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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2209 Introduced in House (IH)]

108th CONGRESS
  1st Session
                                H. R. 2209

      To require that diesel fuel sold in the United States meet 
 specifications designed to facilitate the widespread introduction of 
  clean diesel vehicles in the United States, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                              May 22, 2003

 Mr. Dingell introduced the following bill; which was referred to the 
 Committee on Energy and Commerce, and in addition to the Committee on 
   Ways and Means, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL

 
      To require that diesel fuel sold in the United States meet 
 specifications designed to facilitate the widespread introduction of 
  clean diesel vehicles in the United States, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Clean Diesel Act of 2003''.

SEC. 2. FINDINGS.

     The Congress finds the following:
            (1) Sulfur in diesel fuel is a source of air pollution.
            (2) Clean burning diesel technology is capable of high fuel 
        economy (exceeding 125 percent of model year 2002 fuel 
        economy).
            (3) Dependence on foreign oil is an issue of national 
        security.
            (4) The fuel economy benefits of diesel vehicles can be 
        seen in Europe, where diesel powered vehicles are widely 
        available.
            (5) The introduction of clean burning diesel vehicles would 
        be facilitated greatly by the introduction of diesel fuel with 
        the lowest feasible sulfur level and would result in 
        significant fuel economy benefits for the United States.
            (6) It is in the national interest that American 
        manufacturing and American workers are well positioned to meet 
        the rising consumer demand for advanced technology vehicles.
            (7) In subpart I of part 80, title 40, Code of Federal 
        Regulations, the Environmental Protection Agency requires that, 
        beginning June 1, 2006, motor vehicle diesel fuel may not 
        contain more than 15 parts per million of sulfur, subject to 
        certain limited exceptions ending on December 1, 2010.

SEC. 3. DEFINITIONS.

    For purposes of this Act:
            (1) The term `` Administrator'' means the Administrator of 
        the Environmental Protection Agency.
            (2) The term ``Secretary'' means the Secretary of Energy.

           TITLE I--CLEAN MOTOR VEHICLE DIESEL FUEL STANDARDS

SEC. 101. DEFINITIONS.

    For purposes of this title:
            (1) In general.--The terms ``import'', ``importer'', 
        ``ppm'', ``produce'', ``refiner'', ``refinery'', and ``motor 
        vehicle diesel fuel'' have the meanings given to those terms in 
        regulations of the Administrator relating to motor vehicle 
        diesel fuel.
            (2) Clean diesel fuel.--The term ``clean diesel fuel'' 
        means motor vehicle diesel fuel subject to the standards of 
        section 102(c).

SEC. 102. STANDARDS.

    (a) Effective Date.--The standards and requirements of this title 
apply to any motor vehicle diesel fuel produced or imported by any 
refiner or importer beginning on January 1, 2011.
    (b) Excluded Fuel.--The provisions of this title do not apply to 
motor vehicle diesel fuel that is designated for export outside the 
United States, and identified for export by a transfer document as 
required under regulations of the Administrator.
    (c) Standards.--Except as otherwise provided in this title, all 
motor vehicle diesel fuel is subject to the following per gallon 
standards:
            (1) Sulfur content.--A sulfur content as low as feasible, 
        as determined by the Administrator taking into consideration 
        costs, but not higher than 10 ppm. Not less than every 5 years, 
        the Administrator shall review and, as appropriate, revise the 
        determination made under this paragraph.
            (2) Cetane number.--A minimum cetane number of 55.
            (3) Aromatic content.--A maximum aromatic content of 15 
        volume percent.
            (4) Lubricity level.--A maximum high-frequency 
        reciprocating rig wear scar diameter of 400 microns.
    (d) Regulations.--Not later than January 1, 2006, the Administrator 
shall promulgate regulations to implement this title. Such regulations 
shall--
            (1) require measures to minimize the extent of sulfur 
        contamination in the motor vehicle diesel fuel distribution 
        system;
            (2) ensure that motor vehicle diesel fuel sold as clean 
        diesel fuel at retail outlets or wholesale purchaser-consumer 
        facilities does not exceed the per gallon standards set forth 
        in subsection (c); and
            (3) evaluate and, as necessary, promulgate requirements to 
        ensure the compatibility of motor oil intended for use in motor 
        vehicle engines consistent with the purposes and requirements 
        of this Act.
    (e) Savings.--Nothing in this title shall be construed to relieve 
any person of any emission control requirement or obligation under the 
Clean Air Act.

SEC. 103. WAIVERS; EXEMPTION.

    (a) Waiver on Petition of State.--
            (1) In general.--On petition by 1 or more States, the 
        Administrator, in consultation with the Secretary, may, in 
        whole or in part, waive the requirements of section 102 
        relating to clean diesel fuel by reducing the amount of clean 
        diesel fuel required under such section, if the Administrator 
        determines, after public notice and opportunity for comment, 
        that implementation of such requirements, without an 
        appropriate waiver, would severely harm the economy of a State 
        or region due to inadequate supply or distribution capacity 
        sufficient to meet such requirements.
            (2) Duration; renewal.--A waiver under this subsection 
        shall terminate after 180 days and may be renewed by the 
        Administrator for not more than 1 additional period of 180 days 
        after consultation with the Secretary.
            (3) Expiration of authority.--No waiver may be granted 
        under this subsection after December 31, 2010.
    (b) Economic Hardship Exemption.--
            (1) Exemption.--A small business refiner may petition the 
        Administrator for an exemption from the requirements of section 
        102 for the reason of disproportionate economic hardship. If 
        the Administrator fails to act on such a petition within 120 
        days after receipt of the petition, the petition shall be 
        deemed granted.
            (2) Definitions.--For purposes of this subsection:
                    (A) The term ``disproportionate economic hardship'' 
                means economic impact resulting in substantial economic 
                losses that threaten the viability of the entity in 
                question, as determined by the Administrator in 
                consultation with the Secretary.
                    (B) The term ``small business refiner'' means, with 
                respect to any calendar year, a refiner of crude oil 
                with respect to which not more than 1,500 persons are 
                engaged in the refinery operations of the business on 
                any day during such calendar year and whose average 
                daily domestic refinery run for such calendar year did 
                not exceed 205,000 barrels.

SEC. 104. MISFUELING.

    (a) Prohibition.--After December 31, 2010, no person shall 
knowingly introduce, or cause or allow the introduction of, fuel other 
than clean diesel fuel into any motor vehicle that is designed to 
operate with diesel fuel.
    (b) Penalty.--Any person that violates this section shall be 
subject to the same penalties applicable to a person that violates 
section 211(g) of the Clean Air Act (42 U.S.C. 7545(g)).

SEC. 105. PENALTIES AND INJUNCTIONS.

    (a) Civil Penalties.--Subject to penalties applicable to misfueling 
under section 104, any person who violates any provision of this title 
or the regulations prescribed under this title or who fails to furnish 
any information or conduct any tests required by the Administrator 
under regulations under this title shall be liable to the United States 
for a civil penalty of not more than the sum of $25,000 for every day 
of such violation and the amount of economic benefit or savings 
resulting from the violation.
    (b) Injunctive Authority.--The district courts of the United States 
shall have jurisdiction to restrain violations of this title and of the 
regulations prescribed under this title, to award other appropriate 
relief, and to compel the furnishing of information and the conduct of 
tests required by the Administrator under regulations under this title. 
Actions to restrain such violations and compel such actions shall be 
brought by and in the name of the United States. In any such action, 
subpoenas for witnesses who are required to attend a district court in 
any district may run into any other district.

     TITLE II--INCENTIVES TO ENCOURAGE CLEAN DIESEL MOTOR VEHICLES

SEC. 201. DETERMINATION OF CREDIT AMOUNTS FOR CLEAN DIESEL MOTOR 
              VEHICLE CREDIT AND LIFETIME FUEL SAVINGS CREDIT.

    (a) In General.--Not later than 120 days after the date of the 
enactment of this Act, the Secretary of Energy shall determine credit 
amounts for the clean diesel motor vehicle credit under section 30B, 
and the lifetime fuel savings credit under section 30C, of the Internal 
Revenue Code of 1986 in amounts which the Secretary determines will 
provide appropriate incentives to encourage the widespread consumer 
acceptance of clean diesel motor vehicles. In making determinations 
under the preceding sentence, the Secretary--
            (1) may not increase or decrease the credit amount 
        specified for a category in the table in subsection (b) by more 
        than $500;
            (2) may not increase the maximum fuel economy for a 
        category above the maximum fuel economy specified for that 
        category in the table in subsection (b);
            (3) may not increase or decrease the lifetime fuel savings 
        amount specified for a category in the table in subsection (c) 
        by more than $500; and
            (4) may not increase the number of gallons for the category 
        of lifetime fuel savings in the table in subsection (c).
    (b) Alternative Credit Amount For Clean Diesel Motor Vehicle 
Credit.--In the case that the Secretary of Energy does not meet the 
120-day period specified in subsection (a), the credit amounts for the 
clean diesel motor vehicle credit under section 30B of the Internal 
Revenue Code of 1986 shall be determined in accordance with the 
following table:
  

----------------------------------------------------------------------------------------------------------------
                                                                       Fuel economy based on
                                                                   percentage of 2002 model year
                            Category                                     city fuel economy         Credit amount
                                                                 --------------------------------
                                                                     At least      but less than
----------------------------------------------------------------------------------------------------------------
           1....................................................       125%            150%           $1,500
           2....................................................       150%            175%           $2,000
           3....................................................       175%            200%           $2,500
           4....................................................       200%            225%           $3,000
----------------------------------------------------------------------------------------------------------------

    (c) Alternative Credit Amount For Lifetime Fuel Savings Credit.--In 
the case that the Secretary of Energy does not meet the 120-day period 
specified in subsection (a), the credit amounts for the lifetime fuel 
savings credit under section 30C of the Internal Revenue Code of 1986 
shall be determined in accordance with the following table:

        Lifetime Fuel                       Credit
          Savings (gallons):                  Amount:

              1,200................
                                                  $1,500 
              1,800................
                                                  $2,000 
              2,400................
                                                  $2,500 
              3,000................
                                                  $3,000.
    (d) Option To Use Like Vehicle.--At the option of the vehicle 
manufacturer, the increase for fuel economy and lifetime fuel savings 
may be calculated by comparing the new clean diesel motor vehicle to a 
like vehicle.
    (e) Definitions.--For purposes of this section:
            (1) Clean diesel motor vehicle.--The term ``clean diesel 
        motor vehicle'' means a motor vehicle with an internal 
        combustion engine that--
                    (A) is designed to operate primarily using more air 
                than is necessary for complete combustion of the fuel;
                    (B) incorporates direct injection;
                    (C) achieves at least 125 percent of the 2002 model 
                year city fuel economy; and
                    (D) for 2004 and later model vehicles, has received 
                a certificate that such vehicle meets or exceeds the 
                Bin 5, Tier 2 emission levels (for passenger vehicles) 
                or Bin 8, Tier 2 emission levels (for light trucks) 
                established in regulations prescribed by the 
                Administrator under section 202(i) of the Clean Air Act 
                for that make and model year vehicle.
            (2) Lifetime fuel savings.--The lifetime fuel savings shall 
        be calculated by dividing 120,000 by the difference between the 
        2002 model year city fuel economy for the vehicle inertia 
        weight class and the city fuel economy for the new clean diesel 
        motor vehicle.
            (3) Like vehicle.--The term ``like vehicle'' for a clean 
        diesel motor vehicle derived from a conventional production 
        vehicle produced in the same model year means a model that is 
        equivalent in the following areas:
                    (A) Body style (2-door or 4-door).
                    (B) Transmission (automatic or manual).
                    (C) Acceleration performance (<plus-minus> 0.05 
                seconds).
                    (D) Drivetrain (2-wheel drive or 4-wheel drive).
                    (E) Certification by the Administrator.
            (4) 2002 model year city fuel economy.--The 2002 model year 
        city fuel economy with respect to a vehicle shall be determined 
        in accordance with the following tables:
                    (A) In the case of a passenger automobile:

        If vehicle inertia                  The 2002 model year
          weight class is:                    city fuel economy is:

          1,500 or 1,750 lbs.........................      45.2 mpg    
          2,000 lbs..................................      39.6 mpg    
          2,250 lbs..................................      35.2 mpg    
          2,500 lbs..................................      31.7 mpg    
          2,750 lbs..................................      28.8 mpg    
          3,000 lbs..................................      26.4 mpg    
          3,500 lbs..................................      22.6 mpg    
          4,000 lbs..................................      19.8 mpg    
          4,500 lbs..................................      17.6 mpg    
          5,000 lbs..................................      15.9 mpg    
          5,500 lbs..................................      14.4 mpg    
          6,000 lbs..................................      13.2 mpg    
          6,500 lbs..................................      12.2 mpg    
          7,000 or 8,500 lbs.........................     11.3 mpg.    
                    (B) In the case of a light truck:

        If vehicle inertia                  The 2002 model year
          weight class is:                    city fuel economy is:

          1,500 or 1,750 lbs.........................      39.4 mpg    
          2,000 lbs..................................      35.2 mpg    
          2,250 lbs..................................      31.8 mpg    
          2,500 lbs..................................      29.0 mpg    
          2,750 lbs..................................      26.8 mpg    
          3,000 lbs..................................      24.9 mpg    
          3,500 lbs..................................      21.8 mpg    
          4,000 lbs..................................      19.4 mpg    
          4,500 lbs..................................      17.6 mpg    
          5,000 lbs..................................      16.1 mpg    
          5,500 lbs..................................      14.8 mpg    
          6,000 lbs..................................      13.7 mpg    
          6,500 lbs..................................      12.8 mpg    
          7,000 or 8,500 lbs.........................     12.1 mpg.    
            (5) Vehicle inertia weight class.--The term ``vehicle 
        inertia weight class'' has the same meaning as when defined in 
        regulations prescribed by the Administrator for purposes of the 
        administration of title II of the Clean Air Act (42 U.S.C. 7521 
        et seq.).
            (6) Motor vehicle.--The term ``motor vehicle'' means any 
        vehicle which is manufactured primarily for use on public 
        streets, roads, and highways (not including a vehicle operated 
        exclusively on a rail or rails) and which has at least 4 
        wheels.
            (7) Other terms.--The terms ``automobile'', ``passenger 
        automobile'', ``light truck'', and ``manufacturer'' have the 
        meanings given such terms in regulations prescribed by the 
        Administrator for purposes of the administration of title II of 
        the Clean Air Act (42 U.S.C. 7521 et seq.).

SEC. 202. CLEAN DIESEL MOTOR VEHICLE CREDIT.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.) is amended by adding at the end the following:

``SEC. 30B. CLEAN DIESEL 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 clean diesel motor vehicle credit determined under 
subsection (b).
    ``(b) Clean Diesel Motor Vehicle Credit.--For purposes of 
subsection (a), the clean diesel motor vehicle credit is the credit 
amount determined under section 201(b) of the Clean Diesel Act of 2003 
with respect to a new qualified clean diesel motor vehicle placed in 
service by the taxpayer during the taxable year.
    ``(c) Clean Diesel Motor Vehicle.--The term `clean diesel motor 
vehicle' has the meaning given to such term by section 201(e)(1) of the 
Clean Diesel Act of 2003.
    ``(d) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under subpart A and 
        sections 27, 29, and 30A for the taxable year.
    ``(e) Special Rules.--For purposes of this section--
            ``(1)  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.
            ``(2) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease document the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
            ``(3) 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).
            ``(4) 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.
            ``(5) 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.
            ``(6) Carryovers allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (d) for such 
                taxable year (referred to as the `unused credit year' 
                in this paragraph), such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable years 
                following the unused credit year and a carryback for 
                each of the 3 preceding years.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryforward 
                under subparagraph (A).
    ``(f) Termination.--This section shall not apply to any property 
placed in service after December 31, 2010.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) of such Code 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:
            ``(31) to the extent provided in section 30B(e)(1).''.
            (2) Section 6501(m) of such Code is amended by inserting 
        ``30B(e)(5),'' after ``30(d)(4),''.
            (3) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 30A the following:

                              ``Sec. 30B. Clean diesel motor vehicle 
                                        credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2004, in taxable 
years beginning after such date.

SEC. 203. LIFETIME FUEL SAVINGS CREDIT.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.) is amended by adding at the end the following:

``SEC. 30C. LIFETIME FUEL SAVINGS 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 lifetime fuel savings credit determined under subsection 
(b).
    ``(b) Lifetime Fuel Savings Credit.--For purposes of subsection 
(a), the lifetime fuel savings credit is the credit amount determined 
under section 201(c) of the Clean Diesel Act of 2003 with respect to a 
new qualified clean diesel motor vehicle placed in service by the 
taxpayer during the taxable year.
    ``(c) Clean Diesel Motor Vehicle.--The term `clean diesel motor 
vehicle' has the meaning given to such term by section 201(e)(1) of the 
Clean Diesel Act of 2003.
    ``(d) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under subpart A and 
        sections 27, 29, 30A, and 30B for the taxable year.
    ``(e) Special Rules.--For purposes of this section--
            ``(1)  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.
            ``(2) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease document the 
        specific amount of any credit otherwise allowable to the entity 
under this section.
            ``(3) 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).
            ``(4) 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.
            ``(5) 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.
            ``(6) Carryovers allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (d) for such 
                taxable year (referred to as the `unused credit year' 
                in this paragraph), such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable years 
                following the unused credit year and a carryback for 
                each of the 3 preceding years.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryforward 
                under subparagraph (A).
    ``(f) Termination.--This section shall not apply to any property 
placed in service after December 31, 2010.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) of such Code is amended by striking 
        ``and'' at the end of paragraph (30), by striking the period at 
        the end of paragraph (31) and inserting ``, and'', and by 
        adding at the end the following:
            ``(32) to the extent provided in section 30C(e)(1).''.
            (2) Section 6501(m) of such Code is amended by inserting 
        ``30C(e)(5),'' after ``30B(e)(5),''.
            (3) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 30B the following:

                              ``Sec. 30C. Lifetime fuel savings 
                                        credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2004, in taxable 
years beginning after such date.

SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH 
              ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    (a) In General.--Section 179(b) of the Internal Revenue Code of 
1986 (relating to election to expense certain depreciable business 
assets) is amended by adding at the end the following new paragraph:
            ``(5) Limitation for refiners.--
                    ``(A) In general.--In the case of a taxpayer 
                electing to expense qualified costs, in lieu of the 
                dollar limitations in paragraph (1), the limitation on 
                the aggregate costs which may be taken into account 
                under subsection (a) for any taxable year shall not 
                exceed 75 percent of the qualified costs.
                    ``(B) Qualified costs.--For purposes of this 
                paragraph, the term `qualified costs' means, with 
                respect to any facility, those costs paid or incurred 
                for purposes of--
                            ``(i) complying with the Highway Diesel 
                        Fuel Sulfur Control Requirements of the 
                        Environmental Protection Agency, as determined 
                        by the Administrator of the Environmental 
                        Protection Agency in consultation with the 
                        Secretary; or
                            ``(ii) meeting the standards for sulfur 
                        content specified in section 102(c)(1) of the 
                        Clean Diesel Act of 2003, as determined by the 
                        Administrator of the Environmental Protection 
                        Agency in consultation with the Secretary.
                Such costs shall include expenditures for the 
                construction of new process operation units or the 
                dismantling and reconstruction of existing process 
                units to be used in the production of clean diesel fuel 
                (as defined in section 101(2) of the Clean Diesel Fuel 
                Act of 2003, associated adjacent or offsite equipment 
                (including tankage, catalyst, and power supply), 
                engineering, construction period interest, and 
                sitework.''.
    (b) Determination by Administrator of Environmental Protection 
Agency.--For purposes of paragraph (5) of section 179(b) of the 
Internal Revenue Code of 1986, as added by subsection (a), the 
Administrator of Environmental Protection Agency shall, by regulation, 
identify those costs which are eligible for expensing under such 
section for purposes of complying with the Highway Diesel Fuel Sulfur 
Control Requirements of the Environmental Protection Agency and meeting 
the standards for sulfur content specified in section 102(c)(1) of this 
Act.
    (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.

SEC. 205. CREDIT FOR PRODUCING LOW SULFUR CONTENT DIESEL FUEL.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to other credits) is 
amended by inserting after section 30C the following new section:

``SEC. 30D. CREDIT FOR PRODUCING CLEAN DIESEL FUEL.

    ``(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--
            ``(1) $2.52, multiplied by
            ``(2) the barrel-of-oil equivalent of clean diesel fuel--
                    ``(A) sold by the taxpayer to an unrelated person 
                during the taxable year; and
                    ``(B) the production of which is attributable to 
                the taxpayer.
    ``(b) Limitations and Adjustments.--
            ``(1) Credit reduced for grants, tax-exempt bonds, and 
        subsidized energy financing.--
                    ``(A) In general.--The amount of the credit 
                allowable under subsection (a) with respect to any 
                project for any taxable year shall be reduced by the 
                amount which is the product of the amount so determined 
                for such year and a fraction--
                            ``(i) the numerator of which is the sum, 
                        for the taxable year and all prior taxable 
                        years, of--
                                    ``(I) grants provided by the United 
                                States, a State, or a political 
                                subdivision of a State for use in 
                                connection with the project;
                                    ``(II) proceeds of any issue of 
                                State or local government obligations 
                                used to provide financing for the 
                                project the interest on which is exempt 
                                from tax under section 103; and
                                    ``(III) the aggregate amount of 
                                subsidized energy financing (within the 
                                meaning of section 48(a)(4)(C)) 
                                provided in connection with the 
                                project; and
                            ``(ii) the denominator of which is the 
                        aggregate amount of additions to the capital 
                        account for the project for the taxable year 
                        and all prior taxable years.
                    ``(B) Amounts determined at close of year.--The 
                amounts under subparagraph (A) for any taxable year 
                shall be determined as of the close of the taxable 
                year.
            ``(2) Credit reduced for enhanced oil recovery credit.--The 
        amount allowable as a credit under subsection (a) with respect 
        to any project for any taxable year (determined after 
        application of paragraphs (1) and (2)) shall be reduced by the 
        excess (if any) of--
                    ``(A) the aggregate amount allowed under section 38 
                for the taxable year and any prior taxable year by 
                reason of any enhanced oil recovery credit determined 
                under section 43 with respect to such project, over
                    ``(B) the aggregate amount recaptured with respect 
                to the amount described in subparagraph (A) under this 
                paragraph for any prior taxable year.
            ``(3) Application with other credits.--The credit allowed 
        by subsection (a) for any taxable year shall not exceed the 
        excess (if any) of--
                    ``(A) the regular tax for the taxable year reduced 
                by the sum of the credits allowable under subpart A and 
                this subpart (other than this section), over
                    ``(B) the tentative minimum tax for the taxable 
                year.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Clean diesel fuel.--The term `clean diesel fuel' has 
        the meaning given such term by section 101(2) of the Clean 
        Diesel Act of 2003.
            ``(2) Only production within the united states taken into 
        account.--Sales shall be taken into account under this section 
        only with respect to diesel fuel the production of which is 
        within--
                    ``(A) the United States (within the meaning of 
                section 638(1)); or
                    ``(B) a possession of the United States (within the 
                meaning of section 638(2)).
            ``(3) Production attributable to the taxpayer.--In the case 
        of a property or facility in which more than 1 person has an 
        interest, except to the extent provided in regulations 
        prescribed by the Secretary, production from the property or 
        facility (as the case may be) shall be allocated among such 
        persons in proportion to their respective interests in the 
        gross sales from such property or facility.
            ``(4) Barrel-of-oil equivalent.--The term `barrel-of-oil 
        equivalent' with respect to any fuel means that amount of such 
        fuel which has a Btu content of 5.8 million.
            ``(5) Barrel defined.--The term `barrel' means 42 United 
        States gallons.
            ``(6) Related persons.--Persons shall be treated as related 
        to each other if such persons would be treated as a single 
        employer under the regulations prescribed under section 52(b). 
        In the case of a corporation which is a member of an affiliated 
        group of corporations filing a consolidated return, such 
        corporation shall be treated as selling clean diesel fuel to an 
        unrelated person if such fuel is sold to such a person by 
        another member of such group.
            ``(7) 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) Application of Section.--This section shall apply with 
respect to clean diesel fuel which is sold at retail before January 1, 
2007.''.
    (b) Conforming Amendments.--
            (1) Section 53(d)(1)(B)(iii) of such Code is amended by 
        striking ``or'' and inserting before the period at the end the 
        following: ``, or under section 30D solely by reason of the 
        application of section 30D(b)(4)''.
            (2) Section 55(c)(2) of such Code is amended by inserting 
        ``, 30D(b)(4),'' after ``30(b)(3)''.
            (3) Section 772 of such Code is amended--
                    (A) in subsection (a) by striking ``and'' at the 
                end of paragraph (10), by redesignating paragraph (11) 
                as paragraph (12), and by inserting after paragraph 
                (10) the following new paragraph:
            ``(11) the credit allowable under section 30D, and''; and
                    (B) in subsection (d)(5), by striking ``and'', and 
                by inserting before the period the following: ``, and 
                the credit allowable under section 30D''.
            (4) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 30C the following:

                              ``Sec. 30D. Credit for producing clean 
                                        diesel fuel.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales after December 31, 2002, in taxable years beginning 
after such date.

TITLE III--GRANTS TO INCREASE PRODUCTION OF CLEAN DIESEL MOTOR VEHICLES

SEC. 301. GRANTS TO INCREASE PRODUCTION OF CLEAN DIESEL MOTOR VEHICLES.

    (a) Grants.--The Secretary of Commerce (in this section referred to 
as the ``Secretary'') may award grants to States and cities for the 
purpose of converting old plants to produce clean diesel motor 
vehicles.
    (b) Use of Funds.--The Secretary may not award a grant to a State 
or city under this section unless the State or city agrees to use the 
grant--
            (1) to convert an old plant to produce clean diesel motor 
        vehicles; or
            (2) to improve infrastructure related to any such plant.
    (c) Application.--To seek a grant under this section, a State or 
city shall submit an application to the Secretary at such time, in such 
manner, and containing such information as the Secretary may reasonably 
require.
    (d) Clean Diesel Motor Vehicle.--For purposes of this section, the 
term ``clean diesel motor vehicle'' has the meaning given to that term 
in section 201(e)(1).
    (e) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as may be necessary to carry out this section.
                                 <all>
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