II

106TH CONGRESS

2D SESSION S. 2982

To enhance international conservation, to promote the role of carbon sequestration as a means of slowing the build-up of greenhouse gases in

the atmosphere, and to reward and encourage voluntary, pro-active environmental efforts on the issue of global climate change.

IN THE SENATE OF THE UNITED STATES

JULY 27, 2000

Mr. BROWNBACK (for himself, Mr. DASCHLE, Mr. DEWINE, Mr. KERREY, Mr.

GRASSLEY, Mr. BYRD, and Mr. LUGAR) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To enhance international conservation, to promote the role

of carbon sequestration as a means of slowing the buildup of greenhouse gases in the atmosphere, and to reward

and encourage voluntary, pro-active environmental efforts

on the issue of global climate change.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘International Carbon

5 Sequestration Incentive Act’’.
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1 TITLE I—INVESTMENT TAX

2 CREDIT

3 SEC. 101. CARBON SEQUESTRATION INVESTMENT TAX

4 CREDIT.

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of

7 1986 (relating to business-related credits) is amended by

8 adding at the end the following new section:

9 ‘‘SEC. 45D. CARBON SEQUESTRATION INVESTMENT CREDIT.

10 ‘‘(a) ALLOWANCE OF CREDIT.—

11 ‘‘(1) IN GENERAL.—For purposes of section 38,

12 in the case of an eligible taxpayer who is subject to

13 the terms and conditions of a carbon sequestration

14 project contract with respect to a sponsored carbon

15 sequestration project outside the United States dur16 ing the taxable year, the carbon sequestration invest17 ment credit determined under this section for such

18 taxable year is an amount equal to—

19 ‘‘(A) $2.50, multiplied by

20 ‘‘(B) the number of tons of carbon seques21 trated in such project during the taxable year

22 and verified under subsection (c)(4).

23 ‘‘(2) AGGREGATE DOLLAR LIMITATION.—The

24 credit determined under paragraph (1) for any tax25 able year, when added to any credit allowed with re-
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1 spect to the sponsored project in any preceding tax2 able year, shall not exceed 50 percent of the invest3 ment paid or incurred with respect to such project

4 through such taxable year.

5 ‘‘(b) ANNUAL LIMITATION ON AGGREGATE CREDIT

6 ALLOWABLE.—

7 ‘‘(1) IN GENERAL.—The amount of the carbon

8 sequestration investment credit determined under

9 subsection (a) for any taxable year with respect to

10 a carbon sequestration project sponsored by an eligi11 ble taxpayer shall not exceed the aggregate credit

12 dollar amount allocated to such project under this

13 subsection by the implementing panel.

14 ‘‘(2) TIME FOR MAKING ALLOCATION.—An allo15 cation shall be taken into account under paragraph

16 (1) only if it is made not later than the close of the

17 calendar year in which the carbon sequestration

18 project contract with respect to such project is en19 tered into by the eligible taxpayer and the imple20 menting panel.

21 ‘‘(3) AGGREGATE CREDIT DOLLAR AMOUNT.—

22 The aggregate credit dollar amount which the imple23 menting panel may allocate for any calendar year is

24 equal to $200,000,000.
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1 ‘‘(c) CARBON SEQUESTRATION PROJECT CON2 TRACT.—For purposes of this section—

3 ‘‘(1) IN GENERAL.—The term ‘carbon seques4 tration project contract’ means a contract entered

5 into between an eligible taxpayer and the imple6 menting panel—

7 ‘‘(A) based on a contract offer to increase

8 the sequestration of carbon in a project spon9 sored by the eligible taxpayer and accepted by

10 the implementing panel under the carbon se11 questration program established under sub12 section (d)(1),

13 ‘‘(B) the duration of which is not less than

14 30 years, and

15 ‘‘(C) which includes the terms and condi16 tions described in paragraphs (2), (3), (4), and

17 (5).

18 ‘‘(2) CARBON SEQUESTRATION PRACTICES.—

19 Under a carbon sequestration project contract, the

20 eligible taxpayer shall agree to contract with other

21 entities, including organizations based in the country

22 in which the sponsored carbon sequestration project

23 is located, to carry out carbon sequestration prac24 tices proposed by the eligible taxpayer which (as de25 termined by the implementing panel)—
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1 ‘‘(A) provide for additional carbon seques2 tration beyond that which would be provided in

3 the absence of the project sponsored by the eli4 gible taxpayer, and

5 ‘‘(B) contribute to a positive reduction of

6 greenhouse gases in the atmosphere through

7 carbon sequestration over at least a 30-year pe8 riod.

9 ‘‘(3) COMPLIANCE WITH CARBON SEQUESTRA10 TION PROJECT CONTRACT.—

11 ‘‘(A) IN GENERAL.—Under a carbon se12 questration project contract, the eligible tax13 payer shall provide the implementing panel with

14 verification through a third party that the car15 bon sequestration project sponsored by the eli16 gible taxpayer is sequestering carbon in accord17 ance with the contract presented to the imple18 menting panel, including an annual audit of the

19 project, an actual verification of the practices at

20 the project site every 5 years, and such random

21 inspections as are necessary.

22 ‘‘(B) FRAUD OR FALSE STATEMENTS.—

23 Section 1001 of title 18, United States Code,

24 shall apply to a statement, representation, writ-
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1 ing, or document provided by an eligible tax2 payer under this paragraph.

3 ‘‘(C) CONFIDENTIALITY.—Information

4 provided by an eligible taxpayer under this

5 paragraph shall be considered to be confidential

6 information for the purposes of section

7 552(b)(4) of title 5, United States Code.

8 ‘‘(4) OPTIONS FOR NEW ELIGIBLE TAX9 PAYER.—Under a carbon sequestration project con10 tract, if, during the term of such contract, an eligi11 ble taxpayer which sponsored the carbon sequestra12 tion project sells or otherwise transfers the carbon

13 sequestration rights of the project to another eligible

14 taxpayer, the new eligible taxpayer may—

15 ‘‘(A) continue the contract under the same

16 terms or conditions,

17 ‘‘(B) enter into a new contract in accord18 ance with this section, or

19 ‘‘(C) elect not to participate in the pro20 gram established under subsection (d)(1).

21 ‘‘(5) TERMINATION OF CONTRACTS.—Under a

22 carbon sequestration project contract, the imple23 menting panel may terminate such contract if—

24 ‘‘(A) the eligible taxpayer agrees to the

25 termination, or
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1 ‘‘(B) the implementing panel determines

2 that the termination would be in the public in3 terest.

4 ‘‘(d) CARBON SEQUESTRATION PROGRAM.—For pur5 poses of this section—

6 ‘‘(1) IN GENERAL.—Within 180 days after the

7 date of the enactment of the International Carbon

8 Sequestration Incentive Act, the implementing panel

9 shall establish a carbon sequestration program to

10 permit eligible taxpayers to make carbon sequestra11 tion project contract offers to the implementing

12 panel.

13 ‘‘(2) ACCEPTANCE OF CONTRACT OFFERS.—

14 ‘‘(A) IN GENERAL.—Under the carbon se15 questration program, the implementing panel

16 shall accept a contract offer from an eligible

17 taxpayer only if—

18 ‘‘(i) such taxpayer submits to the

19 panel a needs assessment described in sub20 paragraph (B), and

21 ‘‘(ii) the contract offer identifies the

22 benefits of carbon sequestration practices

23 of the sponsored project under criteria de24 veloped to evaluate such benefits under

25 paragraph (3) and under guidelines insti-
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1 tuted to quantify such benefits under para2 graph (4).

3 ‘‘(B) NEEDS ASSESSMENT.—A needs as4 sessment described in this subparagraph is an

5 assessment of the need for the carbon seques6 tration project sponsored by the eligible tax7 payer in the contract offer and the ability of the

8 eligible taxpayer to carry out the carbon seques9 tration practices related to such project. The

10 assessment shall be developed by the eligible

11 taxpayer, in cooperation with the Agency for

12 International Development, nongovernmental

13 organizations, and independent third-party

14 verifiers.

15 ‘‘(3) CRITERIA FOR EVALUATING BENEFITS OF

16 CARBON SEQUESTRATION PRACTICES.—

17 ‘‘(A) IN GENERAL.—The Chief of the For18 est Service, in consultation with other members

19 of the implementing panel, shall develop criteria

20 for prioritizing, determining the acceptability

21 of, and evaluating, the benefits of the carbon

22 sequestration practices proposed in projects

23 sponsored by eligible taxpayers which will in24 crease the sequestration of carbon for the pur-
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1 poses of determining the acceptability of con2 tract offers made by eligible taxpayers.

3 ‘‘(B) CONTENT.—The criteria shall ensure

4 that credits under this section should not be al5 located to projects whose primary purpose is to

6 grow timber for commercial harvest or to

7 projects which replace native ecological systems

8 with commercial timber plantations. Projects

9 should be prioritized according to—

10 ‘‘(i) native forest preservation, espe11 cially with respect to land which would oth12 erwise cease to be native forest land,

13 ‘‘(ii) reforestation of former forest

14 land where such land has not been forested

15 for at least 10 years,

16 ‘‘(iii) biodiversity enhancement,

17 ‘‘(iv) the prevention of greenhouse gas

18 emissions through the preservation of car19 bon storing plants and trees,

20 ‘‘(v) soil erosion management,

21 ‘‘(vi) soil fertility restoration, and

22 ‘‘(vii) the duration of the project, in23 cluding any project under which other enti24 ties are engaged to extend the duration of
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1 the project beyond the minimum carbon se2 questration project contract term.

3 ‘‘(4) GUIDELINES FOR QUANTIFYING BENE4 FITS.—

5 ‘‘(A) IN GENERAL.—The Chief of the For6 est Service, in consultation with other members

7 of the implementing panel, shall institute guide8 lines for the development of methodologies for

9 quantifying the amount of carbon sequestered

10 by particular projects for the purposes of deter11 mining the acceptability of projects sponsored

12 by eligible taxpayers. These guidelines should

13 set standards for eligible taxpayers with regard

14 to—

15 ‘‘(i) methodologies for measuring the

16 carbon sequestered,

17 ‘‘(ii) measures to assure the duration

18 of projects sponsored,

19 ‘‘(iii) criteria that verifies that the

20 carbon sequestered is additional to the se21 questration which would have occurred

22 without the sponsored project,

23 ‘‘(iv) reasonable criteria to evaluate

24 the extent to which the project displaces
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1 activity that causes deforestation in an2 other location, and

3 ‘‘(v) the extent to which the project

4 promotes sustainable development in a

5 project area, particularly with regard to

6 protecting the traditional land tenure of in7 digenous people.

8 ‘‘(B) BASIS.—In developing the guidelines,

9 the Chief of the Forest Service shall—

10 ‘‘(i) consult with land grant univer11 sities and entities which specialize in car12 bon storage verification and measurement,

13 and

14 ‘‘(ii) use information reported to the

15 Secretary of Energy from projects carried

16 out under the voluntary reporting program

17 of the Energy Information Administration

18 under section 1605 of the Energy Policy

19 Act of 1992 (42 U.S.C. 13385).

20 ‘‘(5) REPORTING.—The Administrator of the

21 Energy Information Administration, in consultation

22 with the Secretary of Agriculture, shall develop

23 forms to monitor carbon sequestration improvements

24 made as a result of the program established under
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1 this section and the implementing panel shall use

2 such forms to report to the Administrator on—

3 ‘‘(A) carbon sequestration improvements

4 made as a result of the program,

5 ‘‘(B) carbon sequestration practices of eli6 gible taxpayers enrolled in the program, and

7 ‘‘(C) compliance with contracts entered

8 into under this section.

9 ‘‘(e) ELIGIBLE TAXPAYER; IMPLEMENTING

10 PANEL.—For purposes of this section—

11 ‘‘(1) ELIGIBLE TAXPAYER.—A taxpayer is eligi12 ble for the credit under this section with respect to

13 a carbon sequestration project contract if such tax14 payer has not elected the application of sections 201

15 and 202 of the International Carbon Sequestration

16 Incentive Act with respect to such contract.

17 ‘‘(2) IMPLEMENTING PANEL.—There is estab18 lished an implementing panel consisting of—

19 ‘‘(A) the Secretary of Agriculture,

20 ‘‘(B) the Secretary of State,

21 ‘‘(C) the Secretary of Energy,

22 ‘‘(D) the Chief of the Forest Service, and

23 ‘‘(E) representatives of nongovernmental

24 organizations who have an expertise and experi-
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1 ence in carbon sequestration practices, ap2 pointed by the Secretary of Agriculture.

3 The Chief of the Forest Service shall act as chair4 person of the implementing panel.

5 ‘‘(f) RECAPTURE OF CREDIT IN CERTAIN CASES.—

6 ‘‘(1) IN GENERAL.—If, at any time during the

7 carbon sequestration project contract period, there is

8 a recapture event with respect to the investment

9 under the contract, then the tax imposed by this

10 chapter for the taxable year in which such event oc11 curs shall be increased by the credit recapture

12 amount.

13 ‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur14 poses of paragraph (1), the credit recapture amount

15 is an amount equal to the sum of—

16 ‘‘(A) the aggregate decrease in the credits

17 allowed to the taxpayer under section 38 for all

18 prior taxable years which would have resulted if

19 no credit had been determined under this sec20 tion with respect to such investment, plus

21 ‘‘(B) interest at the overpayment rate es22 tablished under section 6621 on the amount de23 termined under subparagraph (A) for each

24 prior taxable year for the period beginning on
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1 the due date for filing the return for the prior

2 taxable year involved.

3 No deduction shall be allowed under this chapter for

4 interest described in subparagraph (B).

5 ‘‘(3) RECAPTURE EVENT.—For purposes of

6 paragraph (1), there is a recapture event with re7 spect to an investment under the contract if—

8 ‘‘(A) the eligible taxpayer violates a term

9 or condition of the contract with the imple10 menting panel at any time,

11 ‘‘(B) the eligible taxpayer transfers the

12 right and interest of the taxpayer in the carbon

13 sequestration practices of the sponsored project,

14 unless—

15 ‘‘(i) the transferee agrees with the im16 plementing panel to assume all obligations

17 of the contract, or

18 ‘‘(ii) the transferee and the imple19 menting panel enter into a new carbon se20 questration project contract,

21 ‘‘(C) the eligible taxpayer adopts a practice

22 specified by the implementing panel in the con23 tract as a practice which would tend to defeat

24 the purposes of the carbon sequestration pro25 gram, or
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1 ‘‘(D) the contract is terminated under sub2 section (c)(5).

3 ‘‘(4) SPECIAL RULES.—

4 ‘‘(A) TAX BENEFIT RULE.—The tax for

5 the taxable year shall be increased under para6 graph (1) only with respect to credits allowed

7 by reason of this section which were used to re8 duce tax liability. In the case of credits not so

9 used to reduce tax liability, the carryforwards

10 and carrybacks under section 39 shall be appro11 priately adjusted.

12 ‘‘(B) NO CREDITS AGAINST TAX.—Any in13 crease in tax under this subsection shall not be

14 treated as a tax imposed by this chapter for

15 purposes of determining the amount of any

16 credit under this chapter or for purposes of sec17 tion 55.

18 ‘‘(g) BASIS REDUCTION.—The basis of any invest19 ment under a carbon sequestration project contract shall

20 be reduced by the amount of any credit determined under

21 this section with respect to such investment.

22 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

23 such regulations as may be appropriate to carry out this

24 section, including regulations—
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1 ‘‘(1) which limit the credit for investments

2 which are directly or indirectly subsidized by other

3 Federal benefits,

4 ‘‘(2) which prevent the abuse of the provisions

5 of this section through the use of related parties,

6 and

7 ‘‘(3) which impose appropriate reporting re8 quirements.’’.

9 (b) CREDIT MADE PART OF GENERAL BUSINESS

10 CREDIT.—

11 (1) IN GENERAL.—Subsection (b) of section 38

12 of the Internal Revenue Code of 1986 is amended by

13 striking ‘‘plus’’ at the end of paragraph (12), by

14 striking the period at the end of paragraph (13) and

15 inserting ‘‘, plus’’, and by adding at the end the fol16 lowing new paragraph:

17 ‘‘(14) the carbon sequestration investment cred18 it determined under section 45D(a).’’

19 (2) LIMITATION ON CARRYBACK.—Subsection

20 (d) of section 39 of such Code is amended by adding

21 at the end the following new paragraph:

22 ‘‘(10) NO CARRYBACK OF CARBON SEQUESTRA23 TION INVESTMENT CREDIT BEFORE JANUARY 1,

24 2001.—No portion of the unused business credit for

25 any taxable year which is attributable to the credit
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1 under section 45D may be carried back to a taxable

2 year ending before January 1, 2001.’’

3 (c) DEDUCTION FOR UNUSED CREDIT.—Subsection

4 (c) of section 196 of the Internal Revenue Code of 1986

5 is amended by striking ‘‘and’’ at the end of paragraph (7),

6 by striking the period at the end of paragraph (8) and

7 inserting ‘‘, and’’, and by adding at the end the following

8 new paragraph:

9 ‘‘(9) the carbon sequestration investment credit

10 determined under section 45D(a).’’

11 (d) CLERICAL AMENDMENT.—The table of sections

12 for subpart D of part IV of subchapter A of chapter 1

13 of the Internal Revenue Code of 1986 is amended by add14 ing at the end the following new item:

‘‘Sec. 45D. Carbon sequestration investment credit.’’

15 (e) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to investments made after Decem17 ber 31, 2000.

18 TITLE II—LOAN GUARANTEES

19 AND EQUITY INVESTMENT IN20 SURANCE

21 SEC. 201. EXPORT-IMPORT BANK FINANCING.

22 An owner or operator of property that is located out23 side of the United States may enter into a carbon seques24 tration project contract under the terms and conditions

25 established under section 45D of the Internal Revenue
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1 Code of 1986 to be eligible for an extension of credit from

2 the Export-Import Bank of the United States of up to

3 75 percent of the cost of carrying out the carbon seques4 tration practices specified in the contract to the extent

5 that the Export-Import Bank determines that the cost

6 sharing is appropriate, in the public interest, and other7 wise meets the requirements of the Export-Import Bank

8 Act of 1945.

9 SEC. 202. EQUITY INVESTMENT INSURANCE.

10 An owner or operator of property that is located out11 side of the United States may enter into a carbon seques12 tration project contract under the terms and conditions

13 established under section 45D of the Internal Revenue

14 Code of 1986 to be eligible for investment insurance issued

15 by the Overseas Private Investment Corporation pursuant

16 to section 234 of the Foreign Assistance Act of 1961 (22

17 U.S.C. 2194) if the Corporation determines that issuance

18 of the insurance is consistent with the provisions of such

19 section 234.

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