in any sale or lease document the specific amount of any credit otherwise allowable to the entity under this section and reduces the sale or lease price of such vehicle by an equivalent amount of such credit.

`(8) RECAPTURE- The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit (including recapture in the case of a lease period of less than the economic life of a vehicle).

`(9) PROPERTY USED OUTSIDE UNITED STATES, ETC., NOT QUALIFIED- No credit shall be allowed under subsection (a) with respect to any property referred to in section 50(b) or with respect to the portion of the cost of any property taken into account under section 179.

`(10) ELECTION TO NOT TAKE CREDIT- No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.

`(11) CARRYFORWARD ALLOWED-

`(A) IN GENERAL- If the credit amount allowable under subsection (a) for a taxable year exceeds the amount of the limitation under subsection (e) for such taxable year (referred to as the `unused credit year' in this paragraph), such excess shall be allowed as a credit carryforward for each of the 20 taxable years following the unused credit year.

`(B) RULES- Rules similar to the rules of section 39 shall apply with respect to the credit carryforward under subparagraph (A).

`(12) INTERACTION WITH AIR QUALITY AND MOTOR VEHICLE SAFETY STANDARDS- Unless otherwise provided in this section, a motor vehicle shall not be considered eligible for a credit under this section unless such vehicle is in compliance with--

`(A) the applicable provisions of the Clean Air Act for the applicable make and model year of the vehicle (or applicable air quality provisions of State law in the case of a State which has adopted such provision under a waiver under section 209(b) of the Clean Air Act), and

`(B) the motor vehicle safety provisions of sections 30101 through 30169 of title 49, United States Code.

`(g) REGULATIONS-

`(1) IN GENERAL- The Secretary shall promulgate such regulations as necessary to carry out the provisions of this section.

`(2) ADMINISTRATOR OF ENVIRONMENTAL PROTECTION AGENCY- The Administrator of the Environmental Protection Agency, in coordination with the Secretary of Transportation and the Secretary of the Treasury, shall prescribe such regulations as necessary to determine whether a motor vehicle meets the requirements to be eligible for a credit under this section.

`(h) TERMINATION- This section shall not apply to any property placed in service after December 31, 2007.'.

(2) CONFORMING AMENDMENTS-

(A) Section 1016(a) is amended by striking `and' at the end of paragraph (27), by striking the period at the end of paragraph (28) and inserting `, and', and by adding at the end the following:

`(29) to the extent provided in section 30B(f)(4).'.

(B) Section 53(d)(1)(B)(iii) is amended by inserting `, or not allowed under section 30B solely by reason of the application of section 30B(e)(2)' before the period.

(C) Section 55(c)(2) is amended by inserting `30B(e),' after `30(b)(3)'.

(D) Section 6501(m) is amended by inserting `30B(f)(9),' after `30(d)(4),'.

(E) The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 30A the following:

(b) MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES-

(1) AMOUNT OF CREDIT-

(A) IN GENERAL- Section 30(a) (relating to allowance of credit) is amended by striking `10 percent of'.

(B) LIMITATION OF CREDIT ACCORDING TO TYPE OF VEHICLE- Section 30(b) (relating to limitations) is amended--

(i) by striking paragraphs (1) and (2) and inserting the following:

`(1) LIMITATION ACCORDING TO TYPE OF VEHICLE- The amount of the credit allowed under subsection (a) for any vehicle shall not exceed the greatest of the following amounts applicable to such vehicle:

`(A) In the case of a vehicle which conforms to the Motor Vehicle Safety Standard 500 prescribed by the Secretary of Transportation, the lesser of--

`(i) 10 percent of the manufacturer's suggested retail price of the vehicle, or

`(ii) $4,000.

`(B) In the case of a vehicle with a gross vehicle weight rating not exceeding 8,500 pounds--

`(i) $4,000, or

`(ii) $6,000, if such vehicle is--

`(I) capable of a driving range of at least 100 miles on a single charge of the vehicle's rechargeable batteries and measured pursuant to the urban dynamometer schedules under appendix I to part 86 of title 40, Code of Federal Regulations, or

`(II) capable of a payload capacity of at least 1000 pounds.

`(C) In the case of a vehicle with a gross vehicle weight rating exceeding 8,500 but not exceeding 14,000 pounds, $10,000.

`(D) In the case of a vehicle with a gross vehicle weight rating exceeding 14,000 but not exceeding 26,000 pounds, $20,000.

`(E) In the case of a vehicle with a gross vehicle weight rating exceeding 26,000 pounds, $40,000.', and

(ii) by redesignating paragraph (3) as paragraph (2).

(C) CONFORMING AMENDMENTS-

(i) Section 53(d)(1)(B)(iii) is amended by striking `section 30(b)(3)(B)' and inserting `section 30(b)(2)(B)'.

(ii) Section 55(c)(2) is amended by striking `30(b)(3)' and inserting `30(b)(2)'.

(2) QUALIFIED BATTERY ELECTRIC VEHICLE-

(A) IN GENERAL- Section 30(c)(1)(A) (defining qualified electric vehicle) is amended to read as follows:

`(A) which is--

`(i) operated solely by use of a battery or battery pack, or

`(ii) powered primarily through the use of an electric battery or battery pack using a flywheel or capacitor which stores energy produced by an electric motor through regenerative braking to assist in vehicle operation,'.

(B) LEASED VEHICLES- Section 30(c)(1)(C) is amended by inserting `or lease' after `use'.

(C) CONFORMING AMENDMENTS-

(i) Subsections (a), (b)(2), and (c) of section 30 are each amended by inserting `battery' after `qualified' each place it appears.

(ii) The heading of subsection (c) of section 30 is amended by inserting `BATTERY' after `QUALIFIED'.

(iii) The heading of section 30 is amended by inserting `battery' after `qualified'.

(iv) The item relating to section 30 in the table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by inserting `battery' after `qualified'.

(v) Section 179A(c)(3) is amended by inserting `battery' before `electric'.

(vi) The heading of paragraph (3) of section 179A(c) is amended by inserting `BATTERY' before `ELECTRIC'.

(3) ADDITIONAL SPECIAL RULES- Section 30(d) (relating to special rules) is amended by adding at the end the following:

`(5) NO DOUBLE BENEFIT- The amount of any deduction or credit allowable under this chapter for any cost taken into account in computing the amount of the credit determined under subsection (a) shall be reduced by the amount of such credit attributable to such cost.

`(6) PROPERTY USED BY TAX-EXEMPT ENTITIES- In the case of a credit amount which is allowable with respect to a vehicle which is acquired by an entity exempt from tax under this chapter, the person which sells or leases such vehicle to the entity shall be treated as the taxpayer with respect to the vehicle for purposes of this section and the credit shall be allowed to such person, but only if the person clearly discloses to the entity in any sale or lease contract the specific amount of any credit otherwise allowable to the entity under this section and reduces the sale or lease price of such vehicle by an equivalent amount of such credit.'.

(4) EXTENSION- Section 30(e) (relating to termination) is amended by striking `2004' and inserting `2007'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2001, in taxable years ending after such date.

SEC. 202. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE FUEL.

(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by inserting after section 40 the following:

`SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE FUEL.

`(a) GENERAL RULE- For purposes of section 38, the alternative fuel retail sales credit for any taxable year is 25 cents for each gasoline gallon equivalent of alternative fuel sold at retail by the taxpayer during such year as a fuel to propel any qualified motor vehicle, but only if the taxpayer reduces the retail sales price of such fuel by an equivalent amount of such credit.

`(b) DEFINITIONS- For purposes of this section--

`(1) ALTERNATIVE FUEL- The term `alternative fuel' means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.

`(2) GASOLINE GALLON EQUIVALENT- The term `gasoline gallon equivalent' means, with respect to any alternative fuel, the amount (determined by the Secretary) of such fuel having a Btu content of 114,000.

`(3) QUALIFIED MOTOR VEHICLE- The term `qualified motor vehicle' means any motor vehicle (as defined in section 30(c)(2)) which meets any applicable Federal or State emissions standards with respect to each fuel by which such vehicle is designed to be propelled.

`(4) SOLD AT RETAIL-

`(A) IN GENERAL- The term `sold at retail' means the sale, for a purpose other than resale, after manufacture, production, or importation.

`(B) USE TREATED AS SALE- If any person uses alternative fuel (including any use after importation) as a fuel to propel any qualified alternative fuel motor vehicle (as defined in section 30B(d)(4)) before such fuel is sold at retail, then such use shall be treated in the same manner as if such fuel were sold at retail as a fuel to propel such a vehicle by such person.

`(c) NO DOUBLE BENEFIT- The amount of any deduction or credit allowable under this chapter for any fuel taken into account in computing the amount of the credit determined under subsection (a) shall be reduced by the amount of such credit attributable to such fuel.

`(d) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS- Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

`(e) TERMINATION- This section shall not apply to any fuel sold at retail after December 31, 2007.'.

(b) CREDIT TREATED AS BUSINESS CREDIT- Section 38(b) (relating to current year business credit) is amended by striking `plus' at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting `, plus', and by adding at the end the following:

`(16) the alternative fuel retail sales credit determined under section 40A(a).'.

(c) TRANSITIONAL RULE- Section 39(d) (relating to transitional rules) is amended by adding at the end the following:

`(11) NO CARRYBACK OF SECTION 40A CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the alternative fuel retail sales credit determined under section 40A(a) may be carried back to a taxable year ending before January 1, 2002.'.

(d) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 40 the following:

(e) EFFECTIVE DATE- The amendments made by this section shall apply to fuel sold at retail after December 31, 2001, in taxable years ending after such date.

SEC. 203. EXTENSION OF DEDUCTION FOR CERTAIN REFUELING PROPERTY.

(a) IN GENERAL- Section 179A(f) (relating to termination) is amended by striking `2004' and inserting `2007'.

(b) CONFORMING AMENDMENT- Section 179A(c) (relating to qualified clean-fuel vehicle property defined) is amended by striking paragraph (3).

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2001, in taxable years ending after such date.

SEC. 204. CREDIT FOR INSTALLATION OF ALTERNATIVE FUELING STATIONS.

(a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 (relating to foreign tax credit, etc.), as amended by section 201, is amended by adding at the end the following:

`SEC. 30C. CLEAN-FUEL VEHICLE REFUELING PROPERTY CREDIT.

`(a) CREDIT ALLOWED- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to--

`(1) 50 percent, in the case of retail clean-fuel vehicle refueling property, and

`(2) 50 percent, in the case of residential clean-fuel vehicle refueling property,

of the amount paid or incurred by the taxpayer during the taxable year for the installation of clean-fuel vehicle refueling property.

`(b) LIMITATION- The credit allowed under--

`(1) subsection (a)(1) with respect to clean-fuel vehicle refueling property, shall not exceed $30,000, and

`(2) subsection (a)(2) with respect to clean-fuel vehicle refueling property, shall not exceed $1,000.

`(c) YEAR CREDIT ALLOWED- The credit allowed under subsection (a) shall be allowed in the taxable year in which the clean-fuel vehicle refueling property is placed in service by the taxpayer.

`(d) DEFINITIONS- For purposes of this section--

`(1) CLEAN-FUEL VEHICLE REFUELING PROPERTY- The term `clean-fuel vehicle refueling property' has the same meaning given the term `qualified clean-fuel vehicle refueling property' under section 179A.

`(2) RESIDENTIAL CLEAN-FUEL VEHICLE REFUELING PROPERTY- The term `residential clean-fuel vehicle refueling property' means clean-fuel vehicle refueling property which is installed on property which is used as the principal residence (within the meaning of section 121) of the taxpayer.

`(3) RETAIL CLEAN-FUEL VEHICLE REFUELING PROPERTY- The term `retail clean-fuel vehicle refueling property' means clean-fuel vehicle refueling property--

`(A) which is installed on property used in a trade or business of the taxpayer, and

`(B) if such refueling property--

`(i) is--

`(I) available to the public during normal business hours, and

`(II) capable of serving at least 3 motor vehicles at the same time, or

`(ii) regularly serves at least 1 fleet of 10 or more motor vehicles.

`(e) APPLICATION WITH OTHER CREDITS- The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of--

`(1) the regular tax for the taxable year reduced by the sum of the credits allowable under subpart A and sections 27, 29, 30, and 30B, over

`(2) the tentative minimum tax for the taxable year.

`(f) BASIS REDUCTION- For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a).

`(g) NO DOUBLE BENEFIT- No deduction shall be allowed under section 179A with respect to any property with respect to which a credit is allowed under subsection (a).

`(h) REFUELING PROPERTY INSTALLED FOR TAX-EXEMPT ENTITIES- In the case of clean-fuel vehicle refueling property installed on property owned or used by an entity exempt from tax under this chapter, the person which installs such refueling property for the entity shall be treated as the taxpayer with respect to the refueling property for purposes of this section (and such refueling property shall be treated as retail clean-fuel vehicle refueling property) and the credit shall be allowed to such person, but only if the person clearly discloses to the entity in any installation contract the specific amount of the credit allowable under this section and modifies the price of such contract to take into account the amount of such credit.

`(i) CARRYFORWARD ALLOWED-

`(1) IN GENERAL- If the credit amount allowable under subsection (a) for a taxable year exceeds the amount of the limitation under subsection (b) for such taxable year (referred to as the `unused credit year' in this subsection), such excess shall be allowed as a credit carryforward for each of the 20 taxable years following the unused credit year.

`(2) RULES- Rules similar to the rules of section 39 shall apply with respect to the credit carryforward under paragraph (1).

`(j) SPECIAL RULES- Rules similar to the rules of paragraphs (4) and (5) of section 179A(e) shall apply.

`(k) REGULATIONS- The Secretary shall prescribe such regulations as necessary to carry out the provisions of this section.

`(l) TERMINATION- This section shall not apply to any property placed in service after December 31, 2007.'.

(b) CONFORMING AMENDMENTS-

(1) Section 1016(a), as amended by section 201, is amended by striking `and' at the end of paragraph (28), by striking the period at the end of paragraph (29) and inserting `, and', and by adding at the end the following:

`(30) to the extent provided in section 30C(f).'.

(2) Section 53(d)(1)(B)(iii), as amended by section 201, is amended by inserting `, or not allowed

under section 30C solely by reason of the application of section 30C(e)(2)' before the period.

(3) Section 55(c)(2), as amended by section 201, is amended by inserting `30C(e),' after `30B(e)'.

(4) The table of sections for subpart B of part IV of subchapter A of chapter 1, as amended by section 201, is amended by inserting after the item relating to section 30B the following:

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2001, in taxable years ending after such date.

SEC. 205. CREDIT FOR PROPERTY TO CONVERT WASTE TO FUEL.

(a) IN GENERAL- Subparagraph (A) of section 48A(c)(1) (defining energy property), as added by section 401, is amended by striking `or' at the end of clause (vi), by adding `or' at the end of clause (vii), and by inserting after clause (vii) the following new clause:

`(viii) waste conversion property,'.

(b) WASTE CONVERSION PROPERTY- Subsection (d) of section 48A, as so added, is amended by adding at the end the following new paragraph:

`(8) WASTE CONVERSION PROPERTY- The term `waste conversion property' means equipment used to produce a usable liquid or gaseous synthetic fuel derived from a waste feedstock (including plastic waste and biomass (as defined in section 29(c)).'.

(c) ENERGY PERCENTAGE IS 15 PERCENT- Subsection (b) of section 48A, as so added, is amended in paragraph (1)(C) by striking `subsection (c)(1)(A)(v)' and inserting `clauses (v) and (viii) of subsection (c)(1)(A)'.

TITLE III--ENERGY EFFICIENCY AND CONSERVATION

SEC. 301. ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY DEDUCTION.

(a) IN GENERAL- Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end the following:

`SEC. 199. ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY.

`(a) IN GENERAL- There shall be allowed as a deduction for the taxable year an amount equal to the energy-efficient commercial building property expenditures made by a taxpayer for the taxable year.

`(b) MAXIMUM AMOUNT OF DEDUCTION- The amount of energy-efficient commercial building property expenditures taken into account under subsection (a) shall not exceed an amount equal to the product of--

`(1) $2.25, and

`(2) the square footage of the building with respect to which the expenditures are made.

`(c) YEAR DEDUCTION ALLOWED- The deduction under subsection (a) shall be allowed in the taxable year in which the construction of the building is completed.

`(d) ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY EXPENDITURES- For purposes of this section--

`(1) IN GENERAL- The term `energy-efficient commercial building property expenditures' means an amount paid or incurred for energy-efficient commercial building property installed on or in connection with new construction or reconstruction of property--

`(A) for which depreciation is allowable under section 167,

`(B) which is located in the United States, and

`(C) the construction or erection of which is completed by the taxpayer.

Such property includes all residential rental property, including low-rise multifamily structures and single family housing property which is not within the scope of Standard 90.1-1999 (described in paragraph (3)).

`(2) LABOR COSTS INCLUDED- Such term includes expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property.

`(3) ENERGY EXPENDITURES EXCLUDED- Such term does not include any expenditures taken into account in determining any credit allowed under section 48A.

`(e) ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY- For purposes of subsection (d)--

`(1) IN GENERAL- The term `energy-efficient commercial building property' means any property which reduces total annual energy and power costs with respect to the lighting, heating, cooling, ventilation, and hot water supply systems of the building by 50 percent or more in comparison to a reference building which meets the requirements of Standard 90.1-1999 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America using methods of calculation under subparagraph (B) and certified by qualified professionals as provided under paragraph (6).

`(2) METHODS OF CALCULATION- The Secretary, in consultation with the Secretary of Energy, shall promulgate regulations which describe in detail methods for calculating and verifying energy and power consumption and cost, taking into consideration the provisions of the 1998 California Nonresidential ACM Manual. These procedures shall meet the following requirements:

`(A) In calculating tradeoffs and energy performance, the regulations shall prescribe the costs per unit of energy and power, such as kilowatt hour, kilowatt, gallon of fuel oil, and cubic foot or Btu of natural gas, which may be dependent on time of usage.

`(B) The calculational methodology shall require that compliance be demonstrated for a whole building. If some systems of the building, such as lighting, are designed later than other systems of the building, the method shall provide that either--

`(i) the expenses taken into account under paragraph (1) shall not occur until

the date designs for all energy-using systems of the building are completed, or

`(ii) the expenses taken into account under paragraph (1) shall be a fraction of such expenses based on the performance of less than all energy-using systems in accordance with subparagraph (C), and the energy performance of all systems and components not yet designed shall be assumed to comply minimally with the requirements of such Standard 90.1-1999.

`(C) The expenditures in connection with the design of subsystems in the building, such as the envelope, the heating, ventilation, air conditioning and water heating system, and the lighting system shall be allocated to the appropriate building subsystem based on system-specific energy cost savings targets in regulations promulgated by the Secretary of Energy which are equivalent, using the calculation methodology, to the whole building requirement of 50 percent savings.

`(D) The calculational methods under this paragraph need not comply fully with section 11 of such Standard 90.1-1999.

`(E) The calculational methods shall be fuel neutral, such that the same energy efficiency features shall qualify a building for the deduction under this section regardless of whether the heating source is a gas or oil furnace or an electric heat pump.

`(F) The calculational methods shall provide appropriate calculated energy savings for design methods and technologies not otherwise credited in either such Standard 90.1-1999 or in the 1998 California Nonresidential ACM Manual, including the following:

`(i) Natural ventilation.

`(ii) Evaporative cooling.

`(iii) Automatic lighting controls such as occupancy sensors, photocells, and timeclocks.

`(iv) Daylighting.

`(v) Designs utilizing semi-conditioned spaces which maintain adequate comfort conditions without air conditioning or without heating.

`(vi) Improved fan system efficiency, including reductions in static pressure.

`(vii) Advanced unloading mechanisms for mechanical cooling, such as multiple or variable speed compressors.

`(viii) The calculational methods may take into account the extent of commissioning in the building, and allow the taxpayer to take into account measured performance which exceeds typical performance.

`(3) Computer software-

`(A) IN GENERAL- Any calculation under this subsection shall be prepared by qualified computer software.

`(B) QUALIFIED COMPUTER SOFTWARE- For purposes of this paragraph, the term `qualified computer software' means software--

`(i) for which the software designer has certified that the software meets all procedures and detailed methods for calculating energy and power consumption and costs as required by the Secretary,

`(ii) which provides such forms as required to be filed by the Secretary in connection with energy efficiency of property and the deduction allowed under this section, and

`(iii) which provides a notice form which summarizes the energy efficiency features of the building and its projected annual energy costs.

`(4) ALLOCATION OF DEDUCTION FOR PUBLIC PROPERTY- In the case of energy-efficient commercial building property installed on or in public property, the Secretary shall promulgate a regulation to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the public entity which is the owner of such property. Such person shall be treated as the taxpayer for purposes of this section.

`(5) NOTICE TO OWNER- The qualified individual shall provide an explanation to the owner of the building regarding the energy efficiency features of the building and its projected annual energy costs as provided in the notice under paragraph (3)(B)(iii).

`(6) Certification-

`(A) IN GENERAL- Except as provided in this paragraph, the Secretary, in consultation with the Secretary of Energy, shall establish requirements for certification and compliance procedures similar to the procedures under section 45E(d).

`(B) QUALIFIED INDIVIDUALS- Individuals qualified to determine compliance shall be only those individuals who are recognized by an organization certified by the Secretary for such purposes.

`(C) PROFICIENCY OF QUALIFIED INDIVIDUALS- The Secretary shall consult with nonprofit organizations and State agencies with expertise in energy efficiency calculations and inspections to develop proficiency tests and training programs to qualify individuals to determine compliance.

`(f) REGULATIONS- The Secretary shall promulgate such regulations as necessary to take into account new technologies regarding energy efficiency and renewable energy for purposes of determining energy efficiency and savings under this section.

`(g) TERMINATION- This section shall not apply with respect to any energy-efficient commercial building property expenditures in connection with property--

`(1) the plans for which are not certified under subsection (e)(6) on or before December 31, 2007, and

`(2) the construction of which is not completed on or before December 31, 2009.'.

(b) CONFORMING AMENDMENTS- Section 1016(a), as amended by section 203(b), is amended by striking `and' at the end of paragraph (29), by striking the period at the end of paragraph (30) and inserting `, and', and by inserting the following:

`(31) for amounts allowed as a deduction under section 199(a).'.

(c) CLERICAL AMENDMENT- The table of sections for part VI of subchapter B of chapter 1 is amended by adding at the end the following:

`Sec. 199. Energy-efficient commercial building property.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 302. CREDIT FOR CONSTRUCTION OF NEW HIGHLY ENERGY-EFFICIENT HOMES.

(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by inserting after section 45D the following:

`SEC. 45E. NEW HIGHLY ENERGY-EFFICIENT HOME CREDIT.

`(a) IN GENERAL- For purposes of section 38, in the case of an eligible contractor, the credit determined under this section for the taxable year is an amount equal to the credit amount specified in the following table for a new, highly energy-efficient principal residence:

30 percent property

--$1,250

50 percent property

--$2,500.

`(b) HIGHLY ENERGY-EFFICIENT PRINCIPAL RESIDENCE- For purposes of this section--

`(1) IN GENERAL- The term `highly energy-efficient principal residence' means a dwelling--

`(A) located in the United States,

`(B) the construction of which is substantially completed after December 31, 2001,

`(C) the original use of which is as a principal residence (within the meaning of section 121) which commences with the person who acquires such dwelling from the eligible contractor, and

`(D) which is certified before such use commences as being 50 percent property or 30 percent property.

`(2) 50 OR 30 PERCENT PROPERTY-

`(A) IN GENERAL- For purposes of paragraph (1), property is 50 percent property or 30 percent property if the projected heating and cooling energy usage of such property, measured in terms of average annual energy cost to taxpayer, is reduced by 50 percent, or 30 percent, respectively, in comparison to the energy usage of the standard design reference house as determined using the procedures under subparagraph (D).

`(B) STANDARD DESIGN REFERENCE HOUSE- For purposes of this subsection, the term `standard design reference house' means a dwelling which conforms with the standards of chapter 4 of the 2000 International Energy Conservation Code of the International Code Council and the minimum equipment efficiency standards promulgated by the Department of Energy under the National Appliance Energy Conservation Act.

`(C) ENERGY EFFICIENT REFERENCE HOUSE- For purposes of this paragraph, the term `energy efficient reference house' means a design of a dwelling which uses the same heating fuel type as the proposed design and which uses minimum standards equipment, as required by the Department of Energy under the National Appliance Energy Conservation Act and which achieves, on average over fuel type and house geometry, the required 30 percent or 50 percent reductions in annual energy cost as calculated using the procedures under subparagraph (D).

`(D) PROCEDURES-

`(i) IN GENERAL- For purposes of subparagraph (A), energy usage shall be demonstrated either by a component-based approach or a performance-based approach.

`(ii) COMPONENT APPROACH- Compliance by the component approach is achieved when all of the components of the house comply with the requirements of prescriptive packages established by the Secretary of Energy, in consultation with the Administrator of the Environmental Protection Agency, such that they are equivalent, for the strong majority of houses which can use this method, to the results of using the performance-based approach of clause (iii) to achieve the required reduction in energy usage.

`(iii) PERFORMANCE-BASED APPROACH- Performance-based compliance shall be demonstrated in terms of equivalent or less energy usage when compared to the energy efficient reference house of the same heating fuel type as the dwelling concerned or through an alternate method prescribed by the Secretary which yields equivalent results.

`(iv) COMPUTER SOFTWARE- Computer software shall be used in support of performance-based compliance under clause (iii) and such software shall meet all of the procedures and methods for calculating energy savings reductions that are promulgated by the Secretary of Energy. Such regulations on the specifications for software and verification protocols shall be based on the 1998 California Residential Alternative Calculation Method Approval Manual.

`(v) FUEL PARITY- In the case of both the component and the performance-based approaches, and any software used in support of either such approach, the Secretary shall assure fuel parity by requiring both the energy efficient reference house and the prescriptive package under clause (ii) to employ the same envelope energy efficiency measures for a house heated by a gas furnace as for a house heated by an electric air source heat pump or by an oil furnace or boiler; and, for equipment efficiency, to employ electric, oil, or gas equipment efficiency of corresponding efficiency improvement. Such determination of corresponding efficiency improvement shall be made on a linear scale between the minimum standard equipment efficiency and the best available marketplace technology efficiency as determined by the Secretary after considering the information provided by the Air Conditioning and Refrigeration Institute (ARI) and the Gas Appliance Manufacturers Association (GAMA) guides for the respective electric, oil, and natural gas equipment of such type (such as heating and cooling).

`(vi) APPROVAL OF SOFTWARE SUBMISSIONS- The Secretary shall approve software submissions that comply with the calculation requirements of clause (iv).

`(vii) PROCEDURES FOR INSPECTION AND TESTING OF HOMES- The Secretary shall ensure that procedures for the inspection and testing for compliance comply with the calculation requirements under clause (iv).

`(3) DETERMINATIONS OF COMPLIANCE- A determination of compliance made for the purposes of this subsection shall be filed with the Secretary within 1 year after the date of such determination and shall include the TIN of the certifier, the address of the building in compliance, and the identity of the person for whom such determination was performed. Determinations of compliance filed with the Secretary shall be available for inspection by the Secretary of Energy.

`(4) COMPLIANCE-

`(A) IN GENERAL- The Secretary, in consultation with the Secretary of Energy shall establish requirements for certification and compliance procedures after examining the requirements for energy consultants and home energy ratings providers specified by the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.

`(B) INDIVIDUALS QUALIFIED TO DETERMINE COMPLIANCE- Individuals qualified to determine compliance shall be only those individuals who are recognized by an organization certified by the Secretary for such purposes. The Secretary may qualify a Home Energy Rating Systems Organization, a local building code agency, a State or local energy office, a utility, or other organizations which meet the requirements prescribed under this section.

`(5) FORM PROVIDED TO BUYER-

`(A) IN GENERAL- A form documenting the energy-efficiency of the dwelling, including the rated energy efficiency performance of equipment installed in the dwelling, shall be provided to the buyer of the dwelling. The form shall include labeled R-value for insulation products, NFRC-labeled U-factor and Solar Heat Gain Coefficient for windows, skylights, and doors, labeled AFUE ratings for furnaces and boilers, labeled HSPF ratings for electric heat pumps, and labeled SEER ratings for air conditioners.

`(B) RATINGS LABEL AFFIXED IN DWELLING- A permanent label documenting the ratings in subparagraph (A) shall be affixed to the front of the electrical distribution panel of the dwelling, or shall be otherwise permanently displayed in a readily inspectable location in the dwelling.

`(c) ADDITIONAL DEFINITIONS- For purposes of this section--

`(1) ELIGIBLE CONTRACTOR- The term `eligible contractor' means the person who constructed the new energy-efficient home, or in the case of a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (24 C.F.R. 3280), the manufactured home producer of such home.

`(2) CONSTRUCTION- The term `construction' includes reconstruction and rehabilitation.

`(3) ACQUIRE- The term `acquire' includes purchase and, in the case of reconstruction and rehabilitation, such term includes a binding written contract for such reconstruction or rehabilitation.

`(4) MANUFACTURED HOME INCLUDED- The term `dwelling' includes a manufactured home conforming to Federal Manufactured Home Construction and Safety Standards (24 C.F.R. 3280).

`(d) COORDINATION WITH OTHER CREDITS- Property which would, but for this paragraph, be eligible for credit under more than one provision of this section shall be eligible only under one such provision, the provision specified by the taxpayer.

`(e) BASIS ADJUSTMENT- For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.

`(f) TERMINATION- Subsection (a) shall apply to dwellings purchased during the period beginning on January 1, 2001, and ending on December 31, 2005.'.

(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT- Section 38(b) (relating to current year business credit), as amended by section 202, is amended by striking `plus' at the end of paragraph (15), by striking the period at the end of paragraph (16) and inserting `, plus', and by adding at the end the following:

`(17) the new highly energy-efficient home credit determined under section 45E.'.

(c) DENIAL OF DOUBLE BENEFIT- Section 280C (relating to certain expenses for which credits are allowable) is amended by adding at the end the following:

`(d) NEW ENERGY-EFFICIENT HOME EXPENSES- No deduction shall be allowed for that portion of expenses for a new highly energy-efficient home otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for such taxable year under section 45E.'.

(d) CREDIT ALLOWED AGAINST REGULAR AND MINIMUM TAX-

(1) IN GENERAL- Section 38(c) (relating to limitation based on amount of tax), as amended by section 102, is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:

`(4) SPECIAL RULES FOR NEW ENERGY EFFICIENT HOME CREDIT-

`(A) IN GENERAL- In the case of the new energy efficient home credit--

`(i) this section and section 39 shall be applied separately with respect to the credit, and

`(ii) in applying paragraph (1) to the credit--

`(I) subparagraphs (A) and (B) thereof shall not apply, and

`(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the new energy efficient home credit).

`(B) NEW HIGHLY ENERGY EFFICIENT HOME CREDIT- For purposes of this subsection, the term `new highly energy efficient home credit' means the credit allowable under subsection (a) by reason of section 45E.'.

(2) CONFORMING AMENDMENT- Subclause (II) of section 38(c)(2)(A)(ii) is amended by inserting `or the new highly energy efficient home credit' after `employment credit'.

(e) LIMITATION ON CARRYBACK- Section 39(d) (relating to transition rules), as amended by section 202, is amended by adding at the end the following:

`(12) NO CARRYBACK OF NEW HIGHLY ENERGY-EFFICIENT HOME CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the credit determined under section 45E may be carried back to any taxable year ending before January 1, 2001.'.

(f) DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS- Subsection (c) of section 196 is amended by striking `and' at the end of paragraph (7), by striking the period at the end of paragraph (8) and inserting `, and', and by adding after paragraph (8) the following:

`(9) the new highly energy-efficient home credit determined under section 45E.'.

(g) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 45D the following:

`Sec. 45E. New highly energy-efficient home credit.'.

(h) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after December 31, 2001.

SEC. 303. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 (relating to business-related credits), as amended by section 302, is amended by adding at the end the following new section:

`SEC. 45F. ENERGY EFFICIENT APPLIANCE CREDIT.

`(a) GENERAL RULE- For purposes of section 38, the energy efficient appliance credit determined under this section for the taxable year is an amount equal to the applicable amount determined under subsection (b) with respect to qualified energy efficient appliances produced by the taxpayer during the calendar year ending with or within the taxable year.

`(b) APPLICABLE AMOUNT- For purposes of subsection (a), the applicable amount determined under this subsection with respect to a taxpayer is the sum of--

`(1) in the case of an energy efficient clothes washer described in subsection (d)(2)(A) or an energy efficient refrigerator described in subsection (d)(3)(B)(i), an amount equal to--

`(A) $50, multiplied by

`(B) the number of such washers and refrigerators produced by the taxpayer during such calendar year, and

`(2) in the case of an energy efficient clothes washer described in subsection (d)(2)(B) or an energy efficient refrigerator described in subsection (d)(3)(B)(ii), an amount equal to--

`(A) $100, multiplied by

`(B) the number of such washers and refrigerators produced by the taxpayer during such calendar year.

`(c) LIMITATION ON MAXIMUM CREDIT-

`(1) IN GENERAL- The maximum amount of credit allowed under subsection (a) with respect to a taxpayer for all taxable years shall be--

`(A) $30,000,000 with respect to the credit determined under subsection (b)(1), and

`(B) $30,000,000 with respect to the credit determined under subsection (b)(2).

`(2) LIMITATION BASED ON GROSS RECEIPTS- The credit allowed under subsection (a) with respect to a taxpayer for the taxable year shall not exceed an amount equal to 2 percent of the average annual gross receipts of the taxpayer for the 3 taxable years preceding the taxable year in which the credit is determined.

`(3) GROSS RECEIPTS- For purposes of this subsection, the rules of paragraphs (2) and (3) of section 448(c) shall apply.

`(d) QUALIFIED ENERGY EFFICIENT APPLIANCE- For purposes of this section--

`(1) IN GENERAL- The term `qualified energy efficient appliance' means--

`(A) an energy efficient clothes washer, or

`(B) an energy efficient refrigerator.

`(2) ENERGY EFFICIENT CLOTHES WASHER- The term `energy efficient clothes washer' means a residential clothes washer, including a residential style coin operated washer, which is manufactured with--

`(A) a 1.26 Modified Energy Factor (referred to in this paragraph as `MEF') (as determined by the Secretary of Energy), or

`(B) a 1.42 MEF (as determined by the Secretary of Energy) (1.5 MEF for calendar years beginning after 2004).

`(3) ENERGY EFFICIENT REFRIGERATOR- The term `energy efficient refrigerator' means an automatic defrost refrigerator-freezer which--

`(A) has an internal volume of at least 16.5 cubic feet, and

`(B) consumes--

`(i) 10 percent less kw/hr/yr than the energy conservation standards promulgated by the Department of Energy for such refrigerator for 2001, or

`(ii) 15 percent less kw/hr/yr than such energy conservation standards.

`(e) SPECIAL RULES-

`(1) IN GENERAL- Rules similar to the rules of subsections (c), (d), and (e) of section 52 shall apply for purposes of this section.

`(2) AGGREGATION RULES- All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as one person for purposes of subsection (a).

`(f) VERIFICATION- The taxpayer shall submit such information or certification as the Secretary, in consultation with the Secretary of Energy, determines necessary to claim the credit amount under subsection (a).

`(g) TERMINATION- This section shall not apply to qualified energy efficient appliances produced in calendar years beginning after 2006.'.

(b) LIMITATION ON CARRYBACK- Section 39(d) (relating to transition rules), as amended by section 302, is amended by adding at the end the following new paragraph:

`(13) NO CARRYBACK OF ENERGY EFFICIENT APPLIANCE CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the energy efficient appliance credit determined under section 45F may be carried to a taxable year ending before the date of the enactment of section 45F.'.

(c) CONFORMING AMENDMENT- Section 38(b) (relating to general business credit), as amended by section 302, is amended by striking `plus' at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting `, plus', and by adding at the end the following new paragraph:

`(18) the energy efficient appliance credit determined under section 45F(a).'.

(d) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by section 302, is amended by inserting after the item relating to section 45E the following new item:

`Sec. 45F. Energy efficient appliance credit.'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 304. CREDIT FOR ADJUSTABLE SPEED DRIVES.

(a) IN GENERAL- Subparagraph (A) of section 48A(c)(1) (defining energy property), as added by section 401 and amended by section 206, is amended by striking `or' at the end of clause (vii), by adding `or' at the end of clause (viii), and by inserting after clause (viii) the following new clause:

`(ix) adjustable speed drive property,'.

(b) ADJUSTABLE SPEED DRIVE PROPERTY- Subsection (d) of section 48A, as so added, is amended by adding at the end the following new paragraph:

`(9) ADJUSTABLE SPEED DRIVE PROPERTY-

`(A) IN GENERAL- The term `adjustable speed drive property' means equipment installed as part of an electric motor driven system of 10 horsepower or greater--

`(i) that is used to adjust the speed of the electric motor drive output to the requirements of a fluctuating load, and

`(ii) that achieves an energy savings of at least 20 percent during a complete cycle of operation.

`(B) LIMITATION- In the case of adjustable speed drive property placed in service during the taxable year, the credit under subsection (a) for such year may not exceed $10,000 for each item of such property.

`(C) COORDINATION WITH DEDUCTION FOR ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY- The energy percentage shall apply to the basis of adjustable speed drive property after adjustment under section 1016(a)(31).'.

SEC. 305. CREDIT FOR ENERGY EFFICIENT RECYCLING OR REMANUFACTURING EQUIPMENT.

(a) IN GENERAL- Section 46 (relating to amount of investment credit) is amended by striking `and' at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting `, and', and by adding at the end the following new paragraph:

`(4) the reclamation credit.'

(b) RECLAMATION CREDIT- Section 48 (relating to energy credit and reforestation credit), as amended by section 401, is amended by adding at the end the following new subsection:

`(c) RECLAMATION CREDIT-

`(1) IN GENERAL- For purposes of section 46, the reclamation credit for any taxable year is 20 percent of the basis of each qualified reclamation property placed in service during the taxable year.

`(2) QUALIFIED RECLAMATION PROPERTY-

`(A) IN GENERAL- For purposes of this section, the term `qualified reclamation property' means property--

`(i) which is qualified recycling property or qualified remanufacturing property,

`(ii) which is tangible property (not including a building and its structural components),

`(iii) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,

`(iv) which has a useful life of at least 5 years, and

`(v) which is--

`(I) acquired by purchase (as defined in section 179(d)(2)) by the taxpayer if the original use of such property commences with the taxpayer, or

`(II) constructed by or for the taxpayer.

`(B) DOLLAR LIMITATION-

`(i) IN GENERAL- The basis of qualified reclamation property taken into account under paragraph (1) for any taxable year shall not exceed $10,000,000 for a taxpayer.

`(ii) TREATMENT OF CONTROLLED GROUP- For purposes of clause (i)--

`(I) all component members of a controlled group shall be treated as one taxpayer, and

`(II) the Secretary shall apportion the dollar limitation in such clause among the component members of such controlled group in such manner as he shall by regulation prescribe.

`(iii) TREATMENT OF PARTNERSHIPS AND S CORPORATIONS- In the case of a partnership, the dollar limitation in clause (i) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.

`(iv) CONTROLLED GROUP DEFINED- For purposes of clause (ii), the term `controlled group' has the meaning given such term by section 1563(a), except that `more than 50 percent' shall be substituted for `at least 80 percent' each place it appears in section 1563(a)(1).

`(3) CERTAIN PROGRESS EXPENDITURE RULES MADE APPLICABLE- Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this subsection.

`(4) DEFINITIONS- For purposes of this subsection--

`(A) QUALIFIED RECYCLING PROPERTY- The term `qualified recycling property' means equipment used exclusively to collect, distribute, or sort used ferrous or nonferrous metals. The term does not include equipment used to collect, distribute, or sort precious metals such as gold, silver, or platinum unless such use is coincidental to the collection, distribution, or sorting of other used ferrous or nonferrous metals.

`(B) QUALIFIED REMANUFACTURING PROPERTY- The term `qualified remanufacturing property' means equipment used primarily by the taxpayer in the business of rebuilding or remanufacturing a used product or part, but only if--

`(i) the rebuilt or remanufactured product or part includes 50 percent or less virgin material, and

`(ii) the equipment is not used primarily in a process occurring after the product or part is rebuilt or remanufactured.

`(5) COORDINATION WITH REHABILITATION AND ENERGY CREDITS- For purposes of this section--

`(A) the basis of any qualified reclamation property shall be reduced by that portion of the basis of any property which is attributable to qualified rehabilitation expenditures (as defined in section 47(c)(2)) or to the energy percentage of energy property (as determined under section 48A), and

`(B) expenditures taken into account under either section 47 or 48A shall not be taken into account under this section.'.

(c) SPECIAL BASIS ADJUSTMENT RULE- Paragraph (3) of section 50(c) (relating to basis adjustment to investment credit property) is amended by striking `energy credit or reforestation credit' and inserting `energy credit, reforestation credit, or reclamation credit'.

(d) CLERICAL AMENDMENTS-

(1) The section heading for section 48, as amended by section 401, is amended to read as follows:

`SEC. 48. REFORESTATION CREDIT; RECLAMATION CREDIT.'

(2) The item relating to section 48 in the table of sections for subpart E of part IV of subchapter A of chapter 1 is amended to read as follows:

`Sec. 48. Reforestation credit; reclamation credit.'

(e) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2001.

TITLE IV--DEMAND MANAGEMENT AND DISTRIBUTED ENERGY GENERATION

SEC. 401. CREDIT FOR DISTRIBUTED ENERGY GENERATION AND DEMAND MANAGEMENT PROPERTY USED IN BUSINESS.

(a) IN GENERAL- Subpart E of part IV of subchapter A of chapter 1 (relating to rules for computing investment credit) is amended by inserting after section 48 the following:

`SEC. 48A. ENERGY CREDIT.

`(a) IN GENERAL- For purposes of section 46, the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year.

`(b) Energy Percentage-

`(1) IN GENERAL- The energy percentage is--

`(A) except as otherwise provided in this subparagraph, 10 percent,

`(B) in the case of energy property described in clauses (i), (iii), and (vi) of subsection (c)(1)(A), 20 percent,

`(C) in the case of energy property described in subsection (c)(1)(A)(v), 15 percent, and

`(D) in the case of energy property described in subsection (c)(1)(A)(ii) relating to a high risk geothermal well, 20 percent.

`(2) COORDINATION WITH REHABILITATION- The energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures.

`(c) Energy Property Defined-

`(1) IN GENERAL- For purposes of this subpart, the term `energy property' means any property--

`(A) which is--

`(i) solar energy property,

`(ii) geothermal energy property,

`(iii) energy-efficient building property other than property described in clauses (iii)(I) and (v)(I) of subsection (d)(3)(A),

`(iv) combined heat and power system property,

`(v) low core loss distribution transformer property, or

`(vi) qualified anaerobic digester property, or

`(B)(i) the construction, reconstruction, or erection of which is completed by the taxpayer, or

`(ii) which is acquired by the taxpayer if the original use of such property commences with the taxpayer.

`(C) which can reasonably be expected to remain in operation for at least 5 years,

`(D) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and

`(E) which meets the performance and quality standards (if any) which--

`(i) have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and

`(ii) are in effect at the time of the acquisition of the property.

`(2) EXCEPTION FOR PUBLIC UTILITY PROPERTY- Such term shall not include any property which is public utility property (as defined in section 46(f)(5) as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), except for property described in paragraph (1)(A)(iv).

`(d) DEFINITIONS RELATING TO TYPES OF ENERGY PROPERTY- For purposes of this section--

`(1) Solar energy property-

`(A) IN GENERAL- The term `solar energy property' means equipment which uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat.

`(B) SWIMMING POOLS, ETC. USED AS STORAGE MEDIUM- The term `solar energy property' shall not include property with respect to which expenditures are properly allocable to a swimming pool, hot tub, or any other energy storage medium which has a function other than the function of such storage.

`(C) SOLAR PANELS- No solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as solar energy property solely because it constitutes a structural component of the structure on which it is installed.

`(2) Geothermal energy property-

`(A) IN GENERAL- The term `geothermal energy property' means equipment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2)), but only, in the case of electricity generated by geothermal power, up to (but not including) the electrical transmission stage.

`(B) HIGH RISK GEOTHERMAL WELL- The term `high risk geothermal well' means a geothermal deposit (within the meaning of section 613(e)(2)) which requires high risk drilling techniques. Such deposit may not be located in a State or national park or in an area in which the relevant State park authority or the National Park Service determines the development of such a deposit will negatively impact on a State or national park.

`(3) Energy-efficient building property-

`(A) IN GENERAL- The term `energy-efficient building property' means--

`(i) a fuel cell which--

`(I) generates electricity using an electrochemical process,

`(II) has an electricity-only generation efficiency greater than 30 percent, and

`(III) has a minimum generating capacity of 1 kilowatt,

`(ii) an electric heat pump hot water heater which yields an energy factor of 1.7 or greater under test procedures prescribed by the Secretary of Energy,

`(iii)(I) an electric heat pump which has a heating system performance factor (HSPF) of at least 8.5 but less than 9 and a cooling seasonal energy efficiency ratio (SEER) of at least 13.5 but less than 15 and an energy efficiency ratio (EER) of at least 11.5,

`(II) an electric heat pump which has a heating system performance factor (HSPF) of 9 or greater and a cooling seasonal energy efficiency ratio (SEER) of 15 or greater and an energy efficiency ratio (EER) of at least 12.5,

`(iv) a natural gas heat pump which has a coefficient of performance of not less than 1.25 for heating and not less than 0.70 for cooling,

`(v)(I) a central air conditioner which has a cooling seasonal energy efficiency ratio (SEER) of at least 13.5 but less than 15 and an energy efficiency ratio (EER) of at least 11.5,

`(II) a central air conditioner which has a cooling seasonal energy efficiency ratio (SEER) of 15 or greater and an energy efficiency ratio (EER) of at least 12.5,

`(vi) an advanced natural gas water heater which--

`(I) increases steady state efficiency and reduces standby and vent losses, and

`(II) has an energy factor of at least 0.65, and

`(vii) an advanced natural gas furnace which achieves a 90 percent AFUE and rated for seasonal electricity use of less than 300 kWh per year.

`(B) LIMITATIONS- The credit under subsection (a) for the taxable year may not exceed--

`(i) $500 in the case of property described in subparagraph (A) other than clauses (i) and (iv) thereof,

`(ii) $500 for each kilowatt of capacity in the case of any fuel cell described in subparagraph (A)(i), and

`(iii) $3,000 in the case of any natural gas heat pump described in subparagraph (A)(iv).

`(4) Combined heat and power system property-

`(A) IN GENERAL- The term `combined heat and power system property' means property--

`(i) comprising a system for the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with steam, heat, or other forms of useful energy,

`(ii) which has an electrical capacity of more than 20 kilowatts or a mechanical energy capacity of more than 67 horsepower or an equivalent combination of electrical and mechanical energy capacities,

`(iii) which produces--

`(I) at least 20 percent of its total useful energy in the form of thermal energy, and

`(II) at least 20 percent of its total useful energy in the form of electrical or mechanical power (or a combination thereof), and

`(iv) the energy efficiency percentage of which exceeds--

`(I) 60 percent in the case of a system with an electrical capacity of less than 1 megawatt),

`(II) 65 percent in the case of a system with an electrical capacity of not less than 1 megawatt and not in excess of 50 megawatts), and

`(III) 70 percent in the case of a system with an electrical capacity in excess of 50 megawatts).

`(B) SPECIAL RULES-

`(i) ENERGY EFFICIENCY PERCENTAGE- For purposes of subparagraph (A)(iv), the energy efficiency percentage of a system is the fraction--

`(I) the numerator of which is the total useful electrical, thermal, and mechanical power produced by the system at normal operating rates, and

`(II) the denominator of which is the lower heating value of the primary fuel source for the system.

`(ii) DETERMINATIONS MADE ON BTU BASIS- The energy efficiency percentage shall be determined on a Btu basis.

`(iii) INPUT AND OUTPUT PROPERTY NOT INCLUDED- The term `combined heat and power system property' does not include property used to transport the energy source to the facility or to distribute energy produced by the facility.

`(iv) ACCOUNTING RULE FOR PUBLIC UTILITY PROPERTY- If the combined heat and power system property is public utility property (as defined in section 46(f)(5) as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), the taxpayer may only claim the credit under subsection (a)(1) if, with respect to such property, the taxpayer uses a normalization method of accounting.

`(5) LOW CORE LOSS DISTRIBUTION TRANSFORMER PROPERTY- The term `low core loss distribution transformer property' means a distribution transformer that has an efficiency rating based on the National Electrical Manufacturers Association (NEMA) TP-2 test procedure equal to or exceeding--

`(A) the NEMA TP-1 efficiency standard for the type of transformer concerned, plus

`(B) 0.5 percent of the NEMA TP-1 efficiency standard.

`(6) QUALIFIED ANAEROBIC DIGESTER PROPERTY- The term `qualified anaerobic digester property' means an anaerobic digester for manure or crop waste which achieves at least 65 percent efficiency measured in terms of the fraction of energy input converted to electricity and useful thermal energy.

`(e) SPECIAL RULES- For purposes of this section--

`(1) SPECIAL RULE FOR PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING OR INDUSTRIAL DEVELOPMENT BONDS-

`(A) REDUCTION OF BASIS- For purposes of applying the energy percentage to any property, if such property is financed in whole or in part by--

`(i) subsidized energy financing, or

`(ii) the proceeds of a private activity bond (within the meaning of section 141) the interest on which is exempt from tax under section 103, the amount taken into account as the basis of such property shall not exceed the amount which (but for this subparagraph) would be so taken into account multiplied by the fraction determined under subparagraph (B).

`(B) DETERMINATION OF FRACTION- For purposes of subparagraph (A), the fraction determined under this subparagraph is 1 reduced by a fraction--

`(i) the numerator of which is that portion of the basis of the property which is allocable to such financing or proceeds, and

`(ii) the denominator of which is the basis of the property.

`(C) SUBSIDIZED ENERGY FINANCING- For purposes of subparagraph (A), the term `subsidized energy financing' means financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.

`(2) CERTAIN PROGRESS EXPENDITURE RULES MADE APPLICABLE- Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of this section.

`(f) APPLICATION OF SECTION- This section shall apply to property placed in service after December 31, 2001, and before January 1, 2007.'.

(b) Conforming Amendments-

(1) Section 48 is amended to read as follows:

`SEC. 48. REFORESTATION CREDIT.

`(a) IN GENERAL- For purposes of section 46, the reforestation credit for any taxable year is 20 percent of the portion of the amortizable basis of any qualified timber property which was acquired during such taxable year and which is taken into account under section 194 (after the application of section 194(b)(1)).

`(b) DEFINITIONS- For purposes of this subpart, the terms `amortizable basis' and `qualified timber property' have the respective meanings given to such terms by section 194.'.

(2) Section 39(d), as amended by section 303, is amended by adding at the end the following:

`(14) NO CARRYBACK OF ENERGY CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the energy credit determined under section 48A may be carried back to a taxable year ending before January 1, 2002.'.

(3) Section 280C, as amended by section 302, is amended by adding at the end the following:

`(e) Credit for Energy Property Expenses-

`(1) IN GENERAL- No deduction shall be allowed for that portion of the expenses for energy property (as defined in section 48A(c)) otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for such taxable year under section 48A(a).

`(2) SIMILAR RULE WHERE TAXPAYER CAPITALIZES RATHER THAN DEDUCTS EXPENSES- If--

`(A) the amount of the credit allowable for the taxable year under section 48A (determined without regard to section 38(c)), exceeds

`(B) the amount allowable as a deduction for the taxable year for expenses for energy property (determined without regard to paragraph (1)), the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess.

`(3) CONTROLLED GROUPS- Paragraph (3) of subsection (b) shall apply for purposes of this subsection.'.

(4) Section 29(b)(3)(A)(i)(III) is amended by striking `section 48(a)(4)(C)' and inserting `section 48A(e)(1)(C)'.

(5) Section 50(a)(2)(E) is amended by striking `section 48(a)(5)' and inserting `section 48A(e)(2)'.

(6) Section 168(e)(3)(B) is amended--

(A) by striking clause (vi)(I) and inserting the following:

`(I) is described in paragraph (1) or (2) of section 48A(d) (or would be so described if `solar and wind' were substituted for `solar' in paragraph (1)(B)),', and

(B) in the last sentence by striking `section 48(a)(3)' and inserting `section 48A(c)(2)(A)'.

(c) CLERICAL AMENDMENT- The table of sections for subpart E of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 48 and inserting the following:

`Sec. 48. Reforestation credit.

`Sec. 48A. Energy credit.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2001, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).

SEC. 402. CREDIT FOR DISTRIBUTED ENERGY GENERATION AND DEMAND MANAGEMENT PROPERTY USED IN RESIDENCES.

(a) IN GENERAL- Subpart A of part IV of subchapter A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting after section 25B the following:

`SEC. 25C. RESIDENTIAL DISTRIBUTED ENERGY GENERATION AND DEMAND MANAGEMENT PROPERTY.

`(a) ALLOWANCE OF CREDIT- In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of--

`(1) 15 percent of the qualified photovoltaic property expenditures,

`(2) 15 percent of the qualified solar water heating property expenditures,

`(3) 25 percent of the qualified wind energy property expenditures, and

`(4) 20 percent for the qualified fuel cell property expenditures,

`(5) 20 percent for qualified energy-efficient building property expenditures (10 percent for expenditures described in subsection (c)(5)(B)),

made by the taxpayer during the taxable year.

`(b) LIMITATIONS-

`(1) MAXIMUM CREDIT-

`(A) SOLAR- The credit allowed under subsection (a)(2) shall not exceed $2,000 for each system of solar energy property.

`(B) WIND- The credit allowed under subsection (a)(3) shall not exceed $5,000 for each system of wind energy property.

`(C) ENERGY-EFFICIENT BUILDING PROPERTY- The credit allowed under subsection (a)(5) shall not exceed $500 for each item of energy-efficient building property.

`(2) TYPE OF PROPERTY- No expenditure may be taken into account under this section unless such expenditure is made by the taxpayer for property installed on or in connection with a dwelling unit which is located in the United States and which is used as a residence.

`(3) SAFETY CERTIFICATIONS- No credit shall be allowed under this section for an item of property unless--

`(A) in the case of solar water heating property, such property is certified for performance and safety by the non-profit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which such property is installed, and

`(B) in the case of a photovoltaic, wind energy, or fuel cell property, such property meets appropriate fire and electric code requirements.

`(c) DEFINITIONS AND SPECIAL RULES RELATING TO EXPENDITURES- For purposes of this section--

`(1) QUALIFIED PHOTOVOLTAIC PROPERTY EXPENDITURE- The term `qualified photovoltaic property expenditure' means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit.

`(2) QUALIFIED SOLAR WATER HEATING PROPERTY EXPENDITURE- The term `qualified solar water heating property expenditure' means an expenditure for property which uses solar energy to heat water for use in a dwelling unit with respect to which a majority of the energy is derived from the sun.

`(3) QUALIFIED WIND ENERGY PROPERTY EXPENDITURE- The term `qualified wind energy property expenditure' means an expenditure for property which uses wind energy to generate electricity for use in a dwelling unit.

`(4) QUALIFIED FUEL CELL PROPERTY EXPENDITURE- The term `qualified fuel cell property expenditure' means an expenditure for property which uses an electrochemical fuel cell system to generate electricity for use in a dwelling unit.

`(5) QUALIFIED ENERGY-EFFICIENT BUILDING PROPERTY EXPENDITURE-

`(A) IN GENERAL- The term `qualified energy-efficient building property expenditure' means an expenditure for energy efficient building property defined in clauses (ii), (iii), (iv), (v), (vi), and (vii) of section 48A(d)(3)(A).

`(B) 10 PERCENT CREDIT FOR CERTAIN PROPERTY- For purposes of subsection (a)(5), the expenditures described in this subparagraph are expenditures for energy efficient building property defined in clauses (iii)(II) and (iv)(II) of section 48A(d)(3)(A).

`(6) SOLAR PANELS- No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property described in paragraph (1) or (2) solely because

it constitutes a structural component of the structure on which it is installed.

`(7) LABOR COSTS- Expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property described in paragraph (1), (2), (3), (4), or (5) and for piping or wiring to interconnect such property to the dwelling unit shall be taken into account for purposes of this section.

`(8) ENERGY STORAGE MEDIUM- Expenditures which are properly allocable to a swimming pool, hot tub, or any other energy storage medium which has a function other than the function of such storage shall not be taken into account for purposes of this section.

`(d) SPECIAL RULES- For purposes of this section--

`(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCUPANCY- In the case of any dwelling unit which is jointly occupied and used during any calendar year as a residence by 2 or more individuals the following shall apply:

`(A) The amount of the credit allowable under subsection (a) by reason of expenditures (as the case may be) made during such calendar year by any of such individuals with respect to such dwelling unit shall be determined by treating all of such individuals as 1 taxpayer whose taxable year is such calendar year.

`(B) There shall be allowable with respect to such expenditures to each of such individuals, a credit under subsection (a) for the taxable year in which such calendar year ends in an amount which bears the same ratio to the amount determined under subparagraph (A) as the amount of such expenditures made by such individual during such calendar year bears to the aggregate of such expenditures made by all of such individuals during such calendar year.

`(2) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION- In the case of an individual who is a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), such individual shall be treated as having made his tenant-stockholder's proportionate share (as defined in section 216(b)(3)) of any expenditures of such corporation.

`(3) CONDOMINIUMS-

`(A) IN GENERAL- In the case of an individual who is a member of a condominium management association with respect to a condominium which such individual owns, such individual shall be treated as having made his proportionate share of any expenditures of such association.

`(B) CONDOMINIUM MANAGEMENT ASSOCIATION- For purposes of this paragraph, the term `condominium management association' means an organization which meets the requirements of paragraph (1) of section 528(c) (other than subparagraph (E) thereof) with respect to a condominium project substantially all of the units of which are used as residences.

`(4) JOINT OWNERSHIP OF ITEMS OF SOLAR OR WIND ENERGY PROPERTY-

`(A) IN GENERAL- Any expenditure otherwise qualifying as an expenditure described in paragraph (1), (2), or (3) of subsection (c) shall not be treated as failing to so qualify merely because such expenditure was made with respect to 2 or more dwelling units.

`(B) LIMITS APPLIED SEPARATELY- In the case of any expenditure described in subparagraph (A), the amount of the credit allowable under subsection (a) shall (subject to paragraph (1)) be computed separately with respect to the amount of the expenditure made for each dwelling unit.

`(5) ALLOCATION IN CERTAIN CASES- If less than 80 percent of the use of an item is for nonbusiness residential purposes, only that portion of the expenditures for such item which is properly allocable to use for nonbusiness residential purposes shall be taken into account. For purposes of this paragraph, use for a swimming pool shall be treated as use which is not for residential purposes.

`(6) WHEN EXPENDITURE MADE; AMOUNT OF EXPENDITURE-

`(A) IN GENERAL- Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original installation of the item is completed.

`(B) EXPENDITURES PART OF BUILDING CONSTRUCTION- In the case of an expenditure in connection with the construction or reconstruction of a structure, such expenditure shall be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins.

`(C) AMOUNT- The amount of any expenditure shall be the cost thereof.

`(7) REDUCTION OF CREDIT FOR GRANTS, TAX-EXEMPT BONDS, AND SUBSIDIZED ENERGY FINANCING- The rules of section 29(b)(3) shall apply for purposes of this section.

`(e) BASIS ADJUSTMENTS- For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.

`(f) TERMINATION- The credit allowed under this section shall not apply to taxable years beginning after December 31, 2006.'.

(b) CONFORMING AMENDMENTS-

(1) Section 1016(a), as amended by section 301(b), is amended by striking `and' at the end of paragraph (30), by striking the period at the end of paragraph (31) and inserting `; and', and by adding at the end the following:

`(32) to the extent provided in section 25C(e), in the case of amounts with respect to which a credit has been allowed under section 25C.'.

(2) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 25B the following:

`Sec. 25C. Residential solar, wind, and fuel cell energy property.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to expenditures made after the date of the enactment of this Act, in taxable years ending after such date.

SEC. 403. CREDIT FOR ENERGY MANAGEMENT SYSTEMS USING RESIDENTIAL REAL TIME METERING SYSTEMS.

(a) CREDIT FOR ENERGY MANAGEMENT SYSTEMS-

(1) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 (relating to foreign tax credits, etc.), as amended by section 204, is amended by inserting after section 30C the following new section:

`SEC. 30D. CREDIT FOR ENERGY MANAGEMENT SYSTEMS.

`(a) ALLOWANCE OF CREDIT- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year--

`(1) an amount equal to $20 for each qualified energy management device originally placed in service during the taxable year, and

`(2) for each qualified retrofitted meter originally placed in service during the taxable year, an amount equal to the lesser of--

`(A) $20, or

`(B) the adjusted basis of such meter.

`(b) DEFINITIONS-

`(1) QUALIFIED ENERGY MANAGEMENT DEVICE- For purposes of this section, the term `qualified energy management device' means any meter or metering device acquired and used by an electric energy or natural gas supplier or service provider to enable consumers or others to manage their purchase, sale, or use of electricity or natural gas in response to energy price and usage signals.

`(2) QUALIFIED RETROFITTED METER- For purposes of this section, the term `qualified retrofitted meter' means an electric energy or natural gas meter or metering device that has been modified by the addition of equipment designed to enable users to manage the purchase, sale, or use of electricity and natural gas in response to energy price and usage signals.

`(3) PLACED IN SERVICE- For purposes of this section, the term `placed in service' means interconnected with other devices in a manner that permits reading of energy price and usage signals on at least a daily basis.

`(4) COST OF METERS INCLUDES COST OF INSTALLATION- The cost of any qualified energy management device or qualified retrofitted meter referred to in paragraph (1) or (2) shall include the cost of the original installation of such property.

`(c) SPECIAL RULES-

`(1) BASIS REDUCTION- The basis of any property for which a credit is allowed under subsection (a) shall be reduced by the amount of such credit.

`(2) RECAPTURE- The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property that ceases to be property eligible for such credit.

`(3) PROPERTY USED OUTSIDE THE UNITED STATES, ETC., NOT QUALIFIED- No credit shall be allowed under subsection (a) with respect to any property referred to in section 50(b)(1) or with respect to the portion of the cost of any property taken into account under section 179.

`(4) ELECTION TO NOT TAKE CREDIT- No credit shall be allowed under subsection (a) for any energy management device if the taxpayer elects to not have this section apply to such device.

`(5) CREDITS FOR CERTAIN TAX EXEMPT ORGANIZATIONS AND GOVERNMENTAL UNITS-

`(A) ALLOWANCE OF CREDIT- Any credit which would be allowable under subsection (a) with respect to a qualified energy management device or a qualified retrofitted meter placed in service by an entity if such entity were not exempt from tax under this chapter shall be treated as a credit allowable under subpart B to such entity if such entity is--

`(i) an organization described in section 501(c)(12)(C) and exempt from tax under section 501(a),

`(ii) an organization described in section 1381(a)(2)(C),

`(iii) an entity the income of which is excludable from gross income under section 115, or

`(iv) a State, the District of Columbia, any territory or possession of the United States, or any political subdivision thereof.

`(B) USE OF CREDIT-

`(i) TRANSFER OF CREDIT- An entity described in subparagraph (A) may assign, trade, sell, or otherwise transfer any credit allowable to such entity under subparagraph (A) to any taxpayer.

`(ii) USE OF CREDIT AS AN OFFSET- Notwithstanding any other provision of law, in the case of an entity described in clause (i) or (ii) of subparagraph (A), any credit allowable to such entity under subparagraph (A) may be applied by such entity, without penalty, as a prepayment of any loan, debt, or other obligation the entity has incurred under subchapter I of chapter 31 of title 7 of the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.).

`(C) CREDIT NOT INCOME- Neither a transfer under clause (i) nor a use under clause (ii) of subparagraph (B) of any credit allowable under subparagraph (A) shall result in income for purposes of section 501(c)(12).

`(D) TRANSFER PROCEEDS TREATED AS ARISING FROM ESSENTIAL GOVERNMENT FUNCTION- Any proceeds derived by an entity described in subparagraph (A)(iii) from the transfer of any credit under subparagraph (B)(i) shall be treated as arising from an essential government function.

`(d) TERMINATION- This section shall not apply to any property placed in service after December 31, 2007.'.

(2) INCLUSION OF INDIAN TRIBAL GOVERNMENTS- Section 7871(a)(7), as amended by section 103, is amended by striking `and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C), and by adding at the end the following:

`(D) section 30D (relating to credit for energy management systems).'.

(3) CONFORMING AMENDMENTS-

(A) The table of contents for subpart B of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 30C the following new item:

`Sec. 30D. Credit for energy management systems.'.

(B) Section 1016(a), as amended by section 402, is amended by striking `and' at the end of paragraph (31), by striking the period at the end of paragraph (32) and inserting `, and', and by adding at the end the following new paragraph:

`(33) to the extent provided in section 30D(c)(1).'.

(4) EFFECTIVE DATE- The amendments made by this subsection shall apply to qualified energy management devices placed in service after the date of the enactment of this Act and to qualified retrofitted meters that are placed in service on or after, or that are in use as of, January 1, 2002.

(b) 5-Year Applicable Recovery Period for Depreciation of Qualified Energy Management Devices-

(1) IN GENERAL- Subparagraph (B) of section 168(e)(3) of the Internal Revenue Code of 1986 (relating to classification of property) is amended by striking `and' at the end of clause (v), by striking the period at the end of clause (vi) and inserting `, and', and by adding at the end the following new clause:

`(vii) any qualified energy management device.'.

(2) DEFINITION OF QUALIFIED ENERGY MANAGEMENT DEVICE- Section 168(i) of such Code (relating to definitions and special rules) is amended by inserting at the end the following new paragraph:

`(15) QUALIFIED ENERGY MANAGEMENT DEVICE- The term `qualified energy management device' means a meter or metering device that is acquired and used by an electric energy or natural gas supplier or service provider to enable consumers and others to manage their purchase, sale, and use of electricity or natural gas in response to energy price and usage signals that are readable on at least a daily basis. For purposes of the preceding sentence, the cost of any qualified energy management device shall (at the election of the taxpayer) include the cost of the original installation of such property.'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to property placed in service after December 31, 2000, and before January 1, 2007.

SEC. 404. CREDIT FOR FLYWHEEL PROPERTY.

(a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 (relating to foreign tax credits, etc.), as amended by section 403, is amended by inserting after section 30D the following new section:

`SEC. 30E. CREDIT FOR FLYWHEEL PROPERTY.

`(a) ALLOWANCE OF CREDIT- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 10 percent of the cost of any qualified flywheel property placed in service by the taxpayer during the taxable year.

`(b) LIMITATION- The credit allowed under subsection (a) shall not exceed $2,000 for a taxable year.

`(c) QUALIFIED FLYWHEEL PROPERTY- For purposes of this section, the term `qualified flywheel property' means a flywheel designed exclusively to store energy that is used to generate electricity.

`(d) SPECIAL RULES-

`(1) BASIS REDUCTION- The basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit.

`(2) RECAPTURE- The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property that ceases to be property eligible for such credit.

`(3) PROPERTY USED OUTSIDE THE UNITED STATES, ETC., NOT QUALIFIED- No credit shall be allowed under subsection (a) with respect to any property referred to in section 50(b)(1) or with respect to the portion of the cost of any property taken into account under section 179.

`(4) ELECTION TO NOT TAKE CREDIT- No credit shall be allowed under subsection (a) for any qualified flywheel property if the taxpayer elects to not have this section apply to such property.

`(d) TERMINATION- This section shall not apply to any property placed in service after December 31, 2007.'.

(b) CONFORMING AMENDMENTS-

(1) The table of contents for subpart B of part IV of subchapter A of chapter 1, as amended by section 403, is amended by inserting after the item relating to section 30D the following new item:

`Sec. 30E. Credit for qualified flywheel property.'.

(2) Section 1016(a), as amended by section 403, is amended by striking `and' at the end of paragraph (32), by striking the period at the end of paragraph (33) and inserting `, and', and by adding at the end the following new paragraph:

`(34) to the extent provided in section 30E(c)(1).'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2001, in taxable years ending after such date.

END