To amend the Internal Revenue Code of 1986 to expand the renewable resources production tax credit to include additional forms of renewable energy, and to expand the investment tax credit to include equipment used to produce electricity from renewable resources.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Renewable Fuel Equity Act''.

SEC. 2. EXPANSION OF RENEWABLE RESOURCES CREDIT.

    (a) In General.--Section 45(c)(1) of the Internal Revenue Code of 
1986 (relating to qualified energy resources) is amended by striking 
``and'' at the end of subparagraph (B), by striking the period at the 
end of the subparagraph (C) and inserting a comma, and by adding at the 
end the following new subparagraphs:
                    ``(D) geothermal energy,
                    ``(E) solar energy,
                    ``(F) incremental hydropower, and
                    ``(G) biomass (other than closed-loop biomass).''
    (b) Extension and Modification of Placed-in-Service Rules With 
Respect to Biomass Facilities.--
            (1) In general.--Paragraph (3) of section 45(c) of the 
        Internal Revenue Code of 1986 (defining qualified facility) is 
        amended--
                    (A) by striking subparagraph (B) and inserting the 
                following new subparagraph:
                    ``(B) Closed-loop biomass facility.--In the case of 
                a facility using closed-loop biomass to produce 
                electricity, the term `qualified facility' means any 
                facility--
                            ``(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 on or before 
                        December 31, 1992, and modified to use closed-
                        loop biomass to co-fire with coal before 
                        January 1, 2007.'',
                    (B) by striking ``2004'' in subparagraph (C) and 
                inserting ``2007'', and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) Biomass facility.--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, 2007.''.
            (2) Definition.--Subsection (c) of section 45 of such Code 
        (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,
                    ``(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.''.
            (3) Special rules.--Subsection (d) of section 45 of such 
        Code (relating to definitions and special rules) is amended by 
        adding at the end the following new paragraph:
            ``(8) Special rules with respect to biomass.--In the case 
        of a qualified facility described in subparagraph (B)(ii) or 
        (D) of subsection (c)(3)--
                    ``(A) the 10-year period referred to in subsection 
                (a) shall be treated as beginning no earlier than the 
                date of the enactment of this paragraph,
                    ``(B) subsection (b)(3) shall not apply to any such 
                facility originally placed in service before January 1, 
                1997, and
                    ``(C) if such a facility is leased and the operator 
                thereof is the lessee, such lessee (and not the owner) 
                shall be treated for purposes of this section as owning 
                such facility.''
    (c) Qualified Facility To Include Geothermal, Solar Energy, and 
Incremental Hydropower Facility.--
            (1) In general.--Paragraph (3) of section 45(c) of such 
        Code, as amended by subsection (b), is amended by inserting 
        after subparagraph (D) the following new subparagraphs:
                    ``(E) Geothermal facility.--In the case of a 
                facility using geothermal energy to produce 
                electricity, the term `qualified facility' means--
                            ``(i) any facility owned by the taxpayer 
                        which is originally placed in service after 
                        December 31, 2001, or
                            ``(ii) any facility owned by the taxpayer 
                        which is originally placed in service before 
                        January 1, 2002, but only to the extent of its 
                        incremental geothermal production.
                    ``(F) Solar energy facility.--In the case of a 
                facility using solar energy to produce electricity, the 
                term `qualified facility' means--
                            ``(i) any facility owned by the taxpayer 
                        which is originally placed in service after 
                        December 31, 2001, or
                            ``(ii) any facility owned by the taxpayer 
                        which is originally placed in service before 
                        January 1, 2002, and modified on or after such 
                        date with additional generating capacity.
                In the case of a facility referred to in clause (ii), 
                the credit under subsection (a) applies only to the 
                production from the additional generating capacity.
                    ``(G) Incremental hydropower facility.--In the case 
                of a facility using incremental hydropower to produce 
                electricity, the term `qualified facility' means any 
                facility owned by the taxpayer that achieves additional 
                generation from--
                            ``(i) increased efficiency, or
                            ``(ii) additions of new capacity,
                at a non-Federal hydroelectric project originally 
                placed in service before the date of enactment of this 
                subparagraph.''.
            (2) Special rule.--Subsection (d) of section 45 of such 
        Code (relating to definitions and special rules), as amended by 
        subsection (b)(3), is amended by adding at the end the 
        following new paragraph:
            ``(9) Definition and special rule with respect to 
        incremental geothermal production.--
                    ``(A) In general.--The term `incremental geothermal 
                production' means for any taxable year the excess of--
                            ``(i) the total kilowatt hours of 
                        electricity produced from a geothermal facility 
                        described in subsection (c)(3)(E)(ii), over
                            ``(ii) the average annual kilowatt hours 
                        produced at such facility for five of the 
                        previous seven calendar years prior to the date 
                        of the enactment of this paragraph after 
                        eliminating the highest and lowest kilowatt 
                        hour production years in such seven-year 
                        period.
                    ``(B) Special rule.--A facility described in 
                subsection (c)(3)(E)(ii) which was placed in service 
                seven years or longer prior to the date of the 
                enactment of this paragraph shall, commencing with the 
                year of such enactment, reduce the amount calculated 
                under subparagraph (A)(ii) each year, on a cumulative 
                basis, by the average decrease in annual kilowatt hour 
                production for the seven-year period described in 
                subparagraph (A)(ii) with such cumulative sum not to 
                exceed 30 percent.''.
    (d) Coordination With Other Credits.--Subsection (d) of section 45 
of such Code (relating to definitions and special rules), as amended by 
subsection (c)(2), is amended by adding at the end the following:
            ``(10) Coordination with other credits.--This section shall 
        not apply to any qualified facility with respect to which a 
        credit under any other section is allowed for the taxable year 
        unless the taxpayer elects to waive application of such credit 
        to such facility.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to electricity sold after December 31, 2001.

SEC. 3. EXPANSION OF INVESTMENT TAX CREDIT TO INCLUDE EQUIPMENT USED TO 
              PRODUCE ELECTRICITY FROM CERTAIN RENEWABLE RESOURCES.

    (a) In General.--Subparagraph (A) of section 48(a)(3) of the 
Internal Revenue Code of 1986 (relating to energy credit reforestation 
credit) is amended by striking ``or'' at the end of clause (i), 
inserting ``or'' at the end of clause (ii), and adding at the end the 
following new clause:
                            ``(iii) equipment used to produce 
                        electricity from a qualified facility (as 
                        defined in section 45).''.
    (b) Increased Credit for Certain Equipment.--Paragraph (2) of 
section 48(a) is amended--
            (1) by redesignating subparagraph (B) as subparagraph (C),
            (2) in subparagraph (A), by striking ``The'' and inserting 
        ``Except as provided in subparagraph (B), the'', and
            (3) by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Increased percentage for certain equipment.--
                In the case of energy property having a total installed 
                electrical generating capacity of less than 1 megawatt 
                and placed in service before January 1, 2007, the 
                energy percentage is 20 percent.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to equipment placed in service after December 31, 2001.

Summary: Renewable Fuel Equity Act - Amends the Internal Revenue Code to expand the renewable resources credit to include geothermal and solar energy, incremental hydropower and biomass . Sets forth qualifying dates of service for facilities using such means to produce electricity. Expands the investment tax credit to include equipment used to produce electricity from certain renewable resources. Increases, from 10 to 20 percent, the energy percentage used to determine the energy credit in the case of energy property having a total installed electrical generating capacity of less than one megawatt that is placed in service before January 1, 2007.