To amend the Clean Air Act to prohibit the use of methyl tertiary butyl ether as a fuel additive, to require Federal vehicles to use ethanol fuel, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Ethanol Energy Promotion Act of 
2001''.

SEC. 2. PROHIBITION ON USE OF MTBE AS A FUEL ADDITIVE

    Section 211(c) of the Clean Air Act (42 U.S.C. 7545(c)) is amended 
by adding the following at the end of paragraph (1): ``Effective on the 
date of the enactment of this sentence, the use of methyl tertiary 
butyl ether (MTBE) as a fuel additive is prohibited.''. The 
Administrator of the Environmental Protection Agency shall amend the 
regulations under section 211(c) of the Clean Air Act (42 U.S.C. 
7545(c)) as promptly as practicable after the enactment of this Act to 
conform to the amendment made by this section.

SEC. 3. WAIVER OF OXYGEN CONTENT REQUIREMENT REPEALED.

    Section 211(k) of the Clean Air Act (42 U.S.C. 7545(k)) is amended 
by striking out the second sentence.

SEC. 4. CREDITS FOR EXCEEDING REDUCTION IN CARBON MONOXIDE AND 
              VOLATILITY REQUIREMENTS.

    Section 211(k)(7) of the Clean Air Act (42 U.S.C. 7545(k)(7)) is 
amended by adding the following at the end thereof:
                    ``(D) In addition to the credits described in 
                subparagraph (A), the Administrator shall also 
                promulgate regulations under this paragraph permitting 
                any person who refines, blends, or imports and 
                certifies a gasoline or a slate of gasoline with an 
                oxygen content that exceeds the minimum oxygen content 
                specified in paragraph (2) to take a volatility credit 
                for such gasoline. Such credit may be used to offset to 
                an appropriate extent, the Reid Vapor Pressure levels 
                requirements of subsection (h). The amount of the 
                credit that is appropriate shall be based on the ozone 
                forming potential of the gasoline concerned to insure 
                that allowance of such credit will not increase the 
                ozone forming potential of such gasoline above that of 
                other gasoline that meets the requirements of this 
                subsection.''.

SEC. 5. FEDERAL VEHICLES.

    Section 248(f) of the Clean Air Act (42 U.S.C. 7588(f)) is amended 
by inserting the following before the period at the end thereof: ``, 
and all such vehicles shall be clean fuel vehicles certified under this 
part capable of using ethanol as fuel and shall use ethanol wherever 
economically feasible, as determined by the Administrator''.

SEC. 6. SMALL ETHANOL PRODUCER CREDIT.

    (a) Allocation of Alcohol Fuels Credit to Patrons of a 
Cooperative.--Section 40(g) Internal Revenue Code of 1986 (relating to 
definitions and special rules for eligible small ethanol producer 
credit) is amended by adding at the end the following:
            ``(6) Allocation of small ethanol producer credit to 
        patrons of cooperative.--
                    ``(A) Election to allocate.--
                            ``(i) In general.--Notwithstanding 
                        paragraph (4), 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 (as so defined) 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) Definition of Small Ethanol Producer; Improvements to Small 
Ethanol Producer 
Credit.--
            (1) Definition of small ethanol producer.--
                    (A) In general.--Section 40(g)(1) of the Internal 
                Revenue Code of 1986 (relating to eligible small 
                ethanol producer) is amended by striking ``30,000,000'' 
                and inserting ``60,000,000''.
                    (B) Conforming amendments.--Section 40(g) of such 
                Code is amended by striking ``30,000,000'' both places 
                it appears in paragraphs (2) and (5)(A) and inserting 
                ``60,000,000''.
            (2) Small ethanol producer credit not a passive activity 
        credit.--Clause (i) of section 469(d)(2)(A) of such Code 
        (relating to passive activity credit) 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 of 
                such Code (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:
            ``(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) of such Code is amended by 
                inserting ``or the small ethanol producer credit'' 
                after ``employment credit''.
            (4) Small ethanol producer credit not added back to income 
        under section 87.--Section 87 of such Code (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 of the Internal Revenue 
Code of 1986 (relating to definitions and special rules for cooperative 
organizations) is amended by adding at the end the following:
    ``(k) Cross Reference.--For provisions relating to the 
apportionment of the alcohol fuels credit between cooperative 
organizations and their patrons, see section 40(d)(6).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

Summary: Ethanol Energy Promotion Act of 2001 - Amends the Clean Air Act to prohibit the use of methyl tertiary butyl ether as a fuel additive. Removes authority of the Administrator of the Environmental Protection Agency to waive the reformulated gasoline oxygen content requirement for an ozone nonattainment area. Directs the Administrator to promulgate regulations permitting a person who refines, blends, or imports and certifies gasoline with an oxygen content exceeding the minimum to take a volatility credit, based on the gasoline's ozone forming potential, to offset applicable Reid Vapor Pressure levels requirements. Requires Federal agency fleet vehicles to be certified as capable of using ethanol and to use ethanol wherever economically feasible. Amends the Internal Revenue Code with respect to the small ethanol producer credit to: (1) authorize credit allocation among a cooperative's patrons, (2) increase the gallon capacity for eligible producers, (3) make the credit a non-passive income credit. And (4) remove the credit from the alcohol fuel credit gross income inclusion.