To amend the Internal Revenue Code of 1986 to provide for a credit for algae derived fuels, and for other purposes.

Summary: Amends the Internal Revenue Code to allow an income and excise tax credit for the production of algae derived fuel and fuel mixtures. Defines "algae derived fuel" as a liquid hydrocarbon product that is derived from the biomass of algal organisms (single- or multi-cellular organisms that are inherently photosynthetic and aquatic). Terminates such credits after 2012.

SECTION 1. ALGAE DERIVED FUEL CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 40A the following new section:

``SEC. 40B. ALGAE DERIVED FUEL CREDIT.

    ``(a) General Rule.--For purposes of section 38, the algae derived 
fuel credit determined under this section for the taxable year is an 
amount equal to the product of $1.50 and the gallons of algae derived 
fuel--
            ``(1) produced by the taxpayer and sold at retail for use 
        as a fuel or used during the taxable year by the taxpayer in a 
        trade or business, or
            ``(2) used by the taxpayer in the production of a mixture 
        with another fuel and sold for use as a fuel or used by the 
        taxpayer during the taxable year for use as a fuel in a trade 
        or business.
    ``(b) Coordination With Credit Against Excise Tax.--The amount of 
the credit determined under this section with respect to any algae 
derived fuel shall be properly reduced to take into account any benefit 
provided with respect to such algae derived fuel solely by reason of 
the application of section 6426 or 6427(e).
    ``(c) Definition of Algae Derived Fuel.--For purposes of this 
section--
            ``(1) The term `algae derived fuel' means a liquid 
        hydrocarbon product that is substantially similar to current 
        commercial fuels derived from petroleum and is derived from the 
        biomass of algal organisms. Such term shall not include any 
        liquid with respect to which a credit may be determined under 
        section 40 or 40A.
            ``(2) The term `algal organisms' means single or multi-
        cellular organisms which are inherently photosynthetic and 
        aquatic.
    ``(d) Mixture or Algae Derived Fuel Not Used as a Fuel, etc.--For 
purposes of this section, rules similar to the rules of paragraphs (3) 
and (4) of section 40A(d) shall apply.
    ``(e) Termination.--This section shall not apply to any sale or use 
after December 31, 2012.''.
    (b) Credit Treated as Part of General Business Credit.--Section 
38(b) of such Code is amended by striking ``plus'' at the end of 
paragraph (32), by striking the period at the end of paragraph (33) and 
inserting ``, plus'', and by inserting after paragraph (33) the 
following new paragraph:
            ``(34) the biodiesel fuels credit determined under section 
        40B(a).''.
    (c) Credit Included in Income.--Section 87 of such Code is amended 
by striking ``and'' at the end of paragraph (1), by striking the period 
at the end of paragraph (2) and inserting ``, and'', and by inserting 
after paragraph (2) the following new paragraph:
            ``(3) the algae derived fuels credit determined with 
        respect to the taxpayer for the taxable year under section 
        40B(a).''.
    (d) Deduction for Unused Credit.--Section 196(c) of such Code is 
amended by striking ``and'' at the end of paragraph (12), by striking 
the period at the end of paragraph (13) and inserting ``, and'', and by 
adding at the end the following new paragraph:
            ``(14) the algae derived fuels credit determined under 
        section 40B(a).''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 40A the following new 
item:

``Sec. 40B. Algae derived fuel credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to fuels sold or used in taxable years beginning after the date 
of the enactment of this Act.

SEC. 2. EXCISE TAX CREDIT PARITY FOR ALGAE DERIVED FUEL.

    (a) Allowance of Credit.--Paragraph (1) of section 6426(a) of the 
Internal Revenue Code of 1986 is amended by striking ``and (e)'' and 
inserting ``(e), and (f)''.
    (b) Algae Derived Fuel Mixture Credit.--Section 6426 of the 
Internal Revenue Code of 1986 is amended by redesignating subsections 
(f), (g), and (h) as subsections (g), (h), and (i), respectively, and 
by inserting after subsection (e) the following new subsection:
    ``(f) Algae Derived Fuel Mixture Credit.--
            ``(1) In general.--For purposes of this section, the algae 
        derived fuel credit is the product of $1.50 and the number of 
        gallons--
                    ``(A) of algae derived fuel produced by the 
                taxpayer and sold at retail for use as a fuel or used 
                by the taxpayer in a trade or business of the taxpayer, 
                and
                    ``(B) of algae derived fuel used by the taxpayer in 
                producing any mixture of such fuel with any other fuel 
                subsequently sold for use as a fuel or used by the 
                taxpayer for use as a fuel in a trade or business of 
                the taxpayer.
            ``(2) Algae derived fuel.--For the purposes of this 
        section, the term `algae derived fuel' shall have the same 
        meaning given such term in section 40B.
            ``(3) Termination.--This subsection shall not apply to any 
        sale or use after December 31, 2012.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to fuels sold or used for any period after the date of the 
enactment of this Act.

SEC. 3. PARITY REGARDING PAYMENTS FOR FUEL MIXTURE.

    (a) In General.--Paragraph (1) of section 6427(e) of the Internal 
Revenue Code of 1986 is amended by inserting ``or algae derived fuel 
mixture credit'' after ``alternative fuel mixture credit''.
    (b) Termination.--Paragraph (5) of section 6427(e) of such Code is 
amended by striking ``and'' at the end of subparagraph (C), by striking 
the period at the end of subparagraph (D) and inserting ``, and'', by 
inserting after subparagraph (D) the following new subparagraph:
                    ``(E) any algae based fuel mixture sold or used 
                after December 31, 2012.''.
    (c) Conforming Amendment.--The heading for section 6427(e) of such 
Code is amended by striking ``and Biodiesel Mixtures'' and inserting 
``, Biodiesel Mixtures, and Algae Derived Mixtures''.
    (d) Effective Date.--The amendments made by this section shall 
apply to fuels sold or used for any period after the date of the 
enactment of this Act.