S 1979 PCS

To provide energy tax incentives.

March 1, 2002

Mr. BAUCUS, from the Committee on Finance, reported the following original bill; which was read twice and placed on the calendar

To provide energy tax incentives.

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

SECTION 1. SHORT TITLE; ETC.

(a) SHORT TITLE- This Act may be cited as the `Energy Tax Incentives Act of 2002'.

(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 for this Act is as follows:

Sec. 1. Short title; etc.

TITLE I--EXTENSION AND MODIFICATION OF RENEWABLE ELECTRICITY PRODUCTION TAX CREDIT

Sec. 101. 5-year extension of credit for producing electricity from wind and poultry waste.

Sec. 102. Credit for electricity produced from biomass.

Sec. 103. Credit for electricity produced from swine and bovine waste nutrients, geothermal energy, and solar energy.

Sec. 104. Treatment of persons not able to use entire credit.

TITLE II--ALTERNATIVE VEHICLES AND FUELS INCENTIVES

Sec. 201. Alternative motor vehicle credit.

Sec. 202. Modification of credit for qualified electric vehicles.

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

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

Sec. 205. Credit for retail sale of alternative fuels as motor vehicle fuel.

Sec. 206. Small ethanol producer credit.

Sec. 207. All alcohol fuels taxes transferred to Highway Trust Fund.

Sec. 208. Increased flexibility in alcohol fuels tax credit.

Sec. 209. Incentives for biodiesel.

TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

Sec. 301. Credit for construction of new energy efficient home.

Sec. 302. Credit for energy efficient appliances.

Sec. 303. Credit for residential energy efficient property.

Sec. 304. Credit for business installation of qualified fuel cells.

Sec. 305. Energy efficient commercial buildings deduction.

Sec. 306. Allowance of deduction for qualified new or retrofitted energy management devices.

Sec. 307. Three-year applicable recovery period for depreciation of qualified energy management devices.

Sec. 308. Energy credit for combined heat and power system property.

Sec. 309. Credit for energy efficiency improvements to existing homes.

TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements in Existing Coal-based Electricity Generation Facilities

Sec. 401. Credit for production from a qualifying clean coal technology unit.

Subtitle B--Incentives for Early Commercial Applications of Advanced Clean Coal Technologies

Sec. 411. Credit for investment in qualifying advanced clean coal technology.

Sec. 412. Credit for production from a qualifying advanced clean coal technology unit.

Subtitle C--Treatment of Persons Not Able To Use Entire Credit

Sec. 421. Treatment of persons not able to use entire credit.

TITLE V--OIL AND GAS PROVISIONS

Sec. 501. Oil and gas from marginal wells.

Sec. 502. Natural gas gathering lines treated as 7-year property.

Sec. 503. Repeal of requirement of certain approved terminals to offer dyed diesel fuel and kerosene for nontaxable purposes.

Sec. 504. Expensing of capital costs incurred in complying with environmental protection agency sulfur regulations.

Sec. 505. Environmental tax credit.

Sec. 506. Determination of small refiner exception to oil depletion deduction.

Sec. 507. Marginal production income limit extension.

Sec. 508. Amortization of geological and geophysical expenditures.

Sec. 509. Amortization of delay rental payments.

Sec. 510. Study of coal bed methane.

Sec. 511. Extension and modification of credit for producing fuel from a nonconventional source.

Sec. 512. Natural gas distribution lines treated as 15-year property.

TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

Sec. 601. Ongoing study and reports regarding tax issues resulting from future restructuring decisions.

Sec. 602. Modifications to special rules for nuclear decommissioning costs.

Sec. 603. Treatment of certain income of cooperatives.

TITLE VII--ADDITIONAL PROVISIONS

Sec. 701. Extension of accelerated depreciation and wage credit benefits on Indian reservations.

Sec. 702. Study of effectiveness of certain provisions by GAO.

TITLE I--EXTENSION AND MODIFICATION OF RENEWABLE ELECTRICITY PRODUCTION TAX CREDIT

SEC. 101. 5-YEAR EXTENSION OF CREDIT FOR PRODUCING ELECTRICITY FROM WIND AND POULTRY WASTE.

(a) IN GENERAL- Subparagraphs (A) and (C) of section 45(c)(3) (relating to qualified facility) are each amended by striking `January 1, 2002' and inserting `January 1, 2007'.

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

SEC. 102. CREDIT FOR ELECTRICITY PRODUCED FROM BIOMASS.

(a) EXTENSION AND MODIFICATION OF PLACED-IN-SERVICE RULES- Paragraph (3) of section 45(c) is amended--

(1) by striking subparagraph (B) and inserting the following new subparagraph:

`(B) CLOSED-LOOP BIOMASS FACILITY-

`(i) IN GENERAL- In the case of a facility using closed-loop biomass to produce electricity, the term `qualified facility' means any facility--

`(I) owned by the taxpayer which is originally placed in service after December 31, 1992, and before January 1, 2007, or

`(II) owned by the taxpayer which is originally placed in service before January 1, 1993, and modified to use closed-loop biomass to co-fire with coal before January 1, 2007.

`(ii) SPECIAL RULES- In the case of a qualified facility described in clause (i)(II)--

`(I) the 10-year period referred to in subsection (a) shall be treated as beginning no earlier than the date of the enactment of this subclause, and

`(II) the owner of such facility may transfer the credit allowable under subsection (a) to the lessee operator of such facility subject to the regulations prescribed under subsection (d)(6)((B)(ii).', and

(2) by adding at the end the following new subparagraph:

`(D) BIOMASS FACILITY-

`(i) IN GENERAL- In the case of a facility using biomass (other than closed-loop biomass) to produce electricity, the term `qualified facility' means any facility owned by the taxpayer which is originally placed in service before January 1, 2005.

`(ii) SPECIAL RULE FOR POSTEFFECTIVE DATE FACILITIES- In the case of any facility described in clause (i) which is placed in service after the date of the enactment of this clause, the 3-year period beginning on the date the facility is originally placed in service shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).

`(iii) SPECIAL RULES FOR PREEFFECTIVE DATE FACILITIES- In the case of any facility described in clause (i) which is placed in service before the date of the enactment of this clause--

`(I) subsection (a)(1) shall be applied by substituting `1.0 cents' for `1.5 cents', and

`(II) the 3-year period beginning after December 31, 2002, shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).

`(iv) CREDIT ELIGIBILITY- In the case of any facility described in clause (i), the owner of such facility may transfer the credit allowable under subsection (a) to the lessee operator of such facility subject to the regulations prescribed under subsection (d)(6)((B)(ii).'.

(b) DEFINITION OF BIOMASS-

(1) IN GENERAL- Section 45(c)(1) (defining qualified energy resources) is amended--

(A) by striking `and' at the end of subparagraph (B),

(B) by striking the period at the end of subparagraph (C) and inserting `, and', and

(C) by adding at the end the following new subparagraph:

`(D) biomass (other than closed-loop biomass).'.

(2) BIOMASS DEFINED- Section 45(c) (relating to definitions) is amended by adding at the end the following new paragraph:

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

`(A) any of the following forest-related resources: mill residues, precommercial thinnings, slash, and brush, but not including old-growth timber (other than old-growth timber which has been permitted or contracted for removal by any appropriate Federal authority through the National Environmental Policy Act or by any appropriate State authority),

`(B) solid wood waste materials, including waste pallets, crates, dunnage, manufacturing and construction wood wastes (other than pressure-treated, chemically-treated, or painted wood wastes), and landscape or right-of-way tree trimmings, but not including municipal solid waste (garbage), gas derived from the biodegradation of solid waste, or paper that is commonly recycled, or

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

(c) COORDINATION WITH SECTION 29- Section 45(c) (relating to definitions) is amended by adding at the end the following new paragraph:

`(6) COORDINATION WITH SECTION 29- The term `qualified facility' shall not include any facility the production from which is taken into account in determining any credit under section 29 for the taxable year or any prior taxable year.'.

(d) CLERICAL AMENDMENTS-

(1) The heading for subsection (c) of section 45 is amended by inserting `AND SPECIAL RULES' after `DEFINITIONS'.

(2) The heading for subsection (d) of section 45 is amended by inserting `ADDITIONAL' before `DEFINITIONS'.

(e) EFFECTIVE DATES-

(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to electricity sold after the date of the enactment of this Act.

(2) CERTAIN BIOMASS FACILITIES- With respect to any facility described in section 45(c)(3)(D)(i) of the Internal Revenue Code of 1986, as added by this section, which is placed in service before the date of the enactment of this Act, the amendments made by this section shall apply to electricity sold after December 31, 2002.

SEC. 103. CREDIT FOR ELECTRICITY PRODUCED FROM SWINE AND BOVINE WASTE NUTRIENTS, GEOTHERMAL ENERGY, AND SOLAR ENERGY.

(a) EXPANSION OF QUALIFIED ENERGY RESOURCES-

(1) IN GENERAL- Section 45(c)(1) (defining qualified energy resources), as amended by this Act, is amended by striking `and' at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting a comma, and by adding at the end the following new subparagraphs:

`(E) swine and bovine waste nutrients,

`(F) geothermal energy, and

`(G) solar energy.'.

(2) DEFINITIONS- Section 45(c) (relating to definitions and special rules), as amended by this Act, is amended by redesignating paragraph (6) as paragraph (8) and by inserting after paragraph (5) the following new paragraphs:

`(6) SWINE AND BOVINE WASTE NUTRIENTS- The term `swine and bovine waste nutrients' means swine and bovine manure and litter, including bedding material for the disposition of manure.

`(7) GEOTHERMAL ENERGY- The term `geothermal energy' means energy derived from a geothermal deposit (within the meaning of section 613(e)(2)).'.

(b) EXTENSION AND MODIFICATION OF PLACED-IN-SERVICE RULES- Section 45(c)(3) (relating to qualified facility), as amended by this Act, is amended by adding at the end the following new subparagraphs:

`(E) SWINE AND BOVINE WASTE NUTRIENTS FACILITY- In the case of a facility using swine and bovine waste nutrients to produce electricity, the term `qualified facility' means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this subparagraph and before January 1, 2007.

`(F) GEOTHERMAL OR SOLAR ENERGY FACILITY-

`(i) IN GENERAL- In the case of a facility using geothermal or solar energy to

produce electricity, the term `qualified facility' means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this clause and before January 1, 2007.

`(ii) SPECIAL RULE- In the case of any facility described in clause (i), the 5-year period beginning on the date the facility was originally placed in service shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).'.

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

SEC. 104. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

(a) IN GENERAL- Paragraph (6) of section 45(d) (relating to additional definitions and special rules), as amended by this Act, is amended to read as follows:

`(6) TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT-

`(A) ALLOWANCE OF CREDIT-

`(i) IN GENERAL- Except as otherwise provided in this subsection--

`(I) any credit allowable under subsection (a) with respect to a qualified facility owned by a person described in clause (ii) may be transferred or used as provided in this paragraph, and

`(II) the determination as to whether the credit is allowable shall be made without regard to the tax-exempt status of the person.

`(ii) PERSONS DESCRIBED- A person is described in this clause if the person 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) a public utility (as defined in section 136(c)(2)(B)),

`(IV) any State or political subdivision thereof, the District of Columbia, any possession of the United States, or any agency or instrumentality of any of the foregoing, or

`(V) any Indian tribal government (within the meaning of section 7871) or any agency or instrumentality thereof.

`(B) TRANSFER OF CREDIT-

`(i) IN GENERAL- A person described in subparagraph (A)(ii) may transfer any credit to which subparagraph (A)(i) applies through an assignment to any other person not described in subparagraph (A)(ii). Such transfer may be revoked only with the consent of the Secretary.

`(ii) REGULATIONS- The Secretary shall prescribe such regulations as necessary to ensure that any credit described in clause (i) is claimed once and not reassigned by such other person.

`(iii) TRANSFER PROCEEDS TREATED AS ARISING FROM ESSENTIAL GOVERNMENT FUNCTION- Any proceeds derived by a person described in subclause (III), (IV), or (V) of subparagraph (A)(ii) from the transfer of any credit under clause (i) shall be treated as arising from the exercise of an essential government function.

`(C) USE OF CREDIT AS AN OFFSET- Notwithstanding any other provision of law, in the case of a person described in subclause (I), (II), or (V) of subparagraph (A)(ii), any credit to which subparagraph (A)(i) applies may be applied by such person, to the extent provided by the Secretary of Agriculture, 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.), as in effect on the date of the enactment of the Energy Tax Incentives Act of 2002.

`(D) CREDIT NOT INCOME- Any transfer under subparagraph (B) or use under subparagraph (C) of any credit to which subparagraph (A)(i) applies shall not be treated as income for purposes of section 501(c)(12).

`(E) TREATMENT OF UNRELATED PERSONS- For purposes of subsection (a)(2)(B), sales among and between persons described in subparagraph (A)(ii) shall be treated as sales between unrelated parties.'.

(b) CREDITS NOT REDUCED BY TAX-EXEMPT BONDS OR CERTAIN OTHER SUBSIDIES- Section 45(b)(3) (relating to credit reduced for grants, tax-exempt bonds, subsidized energy financing, and other credits) is amended--

(1) by striking clause (ii),

(2) by redesignating clauses (iii) and (iv) as clauses (ii) and (iii),

(3) by inserting `(other than 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.), as in effect on the date of the enactment of the Energy Tax Incentives Act of 2002)' after `project' in clause (ii) (as so redesignated), and

(4) by striking `TAX-EXEMPT BONDS,' in the heading and inserting `CERTAIN'.

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

TITLE II--ALTERNATIVE MOTOR VEHICLES AND FUELS INCENTIVES

SEC. 201. ALTERNATIVE MOTOR VEHICLE CREDIT.

(a) 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 new section:

`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:

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:

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 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,

`(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:

$1,000

$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 new qualified hybrid motor vehicle which is 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 increased 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:

$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:

$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:

$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 for 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 rechargeable energy storage system, during a standard 10 second pulse power or equivalent test, divided by such maximum power 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 rechargeable energy storage system, during a standard 10 second pulse power or equivalent test, divided by the vehicle's total traction power. The term `total traction power' means the sum of the peak power from the rechargeable energy storage system and the heat engine peak power of the vehicle, except that if such storage system is the sole means by which the vehicle can be driven, the total traction power is the peak power of such storage system.

`(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) 40 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 certifying the vehicle as meeting the same requirements as vehicles which may be sold or leased 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 90/10 mixed-fuel vehicle, 90 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 certifying the vehicle as meeting the same requirements as vehicles which may be sold or leased 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) 90/10 MIXED-FUEL VEHICLE- For purposes of this subsection, the term `90/10 mixed-fuel vehicle' means a mixed-fuel vehicle which operates using at least 90 percent alternative fuel and not more than 10 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) CITY FUEL ECONOMY- The city fuel economy with respect to any vehicle shall be measured in a manner which is substantially similar to the manner city fuel economy is measured in accordance with procedures under part 600 of subchapter Q of chapter I of title 40, Code of Federal Regulations, as in effect on the date of the enactment of this section.

`(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 other 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 at the time of any sale or lease the specific amount of any credit otherwise allowable to the entity under this section.

`(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) CARRYBACK AND 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 (in this paragraph referred to as the `unused credit year'), such excess shall be allowed as a credit carryback for each of the 3 taxable years beginning after September 30, 2002, which precede the unused credit year and a credit carryforward for each of the 20 taxable years which succeed the unused credit year.

`(B) RULES- Rules similar to the rules of section 39 shall apply with respect to the credit carryback and 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- Except as provided in paragraph (2), the Secretary shall promulgate such regulations as necessary to carry out the provisions of this section.

`(2) COORDINATION IN PRESCRIPTION OF CERTAIN REGULATIONS- The Secretary of the Treasury, in coordination with the Secretary of Transportation and the Administrator of the Environmental Protection Agency, 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 purchased after--

`(1) in the case of a new qualified fuel cell motor vehicle (as described in subsection (b)), December 31, 2011, and

`(2) in the case of any other property, December 31, 2006.'.

(b) CONFORMING AMENDMENTS-

(1) 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 new paragraph:

`(29) to the extent provided in section 30B(f)(5).'.

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

(3) Section 6501(m) is amended by inserting `30B(f)(10),' after `30(d)(4),'.

(4) 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 new item:

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

September 30, 2002, in taxable years ending after such date.

SEC. 202. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

(a) AMOUNT OF CREDIT-

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

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

(A) by striking paragraphs (1) and (2) and inserting the following new paragraph:

`(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, as in effect on the date of the enactment of the Energy Tax Incentives Act of 2002, the lesser of--

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

`(ii) $3,500.

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

`(i) $3,500, 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 as 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 1,000 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

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

(3) CONFORMING AMENDMENTS-

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

(3) Section 55(c)(2), as amended by this Act, is amended by striking `30(b)(3)' and inserting `30(b)(2)'.

(b) QUALIFIED BATTERY ELECTRIC VEHICLE-

(1) 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,'.

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

(3) CONFORMING AMENDMENTS-

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

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

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

(D) 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'.

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

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

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

`(5) NO DOUBLE BENEFIT- The amount of any deduction or other 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 at the time of any sale or lease the specific amount of any credit otherwise allowable to the entity under this section.

`(7) CARRYBACK AND 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 (b)(3) for such taxable year (in this paragraph referred to as the `unused credit year'), such excess shall be allowed as a credit carryback for each of the 3 taxable years beginning after September 30, 2002, which precede the unused credit year and a credit carryforward for each of the 20 taxable years which succeed the unused credit year.

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

(d) EXTENSION- Section 30(e) (relating to termination) is amended by striking `2004' and inserting `2006'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after September 30, 2002, 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 `2006'.

(b) EXTENSION OF PHASEOUT- Section 179A(b)(1)(B) (relating to phaseout) is amended--

(1) by striking `calendar year 2002' in clause (i) and inserting `calendar years 2003 and 2004',

(2) by striking `2003' in clause (ii) and inserting `2005', and

(3) by striking `2004' in clause (iii) and inserting `2006'.

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

(d) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2002, 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 this Act, is amended by adding at the end the following new section:

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

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

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

`(2) with respect to any residential 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 qualified clean-fuel vehicle refueling property is placed in service by the taxpayer.

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

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

`(2) RESIDENTIAL CLEAN-FUEL VEHICLE REFUELING PROPERTY- The term `residential clean-fuel vehicle refueling property' means qualified 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 qualified clean-fuel vehicle refueling property which is installed on property (other than property described in paragraph (2)) used in a trade or business of the taxpayer.

`(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 qualified 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.

`(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, 2006.'.

(b) CONFORMING AMENDMENTS-

(1) Section 1016(a), as amended by this Act, 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 new paragraph:

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

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

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

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after September 30, 2002, in taxable years ending after such date.

SEC. 205. 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 new section:

`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 the applicable amount 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.

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

`(1) APPLICABLE AMOUNT- The term `applicable amount' means the amount determined in accordance with the following table:

30 cents

40 cents

50 cents.

`(2) 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 or ethanol.

`(3) 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.

`(4) 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.

`(5) 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 other 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, 2006.'.

(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 new paragraph:

`(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 new paragraph:

`(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 new item:

(e) EFFECTIVE DATE- The amendments made by this section shall apply to fuel sold at retail after September 30, 2002, in taxable years ending after such date.

SEC. 206. SMALL ETHANOL PRODUCER CREDIT.

(a) ALLOCATION OF ALCOHOL FUELS CREDIT TO PATRONS OF A COOPERATIVE- Section 40(g) (relating to alcohol used as fuel) is amended by adding at the end the following new paragraph:

`(6) ALLOCATION OF SMALL ETHANOL PRODUCER CREDIT TO PATRONS OF COOPERATIVE-

`(A) ELECTION TO ALLOCATE-

`(i) IN GENERAL- In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.

`(ii) FORM AND EFFECT OF ELECTION- An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.

`(B) TREATMENT OF ORGANIZATIONS AND PATRONS- The amount of the credit apportioned to patrons under subparagraph (A)--

`(i) shall not be included in the amount determined under subsection (a) with respect to the organization for the taxable year,

`(ii) shall be included in the amount determined under subsection (a) for the taxable year of each patron for which the patronage dividends for the taxable year described in subparagraph (A) are included in gross income, and

`(iii) shall be included in gross income of such patrons for the taxable year in the manner and to the extent provided in section 87.

`(C) SPECIAL RULES FOR DECREASE IN CREDITS FOR TAXABLE YEAR- If the amount of the credit of a cooperative organization determined under subsection (a)(3) for a taxable year is less than the amount of such credit shown on the return of the cooperative organization for such year, an amount equal to the excess of--

`(i) such reduction, over

`(ii) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,

shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this subpart or subpart A, B, E, or G.'.

(b) IMPROVEMENTS TO SMALL ETHANOL PRODUCER CREDIT-

(1) DEFINITION OF SMALL ETHANOL PRODUCER- Section 40(g) (relating to definitions and special rules for eligible small ethanol producer credit) is amended by striking `30,000,000' each place it appears and inserting `60,000,000'.

(2) SMALL ETHANOL PRODUCER CREDIT NOT A PASSIVE ACTIVITY CREDIT- Clause (i) of section

469(d)(2)(A) is amended by striking `subpart D' and inserting `subpart D, other than section 40(a)(3),'.

(3) ALLOWING CREDIT AGAINST MINIMUM TAX-

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

`(3) SPECIAL RULES FOR SMALL ETHANOL PRODUCER CREDIT-

`(A) IN GENERAL- In the case of the small ethanol producer 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 small ethanol producer credit).

`(B) SMALL ETHANOL PRODUCER CREDIT- For purposes of this subsection, the term `small ethanol producer credit' means the credit allowable under subsection (a) by reason of section 40(a)(3).'.

(B) CONFORMING AMENDMENT- Subclause (II) of section 38(c)(2)(A)(ii) is amended by striking `(other' and all that follows through `credit)' and inserting `(other than the empowerment zone employment credit or the small ethanol producer credit)'.

(4) SMALL ETHANOL PRODUCER CREDIT NOT ADDED BACK TO INCOME UNDER SECTION 87- Section 87 (relating to income inclusion of alcohol fuel credit) is amended to read as follows:

`SEC. 87. ALCOHOL FUEL CREDIT.

`Gross income includes an amount equal to the sum of--

`(1) the amount of the alcohol mixture credit determined with respect to the taxpayer for the taxable year under section 40(a)(1), and

`(2) the alcohol credit determined with respect to the taxpayer for the taxable year under section 40(a)(2).'.

(c) CONFORMING AMENDMENT- Section 1388 (relating to definitions and special rules for cooperative organizations) is amended by adding at the end the following new subsection:

`(k) CROSS REFERENCE- For provisions relating to the apportionment of the alcohol fuels credit between cooperative organizations and their patrons, see section 40(g)(6).'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 207. ALL ALCOHOL FUELS TAXES TRANSFERRED TO HIGHWAY TRUST FUND.

(a) IN GENERAL- Section 9503(b)(4) (relating to certain taxes not transferred to Highway Trust Fund) is amended--

(1) by adding `or' at the end of subparagraph (C),

(2) by striking the comma at the end of subparagraph (D)(iii) and inserting a period, and

(3) by striking subparagraphs (E) and (F).

(b) EFFECTIVE DATE- The amendments made by this section shall apply to taxes imposed after September 30, 2003.

SEC. 208. INCREASED FLEXIBILITY IN ALCOHOL FUELS TAX CREDIT.

(a) ALCOHOL FUELS CREDIT MAY BE TRANSFERRED-

(1) IN GENERAL- Section 40 (relating to alcohol used as fuel) is amended by adding at the end the following new subsection:

`(i) CREDIT MAY BE TRANSFERRED-

`(1) IN GENERAL- A taxpayer may transfer any credit allowable under paragraph (1) or (2) of subsection (a) with respect to alcohol used in the production of ethyl tertiary butyl ether through an assignment to a qualified assignee. Such transfer may be revoked only with the consent of the Secretary.

`(2) QUALIFIED ASSIGNEE- For purposes of this subsection, the term `qualified assignee' means any person who is--

`(A) liable for taxes imposed under section 4081,

`(B) required to register under section 4101, and

`(C) a member of the same controlled group of corporations (within the meaning of section 52(a)) as the taxpayer described in paragraph (1).

`(3) REGULATIONS- The Secretary shall prescribe such regulations as necessary to insure that any credit described in paragraph (1) is claimed once and not reassigned by a qualified assignee.'.

(2) PASSIVE LOSS RULES INAPPLICABLE TO ASSIGNEE- Section 469(d)(2)(A)(i) is amended to read as follows:

`(i) subpart D (other than section 40 through the application of subsection (i) thereof) of part IV of subchapter A, or'.

(b) ALCOHOL FUELS CREDIT MAY BE TAKEN AGAINST MOTOR FUELS TAX LIABILITY-

(1) IN GENERAL- Subpart C of part III of subchapter A of chapter 32 (relating to special provisions applicable to petroleum products) is amended by adding at the end the following new section:

`SEC. 4104. CREDIT AGAINST MOTOR FUELS TAXES.

`(a) ELECTION TO USE CREDIT AGAINST MOTOR FUELS TAXES- There is hereby allowed as a credit against the taxes imposed by section 4081, any credit allowed under paragraph (1) or (2) of section 40(a) with respect to alcohol used in the production of ethyl tertiary butyl ether to the extent--

`(1) such credit is not claimed by the taxpayer or the qualified assignee under section 40(i) as a credit under section 40, and

`(2) the taxpayer or qualified assignee elects to claim such credit under this section.

`(b) ELECTION IRREVOCABLE- Any election under subsection (a) shall be irrevocable.

`(c) REQUIRED STATEMENT- Any return claiming a credit pursuant to an election under this section shall be accompanied by a statement that the credit was not, and will not, be claimed on an income tax return.

`(d) REGULATIONS- The Secretary shall prescribe such regulations as necessary to avoid the claiming of double benefits and to prescribe the taxable periods with respect to which the credit may be claimed.'.

(2) CLERICAL AMENDMENT- The table of sections for subpart C of part III of subchapter A of chapter 32 is amended by adding at the end the following new item:

`Sec. 4104. Credit against motor fuels taxes.'.

(c) EFFECTIVE DATE- The amendments made by this section shall take effect on and after the date of the enactment of this Act.

SEC. 209. INCENTIVES FOR BIODIESEL.

(a) CREDIT FOR BIODIESEL USED AS A FUEL-

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

`SEC. 40B. BIODIESEL USED AS FUEL.

`(a) GENERAL RULE- For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the biodiesel mixture credit.

`(b) DEFINITION OF BIODIESEL MIXTURE CREDIT- For purposes of this section--

`(1) BIODIESEL MIXTURE CREDIT-

`(A) IN GENERAL- The biodiesel mixture credit of any taxpayer for any taxable year is the sum of the products of the biodiesel mixture rate for each qualified biodiesel mixture and the number of gallons of such mixture of the taxpayer for the taxable year.

`(B) BIODIESEL MIXTURE RATE- For purposes of subparagraph (A), the biodiesel mixture rate for each qualified biodiesel mixture shall be 1 cent for each whole percentage point (not exceeding 20 percentage points) of biodiesel in such mixture.

`(2) QUALIFIED BIODIESEL MIXTURE-

`(A) IN GENERAL- The term `qualified biodiesel mixture' means a mixture of diesel and biodiesel which--

`(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or

`(ii) is used as a fuel by the taxpayer producing such mixture.

`(B) SALE OR USE MUST BE IN TRADE OR BUSINESS, ETC- Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account--

`(i) only if the sale or use described in subparagraph (A) is in a trade or business of the taxpayer, and

`(ii) for the taxable year in which such sale or use occurs.

`(C) CASUAL OFF-FARM PRODUCTION NOT ELIGIBLE- No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.

`(c) COORDINATION WITH EXEMPTION FROM EXCISE TAX- The amount of the credit determined under this section with respect to any biodiesel shall, under regulations prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 4041(n) or section 4081(f).

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

`(1) BIODIESEL DEFINED-

`(A) IN GENERAL- The term `biodiesel' means the monoalkyl esters of long chain fatty acids derived from virgin vegetable oils for use in compressional-ignition (diesel) engines. Such term shall include esters derived from vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds.

`(B) REGISTRATION REQUIREMENTS- Such term shall only include a biodiesel which meets--

`(i) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and

`(ii) the requirements of the American Society of Testing and Materials D6751.

`(2) BIODIESEL MIXTURE NOT USED AS A FUEL, ETC-

`(A) IMPOSITION OF TAX- If--

`(i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and

`(ii) any person--

`(I) separates the biodiesel from the mixture, or

`(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the biodiesel mixture rate applicable under subsection (b)(1)(B) and the number of gallons of the mixture.

`(B) APPLICABLE LAWS- All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) as if such tax were imposed by section 4081 and not by this chapter.

`(3) 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) ELECTION TO HAVE BIODIESEL FUELS CREDIT NOT APPLY-

`(1) IN GENERAL- A taxpayer may elect to have this section not apply for any taxable year.

`(2) TIME FOR MAKING ELECTION- An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).

`(3) MANNER OF MAKING ELECTION- An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.'.

`(f) TERMINATION- This section shall not apply to any fuel sold after December 31, 2005.'.

(2) CREDIT TREATED AS PART OF GENERAL BUSINESS CREDIT- Section 38(b), as amended by this Act, 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 new paragraph:

`(17) the biodiesel fuels credit determined under section 40B.'.

(3) CONFORMING AMENDMENTS-

(A) Section 39(d), as amended by this Act, is amended by adding at the end the following new paragraph:

`(12) NO CARRYBACK OF BIODIESEL FUELS CREDIT BEFORE JANUARY 1, 2003- No portion of the unused business credit for any taxable year which is attributable to the biodiesel fuels credit determined under section 40B may be carried back to a taxable year beginning before January 1, 2003.'.

(B) Section 196(c) is amended by striking `and' at the end of paragraph (9), by striking the period at the end of paragraph (10), and by adding at the end the following new paragraph:

`(11) the biodiesel fuels credit determined under section 40B.'.

(C) Section 6501(m), as amended by this Act, is amended by inserting `40B(e),' after `40(f),'.

(D) The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding after the item relating to section 40A the following new item:

`Sec. 40B. Biodiesel used as fuel.'.

(4) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years beginning after December 31, 2002.

(b) REDUCTION OF MOTOR FUEL EXCISE TAXES ON BIODIESEL MIXTURES-

(1) IN GENERAL- Section 4081 (relating to manufacturers tax on petroleum products) is amended by adding at the end the following new subsection:

`(f) BIODIESEL MIXTURES- Under regulations prescribed by the Secretary--

`(1) IN GENERAL- In the case of the removal or entry of a qualified biodiesel mixture, the rate of tax under subsection (a) shall be the otherwise applicable rate reduced by the biodiesel mixture rate (if any) applicable to the mixture.

`(2) TAX PRIOR TO MIXING-

`(A) IN GENERAL- In the case of the removal or entry of diesel fuel for use in producing at the time of such removal or entry a qualified biodiesel mixture, the rate of tax under subsection (a) shall be the otherwise applicable rate, reduced by the amount determined under subparagraph (B).

`(B) APPLICABLE REDUCTION- For purposes of subparagraph (A), the amount determined under this subparagraph is an amount equal to the biodiesel mixture rate for the qualified biodiesel mixture to be produced from the diesel fuel, divided by a percentage equal to 100 percent minus the percentage of biodiesel which will be in the mixture.

`(3) DEFINITIONS- For purposes of this subsection, any term used in this subsection which is also used in section 40B shall have the meaning given such term by section 40B.

`(4) CERTAIN RULES TO APPLY- Rules similar to the rules of paragraphs (6) and (7) of subsection (c) shall apply for purposes of this subsection.'.

(2) CONFORMING AMENDMENTS-

(A) Section 4041 is amended by adding at the end the following new subsection:

`(n) BIODIESEL MIXTURES- Under regulations prescribed by the Secretary, in the case of the sale or use of a qualified biodiesel mixture (as defined in section 40B(b)(2)), the rates under paragraphs (1) and (2) of subsection (a) shall be the otherwise applicable rates, reduced by any applicable biodiesel mixture rate (as defined in section 40B(b)(1)(B)).'.

(B) Section 6427 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

`(p) BIODIESEL MIXTURES- Except as provided in subsection (k), if any diesel fuel on which tax was imposed by section 4081 at a rate not determined under section 4081(f) is used by any person in producing a qualified biodiesel mixture (as defined in section 40B(b)(2)) which is sold or used in such person's trade or business, the Secretary shall pay (without interest) to such person an amount equal to the per gallon applicable biodiesel mixture rate (as defined in section 40B(b)(1)(B)) with respect to such fuel.'.

(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to any fuel sold after December 31, 2002, and before January 1, 2006.

(c) HIGHWAY TRUST FUND HELD HARMLESS- There are hereby transferred (from time to time) from the funds of the Commodity Credit Corporation amounts determined by the Secretary of the Treasury to be equivalent to the reductions that would occur (but for this subsection) in the receipts of the Highway Trust Fund by reason of the amendments made by this section.

TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

SEC. 301. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.

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

`SEC. 45G. NEW 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 aggregate adjusted bases of all energy efficient property installed in a qualifying new home during construction of such home.

`(b) LIMITATIONS-

`(1) MAXIMUM CREDIT-

`(A) IN GENERAL- The credit allowed by this section with respect to a qualifying new home shall not exceed--

`(i) in the case of a 30-percent home, $1,250, and

`(ii) in the case of a 50-percent home, $2,000.

`(B) 30- OR 50-PERCENT HOME- For purposes of subparagraph (A)--

`(i) 30-PERCENT HOME- The term `30-percent home' means a qualifying new home which is certified to have a projected level of annual heating and cooling energy consumption, measured in terms of average annual energy cost to the homeowner, which is at least 30 percent less than the annual level of heating and cooling energy consumption of a reference qualifying new home constructed in accordance with the standards of chapter 4 of the 2000 International Energy Conservation Code.

`(ii) 50-PERCENT HOME- The term `50-percent home' means a qualifying new home which is certified to have a projected level of annual heating and cooling energy consumption, measured in terms of average annual energy cost to the homeowner, which is at least 50 percent less than such annual level of heating and cooling energy consumption.

`(B) PRIOR CREDIT AMOUNTS ON SAME HOME TAKEN INTO ACCOUNT- If a credit was allowed under subsection (a) with respect to a qualifying new home in 1 or more prior taxable years, the amount of the credit otherwise allowable for the taxable year with respect to that home shall not exceed the amount under clause (i) or (ii) of subparagraph (A) (as the case may be), reduced by the sum of the credits allowed under subsection (a) with respect to the home for all prior taxable years.

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

`(A) the basis of any property referred to in subsection (a) shall be reduced by that portion of the basis of any property which is attributable to the rehabilitation credit (as determined under section 47(a)) or to the energy percentage of energy property (as determined under section 48(a)), and

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

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

`(1) ELIGIBLE CONTRACTOR- The term `eligible contractor' means the person who constructed the qualifying new 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) ENERGY EFFICIENT PROPERTY- The term `energy efficient property' means any energy efficient building envelope component, and any energy efficient heating or cooling equipment which can, individually or in combination with other components, meet the requirements of this section.

`(3) QUALIFYING NEW HOME- The term `qualifying new home' means a dwelling--

`(A) located in the United States,

`(B) the construction of which is substantially completed after the date of the enactment of this section, and

`(C) the first use of which after construction is as a principal residence (within the meaning of section 121).

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

`(5) BUILDING ENVELOPE COMPONENT- The term `building envelope component' means--

`(A) any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain of a qualifying new home when installed in or on such home, and

`(B) exterior windows (including skylights) and doors.

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

`(d) CERTIFICATION-

`(1) METHOD OF CERTIFICATION-

`(A) IN GENERAL- A certification described in subsection (b)(1)(B) shall be determined either by a component-based method or a performance-based method.

`(B) COMPONENT-BASED METHOD- A component-based method is a method which uses the applicable technical energy efficiency specifications or ratings (including product labeling requirements) for the energy efficient building envelope component or energy efficient heating or cooling equipment. The Secretary shall, in consultation with the Administrator of the Environmental Protection Agency, develop prescriptive component-based packages that are equivalent in energy performance to properties that qualify under subparagraph (C).

`(C) PERFORMANCE-BASED METHOD-

`(i) IN GENERAL- A performance-based method is a method which calculates projected energy usage and cost reductions in the qualifying new home in relation to a reference qualifying new home--

`(I) heated by the same energy source and heating system type, and

`(II) constructed in accordance with the standards of chapter 4 of the 2000 International Energy Conservation Code.

`(ii) COMPUTER SOFTWARE- Computer software shall be used in support of a performance-based method certification under clause (i). Such software shall meet procedures and methods for calculating energy and cost savings in regulations promulgated by the Secretary of Energy. Such regulations on the specifications for software and verification protocols shall be based on the 2001 California Residential Alternative Calculation Method Approval Manual.

`(2) PROVIDER- A certification described in subsection (b)(1)(B) shall be provided by--

`(A) in the case of a component-based method, a local building regulatory authority, a utility, a manufactured home production inspection primary inspection agency (IPIA), or a home energy rating organization, or

`(B) in the case of a performance-based method, an individual recognized by an organization designated by the Secretary for such purposes.

`(3) FORM-

`(A) IN GENERAL- A certification described in subsection (b)(1)(B) shall be made in writing in a manner that specifies in readily verifiable fashion the energy efficient building envelope components and energy efficient heating or cooling equipment installed and their respective rated energy efficiency performance, and in the case of a performance-based method, accompanied by a written analysis documenting the proper application of a permissible energy performance calculation method to the specific circumstances of such qualifying new home.

`(B) FORM PROVIDED TO BUYER- A form documenting the energy efficient building envelope components and energy efficient heating or cooling equipment installed and their rated energy efficiency performance shall be provided to the buyer of the qualifying new home. 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.

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

`(4) REGULATIONS-

`(A) IN GENERAL- In prescribing regulations under this subsection for performance-based certification methods, the Secretary, 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, shall prescribe procedures for calculating annual energy usage and cost reductions for heating and cooling and for the reporting of the results. Such regulations shall--

`(i) provide that any calculation procedures be fuel neutral such that the same energy efficiency measures allow a qualifying new home to be eligible for the credit under this section regardless of whether

such home uses a gas or oil furnace or boiler or an electric heat pump, and

`(ii) require that any computer software allow for the printing of the Federal tax forms necessary for the credit under this section and for the printing of forms for disclosure to the homebuyer.

`(B) PROVIDERS- For purposes of paragraph (2)(B), the Secretary shall establish requirements for the designation of individuals based on the requirements for energy consultants and home energy raters specified by the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.

`(e) TERMINATION- Subsection (a) shall apply to qualifying new homes purchased during the period beginning on the date of the enactment of this section and ending on December 31, 2007.'.

(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT- Subsection (b) of section 38 (relating to current year business credit), as amended by this Act, 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 new energy efficient home credit determined under section 45G.'.

(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 new subsection:

`(d) NEW ENERGY EFFICIENT HOME EXPENSES- No deduction shall be allowed for that portion of expenses for a qualifying new 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 45G.'.

(d) LIMITATION ON CARRYBACK- Subsection (d) of section 39, as amended by this Act, is amended by adding at the end the following new paragraph:

`(13) NO CARRYBACK OF NEW 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 45G may be carried back to any taxable year ending on or before the date of the enactment of section 45G.'.

(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS- Subsection (c) of section 196, as amended by this Act, is amended by striking `and' at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting `, and', and by adding after paragraph (11) the following new paragraph:

`(12) the new energy efficient home credit determined under section 45G.'.

(f) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 45G. New energy efficient home credit.'.

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

SEC. 302. 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 this Act, is amended by adding at the end the following new section:

`SEC. 45H. 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 the eligible production of qualified energy efficient appliances produced by the taxpayer during the calendar year ending with or within the taxable year.

`(b) APPLICABLE AMOUNT; ELIGIBLE PRODUCTION- For purposes of subsection (a)--

`(1) APPLICABLE AMOUNT- The applicable amount is--

`(A) $50, in the case of--

`(i) a clothes washer which is manufactured with at least a 1.26 MEF, or

`(ii) a refrigerator which consumes at least 10 percent less kWh per year than the energy conservation standards for refrigerators promulgated by the Department of Energy effective July 1, 2001, and

`(B) $100, in the case of--

`(i) a clothes washer which is manufactured with at least a 1.42 MEF (at least 1.5 MEF for washers produced after 2004), or

`(ii) a refrigerator which consumes at least 15 percent less kWh per year than such energy conservation standards.

`(2) ELIGIBLE PRODUCTION-

`(A) IN GENERAL- The eligible production of each category of qualified energy efficient appliances is the excess of--

`(i) the number of appliances in such category which are produced by the taxpayer during such calendar year, over

`(ii) the average number of appliances in such category which were produced by the taxpayer during calendar years 1999, 2000, and 2001.

`(B) CATEGORIES- For purposes of subparagraph (A), the categories are--

`(i) clothes washers described in paragraph (1)(A)(i),

`(ii) clothes washers described in paragraph (1)(B)(i),

`(iii) refrigerators described in paragraph (1)(A)(ii), and

`(iv) refrigerators described in paragraph (1)(B)(ii).

`(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)(A), and

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

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

`(1) QUALIFIED ENERGY EFFICIENT APPLIANCE- The term `qualified energy efficient appliance' means--

`(A) a clothes washer described in subparagraph (A)(i) or (B)(i) of subsection (b)(1), or

`(B) a refrigerator described in subparagraph (A)(ii) or (B)(ii) of subsection (b)(1).

`(2) CLOTHES WASHER- The term `clothes washer' means a residential clothes washer, including a residential style coin operated washer.

`(3) REFRIGERATOR- The term `refrigerator' means an automatic defrost refrigerator-freezer

which has an internal volume of at least 16.5 cubic feet.

`(4) MEF- The term `MEF' means Modified Energy Factor (as determined by the Secretary of Energy).

`(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 1 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--

`(1) with respect to refrigerators described in subsection (b)(1)(A)(ii) produced after December 31, 2004, and

`(2) with respect to all other qualified energy efficient appliances produced after December 31, 2006.'.

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

`(14) 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 45H may be carried to a taxable year ending before January 1, 2003.'.

(c) CONFORMING AMENDMENT- Section 38(b) (relating to general business credit), as amended by this Act, is amended by striking `plus' at the end of paragraph (17), by striking the period at the end of paragraph (18) and inserting `, plus', and by adding at the end the following new paragraph:

`(19) the energy efficient appliance credit determined under section 45H(a).'.

(d) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

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

(e) EFFECTIVE DATE- The amendments made by this section shall apply to appliances produced after December 31, 2002, in taxable years ending after such date.

SEC. 303. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.

(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 new section:

`SEC. 25C. RESIDENTIAL ENERGY EFFICIENT 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 made by the taxpayer during such year,

`(2) 15 percent of the qualified solar water heating property expenditures made by the taxpayer during such year,

`(3) 30 percent of the qualified fuel cell property expenditures made by the taxpayer during such year,

`(4) 30 percent of the qualified wind energy property expenditures made by the taxpayer during such year, and

`(5) the sum of the qualified Tier 2 energy efficient building property expenditures made by the taxpayer during such year.

`(b) LIMITATIONS-

`(1) MAXIMUM CREDIT- The credit allowed under subsection (a) shall not exceed--

`(A) $2,000 for property described in subsection (d)(1),

`(B) $2,000 for property described in subsection (d)(2),

`(C) $1,000 for each kilowatt of capacity of property described in subsection (d)(4),

`(D) $2,000 for property described in subsection (d)(5), and

`(E) for property described in subsection (d)(6)--

`(i) $75 for each electric heat pump water heater,

`(ii) $250 for each electric heat pump,

`(iii) $500 for each natural gas heat pump,

`(iv) $250 for each central air conditioner,

`(v) $75 for each natural gas water heater, and

`(vi) $250 for each geothermal heat pump.

`(2) 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,

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

`(C) in the case of property described in subsection (d)(6), such property meets the performance and quality standards, and the certification requirements (if any), which--

`(i) have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy or the Administrator of the Environmental Protection Agency, as appropriate),

`(ii) in the case of the energy efficiency ratio (EER)--

`(I) require measurements to be based on published data which is tested by manufacturers at 95 degrees Fahrenheit, and

`(II) do not require ratings to be based on certified data of the Air Conditioning and Refrigeration Institute, and

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

`(3) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

`(B) the sum of the credits allowable under this subpart (other than this section and sections 23 and 25D) and section 27 for the taxable year.

`(c) CARRYFORWARD OF UNUSED CREDIT- If the credit allowable under subsection (a) exceeds the limitation imposed by subsection (b)(3) for such taxable year, such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such succeeding taxable year.

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

`(1) QUALIFIED SOLAR WATER HEATING PROPERTY EXPENDITURE- The term `qualified solar water heating property expenditure' means an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived from the sun.

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

`(3) 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.

`(4) QUALIFIED FUEL CELL PROPERTY EXPENDITURE- The term `qualified fuel cell property expenditure' means an expenditure for qualified fuel cell property (as defined in section 48(a)(4)) installed on or in connection with such a dwelling unit.

`(5) 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 such a dwelling unit.

`(6) QUALIFIED TIER 2 ENERGY EFFICIENT BUILDING PROPERTY EXPENDITURE-

`(A) IN GENERAL- The term `qualified Tier 2 energy efficient building property expenditure' means an expenditure for any Tier 2 energy efficient building property.

`(B) TIER 2 ENERGY EFFICIENT BUILDING PROPERTY- The term `Tier 2 energy efficient building property' means--

`(i) an electric heat pump water heater which yields an energy factor of at least 1.7 in the standard Department of Energy test procedure,

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

`(iii) a natural gas heat pump which has a coefficient of performance of at least 1.25 for heating and of at least 0.70 for cooling,

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

`(v) a natural gas water heater which has an energy factor of at least 0.80 in the standard Department of Energy test procedure, and

`(vi) a geothermal heat pump which has an energy efficiency ratio (EER) of at least 21.

`(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), (4), (5), or (6) and for piping or wiring to interconnect such property to the dwelling unit shall be taken into account for purposes of this section.

`(8) SWIMMING POOLS, ETC., USED AS 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.

`(e) 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 the individual owns, such individual shall be treated as having made the individual's 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) ALLOCATION IN CERTAIN CASES- If less than 80 percent of the use of an item is for nonbusiness purposes, only that portion of the expenditures for such item which is properly allocable to use for nonbusiness purposes shall be taken into account.

`(5) 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.

`(6) PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING- For purposes of determining the amount of expenditures made by any individual with respect to any dwelling unit, there shall not be taken in to account expenditures which are made from subsidized energy financing (as defined in section 48(a)(5)(C)).

`(f) 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.

`(g) TERMINATION- The credit allowed under this section shall not apply to expenditures after December 31, 2007.'.

(b) CONFORMING AMENDMENTS-

(1) Subsection (a) of section 1016, as amended by this Act, 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 adding at the end the following new paragraph:

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

(2) Section 24(b)(3)(B) is amended by striking `23 and 25B' and inserting `23, 25B, and 25C'.

(3) Section 25(e)(1)(C) is amended by inserting `25C,' after `25B,'.

(4) Section 25B(g)(2) is amended by striking `section 23' and inserting `sections 23 and 25C'.

(5) Section 26(a)(1) is amended by striking `and 25B' and inserting `25B, and 25C'.

(6) Section 904(h) is amended by striking `and 25B' and inserting `25B, and 25C'.

(7) Section 1400C(d) is amended by striking `and 25B' and inserting `25B, and 25C'.

(8) 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 new item:

`Sec. 25C. Residential energy efficient property.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to expenditures after December 31, 2002, in taxable years ending after such date.

SEC. 304. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS.

(a) IN GENERAL- Subparagraph (A) of section 48(a)(3) (defining energy property) is amended by striking `or' at the end of clause (i), by adding `or' at the end of clause (ii), and by inserting after clause (ii) the following new clause:

`(iii) qualified fuel cell property,'.

(b) QUALIFIED FUEL CELL PROPERTY- Subsection (a) of section 48 is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6), respectively, and by inserting after paragraph (3) the following new paragraph:

`(4) QUALIFIED FUEL CELL PROPERTY- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified fuel cell property' means a fuel cell power plant that--

`(i) generates at least 1 kilowatt of electricity using an electrochemical process, and

`(ii) has an electricity-only generation efficiency greater than 30 percent.

`(B) LIMITATION- In the case of qualified fuel cell property placed in service during the taxable year, the credit determined under paragraph (1) for such year with respect to such property shall not exceed an amount equal to the lesser of--

`(i) 30 percent of the basis of such property, or

`(ii) $1,000 for each kilowatt of capacity of such property.

`(C) FUEL CELL POWER PLANT- The term `fuel cell power plant' means an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means.

`(D) TERMINATION- Such term shall not include any property placed in service after December 31, 2007.'.

(c) LIMITATION- Section 48(a)(2)(A) (relating to energy percentage) is amended to read as follows:

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

`(i) in the case of qualified fuel cell property, 30 percent, and

`(ii) in the case of any other energy property, 10 percent.'.

(d) CONFORMING AMENDMENTS-

(A) Section 29(b)(3)(A)(i)(III) is amended by striking `section 48(a)(4)(C)' and inserting `section 48(a)(5)(C)'.

(B) Section 48(a)(1) is amended by inserting `except as provided in paragraph (4)(B),' before `the energy'.

(e) EFFECTIVE DATE- The amendments made by this subsection shall apply to property placed in service after December 31, 2002, 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. 305. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

(a) IN GENERAL- Part VI of subchapter B of chapter 1 is amended by inserting after section 179A the following new section:

`SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

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

`(2) ENERGY EFFICIENT COMMERCIAL BUILDING PROPERTY- For purposes of paragraph (1)--

`(A) 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 (5).

`(B) 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 2001 California Nonresidential Alternative Calculation Method Approval Manual. These regulations shall meet the following requirements:

`(i) 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.

`(ii) 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,

`(II) 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, or

`(III) 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 clause (iii).

`(iii) 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.

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

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

`(vi) 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 2001 California Nonresidential Alternative Calculation Method Approval 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 that 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 that exceeds typical performance.

`(C) COMPUTER SOFTWARE-

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

`(ii) QUALIFIED COMPUTER SOFTWARE- For purposes of this subparagraph, 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 subsection, and

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

`(3) 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 subsection.

`(4) 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 (2)(C)(ii)(III).

`(5) CERTIFICATION-

`(A) IN GENERAL- Except as provided in this paragraph, the Secretary shall prescribe procedures for the inspection and testing for compliance of buildings that are comparable, given the difference between commercial and residential buildings, to the requirements in the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.

`(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. The Secretary may qualify a Home Ratings Systems Organization, a local building code agency, a State or local energy office, a utility, or any other organization which meets the requirements prescribed under this section.

`(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.

`(e) BASIS REDUCTION- For purposes of this subtitle, if a deduction is allowed under this section with respect to any energy efficient commercial building property, the basis of such property shall be reduced by the amount of the deduction so allowed.

`(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 (d)(5) on or before December 31, 2007, and

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

(b) CONFORMING AMENDMENTS-

(1) Section 1016(a), as amended by this Act, 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 new paragraph:

`(32) to the extent provided in section 179B(e).'.

(2) Section 1245(a) is amended by inserting `179B,' after `179A,' both places it appears in paragraphs (2)(C) and (3)(C).

(3) Section 1250(b)(3) is amended by inserting before the period at the end of the first sentence `or by section 179B'.

(4) Section 263(a)(1) is amended by striking `or' at the end of subparagraph (G), by striking the period at the end of subparagraph (H) and inserting `, or', and by inserting after subparagraph (H) the following new subparagraph:

`(I) expenditures for which a deduction is allowed under section 179B.'.

(5) Section 312(k)(3)(B) is amended by striking `or 179A' each place it appears in the heading and text and inserting `, 179A, or 179B'.

(c) CLERICAL AMENDMENT- The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after section 179A the following new item:

`Sec. 179B. Energy efficient commercial buildings deduction.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after September 30, 2002.

SEC. 306. ALLOWANCE OF DEDUCTION FOR QUALIFIED NEW OR RETROFITTED ENERGY MANAGEMENT DEVICES.

(a) IN GENERAL- Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations), as amended by this Act, is amended by inserting after section 179B the following new section:

`SEC. 179C. DEDUCTION FOR QUALIFIED NEW OR RETROFITTED ENERGY MANAGEMENT DEVICES.

`(a) ALLOWANCE OF DEDUCTION- In the case of a taxpayer who is a supplier of electric energy or natural gas or a provider of electric energy or natural gas services, there shall be allowed as a deduction an amount equal to the cost of each qualified energy management device placed in service during the taxable year.

`(b) MAXIMUM DEDUCTION- The deduction allowed by this section with respect to each qualified energy management device shall not exceed $30.

`(c) QUALIFIED ENERGY MANAGEMENT DEVICE- The term `qualified energy management device' means any tangible property to which section 168 applies if such property is a meter or metering device--

`(1) which is acquired and used by the taxpayer to enable consumers to manage their purchase or use of electricity or natural gas in response to energy price and usage signals, and

`(2) which permits reading of energy price and usage signals on at least a daily basis.

`(d) PROPERTY USED OUTSIDE THE UNITED STATES NOT QUALIFIED- No deduction shall be allowed under subsection (a) with respect to property which is used predominantly outside the United States or with respect to the portion of the cost of any property taken into account under section 179.

`(e) BASIS REDUCTION-

`(1) IN GENERAL- For purposes of this title, the basis of any property shall be reduced by the amount of the deduction with respect to such property which is allowed by subsection (a).

`(2) ORDINARY INCOME RECAPTURE- For purposes of section 1245, the amount of the deduction allowable under subsection (a) with respect to any property that is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167.'.

(b) CONFORMING AMENDMENTS-

(1) Section 263(a)(1), as amended by this Act, is amended by striking `or' at the end of subparagraph (H), by striking the period at the end of subparagraph (I) and inserting `, or', and by inserting after subparagraph (I) the following new subparagraph:

`(J) expenditures for which a deduction is allowed under section 179C.'.

(2) Section 312(k)(3)(B), as amended by this Act, is amended by striking `or 179B' each place it appears in the heading and text and inserting `, 179B, or 179C'.

(3) Section 1016(a), as amended by this Act, 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 179C(e)(1).'.

(4) Section 1245(a), as amended by this Act, is amended by inserting `179C,' after `179B,' both places it appears in paragraphs (2)(C) and (3)(C).

(5) The table of contents for subpart B of part IV of subchapter A of chapter 1, as amended by this Act, is amended by inserting after the item relating to section 179B the following new item:

`Sec. 179C. Deduction for qualified new or retrofitted energy management devices.'.

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

SEC. 307. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF QUALIFIED ENERGY MANAGEMENT DEVICES.

(a) IN GENERAL- Subparagraph (A) of section 168(e)(3) (relating to classification of property) is amended by striking `and' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting `, and', and by adding at the end the following new clause:

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

(b) DEFINITION OF QUALIFIED ENERGY MANAGEMENT DEVICE- Section 168(i) (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 any qualified energy management device as defined in section 179C(c) which is placed in service by a taxpayer who is a supplier of electric energy or natural gas or a provider of electric energy or natural gas services.'.

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

SEC. 308. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

(a) IN GENERAL- Subparagraph (A) of section 48(a)(3) (defining energy property), as amended by this Act, is amended by striking `or' at the end of clause (ii), by adding `or' at the end of clause (iii), and by inserting after clause (iii) the following new clause:

`(iv) combined heat and power system property,'.

(b) COMBINED HEAT AND POWER SYSTEM PROPERTY- Subsection (a) of section 48, as amended by this Act, is amended by redesignating paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by inserting after paragraph (4) the following new paragraph:

`(5) COMBINED HEAT AND POWER SYSTEM PROPERTY- For purposes of this subsection--

`(A) COMBINED HEAT AND POWER SYSTEM PROPERTY- The term `combined heat and power system property' means property comprising a system--

`(i) which uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications),

`(ii) which has an electrical capacity of more than 50 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 combination thereof),

`(iv) the energy efficiency percentage of which exceeds 60 percent (70 percent in the case of a system with an electrical capacity in excess of 50 megawatts or a mechanical energy capacity in excess of 67,000 horsepower, or an equivalent combination of electrical and mechanical energy capacities), and

`(v) which is placed in service after December 31, 2002, and before January 1, 2007.

`(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 expected to be consumed in its normal application, 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 and the percentages under subparagraph (A)(iii) 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) PUBLIC UTILITY PROPERTY-

`(I) ACCOUNTING RULE FOR PUBLIC UTILITY PROPERTY- If the combined heat and power system property is public utility property (as defined in section 168(i)(10)), the taxpayer may only claim the credit under the subsection if, with respect to such property, the taxpayer uses a normalization method of accounting.

`(II) CERTAIN EXCEPTION NOT TO APPLY- The matter following paragraph (3)(D) shall not apply to combined heat and power system property.

`(C) EXTENSION OF DEPRECIATION RECOVERY PERIOD- If a taxpayer is allowed credit under this section for combined heat and power system property and such property would (but for this subparagraph) have a class life of 15 years or less under section 168, such property shall be treated as having a 22-year class life for purposes of section 168.'.

(c) NO CARRYBACK OF ENERGY CREDIT BEFORE EFFECTIVE DATE- Subsection (d) of section 39, as amended by this Act, is amended by adding at the end the following new paragraph:

`(15) 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 with respect to property described in section 48(a)(5) may be carried back to a taxable year ending before January 1, 2003.'.

(d) CONFORMING AMENDMENTS-

(A) Section 25C(e)(6), as added by this Act, is amended by striking `section 48(a)(5)(C)' and inserting `section 48(a)(6)(C)'.

(B) Section 29(b)(3)(A)(i)(III), as amended by this Act, is amended by striking `section 48(a)(5)(C)' and inserting `section 48(a)(6)(C)'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2002, in taxable years ending after such date.

SEC. 309. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

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

`SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

`(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 10 percent of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year.

`(b) LIMITATIONS-

`(1) MAXIMUM CREDIT- The credit allowed by this section with respect to a dwelling shall not exceed $300.

`(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER ON SAME DWELLING TAKEN INTO ACCOUNT- If a credit was allowed to the taxpayer under subsection (a) with respect to a dwelling in 1 or more prior taxable years, the amount of the credit otherwise allowable for the taxable year with respect to that dwelling shall not exceed the amount of $300 reduced by the sum of the credits allowed under subsection (a) to the taxpayer with respect to the dwelling for all prior taxable years.

`(3) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

`(B) the sum of the credits allowable under this subpart (other than this section and section 23) and section 27 for the taxable year.

`(c) CARRYFORWARD OF UNUSED CREDIT- If the credit allowable under subsection (a) exceeds the limitation imposed by subsection (b)(3) for any taxable year, such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such succeeding taxable year.

`(d) QUALIFIED ENERGY EFFICIENCY IMPROVEMENTS- For purposes of this section, the term `qualified energy efficiency improvements' means any energy efficient building envelope component which is certified to meet or exceed the prescriptive criteria for such component in the 2000 International Energy Conservation Code, or any combination of energy efficiency measures which are certified as achieving at least a 30 percent reduction in heating and cooling energy usage for the dwelling (as measured in terms of energy cost to the taxpayer), if--

`(1) such component or combination of measures is installed in or on a dwelling--

`(A) located in the United States, and

`(B) owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121),

`(2) the original use of such component or combination of measures commences with the taxpayer, and

`(3) such component or combination of measures reasonably can be expected to remain in use for at least 5 years.

`(e) CERTIFICATION-

`(1) METHODS OF CERTIFICATION-

`(A) COMPONENT-BASED METHOD- The certification described in subsection (d) for any component described in such subsection shall be determined on the basis of applicable energy efficiency ratings (including product labeling requirements) for affected building envelope components.

`(B) PERFORMANCE-BASED METHOD-

`(i) IN GENERAL- The certification described in subsection (d) for any combination of measures described in such subsection shall be--

`(I) determined by comparing the projected heating and cooling energy usage for the dwelling to such usage for such dwelling in its original condition, and

`(II) accompanied by a written analysis documenting the proper application of a permissible energy performance calculation method to the specific circumstances of such dwelling.

`(ii) COMPUTER SOFTWARE- Computer software shall be used in support of a performance-based method certification under clause (i). Such software shall meet procedures and methods for calculating energy and cost savings in regulations promulgated by the Secretary of Energy. Such regulations on the specifications for software and verification protocols shall be based on the 2001 California Residential Alternative Calculation Method Approval Manual.

`(2) PROVIDER- A certification described in subsection (d) shall be provided by--

`(A) in the case of the method described in paragraph (1)(A), by a third party, such as a local building regulatory authority, a utility, a manufactured home production inspection primary inspection agency (IPIA), or a home energy rating organization, or

`(B) in the case of the method described in paragraph (1)(B), an individual recognized by an organization designated by the Secretary for such purposes.

`(3) FORM- A certification described in subsection (d) shall be made in writing on forms which specify in readily inspectable fashion the energy efficient components and other measures and their respective efficiency ratings, and which include a permanent label affixed to the electrical distribution panel of the dwelling.

`(4) REGULATIONS-

`(A) IN GENERAL- In prescribing regulations under this subsection for certification methods described in paragraph (1)(B), the Secretary, 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, shall prescribe procedures for calculating annual energy usage and cost reductions for heating and cooling and for the reporting of the results. Such regulations shall--

`(i) provide that any calculation procedures be fuel neutral such that the same energy efficiency measures allow a dwelling to be eligible for the credit under this section regardless of whether such dwelling uses a gas or oil furnace or boiler or an electric heat pump, and

`(ii) require that any computer software allow for the printing of the Federal tax forms necessary for the credit under this section and for the printing of forms for disclosure to the owner of the dwelling.

`(B) PROVIDERS- For purposes of paragraph (2)(B), the Secretary shall establish requirements for the designation of individuals based on the requirements for energy consultants and home energy raters specified by the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.

`(f) DEFINITIONS AND 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 for the qualified energy efficiency improvements 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 paid his tenant-stockholder's proportionate share (as defined in section 216(b)(3)) of the cost of qualified energy efficiency improvements made by 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 the individual owns, such individual shall be treated as having paid the individual's proportionate share of the cost of qualified energy efficiency improvements made by 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) BUILDING ENVELOPE COMPONENT- The term `building envelope component' means--

`(A) insulation material or system which is specifically and primarily designed to reduce the heat loss or gain or a dwelling when installed in or on such dwelling, and

`(B) exterior windows (including skylights) and doors.

`(5) MANUFACTURED HOMES INCLUDED- For purposes of this section, the term `dwelling' includes a manufactured home which conforms to Federal

Manufactured Home Construction and Safety Standards (24 CFR 3280).

`(g) 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.

`(h) APPLICATION OF SECTION- Subsection (a) shall apply to qualified energy efficiency improvements installed during the period beginning on the date of the enactment of this section and ending on December 31, 2006.'.

(b) CONFORMING AMENDMENTS-

(1) Subsection (a) of section 1016, as amended by this Act, 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 25D(f), in the case of amounts with respect to which a credit has been allowed under section 25D.'.

(2) Section 24(b)(3)(B), as amended by this Act, is amended by striking `and 25C' and inserting `25C, and 25D'.

(3) Section 25(e)(1)(C), as amended by this Act, is amended by inserting `25D,' after `25C,'.

(4) Section 25B(g)(2), as amended by this Act, is amended by striking `23 and 25C' and inserting `23, 25C, and 25D'.

(5) Section 26(a)(1), as amended by this Act, is amended by striking `and 25C' and inserting `25C, and 25D'.

(6) Section 904(h), as amended by this Act, is amended by striking `and 25C' and inserting `25C, and 25D'.

(7) Section 1400C(d), as amended by this Act, is amended by striking `and 25C' and inserting `25C, and 25D'.

(8) The table of sections for subpart A of part IV of subchapter A of chapter 1, as amended by this Act, is amended by inserting after the item relating to section 25C the following new item:

`Sec. 25D. Energy efficiency improvements to existing homes.'.

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

TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements in Existing Coal-Based Electricity Generation Facilities

SEC. 401. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY UNIT.

(a) CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY UNIT- Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits), as amended by this Act, is amended by adding at the end the following new section:

`SEC. 45I. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY UNIT.

`(a) GENERAL RULE- For purposes of section 38, the qualifying clean coal technology production credit of any taxpayer for any taxable year is equal to the product of--

`(1) the applicable amount of clean coal technology production credit, multiplied by

`(2) the applicable percentage of the kilowatt hours of electricity produced by the taxpayer during such taxable year at a qualifying clean coal technology unit, but only if such production occurs during the 10-year period beginning on the date the unit was returned to service after becoming a qualifying clean coal technology unit.

`(b) APPLICABLE AMOUNT-

`(1) IN GENERAL- For purposes of this section, the applicable amount of clean coal technology production credit is equal to $0.0034.

`(2) INFLATION ADJUSTMENT- For calendar years after 2003, the applicable amount of clean coal technology production credit shall be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the amount is applied. If any amount as increased under the preceding sentence is not a multiple of 0.01 cent, such amount shall be rounded to the nearest multiple of 0.01 cent.

`(c) APPLICABLE PERCENTAGE- For purposes of this section, with respect to any qualifying clean coal technology unit, the applicable percentage is the percentage equal to the ratio which the portion of the national megawatt capacity limitation allocated to the taxpayer with respect to such unit under subsection (e) bears to the total megawatt capacity of such unit.

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

`(1) QUALIFYING CLEAN COAL TECHNOLOGY UNIT- The term `qualifying clean coal technology unit' means a clean coal technology unit of the taxpayer which--

`(A) on the date of the enactment of this section was a coal-based electricity generating steam generator-turbine unit which was not a clean coal technology unit,

`(B) has a nameplate capacity rating of not more than 300,000 kilowatts,

`(C) becomes a clean coal technology unit as the result of the retrofitting, repowering, or replacement of the unit with clean coal technology during the 10-year period beginning on the date of the enactment of this section,

`(D) is not receiving nor is scheduled to receive funding under the Clean Coal Technology Program, the Power Plant Improvement Initiative, or the Clean Coal Power Initiative administered by the Secretary of Energy, and

`(E) receives an allocation of a portion of the national megawatt capacity limitation under subsection (e).

`(2) CLEAN COAL TECHNOLOGY UNIT- The term `clean coal technology unit' means a unit which--

`(A) uses clean coal technology, including advanced pulverized coal or atmospheric fluidized bed combustion, pressurized fluidized bed combustion, integrated gasification combined cycle, or any other technology for the production of electricity,

`(B) uses coal to produce 75 percent or more of its thermal output as electricity,

`(C) has a design net heat rate of at least 500 less than that of such unit as described in paragraph (1)(A),

`(D) has a maximum design net heat rate of not more than 9,500, and

`(E) meets the pollution control requirements of paragraph (3).

`(3) POLLUTION CONTROL REQUIREMENTS-

`(A) IN GENERAL- A unit meets the requirements of this paragraph if--

`(i) its emissions of sulfur dioxide, nitrogen oxide, or particulates meet the lower of the emission levels for each such emission specified in--

`(I) subparagraph (B), or

`(II) the new source performance standards of the Clean Air Act (42 U.S.C. 7411) which are in effect for the category of source at the time of the retrofitting, repowering, or replacement of the unit, and

`(ii) its emissions do not exceed any relevant emission level specified by regulation pursuant to the hazardous air pollutant requirements of the Clean Air Act (42 U.S.C. 7412) in effect at the time of the retrofitting, repowering, or replacement.

`(B) SPECIFIC LEVELS- The levels specified in this subparagraph are--

`(i) in the case of sulfur dioxide emissions, 50 percent of the sulfur dioxide emission levels specified in the new source performance standards of the Clean Air Act (42 U.S.C. 7411) in effect on the date of the enactment of this section for the category of source,

`(ii) in the case of nitrogen oxide emissions--

`(I) 0.1 pound per million Btu of heat input if the unit is not a cyclone-fired boiler, and

`(II) if the unit is a cyclone-fired boiler, 15 percent of the uncontrolled nitrogen oxide emissions from such boilers, and

`(iii) in the case of particulate emissions, 0.02 pound per million Btu of heat input.

`(4) DESIGN NET HEAT RATE- The design net heat rate with respect to any unit, measured in Btu per kilowatt hour (HHV)--

`(A) shall be based on the design annual heat input to and the design annual net electrical output from such unit (determined without regard to such unit's co-generation of steam),

`(B) shall be adjusted for the heat content of the design coal to be used by the unit if it is less than 12,000 Btu per pound according to the following formula:

Design net heat rate = Unit net heat rate X [l- {((12,000-design coal heat content, Btu per pound)/1,000) X 0.013}], and

`(C) shall be corrected for the site reference conditions of--

`(i) elevation above sea level of 500 feet,

`(ii) air pressure of 14.4 pounds per square inch absolute (psia),

`(iii) temperature, dry bulb of 63«F,

`(iv) temperature, wet bulb of 54«F, and

`(v) relative humidity of 55 percent.

`(5) HHV- The term `HHV' means higher heating value.

`(6) APPLICATION OF CERTAIN RULES- The rules of paragraphs (3), (4), and (5) of section 45(d) shall apply.

`(7) INFLATION ADJUSTMENT FACTOR-

`(A) IN GENERAL- The term `inflation adjustment factor' means, with respect to a calendar year, a fraction the numerator of which is the GDP implicit price deflator for the preceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 2002.

`(B) GDP IMPLICIT PRICE DEFLATOR- The term `GDP implicit price deflator' means the most recent revision of the implicit price deflator for the gross domestic product as computed by the Department of Commerce before March 15 of the calendar year.

`(8) NONCOMPLIANCE WITH POLLUTION LAWS- For purposes of this section, a unit 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 qualifying clean coal technology unit during such period.

`(e) NATIONAL LIMITATION ON THE AGGREGATE CAPACITY OF QUALIFYING CLEAN COAL TECHNOLOGY UNITS-

`(1) IN GENERAL- For purposes of subsection (d)(1)(E), the national megawatt capacity limitation for qualifying clean coal technology units is 4,000 megawatts.

`(2) ALLOCATION OF LIMITATION- The Secretary shall allocate the national megawatt capacity limitation for qualifying clean coal technology units in such manner as the Secretary may prescribe under the regulations under paragraph (3).

`(3) REGULATIONS- Not later than 6 months after the date of the enactment of this section, the Secretary shall prescribe such regulations as may be necessary or appropriate--

`(A) to carry out the purposes of this subsection,

`(B) to limit the capacity of any qualifying clean coal technology unit to which this section applies so that the combined megawatt capacity allocated to all such units under this subsection when all such units are placed in service during the 10-year period described in subsection (d)(1)(C), does not exceed 4,000 megawatts,

`(C) to provide a certification process under which the Secretary, in consultation with the Secretary of Energy, shall approve and allocate the national megawatt capacity limitation--

`(i) to encourage that units with the highest thermal efficiencies, when adjusted for the heat content of the design coal and site reference conditions described in subsection (d)(4)(C), and environmental performance be placed in service as soon as possible,

`(ii) to allocate capacity to taxpayers that have a definite and credible plan for placing into commercial operation a qualifying clean coal technology unit, including--

`(I) a site,

`(II) contractual commitments for procurement and construction or, in the case of regulated utilities, the agreement of the State utility commission,

`(III) filings for all necessary preconstruction approvals,

`(IV) a demonstrated record of having successfully completed comparable projects on a timely basis, and

`(V) such other factors that the Secretary determines are appropriate,

`(D) to allocate the national megawatt capacity limitation to a portion of the capacity of a qualifying clean coal technology unit if the Secretary determines that such an allocation would maximize the amount of efficient production encouraged with the available tax credits,

`(E) to set progress requirements and conditional approvals so that capacity allocations for clean coal technology units that become unlikely to meet the necessary conditions for

qualifying can be reallocated by the Secretary to other clean coal technology units, and

`(F) to provide taxpayers with opportunities to correct administrative errors and omissions with respect to allocations and record keeping within a reasonable period after discovery, taking into account the availability of regulations and other administrative guidance from the Secretary.'.

(b) CREDIT TREATED AS BUSINESS CREDIT- Section 38(b), as amended by this Act, is amended by striking `plus' at the end of paragraph (18), by striking the period at the end of paragraph (19) and inserting `, plus', and by adding at the end the following new paragraph:

`(20) the qualifying clean coal technology production credit determined under section 45I(a).'.

(c) TRANSITIONAL RULE- Section 39(d) (relating to transitional rules), as amended by this Act, is amended by adding at the end the following new paragraph:

`(16) NO CARRYBACK OF SECTION 45I CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the qualifying clean coal technology production credit determined under section 45I may be carried back to a taxable year ending on or before the date of the enactment of section 45I.'.

(d) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 45I. Credit for production from a qualifying clean coal technology unit.'.

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

Subtitle B--Incentives for Early Commercial Applications of Advanced Clean Coal Technologies

SEC. 411. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY.

(a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT- Section 46 (relating to amount of 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 qualifying advanced clean coal technology unit credit.'.

(b) AMOUNT OF QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT- 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 new section:

`SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT.

`(a) IN GENERAL- For purposes of section 46, the qualifying advanced clean coal technology unit credit for any taxable year is an amount equal to 10 percent of the applicable percentage of the qualified investment in a qualifying advanced clean coal technology unit for such taxable year.

`(b) QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT-

`(1) IN GENERAL- For purposes of subsection (a), the term `qualifying advanced clean coal technology unit' means an advanced clean coal technology unit of the taxpayer--

`(A)(i)(I) in the case of a unit first placed in service after the date of the enactment of this section, the original use of which commences with the taxpayer, or

`(II) in the case of the retrofitting or repowering of a unit first placed in service before such date of enactment, the retrofitting or repowering of which is completed by the taxpayer after such date, or

`(ii) which is acquired through purchase (as defined by section 179(d)(2)),

`(B) which is depreciable under section 167,

`(C) which has a useful life of not less than 4 years,

`(D) which is located in the United States,

`(E) which is not receiving nor is scheduled to receive funding under the Clean Coal Technology Program, the Power Plant Improvement Initiative, or the Clean Coal Power Initiative administered by the Secretary of Energy,

`(F) which is not a qualifying clean coal technology unit, and

`(G) which receives an allocation of a portion of the national megawatt capacity limitation under subsection (f).

`(2) SPECIAL RULE FOR SALE-LEASEBACKS- For purposes of subparagraph (A) of paragraph (1), in the case of a unit which--

`(A) is originally placed in service by a person, and

`(B) is sold and leased back by such person, or is leased to such person, within 3 months after the date such unit was originally placed in service, for a period of not less than 12 years,

such unit shall be treated as originally placed in service not earlier than the date on which such unit is used under the leaseback (or lease) referred to in subparagraph (B). The preceding sentence shall not apply to any property if the lessee and lessor of such property make an election under this sentence. Such an election, once made, may be revoked only with the consent of the Secretary.

`(3) NONCOMPLIANCE WITH POLLUTION LAWS- For purposes of this subsection, a unit 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 qualifying advanced clean coal technology unit during such period.

`(c) APPLICABLE PERCENTAGE- For purposes of this section, with respect to any qualifying advanced clean coal technology unit, the applicable percentage is the percentage equal to the ratio which the portion of the national megawatt capacity limitation allocated to the taxpayer

with respect to such unit under subsection (f) bears to the total megawatt capacity of such unit.

`(d) ADVANCED CLEAN COAL TECHNOLOGY UNIT- For purposes of this section--

`(1) IN GENERAL- The term `advanced clean coal technology unit' means a new, retrofit, or repowering unit of the taxpayer which--

`(A) is--

`(i) an eligible advanced pulverized coal or atmospheric fluidized bed combustion technology unit,

`(ii) an eligible pressurized fluidized bed combustion technology unit,

`(iii) an eligible integrated gasification combined cycle technology unit, or

`(iv) an eligible other technology unit, and

`(B) meets the carbon emission rate requirements of paragraph (6).

`(2) ELIGIBLE ADVANCED PULVERIZED COAL OR ATMOSPHERIC FLUIDIZED BED COMBUSTION TECHNOLOGY UNIT- The term `eligible advanced pulverized coal or atmospheric fluidized bed combustion technology unit' means a clean coal technology unit using advanced pulverized coal or atmospheric fluidized bed combustion technology which--

`(A) is placed in service after the date of the enactment of this section and before January 1, 2013, and

`(B) has a design net heat rate of not more than 8,350 (8,750 in the case of units placed in service before 2009).

`(3) ELIGIBLE PRESSURIZED FLUIDIZED BED COMBUSTION TECHNOLOGY UNIT- The term `eligible pressurized fluidized bed combustion technology unit' means a clean coal technology unit using pressurized fluidized bed combustion technology which--

`(A) is placed in service after the date of the enactment of this section and before January 1, 2017, and

`(B) has a design net heat rate of not more than 7,720 (8,750 in the case of units placed in service before 2009, and 8,350 in the case of units placed in service after 2008 and before 2013).

`(4) ELIGIBLE INTEGRATED GASIFICATION COMBINED CYCLE TECHNOLOGY UNIT- The term `eligible integrated gasification combined cycle technology unit' means a clean coal technology unit using integrated gasification combined cycle technology, with or without fuel or chemical co-production, which--

`(A) is placed in service after the date of the enactment of this section and before January 1, 2017,

`(B) has a design net heat rate of not more than 7,720 (8,750 in the case of units placed in service before 2009, and 8,350 in the case of units placed in service after 2008 and before 2013), and

`(C) has a net thermal efficiency (HHV) using coal with fuel or chemical co-production of not less than 43.9 percent (39 percent in the case of units placed in service before 2009, and 40.9 percent in the case of units placed in service after 2008 and before 2013).

`(5) ELIGIBLE OTHER TECHNOLOGY UNIT- The term `eligible other technology unit' means a clean coal technology unit using any other technology for the production of electricity which is placed in service after the date of the enactment of this section and before January 1, 2017.

`(6) CARBON EMISSION RATE REQUIREMENTS-

`(A) IN GENERAL- Except as provided in subparagraph (B), a unit meets the requirements of this paragraph if--

`(i) in the case of a unit using design coal with a heat content of not more than 9,000 Btu per pound, the carbon emission rate is less than 0.60 pound of carbon per kilowatt hour, and

`(ii) in the case of a unit using design coal with a heat content of more than 9,000 Btu per pound, the carbon emission rate is less than 0.54 pound of carbon per kilowatt hour.

`(B) ELIGIBLE OTHER TECHNOLOGY UNIT- In the case of an eligible other technology unit, subparagraph (A) shall be applied by substituting `0.51' and `0.459' for `0.60' and `0.54', respectively.

`(e) GENERAL DEFINITIONS- Any term used in this section which is also used in section 45I shall have the meaning given such term in section 45I.

`(f) NATIONAL LIMITATION ON THE AGGREGATE CAPACITY OF ADVANCED CLEAN COAL TECHNOLOGY UNITS-

`(1) IN GENERAL- For purposes of subsection (b)(1)(G), the national megawatt capacity limitation is--

`(A) for qualifying advanced clean coal technology units using advanced pulverized coal or atmospheric fluidized bed combustion technology, not more than 1,000 megawatts (not more than 500 megawatts in the case of units placed in service before 2009),

`(B) for such units using pressurized fluidized bed combustion technology, not more than 500 megawatts (not more than 250 megawatts in the case of units placed in service before 2009),

`(C) for such units using integrated gasification combined cycle technology, with or without fuel or chemical co-production, not more than 2,000 megawatts (not more than 1,000 megawatts in the case of units placed in service before 2009 and not more than 1,500 megawatts in the case of units placed in service after 2008 and before 2013), and

`(D) for such units using other technology for the production of electricity, not more than 500 megawatts (not more than 250 megawatts

in the case of units placed in service before 2009).

`(2) ALLOCATION OF LIMITATION- The Secretary shall allocate the national megawatt capacity limitation for qualifying advanced clean coal technology units in such manner as the Secretary may prescribe under the regulations under paragraph (3).

`(3) REGULATIONS- Not later than 6 months after the date of the enactment of this section, the Secretary shall prescribe such regulations as may be necessary or appropriate--

`(A) to carry out the purposes of this subsection and section 45J,

`(B) to limit the capacity of any qualifying advanced clean coal technology unit to which this section applies so that the combined megawatt capacity of all such units to which this section applies does not exceed 4,000 megawatts,

`(C) to provide a certification process described in section 45I(e)(3)(C),

`(D) to carry out the purposes described in subparagraphs (D), (E), and (F) of section 45I(e)(3), and

`(E) to reallocate capacity which is not allocated to any technology described in subparagraphs (A) through (D) of paragraph (1) because an insufficient number of qualifying units request an allocation for such technology, to another technology described in such subparagraphs in order to maximize the amount of energy efficient production encouraged with the available tax credits.

`(4) SELECTION CRITERIA- For purposes of paragraph (3)(C), the selection criteria for allocating the national megawatt capacity limitation to qualifying advanced clean coal technology units--

`(A) shall be established by the Secretary of Energy as part of a competitive solicitation,

`(B) shall include primary criteria of minimum design net heat rate, maximum design thermal efficiency, environmental performance, and lowest cost to the Government, and

`(C) shall include supplemental criteria as determined appropriate by the Secretary of Energy.

`(g) QUALIFIED INVESTMENT- For purposes of subsection (a), the term `qualified investment' means, with respect to any taxable year, the basis of a qualifying advanced clean coal technology unit placed in service by the taxpayer during such taxable year (in the case of a unit described in subsection (b)(1)(A)(i)(II), only that portion of the basis of such unit which is properly attributable to the retrofitting or repowering of such unit).

`(h) QUALIFIED PROGRESS EXPENDITURES-

`(1) INCREASE IN QUALIFIED INVESTMENT- In the case of a taxpayer who has made an election under paragraph (5), the amount of the qualified investment of such taxpayer for the taxable year (determined under subsection (g) without regard to this subsection) shall be increased by an amount equal to the aggregate of each qualified progress expenditure for the taxable year with respect to progress expenditure property.

`(2) PROGRESS EXPENDITURE PROPERTY DEFINED- For purposes of this subsection, the term `progress expenditure property' means any property being constructed by or for the taxpayer and which it is reasonable to believe will qualify as a qualifying advanced clean coal technology unit which is being constructed by or for the taxpayer when it is placed in service.

`(3) QUALIFIED PROGRESS EXPENDITURES DEFINED- For purposes of this subsection--

`(A) SELF-CONSTRUCTED PROPERTY- In the case of any self-constructed property, the term `qualified progress expenditures' means the amount which, for purposes of this subpart, is properly chargeable (during such taxable year) to capital account with respect to such property.

`(B) NONSELF-CONSTRUCTED PROPERTY- In the case of nonself-constructed property, the term `qualified progress expenditures' means the amount paid during the taxable year to another person for the construction of such property.

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

`(A) SELF-CONSTRUCTED PROPERTY- The term `self-constructed property' means property for which it is reasonable to believe that more than half of the construction expenditures will be made directly by the taxpayer.

`(B) NONSELF-CONSTRUCTED PROPERTY- The term `nonself-constructed property' means property which is not self-constructed property.

`(C) CONSTRUCTION, ETC- The term `construction' includes reconstruction and erection, and the term `constructed' includes reconstructed and erected.

`(D) ONLY CONSTRUCTION OF QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT TO BE TAKEN INTO ACCOUNT- Construction shall be taken into account only if, for purposes of this subpart, expenditures therefor are properly chargeable to capital account with respect to the property.

`(5) ELECTION- An election under this subsection may be made at such time and in such manner as the Secretary may by regulations prescribe. Such an election shall apply to the taxable year for which made and to all subsequent taxable years. Such an election, once made, may not be revoked except with the consent of the Secretary.

`(i) COORDINATION WITH OTHER CREDITS- This section shall not apply to any property with respect to which the rehabilitation credit under section 47 or the energy credit under section 48 is allowed unless the taxpayer elects to waive the application of such credit to such property.'.

(c) RECAPTURE- Section 50(a) (relating to other special rules) is amended by adding at the end the following new paragraph:

`(6) SPECIAL RULES RELATING TO QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT- For purposes of applying this subsection in the case of any credit allowable by reason of section 48A, the following shall apply:

`(A) GENERAL RULE- In lieu of the amount of the increase in tax under paragraph (1), the increase in tax shall be an amount equal to the investment tax credit allowed under section 38 for all prior taxable years with respect to a qualifying advanced clean coal technology unit (as defined by section 48A(b)(1)) multiplied by a fraction whose numerator is the number of years remaining to fully depreciate under this title the qualifying advanced clean coal technology unit disposed of, and whose denominator is the total number of years over which such unit would otherwise have been subject to depreciation. For purposes of the preceding sentence, the year of disposition of the qualifying advanced clean coal technology unit shall be treated as a year of remaining depreciation.

`(B) PROPERTY CEASES TO QUALIFY FOR PROGRESS EXPENDITURES- Rules similar to

the rules of paragraph (2) shall apply in the case of qualified progress expenditures for a qualifying advanced clean coal technology unit under section 48A, except that the amount of the increase in tax under subparagraph (A) of this paragraph shall be substituted for the amount described in such paragraph (2).

`(C) APPLICATION OF PARAGRAPH- This paragraph shall be applied separately with respect to the credit allowed under section 38 regarding a qualifying advanced clean coal technology unit.'.

(d) TRANSITIONAL RULE- Section 39(d) (relating to transitional rules), as amended by this Act, is amended by adding at the end the following new paragraph:

`(17) NO CARRYBACK OF SECTION 48A CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the qualifying advanced clean coal technology unit credit determined under section 48A may be carried back to a taxable year ending on or before the date of the enactment of section 48A.'.

(e) TECHNICAL AMENDMENTS-

(1) Section 49(a)(1)(C) is amended by striking `and' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting `, and', and by adding at the end the following new clause:

`(iv) the portion of the basis of any qualifying advanced clean coal technology unit attributable to any qualified investment (as defined by section 48A(g)).'.

(2) Section 50(a)(4) is amended by striking `and (2)' and inserting `(2), and (6)'.

(3) Section 50(c) is amended by adding at the end the following new paragraph:

`(6) NONAPPLICATION- Paragraphs (1) and (2) shall not apply to any qualifying advanced clean coal technology unit credit under section 48A.'.

(4) The table of sections for subpart E of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 48 the following new item:

`Sec. 48A. Qualifying advanced clean coal technology unit credit.'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to periods after the date of the enactment of this Act, 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. 412. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT.

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

`SEC. 45J. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT.

`(a) GENERAL RULE- For purposes of section 38, the qualifying advanced clean coal technology production credit of any taxpayer for any taxable year is equal to--

`(1) the applicable amount of advanced clean coal technology production credit, multiplied by

`(2) the applicable percentage (as determined under section 48A(c)) of the sum of--

`(A) the kilowatt hours of electricity, plus

`(B) each 3,413 Btu of fuels or chemicals,

produced by the taxpayer during such taxable year at a qualifying advanced clean coal technology unit during the 10-year period beginning on the date the unit was originally placed in service (or returned to service after becoming a qualifying advanced clean coal technology unit).

`(b) APPLICABLE AMOUNT- For purposes of this section, the applicable amount of advanced clean coal technology production credit with respect to production from a qualifying advanced clean coal technology unit shall be determined as follows:

`(1) Where the qualifying advanced clean coal technology unit is producing electricity only:

`(A) In the case of a unit originally placed in service before 2009, if--

-------------------------------------------------------------------------------------------------------

`The design net heat rate is:           The applicable amount is:                                      

                                        For 1st 5 years of such service For 2d 5 years of such service 

-------------------------------------------------------------------------------------------------------

Not more than 8,400                     $.0060                          $.0038                         

More than 8,400 but not more than 8,550 $.0025                          $.0010                         

More than 8,550 but less than 8,750     $.0010                          $.0010.                        

-------------------------------------------------------------------------------------------------------

`(B) In the case of a unit originally placed in service after 2008 and before 2013, if--

-------------------------------------------------------------------------------------------------------

`The design net heat rate is:           The applicable amount is:                                      

                                        For 1st 5 years of such service For 2d 5 years of such service 

-------------------------------------------------------------------------------------------------------

Not more than 7,770                     $.0105                          $.0090                         

More than 7,770 but not more than 8,125 $.0085                          $.0068                         

More than 8,125 but less than 8,350     $.0075                          $.0055.                        

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`(C) In the case of a unit originally placed in service after 2012 and before 2017, if--

-------------------------------------------------------------------------------------------------------

`The design net heat rate is:           The applicable amount is:                                      

                                        For 1st 5 years of such service For 2d 5 years of such service 

-------------------------------------------------------------------------------------------------------

Not more than 7,380                     $.0140                          $.0115                         

More than 7,380 but not more than 7,720 $.0120                          $.0090.                        

-------------------------------------------------------------------------------------------------------

`(2) Where the qualifying advanced clean coal technology unit is producing fuel or chemicals:

`(A) In the case of a unit originally placed in service before 2009, if--

-----------------------------------------------------------------------------------------------------------------

`The unit design net thermal efficiency (HHV) is: The applicable amount is:                                      

                                                  For 1st 5 years of such service For 2d 5 years of such service 

-----------------------------------------------------------------------------------------------------------------

Not less than 40.6 percent                        $.0060                          $.0038                         

Less than 40.6 but not less than 40 percent       $.0025                          $.0010                         

Less than 40 but not less than 39 percent         $.0010                          $.0010.                        

-----------------------------------------------------------------------------------------------------------------

`(B) In the case of a unit originally placed in service after 2008 and before 2013, if--

-----------------------------------------------------------------------------------------------------------------

`The unit design net thermal efficiency (HHV) is: The applicable amount is:                                      

                                                  For 1st 5 years of such service For 2d 5 years of such service 

-----------------------------------------------------------------------------------------------------------------

Not less than 43.6 percent                        $.0105                          $.0090                         

Less than 43.6 but not less than 42 percent       $.0085                          $.0068                         

Less than 42 but not less than 40.9 percent       $.0075                          $.0055.                        

-----------------------------------------------------------------------------------------------------------------

`(C) In the case of a unit originally placed in service after 2012 and before 2017, if--

-----------------------------------------------------------------------------------------------------------------

`The unit design net thermal efficiency (HHV) is: The applicable amount is:                                      

                                                  For 1st 5 years of such service For 2d 5 years of such service 

-----------------------------------------------------------------------------------------------------------------

Not less than 44.2 percent                        $.0140                          $.0115                         

Less than 44.2 but not less than 43.9 percent     $.0120                          $.0090.                        

-----------------------------------------------------------------------------------------------------------------

`(c) INFLATION ADJUSTMENT- For calendar years after 2003, each amount in paragraphs (1) and (2) of subsection (b) shall be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the amount is applied. If any amount as increased under the preceding sentence is not a multiple of

0.01 cent, such amount shall be rounded to the nearest multiple of 0.01 cent.

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

`(1) IN GENERAL- Any term used in this section which is also used in section 45I or 48A shall have the meaning given such term in such section.

`(2) APPLICABLE RULES- The rules of paragraphs (3), (4), and (5) of section 45(d) shall apply.'.

(b) CREDIT TREATED AS BUSINESS CREDIT- Section 38(b), as amended by this Act, is amended by striking `plus' at the end of paragraph (19), by striking the period at the end of paragraph (20) and inserting `, plus', and by adding at the end the following new paragraph:

`(21) the qualifying advanced clean coal technology production credit determined under section 45J(a).'.

(c) TRANSITIONAL RULE- Section 39(d) (relating to transitional rules), as amended by this Act, is amended by adding at the end the following new paragraph:

`(18) NO CARRYBACK OF SECTION 45J CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the qualifying advanced clean coal technology production credit determined under section 45J may be carried back to a taxable year ending on or before the date of the enactment of section 45J.'.

(d) DENIAL OF DOUBLE BENEFIT- Section 29(d) (relating to other definitions and special rules) is amended by adding at the end the following new paragraph:

`(9) DENIAL OF DOUBLE BENEFIT- This section shall not apply with respect to any qualified fuel the production of which may be taken into account for purposes of determining the credit under section 45J.'.

(e) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 45J. Credit for production from a qualifying advanced clean coal technology unit.'.

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

Subtitle C--Treatment of Persons Not Able To Use Entire Credit

SEC. 421. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

(a) IN GENERAL- Section 45I, as added by this Act, is amended by adding at the end the following new subsection:

`(f) TREATMENT OF PERSON NOT ABLE TO USE ENTIRE CREDIT-

`(1) ALLOWANCE OF CREDITS-

`(A) IN GENERAL- Any credit allowable under this section, section 45J, or section 48A with respect to a facility owned by a person described in subparagraph (B) may be transferred or used as provided in this subsection, and the determination as to whether the credit is allowable shall be made without regard to the tax-exempt status of the person.

`(B) PERSONS DESCRIBED- A person is described in this subparagraph if the person 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) a public utility (as defined in section 136(c)(2)(B)),

`(iv) any State or political subdivision thereof, the District of Columbia, or any agency or instrumentality of any of the foregoing,

`(v) any Indian tribal government (within the meaning of section 7871) or any agency or instrumentality thereof, or

`(vi) the Tennessee Valley Authority.

`(2) TRANSFER OF CREDIT-

`(A) IN GENERAL- A person described in clause (i), (ii), (iii), (iv), or (v) of paragraph (1)(B) may transfer any credit to which paragraph (1)(A) applies through an assignment to any other person not described in paragraph (1)(B). Such transfer may be revoked only with the consent of the Secretary.

`(B) REGULATIONS- The Secretary shall prescribe such regulations as necessary to insure that any credit described in subparagraph (A) is claimed once and not reassigned by such other person.

`(C) TRANSFER PROCEEDS TREATED AS ARISING FROM ESSENTIAL GOVERNMENT FUNCTION- Any proceeds derived by a person described in clause (iii), (iv), or (v) of paragraph (1)(B) from the transfer of any credit under subparagraph (A) shall be treated as arising from the exercise of an essential government function.

`(3) USE OF CREDIT AS AN OFFSET- Notwithstanding any other provision of law, in the case of a person described in clause (i), (ii), or (v) of paragraph (1)(B), any credit to which paragraph (1)(A) applies may be applied by such person, to the extent provided by the Secretary of Agriculture, 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.), as in effect on the date of the enactment of this section.

`(4) USE BY TVA-

`(A) IN GENERAL- Notwithstanding any other provision of law, in the case of a person described in paragraph (1)(B)(vi), any credit to which paragraph (1)(A) applies may be applied as a credit against the payments required to be made in any fiscal year under section 15d(e) of the Tennessee Valley Authority Act of 1933 (16 U.S.C. 831n-4(e)) as an annual return on the appropriations investment and an annual repayment sum.

`(B) TREATMENT OF CREDITS- The aggregate amount of credits described in paragraph (1)(A) with respect to such person shall be treated in the same manner and to the same extent as if such credits were a payment in cash and shall be applied first against the annual return on the appropriations investment.

`(C) CREDIT CARRYOVER- With respect to any fiscal year, if the aggregate amount of credits described in paragraph (1)(A) with respect to such person exceeds the aggregate amount of payment obligations described in subparagraph (A), the excess amount shall remain available for application as credits against the amounts of such payment obligations in succeeding fiscal years in the same manner as described in this paragraph.

`(5) CREDIT NOT INCOME- Any transfer under paragraph (2) or use under paragraph (3) of any credit to which paragraph (1)(A) applies shall

not be treated as income for purposes of section 501(c)(12).

`(6) TREATMENT OF UNRELATED PERSONS- For purposes of this subsection, sales among and between persons described in clauses (i), (ii), (iii), (iv), and (v) of paragraph (1)(A) shall be treated as sales between unrelated parties.'.

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

TITLE V--OIL AND GAS PROVISIONS

SEC. 501. OIL AND GAS FROM MARGINAL WELLS.

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

`SEC. 45K. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

`(a) GENERAL RULE- For purposes of section 38, the marginal well production credit for any taxable year is an amount equal to the product of--

`(1) the credit amount, and

`(2) the qualified credit oil production and the qualified natural gas production which is attributable to the taxpayer.

`(b) CREDIT AMOUNT- For purposes of this section--

`(1) IN GENERAL- The credit amount is--

`(A) $3 per barrel of qualified crude oil production, and

`(B) 50 cents per 1,000 cubic feet of qualified natural gas production.

`(2) REDUCTION AS OIL AND GAS PRICES INCREASE-

`(A) IN GENERAL- The $3 and 50 cents amounts under paragraph (1) shall each be reduced (but not below zero) by an amount which bears the same ratio to such amount (determined without regard to this paragraph) as--

`(i) the excess (if any) of the applicable reference price over $15 ($1.67 for qualified natural gas production), bears to

`(ii) $3 ($0.33 for qualified natural gas production).

The applicable reference price for a taxable year is the reference price of the calendar year preceding the calendar year in which the taxable year begins.

`(B) INFLATION ADJUSTMENT- In the case of any taxable year beginning in a calendar year after 2002, each of the dollar amounts contained in subparagraph (A) shall be increased to an amount equal to such dollar amount multiplied by the inflation adjustment factor for such calendar year (determined under section 43(b)(3)(B) by substituting `2001' for `1990').

`(C) REFERENCE PRICE- For purposes of this paragraph, the term `reference price' means, with respect to any calendar year--

`(i) in the case of qualified crude oil production, the reference price determined under section 29(d)(2)(C), and

`(ii) in the case of qualified natural gas production, the Secretary's estimate of the annual average wellhead price per 1,000 cubic feet for all domestic natural gas.

`(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRODUCTION- For purposes of this section--

`(1) IN GENERAL- The terms `qualified crude oil production' and `qualified natural gas production' mean domestic crude oil or natural gas which is produced from a qualified marginal well.

`(2) Limitation on amount of production which may qualify-

`(A) IN GENERAL- Crude oil or natural gas produced during any taxable year from any well shall not be treated as qualified crude oil production or qualified natural gas production to the extent production from the well during the taxable year exceeds 1,095 barrels or barrel equivalents.

`(B) Proportionate reductions-

`(i) SHORT TAXABLE YEARS- In the case of a short taxable year, the limitations under this paragraph shall be proportionately reduced to reflect the ratio which the number of days in such taxable year bears to 365.

`(ii) WELLS NOT IN PRODUCTION ENTIRE YEAR- In the case of a well which is not capable of production during each day of a taxable year, the limitations under this paragraph applicable to the well shall be proportionately reduced to reflect the ratio which the number of days of production bears to the total number of days in the taxable year.

`(3) Definitions-

`(A) QUALIFIED MARGINAL WELL- The term `qualified marginal well' means a domestic well--

`(i) the production from which during the taxable year is treated as marginal production under section 613A(c)(6), or

`(ii) which, during the taxable year--

`(I) has average daily production of not more than 25 barrel equivalents, and

`(II) produces water at a rate not less than 95 percent of total well effluent.

`(B) CRUDE OIL, ETC- The terms `crude oil', `natural gas', `domestic', and `barrel' have the meanings given such terms by section 613A(e).

`(C) BARREL EQUIVALENT- The term `barrel equivalent' means, with respect to natural gas, a conversation ratio of 6,000 cubic feet of natural gas to 1 barrel of crude oil.

`(d) Other Rules-

`(1) PRODUCTION ATTRIBUTABLE TO THE TAXPAYER- In the case of a qualified marginal well in which there is more than one owner of operating interests in the well and the crude oil or natural gas production exceeds the limitation under subsection (c)(2), qualifying crude oil production or qualifying natural gas production attributable to the taxpayer shall be determined on the basis of the ratio which taxpayer's revenue interest in the production bears to the aggregate of the revenue interests of all operating interest owners in the production.

`(2) OPERATING INTEREST REQUIRED- Any credit under this section may be claimed only on production which is attributable to the holder of an operating interest.

`(3) PRODUCTION FROM NONCONVENTIONAL SOURCES EXCLUDED- In the case of production from a qualified marginal well which is eligible for the credit allowed under section 29 for the taxable year, no credit shall be allowable under this section unless the taxpayer elects not to claim the credit under section 29 with respect to the well.

`(4) NONCOMPLIANCE WITH POLLUTION LAWS- For purposes of subsection (c)(3)(A), a marginal well 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 marginal well during such period.'.

(b) CREDIT TREATED AS BUSINESS CREDIT- Section 38(b), as amended by this Act, is amended by striking `plus' at the end of paragraph (20), by striking the period at the end of paragraph (21) and inserting `, plus', and by adding at the end the following new paragraph:

`(22) the marginal oil and gas well production credit determined under section 45K(a).'.

(c) NO CARRYBACK OF MARGINAL OIL AND GAS WELL PRODUCTION CREDIT BEFORE EFFECTIVE DATE- Subsection (d) of section 39, as amended by this Act, is amended by adding at the end the following new paragraph:

`(19) NO CARRYBACK OF MARGINAL OIL AND GAS WELL PRODUCTION CREDIT BEFORE EFFECTIVE DATE- No portion of the unused business credit for any taxable year which is attributable to the marginal oil and gas well production credit determined under section 45K may be carried back to a taxable year ending on or before the date of the enactment of section 45K.'.

(d) COORDINATION WITH SECTION 29- Section 29(a) is amended by striking `There' and inserting `At the election of the taxpayer, there'.

(e) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 45K. Credit for producing oil and gas from marginal wells.'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to production in taxable years beginning after the date of the enactment of this Act.

SEC. 502. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.

(a) IN GENERAL- Subparagraph (C) of section 168(e)(3) (relating to classification of certain property) is amended by striking `and' at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause:

`(ii) any natural gas gathering line, and'.

(b) NATURAL GAS GATHERING LINE- Subsection (i) of section 168, as amended by this Act, is amended by adding at the end the following new paragraph:

`(16) NATURAL GAS GATHERING LINE- The term `natural gas gathering line' means--

`(A) the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, or

`(B) the pipe, equipment, and appurtenances used to deliver natural gas from the wellhead or a commonpoint to the point at which such gas first reaches--

`(i) a gas processing plant,

`(ii) an interconnection with a transmission pipeline certificated by the Federal Energy Regulatory Commission as an interstate transmission pipeline,

`(iii) an interconnection with an intrastate transmission pipeline, or

`(iv) a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer.'.

(c) ALTERNATIVE SYSTEM- The table contained in section 168(g)(3)(B) is amended by inserting after the item relating to subparagraph (C)(i) the following new item:

`(C)(ii)

--10'.

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

SEC. 503. REPEAL OF REQUIREMENT OF CERTAIN APPROVED TERMINALS TO OFFER DYED DIESEL FUEL AND KEROSENE FOR NONTAXABLE PURPOSES.

(a) IN GENERAL- Section 4101 (relating to certain approved terminals of registered persons required to offer dyed diesel fuel and kerosene for nontaxable purposes) is amended by striking subsection (e).

(b) EFFECTIVE DATE- The amendment made by this section shall take effect on January 1, 2002.

SEC. 504. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

(a) IN GENERAL- Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations), as amended by this Act, is amended by inserting after section 179C the following new section:

`SEC. 179D. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

`(a) TREATMENT AS EXPENSE-

`(1) IN GENERAL- A small business refiner may elect to treat any qualified capital costs as an expense which is not chargeable to capital account. Any qualified cost which is so treated shall be allowed as a deduction for the taxable year in which the cost is paid or incurred.

`(2) LIMITATION-

`(A) IN GENERAL- The aggregate costs which may be taken into account under this subsection for any taxable year may not exceed the applicable percentage of the qualified capital costs paid or incurred for the taxable year.

`(B) APPLICABLE PERCENTAGE- For purposes of subparagraph (A)--

`(i) IN GENERAL- Except as provided in clause (ii), the applicable percentage is 75 percent.

`(ii) REDUCED PERCENTAGE- In the case of a small business refiner with average daily refinery runs for the period described in subsection (b)(2) in excess of 155,000 barrels, the percentage described in clause (i) shall be reduced (not below zero) by the product of such percentage (before the application of this clause) and the ratio of such excess to 50,000 barrels.

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

`(1) QUALIFIED CAPITAL COSTS- The term `qualified capital costs' means any costs which--

`(A) are otherwise chargeable to capital account, and

`(B) are paid or incurred for the purpose of complying with the Highway Diesel Fuel Sulfur Control Requirement of the Environmental Protection Agency, as in effect on the date of the enactment of this section, with respect to a facility placed in service by the taxpayer before such date.

`(2) SMALL BUSINESS REFINER- The term `small business refiner' means, with respect to any taxable year, a refiner of crude oil, which, within the refinery operations of the business, employs not more than 1,500 employees on any day during such taxable year and whose average daily refinery run for the 1-year period ending on the date of the enactment of this section did not exceed 205,000 barrels.

`(c) COORDINATION WITH OTHER PROVISIONS- Section 280B shall not apply to amounts which are treated as expenses under this section.

`(d) 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).

`(e) CONTROLLED GROUPS- For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer.'.

(b) CONFORMING AMENDMENTS-

(1) Section 263(a)(1), as amended by this Act, is amended by striking `or' at the end of subparagraph (I), by striking the period at the end of subparagraph (J) and inserting `, or', and by inserting after subparagraph (J) the following new subparagraph:

`(K) expenditures for which a deduction is allowed under section 179D.'.

(2) Section 263A(c)(3) is amended by inserting `179C,' after `section'.

(3) Section 312(k)(3)(B), as amended by this Act, is amended by striking `or 179C' each place it appears in the heading and text and inserting `, 179C, or 179D'.

(4) Section 1016(a), as amended by this Act, is amended by striking `and' at the end of paragraph (33), by striking the period at the end of paragraph (34) and inserting `, and', and by adding at the end the following new paragraph:

`(35) to the extent provided in section 179D(d).'.

(5) Section 1245(a), as amended by this Act, is amended by inserting `179D,' after `179C,' both places it appears in paragraphs (2)(C) and (3)(C).

(6) The table of sections for part VI of subchapter B of chapter 1, as amended by this Act, is amended by inserting after section 179C the following new item:

`Sec. 179D. Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations.'.

(c) EFFECTIVE DATE- The amendment made by this section shall apply to expenses paid or incurred after the date of the enactment of this Act, in taxable years ending after such date.

SEC. 505. ENVIRONMENTAL TAX CREDIT.

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

`SEC. 45L. ENVIRONMENTAL TAX CREDIT.

`(a) IN GENERAL- For purposes of section 38, the amount of the environmental tax credit determined under this section with respect to any small business refiner for any taxable year is an amount equal to 5 cents for every gallon of 15 parts per million or less sulfur diesel produced at a facility by such small business refiner during such taxable year.

`(b) MAXIMUM CREDIT-

`(1) IN GENERAL- For any small business refiner, the aggregate amount determined under subsection (a) for any taxable year with respect to any facility shall not exceed the applicable percentage of the qualified capital costs paid or incurred by such small business refiner with respect to such facility during the applicable period, reduced by the credit allowed under subsection (a) for any preceding year.

`(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1)--

`(A) IN GENERAL- Except as provided in subparagraph (B), the applicable percentage is 25 percent.

`(B) REDUCED PERCENTAGE- The percentage described in subparagraph (A) shall be reduced in the same manner as under section 179D(a)(2)(B)(ii).

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

`(1) IN GENERAL- The terms `small business refiner' and `qualified capital costs' have the same meaning as given in section 179D.

`(2) APPLICABLE PERIOD- The term `applicable period' means, with respect to any facility, the period beginning on the day after the date which is 1 year after the date of the enactment of this section and ending with the date which is 1 year after the date on which the taxpayer must comply with the applicable EPA regulations with respect to such facility.

`(3) APPLICABLE EPA REGULATIONS- The term `applicable EPA regulations' means the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency, as in effect on the date of the enactment of this section.

`(d) Certification-

`(1) REQUIRED- Not later than the date which is 30 months after the first day of the first taxable year in which the environmental tax credit is allowed with respect to qualified capital costs paid or incurred with respect to a facility, the small business refiner shall obtain a certification from the Secretary, in consultation with the Administrator of the Environmental Protection Agency, that the taxpayer's qualified capital costs with respect to such facility will result in compliance with the applicable EPA regulations.

`(2) CONTENTS OF APPLICATION- An application for certification shall include relevant information regarding unit capacities and operating characteristics sufficient for the Secretary, in consultation with the Administrator of the Environmental Protection Agency, to determine that such qualified capital costs are necessary for compliance with the applicable EPA regulations.

`(3) REVIEW PERIOD- Any application shall be reviewed and notice of certification, if applicable, shall be made within 60 days of receipt of such application. In the event the Secretary does not notify the taxpayer of the results of such certification within such period, the taxpayer may presume the certification to be issued until so notified.

`(4) STATUTE OF LIMITATIONS- With respect to the credit allowed under this section--

`(A) the statutory period for the assessment of any deficiency attributable to such credit shall not expire before the end of the 3-year period ending on the date that the review period described in paragraph (3) ends, and

`(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

`(e) CONTROLLED GROUPS- For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer.

`(f) COOPERATIVE ORGANIZATIONS-

`(1) APPORTIONMENT OF CREDIT- In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a) of this section, for the taxable year may, at the election of the organization, be apportioned among patrons eligible to share in patronage dividends on the basis of the quantity or value of business done with or for such patrons for the taxable year. Such an election shall be irrevocable for such taxable year.

`(2) TREATMENT OF ORGANIZATIONS AND PATRONS-

`(A) ORGANIZATIONS- The amount of the credit not apportioned to patrons pursuant to paragraph (1) shall be included in the amount

determined under subsection (a) for the taxable year of the organization.

`(B) PATRONS- The amount of the credit apportioned to patrons pursuant to paragraph (1) shall be included in the amount determined under subsection (a) for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.'.

(b) CREDIT MADE PART OF GENERAL BUSINESS CREDIT- Subsection (b) of section 38 (relating to general business credit), as amended by this Act, is amended by striking `plus' at the end of paragraph (21), by striking the period at the end of paragraph (22) and inserting `, plus', and by adding at the end the following new paragraph:

`(23) in the case of a small business refiner, the environmental tax credit determined under section 45L(a).'.

(c) DENIAL OF DOUBLE BENEFIT- Section 280C (relating to certain expenses for which credits are allowable), as amended by this Act, is amended by adding after subsection (d) the following new subsection:

`(e) ENVIRONMENTAL TAX CREDIT- No deduction shall be allowed for that portion of the expenses otherwise allowable as a deduction for the taxable year which is equal to the amount of the credit determined for the taxable year under section 45L(a).'.

(d) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 45L. Environmental tax credit.'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to expenses paid or incurred after the date of the enactment of this Act, in taxable years ending after such date.

SEC. 506. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION DEDUCTION.

(a) IN GENERAL- Paragraph (4) of section 613A(d) (relating to certain refiners excluded) is amended to read as follows:

`(4) CERTAIN REFINERS EXCLUDED- If the taxpayer or 1 or more related persons engages in the refining of crude oil, subsection (c) shall not apply to the taxpayer for a taxable year if the average daily refinery runs of the taxpayer and such persons for the taxable year exceed 60,000 barrels. For purposes of this paragraph, the average daily refinery runs for any taxable year shall be determined by dividing the aggregate refinery runs for the taxable year by the number of days in the taxable year.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 507. MARGINAL PRODUCTION INCOME LIMIT EXTENSION.

(a) IN GENERAL- Section 613A(c)(6)(H) (relating to temporary suspension of taxable income limit with respect to marginal production) is amended by striking `2002' and inserting `2007'.

(b) EFFECTIVE DATE- The amendments made by this section shall take effect on and after January 1, 2002.

SEC. 508. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

(a) IN GENERAL- Part VI of subchapter B of chapter 1, as amended by this Act, is amended by adding at the end the following new section:

`SEC. 199. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES FOR DOMESTIC OIL AND GAS WELLS.

`A taxpayer shall be entitled to an amortization deduction with respect to any geological and geophysical expenses incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) based on a period of 24 months beginning with the month in which such expenses were incurred.'.

(b) CLERICAL AMENDMENT- The table of sections for part VI of subchapter B of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 199. Amortization of geological and geophysical expenditures for domestic oil and gas wells.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to costs paid or incurred in taxable years beginning after December 31, 2002.

SEC. 509. AMORTIZATION OF DELAY RENTAL PAYMENTS.

(a) IN GENERAL- Part VI of subchapter B of chapter 1, as amended by this Act, is amended by adding at the end the following new section:

`SEC. 199A. AMORTIZATION OF DELAY RENTAL PAYMENTS FOR DOMESTIC OIL AND GAS WELLS.

`(a) IN GENERAL- A taxpayer shall be entitled to an amortization deduction with respect to any delay rental payments incurred in connection with the development of oil or gas within the United States (as defined in section 638) based on a period of 24 months beginning with the month in which such payments were incurred.'.

`(b) DELAY RENTAL PAYMENTS- For purposes of this section, the term `delay rental payment' means an amount paid for the privilege of deferring development of an oil or gas well under an oil or gas lease.'.

(b) CLERICAL AMENDMENT- The table of sections for part VI of subchapter B of chapter 1, as amended by this Act, is amended by adding at the end the following new item:

`Sec. 199A. Amortization of delay rental payments for domestic oil and gas wells.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2002.

SEC. 510. STUDY OF COAL BED METHANE.

(a) IN GENERAL- The Secretary of the Treasury shall study the effect of section 29 of the Internal Revenue Code of 1986 on the production of coal bed methane. Such study shall be made in conjunction with the study to be undertaken by the Secretary of the Interior on the effects of coal bed methane production on surface and water resources, as provided in section 607 of the Energy Policy Act of 2002.

(b) CONTENTS OF STUDY- The study under subsection (a) shall estimate the total amount of credits under section 29 of the Internal Revenue Code of 1986 claimed annually and in the aggregate which are related to the production of coal bed methane since the date of the enactment of such section 29. Such study shall report the annual value of such credits allowable for coal bed methane compared to the average annual wellhead price of natural gas (per thousand cubic feet of natural gas). Such study shall also estimate the incremental increase in production of coal bed methane that has resulted from the enactment of such section 29, and the cost to the Federal Government, in terms of the net tax benefits claimed, per thousand cubic feet of incremental coal bed methane produced annually and in the aggregate since such enactment.

SEC. 511. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.

(a) IN GENERAL- Section 29 is amended by adding at the end the following new subsection:

`(h) EXTENSION FOR OTHER FACILITIES-

`(1) OIL AND GAS- In the case of a well or facility for producing qualified fuels described in subparagraph (A) or (B) of subsection (c)(1) which was drilled or placed in service after the date of the enactment of this subsection and before January 1, 2005, notwithstanding subsection (f), this section shall apply with respect to such fuels produced at such well or facility not later than the close of the 3-year period beginning on the date that such well is drilled or such facility is placed in service.

`(2) FACILITIES PRODUCING REFINED COAL-

`(A) IN GENERAL- In the case of a facility described in subparagraph (C) for producing refined coal which was placed in service after the date of the enactment of this subsection and before January 1, 2007, this section shall apply with respect to fuel produced at such facility not later than the close of the 5-year period beginning on the date such facility is placed in service.

`(B) REFINED COAL- For purposes of this paragraph, the term `refined coal' means a fuel which is a liquid, gaseous, or solid synthetic fuel produced from coal (including lignite) or high carbon fly ash, including such fuel used as a feedstock.

`(C) COVERED FACILITIES-

`(i) IN GENERAL- A facility is described in this subparagraph if such facility produces refined coal using a technology that results in--

`(I) a qualified emission reduction, and

`(II) a qualified enhanced value.

`(ii) QUALIFIED EMISSION REDUCTION- For purposes of this subparagraph, the term `qualified emission reduction' means a reduction of at least 20 percent of the emissions of sulfur dioxide and nitrogen oxide released when burning the refined coal (excluding any dilution caused by materials combined or added during the production process), as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of January 1, 2002.

`(iii) QUALIFIED ENHANCED VALUE- For purposes of this subparagraph, the term `qualified enhanced value' means an increase of at least 50 percent in the market value of the refined coal (excluding any increase caused by materials combined or added during the production process), as compared to the value of the feedstock coal or comparable coal predominantly available in the marketplace as of January 1, 2002.

`(iv) QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY FACILITIES EXCLUDED- A facility described in this subparagraph shall not include a qualifying advanced clean coal technology facility (as defined in section 48A(b)).

`(3) WELLS PRODUCING VISCOUS OIL-

`(A) IN GENERAL- In the case of a well for producing viscous oil which was placed in service after the date of the enactment of this subsection and before January 1, 2005, this section shall apply with respect to fuel produced at such well not later than the close of the 3-year period beginning on the date such well is placed in service.

`(B) VISCOUS OIL- The term `viscous oil' means heavy oil, as defined in section 613A(c)(6), except that--

`(i) `22 degrees' shall be substituted for `20 degrees' in applying subparagraph (F) thereof, and

`(ii) in all cases, the oil gravity shall be measured from the initial well-head samples, drill cuttings, or down hole samples.

`(C) WAIVER OF UNRELATED PERSON REQUIREMENT- In the case of viscous oil, the requirement under subsection (a)(1)(B)(i) of a sale to an unrelated person shall not apply to any sale to the extent that the viscous oil is not consumed in the immediate vicinity of the wellhead.

`(4) COALMINE METHANE GAS-

`(A) IN GENERAL- This section shall apply to coalmine methane gas--

`(i) captured or extracted by the taxpayer after the date of the enactment of this subsection and before January 1, 2005, and

`(ii) utilized as a fuel source or sold by or on behalf of the taxpayer to an unrelated person after the date of the enactment of this subsection and before January 1, 2005.

`(B) COALMINE METHANE GAS- For purposes of this paragraph, the term `coalmine methane gas' means any methane gas which is--

`(i) liberated during qualified coal mining operations, or

`(ii) extracted up to 5 years in advance of qualified coal mining operations as part of a specific plan to mine a coal deposit.

`(C) SPECIAL RULE FOR ADVANCED EXTRACTION- In the case of coalmine methane gas which is captured in advance of qualified coal mining operations, the credit under subsection (a) shall be allowed only after the date the coal extraction occurs in the immediate area where the coalmine methane gas was removed.

`(D) NONCOMPLIANCE WITH POLLUTION LAWS- For purposes of subparagraphs (B) and (C), coal mining operations which are 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 qualified coal mining operations during such period.

`(5) CREDIT AMOUNT- In the case of fuels sold from facilities described in this subsection, the dollar amount applicable under subsection (a)(1) shall be $3 (without regard to subsection (b)(2)).'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to fuel sold after the date of the enactment of this Act.

SEC. 512. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.

(a) IN GENERAL- Subparagraph (E) of section 168(e)(3) (relating to classification of certain property) is amended by striking `and' at the end of clause (ii), by striking the period at the end of clause (iii) and by inserting `, and', and by adding at the end the following new clause:

`(iv) any natural gas distribution line.'.

(b) ALTERNATIVE SYSTEM- The table contained in section 168(g)(3)(B), as amended by this Act, is amended

by adding after the item relating to subparagraph (E)(iii) the following new item:

`(E)(iv)

--20'.

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

TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

SEC. 601. ONGOING STUDY AND REPORTS REGARDING TAX ISSUES RESULTING FROM FUTURE RESTRUCTURING DECISIONS.

(a) ONGOING STUDY- The Secretary of the Treasury, after consultation with the Federal Energy Regulatory Commission, shall undertake an ongoing study of Federal tax issues resulting from non-tax decisions on the restructuring of the electric industry. In particular, the study shall focus on the effect on tax-exempt bonding authority of public power entities and on corporate restructuring which results from the restructuring of the electric industry.

(b) REGULATORY RELIEF- In connection with the study described in subsection (a), the Secretary of the Treasury should exercise the Secretary's authority, as appropriate, to modify or suspend regulations that may impede an electric utility company's ability to reorganize its capital stock structure to respond to a competitive marketplace.

(c) REPORTS- The Secretary of the Treasury shall report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives not later than December 31, 2002, regarding Federal tax issues identified under the study described in subsection (a), and at least annually thereafter, regarding such issues identified since the preceding report. Such reports shall also include such legislative recommendations regarding changes to the private business use rules under subpart A of part IV of subchapter B of chapter 1 of the Internal Revenue Code of 1986 as the Secretary of the Treasury deems necessary. The reports shall continue until such time as the Federal Energy Regulatory Commission has completed the restructuring of the electric industry.

SEC. 602. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS.

(a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND BASED ON COST OF SERVICE; CONTRIBUTIONS AFTER FUNDING PERIOD- Subsection (b) of section 468A is amended to read as follows:

`(b) LIMITATION ON AMOUNTS PAID INTO FUND- The amount which a taxpayer may pay into the Fund for any taxable year shall not exceed the ruling amount applicable to such taxable year.'.

(b) CLARIFICATION OF TREATMENT OF FUND TRANSFERS- Subsection (e) of section 468A is amended by adding at the end the following new paragraph:

`(8) TREATMENT OF FUND TRANSFERS- If, in connection with the transfer of the taxpayer's interest in a nuclear powerplant, the taxpayer transfers the Fund with respect to such powerplant to the transferee of such interest and the transferee elects to continue the application of this section to such Fund--

`(A) the transfer of such Fund shall not cause such Fund to be disqualified from the application of this section, and

`(B) no amount shall be treated as distributed from such Fund, or be includible in gross income, by reason of such transfer.'.

(c) DEDUCTION FOR NUCLEAR DECOMMISSIONING COSTS WHEN PAID- Paragraph (2) of section 468A(c) is amended to read as follows:

`(2) DEDUCTION OF NUCLEAR DECOMMISSIONING COSTS- In addition to any deduction under subsection (a), nuclear decommissioning costs paid or incurred by the taxpayer during any taxable year shall constitute ordinary and necessary expenses in carrying on a trade or business under section 162.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 603. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

(a) INCOME FROM OPEN ACCESS AND NUCLEAR DECOMMISSIONING TRANSACTIONS-

(1) IN GENERAL- Subparagraph (C) of section 501(c)(12) is amended by striking `or' at the end of clause (i), by striking clause (ii), and by adding at the end the following new clauses:

`(ii) from any open access transaction (other than income received or accrued directly or indirectly from a member),

`(iii) from any nuclear decommissioning transaction,

`(iv) from any asset exchange or conversion transaction, or

`(v) from the prepayment of any loan, debt, or obligation made, insured, or guaranteed under the Rural Electrification Act of 1936.'.

(2) DEFINITIONS AND SPECIAL RULES- Paragraph (12) of section 501(c) is amended by adding at the end the following new subparagraphs:

`(E) For purposes of subparagraph (C)(ii)--

`(i) The term `open access transaction' means any transaction meeting the open access requirements of any of the following subclauses with respect to a mutual or cooperative electric company:

`(I) The provision or sale of transmission service or ancillary services meets the open access requirements of this subclause only if such services are provided on a nondiscriminatory open access basis pursuant to an open access transmission tariff filed with and approved by FERC, including an acceptable reciprocity tariff, or under a regional transmission organization agreement approved by FERC.

`(II) The provision or sale of electric energy distribution services or ancillary services meets the open access requirements of this subclause only if such services are provided on a nondiscriminatory open access basis to end-users served by distribution facilities owned by the mutual or cooperative electric company (or its members).

`(III) The delivery or sale of electric energy generated by a generation facility meets the open access requirements of this subclause only if such facility is directly connected to distribution facilities owned by the mutual or cooperative electric company (or its members) which owns the generation facility, and such distribution facilities meet the open access requirements of subclause (II).

`(ii) Clause (i)(I) shall apply in the case of a voluntarily filed tariff only if the mutual or cooperative electric company files a report with FERC within 90 days after the date of the enactment of this subparagraph relating to whether or not such

company will join a regional transmission organization.

`(iii) A mutual or cooperative electric company shall be treated as meeting the open access requirements of clause (i)(I) if a regional transmission organization controls the transmission facilities.

`(iv) References to FERC in this subparagraph shall be treated as including references to the Public Utility Commission of Texas with respect to any ERCOT utility (as defined in section 212(k)(2)(B) of the Federal Power Act (16 U.S.C. 824k(k)(2)(B))) or references to the Rural Utilities Service with respect to any other facility not subject to FERC jurisdiction.

`(v) For purposes of this subparagraph--

`(I) The term `transmission facility' means an electric output facility (other than a generation facility) that operates at an electric voltage of 69 kV or greater. To the extent provided in regulations, such term includes any output facility that FERC determines is a transmission facility under standards applied by FERC under the Federal Power Act (as in effect on the date of the enactment of the Energy Tax Incentives Act of 2002).

`(II) The term `regional transmission organization' includes an independent system operator.

`(III) The term `FERC' means the Federal Energy Regulatory Commission.

`(F) The term `nuclear decommissioning transaction' means--

`(i) any transfer into a trust, fund, or instrument established to pay any nuclear decommissioning costs if the transfer is in connection with the transfer of the mutual or cooperative electric company's interest in a nuclear powerplant or nuclear powerplant unit,

`(ii) any distribution from any trust, fund, or instrument established to pay any nuclear decommissioning costs, or

`(iii) any earnings from any trust, fund, or instrument established to pay any nuclear decommissioning costs.

`(G) The term `asset exchange or conversion transaction' means any voluntary exchange or involuntary conversion of any property related to generating, transmitting, distributing, or selling electric energy by a mutual or cooperative electric company, the gain from which qualifies for deferred recognition under section 1031 or 1033, but only if the replacement property acquired by such company pursuant to such section constitutes property which is used, or to be used, for--

`(i) generating, transmitting, distributing, or selling electric energy, or

`(ii) producing, transmitting, distributing, or selling natural gas.'.

(b) TREATMENT OF INCOME FROM LOAD LOSS TRANSACTIONS- Paragraph (12) of section 501(c), as amended by subsection (a)(2), is amended by adding after subparagraph (G) the following new subparagraph:

`(H)(i) In the case of a mutual or cooperative electric company described in this paragraph or an organization described in section 1381(a)(2)(C), income received or accrued from a load loss transaction shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.

`(ii) For purposes of clause (i), the term `load loss transaction' means any wholesale or retail sale of electric energy (other than to members) to the extent that the aggregate sales during the recovery period does not exceed the load loss mitigation sales limit for such period.

`(iii) For purposes of clause (ii), the load loss mitigation sales limit for the recovery period is the sum of the annual load losses for each year of such period.

`(iv) For purposes of clause (iii), a mutual or cooperative electric company's annual load loss for each year of the recovery period is the amount (if any) by which--

`(I) the megawatt hours of electric energy sold during such year to members of such electric company are less than

`(II) the megawatt hours of electric energy sold during the base year to such members.

`(v) For purposes of clause (iv)(II), the term `base year' means--

`(I) the calendar year preceding the start-up year, or

`(II) at the election of the electric company, the second or third calendar years preceding the start-up year.

`(vi) For purposes of this subparagraph, the recovery period is the 7-year period beginning with the start-up year.

`(vii) For purposes of this subparagraph, the start-up year is the calendar year which includes the date of the enactment of this subparagraph or, if later, at the election of the mutual or cooperative electric company--

`(I) the first year that such electric company offers nondiscriminatory open access, or

`(II) the first year in which at least 10 percent of such electric company's sales are not to members of such electric company.

`(viii) A company shall not fail to be treated as a mutual or cooperative company for purposes of this paragraph or as a corporation operating on a cooperative basis for purposes of section 1381(a)(2)(C) by reason of the treatment under clause (i).

`(ix) In the case of a mutual or cooperative electric company, income from any open access transaction received, or accrued, indirectly from a member shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.'.

(c) EXCEPTION FROM UNRELATED BUSINESS TAXABLE INCOME- Subsection (b) of section 512 (relating to modifications) is amended by adding at the end the following new paragraph:

`(18) TREATMENT OF MUTUAL OR COOPERATIVE ELECTRIC COMPANIES- In the case of a mutual or cooperative electric company described in section 501(c)(12), there shall be excluded income which is treated as member income under subparagraph (H) thereof.'.

(d) CROSS REFERENCE- Section 1381 is amended by adding at the end the following new subsection:

`(c) Cross Reference-

(e) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

TITLE VII--ADDITIONAL PROVISIONS

SEC. 701. EXTENSION OF ACCELERATED DEPRECIATION AND WAGE CREDIT BENEFITS ON INDIAN RESERVATIONS.

(a) SPECIAL RECOVERY PERIOD FOR PROPERTY ON INDIAN RESERVATIONS- Section 168(j)(8) (relating to termination) is amended by striking `2003' and inserting `2005'.

(b) INDIAN EMPLOYMENT CREDIT- Section 45A(f) (relating to termination) is amended by striking `2003' and inserting `2005'.

SEC. 702. STUDY OF EFFECTIVENESS OF CERTAIN PROVISIONS BY GAO.

(a) STUDY- The Comptroller General of the United States shall undertake an ongoing analysis of--

(1) the effectiveness of the alternative motor vehicles and fuel incentives provisions under title II and the conservation and energy efficiency provisions under title III, and

(2) the recipients of the tax benefits contained in such provisions, including an identification of such recipients by income and other appropriate measurements.

Such analysis shall quantify the effectiveness of such provisions by examining and comparing the Federal Government's forgone revenue to the aggregate amount of energy actually conserved and tangible environmental benefits gained as a result of such provisions.

(b) REPORTS- The Comptroller General of the United States shall report the analysis required under subsection (a) to Congress not later than December 31, 2002, and annually thereafter.

Calendar No. 320

To provide energy tax incentives.

March 1, 2002

END