I

107TH CONGRESS

1ST SESSION H. R. 2108

To amend the Internal Revenue Code of 1986 to provide tax incentives

to encourage the production and use of efficient energy sources, and

for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JUNE 7, 2001

Mr. MATSUI (for himself, Mr. BECERRA, Mr. POMEROY, Mr. CONDIT, Mr.

SAWYER, Mr. THOMPSON of California, Mrs. CAPPS, Ms. LOFGREN, Mr.

BENTSEN, Mr. CROWLEY, Mr. KANJORSKI, and Ms. JACKSON-LEE of

Texas) introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

tax incentives to encourage the production and use of

efficient energy sources, and for other purposes.

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; AMENDMENT OF 1986 CODE;

4 TABLE OF CONTENTS.

5 (a) SHORT TITLE.—This Act may be cited as the

6 ‘‘Energy Security and Tax Incentive Policy Act of 2001’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend-
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1 ment or repeal is expressed in terms of an amendment

2 to, or repeal of, a section or other provision, the reference

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986.

5 (c) TABLE OF CONTENTS.—The table of contents for

6 this Act is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE I—ENERGY-EFFICIENT PROPERTY USED IN BUSINESS

Sec. 101. Credit for energy-efficient property used in business.

Sec. 102. Energy Efficient Commercial Building Property Deduction.

Sec. 103. Credit for energy-efficient appliances.

TITLE II—RESIDENTIAL ENERGY SYSTEMS

Sec. 201. Business credit for construction of new energy-efficient home.

Sec. 202. Credit for energy efficiency improvements to existing homes.

Sec. 203. Credit for residential solar, wind, and fuel cell energy property.

TITLE III—ELECTRICITY FACILITIES AND PRODUCTION

Sec. 301. Incentive for Distributed Generation.

Sec. 302. Modifications to credit for electricity produced from renewable and

waste resources.

Sec. 303. Treatment of facilities using bagasse to produce energy as solid waste

disposal facilities eligible for tax-exempt financing.

Sec. 304. Depreciation of property used in the transmission of electricity.

TITLE IV—INCENTIVES FOR EARLY COMMERCIAL APPLICATIONS

OF ADVANCED CLEAN COAL TECHNOLOGIES

Sec. 401. Credit for investment in qualifying advanced clean coal technology.

Sec. 402. Credit for production from qualifying advanced clean coal technology.

Sec. 403. Risk pool for qualifying advanced clean coal technology.

TITLE V—HEATING FUELS AND STORAGE

Sec. 501. Full expensing of propane storage facilities.

Sec. 502. Arbitrage rules not to apply to prepayments for natural gas and other

commodities.

Sec. 503. Private loan financing test not to apply to prepayments for natural

gas and other commodities.

TITLE VI—OIL AND GAS PRODUCTION AND PETROLEUM

PRODUCTS

Sec. 601. Credit for production of re-refined lubricating oil.

Sec. 602. Oil and gas from marginal wells.

Sec. 603. Deduction for delay rental payments.

Sec. 604. Election to expense geological and geophysical expenditures.
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Sec. 605. Gas pipelines treated as 7-year property.

Sec. 606. Crude oil and natural gas development credit.

Sec. 607. Credit for capture of coalmine methane gas.

Sec. 608. Allocation of alcohol fuels credit to patrons of a cooperative.

Sec. 609. Extension of credit for producing fuel from a nonconventional source.

1 TITLE I—ENERGY-EFFICIENT

2 PROPERTY USED IN BUSINESS

3 SEC. 101. CREDIT FOR CERTAIN ENERGY-EFFICIENT PROP4 ERTY USED IN BUSINESS.

5 (a) IN GENERAL.—Subpart E of part IV of sub6 chapter A of chapter 1 (relating to rules for computing

7 investment credit) is amended by inserting after section

8 48 the following:

9 ‘‘SEC. 48A. ENERGY CREDIT.

10 ‘‘(a) IN GENERAL.—For purposes of section 46, the

11 energy credit for any taxable year is the energy percentage

12 of the basis of each energy property placed in service dur13 ing such taxable year.

14 ‘‘(b) ENERGY PERCENTAGE.—

15 ‘‘(1) IN GENERAL.—The energy percentage is—

16 ‘‘(A) except as otherwise provided in this

17 subparagraph, 10 percent,

18 ‘‘(B) in the case of energy property de19 scribed in clauses (i), (iii), and (vi) of sub20 section (c)(1)(A), 20 percent,

21 ‘‘(C) in the case of energy property de22 scribed in subsection (c)(1)(A)(v), 15 percent,
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1 ‘‘(D) in the case of energy property de2 scribed in subsection (c)(1)(A)(ii) relating to a

3 high risk geothermal well, 20 percent, and

4 ‘‘(E) in the case of energy property de5 scribed in subsection (c)(1)(A)(vii), 30 percent.

6 ‘‘(2) COORDINATION WITH REHABILITATION.—

7 The energy percentage shall not apply to that por8 tion of the basis of any property which is attrib9 utable to qualified rehabilitation expenditures.

10 ‘‘(c) ENERGY PROPERTY DEFINED.—

11 ‘‘(1) IN GENERAL.—For purposes of this sub12 part, the term ‘energy property’ means any

13 property—

14 ‘‘(A) which is—

15 ‘‘(i) solar energy property,

16 ‘‘(ii) geothermal energy property,

17 ‘‘(iii) energy-efficient building prop18 erty other than property described in

19 clauses (iii)(I) and (v)(I) of subsection

20 (d)(3)(A),

21 ‘‘(iv) combined heat and power system

22 property,

23 ‘‘(v) low core loss distribution trans24 former property,
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1 ‘‘(vi) qualified anaerobic digester

2 property, or

3 ‘‘(vii) qualified wind energy systems

4 equipment property,

5 ‘‘(B)(i) the construction, reconstruction, or

6 erection of which is completed by the taxpayer,

7 or

8 ‘‘(ii) which is acquired by the taxpayer if

9 the original use of such property commences

10 with the taxpayer.

11 ‘‘(C) which can reasonably be expected to

12 remain in operation for at least 5 years,

13 ‘‘(D) with respect to which depreciation (or

14 amortization in lieu of depreciation) is allow15 able, and

16 ‘‘(E) which meets the performance and

17 quality standards (if any) which—

18 ‘‘(i) have been prescribed by the Sec19 retary by regulations (after consultation

20 with the Secretary of Energy), and

21 ‘‘(ii) are in effect at the time of the

22 acquisition of the property.

23 ‘‘(2) EXCEPTIONS.—

24 ‘‘(A) PUBLIC UTILITY PROPERTY.—Such

25 term shall not include any property which is
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1 public utility property (as defined in section

2 46(f)(5) as in effect on the day before the date

3 of the enactment of the Revenue Reconciliation

4 Act of 1990), except for property described in

5 paragraph (1)(A)(iv).

6 ‘‘(B) CERTAIN WIND EQUIPMENT.—Such

7 term shall not include equipment described in

8 paragraph (1)(A)(vii) which is taken into ac9 count for purposes of section 45 for the taxable

10 year.

11 ‘‘(d) DEFINITIONS RELATING TO TYPES OF ENERGY

12 PROPERTY.—For purposes of this section—

13 ‘‘(1) SOLAR ENERGY PROPERTY.—

14 ‘‘(A) IN GENERAL.—The term ‘solar en15 ergy property’ means equipment which uses

16 solar energy to generate electricity, to heat or

17 cool (or provide hot water for use in) a struc18 ture, or to provide solar process heat.

19 ‘‘(B) SWIMMING POOLS, ETC. USED AS

20 STORAGE MEDIUM.—The term ‘solar energy

21 property’ shall not include property with respect

22 to which expenditures are properly allocable to

23 a swimming pool, hot tub, or any other energy

24 storage medium which has a function other

25 than the function of such storage.
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1 ‘‘(C) SOLAR PANELS.—No solar panel or

2 other property installed as a roof (or portion

3 thereof) shall fail to be treated as solar energy

4 property solely because it constitutes a struc5 tural component of the structure on which it is

6 installed.

7 ‘‘(2) GEOTHERMAL ENERGY PROPERTY.—

8 ‘‘(A) IN GENERAL.—The term ‘geothermal

9 energy property’ means equipment used to

10 produce, distribute, or use energy derived from

11 a geothermal deposit (within the meaning of

12 section 613(e)(2)), but only, in the case of elec13 tricity generated by geothermal power, up to

14 (but not including) the electrical transmission

15 stage.

16 ‘‘(B) HIGH RISK GEOTHERMAL WELL.—

17 The term ‘high risk geothermal well’ means a

18 geothermal deposit (within the meaning of sec19 tion 613(e)(2)) which requires high risk drilling

20 techniques. Such deposit may not be located in

21 a State or national park or in an area in which

22 the relevant State park authority or the Na23 tional Park Service determines the development

24 of such a deposit will negatively impact on a

25 State or national park.
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1 ‘‘(3) ENERGY-EFFICIENT BUILDING PROP2 ERTY.—

3 ‘‘(A) IN GENERAL.—The term ‘energy-effi4 cient building property’ means—

5 ‘‘(i) a fuel cell which—

6 ‘‘(I) generates electricity using

7 an electrochemical process,

8 ‘‘(II) has an electricity-only gen9 eration efficiency greater than 30 per10 cent, and

11 ‘‘(III) has a minimum generating

12 capacity of 2 kilowatts,

13 ‘‘(ii) an electric heat pump hot water

14 heater which yields an energy factor of 1.7

15 or greater under test procedures prescribed

16 by the Secretary of Energy,

17 ‘‘(iii)(I) an electric heat pump which

18 has a heating system performance factor

19 (HSPF) of at least 8.5 but less than 9 and

20 a cooling seasonal energy efficiency ratio

21 (SEER) of at least 13.5 but less than 15,

22 ‘‘(II) an electric heat pump which has

23 a heating system performance factor

24 (HSPF) of 9 or greater and a cooling sea-
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1 sonal energy efficiency ratio (SEER) of 15

2 or greater,

3 ‘‘(iv) a natural gas heat pump which

4 has a coefficient of performance of not less

5 than 1.25 for heating and not less than

6 0.70 for cooling,

7 ‘‘(v)(I) a central air conditioner which

8 has a cooling seasonal energy efficiency

9 ratio (SEER) of at least 13.5 but less than

10 15,

11 ‘‘(II) a central air conditioner which

12 has a cooling seasonal energy efficiency

13 ratio (SEER) of 15 or greater,

14 ‘‘(vi) an advanced natural gas water

15 heater which—

16 ‘‘(I) increases steady state effi17 ciency and reduces standby and vent

18 losses, and

19 ‘‘(II) has an energy factor of at

20 least 0.65,

21 ‘‘(vii) an advanced natural gas fur22 nace which achieves a 90 percent AFUE

23 and rated for seasonal electricity use of

24 less than 300 kWh per year, and
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1 ‘‘(viii) natural gas cooling equipment

2 which meets all applicable standards of the

3 American Society of Heating, Refrig4 erating, and Air Conditioning Engineers

5 and which—

6 ‘‘(I) has a coefficient of perform7 ance of not less than .60, or

8 ‘‘(II) uses desiccant technology

9 and has an efficiency rating of not

10 less than 50 percent.

11 ‘‘(B) LIMITATIONS.—The credit under sub12 section (a) for the taxable year may not

13 exceed—

14 ‘‘(i) $500 in the case of property de15 scribed in subparagraph (A) other than

16 clauses (i), (iv), and (viii) thereof,

17 ‘‘(ii) $500 for each kilowatt of capac18 ity in the case of any fuel cell described in

19 subparagraph (A)(i),

20 ‘‘(iii) $1,000 in the case of any nat21 ural gas heat pump described in subpara22 graph (A)(iv), and

23 ‘‘(iv) $150 for each ton of capacity in

24 the case of any natural gas cooling equip25 ment described in subparagraph (A)(viii).
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1 ‘‘(4) COMBINED HEAT AND POWER SYSTEM

2 PROPERTY.—

3 ‘‘(A) IN GENERAL.—The term ‘combined

4 heat and power system property’ means

5 property—

6 ‘‘(i) comprising a system for the same

7 energy source for the simultaneous or se8 quential generation of electrical power, me9 chanical shaft power, or both, in combina10 tion with steam, heat, or other forms of

11 useful energy,

12 ‘‘(ii) which has an electrical capacity

13 of more than 50 kilowatts or a mechanical

14 energy capacity of more than 67 horse15 power or an equivalent combination of elec16 trical and mechanical energy capacities,

17 ‘‘(iii) which produces—

18 ‘‘(I) at least 20 percent of its

19 total useful energy in the form of

20 thermal energy, and

21 ‘‘(II) at least 20 percent of its

22 total useful energy in the form of elec23 trical or mechanical power (or a com24 bination thereof), and
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1 ‘‘(iv) the energy efficiency percentage

2 of which exceeds—

3 ‘‘(I) 60 percent in the case of a

4 system with an electrical capacity of

5 less than 1 megawatt,

6 ‘‘(II) 65 percent in the case of a

7 system with an electrical capacity of

8 not less than 1 megawatt and not in

9 excess of 50 megawatts, and

10 ‘‘(III) 70 percent in the case of a

11 system with an electrical capacity in

12 excess of 50 megawatts.

13 ‘‘(B) SPECIAL RULES.—

14 ‘‘(i) ENERGY EFFICIENCY PERCENT15 AGE.—For purposes of subparagraph

16 (A)(iv), the energy efficiency percentage of

17 a system is the fraction—

18 ‘‘(I) the numerator of which is

19 the total useful electrical, thermal,

20 and mechanical power produced by

21 the system at normal operating rates,

22 and

23 ‘‘(II) the denominator of which is

24 the lower heating value of the primary

25 fuel source for the system.
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1 ‘‘(ii) DETERMINATIONS MADE ON BTU

2 BASIS.—The energy efficiency percentage

3 and the percentages under subparagraph

4 (A)(iii) shall be determined on a Btu basis.

5 ‘‘(iii) INPUT AND OUTPUT PROPERTY

6 NOT INCLUDED.—The term ‘combined heat

7 and power system property’ does not in8 clude property used to transport the en9 ergy source to the facility or to distribute

10 energy produced by the facility.

11 ‘‘(iv) ACCOUNTING RULE FOR PUBLIC

12 UTILITY PROPERTY.—If the combined heat

13 and power system property is public utility

14 property (as defined in section 46(f)(5) as

15 in effect on the day before the date of the

16 enactment of the Revenue Reconciliation

17 Act of 1990), the taxpayer may only claim

18 the credit under subsection (a)(1) if, with

19 respect to such property, the taxpayer uses

20 a normalization method of accounting.

21 ‘‘(5) LOW CORE LOSS DISTRIBUTION TRANS22 FORMER PROPERTY.—The term ‘low core loss dis23 tribution transformer property’ means a distribution

24 transformer which has energy savings from a highly

25 efficient core of at least 20 percent more than the
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1 average for power ratings reported by studies re2 quired under section 124 of the Energy Policy Act

3 of 1992.

4 ‘‘(6) QUALIFIED ANAEROBIC DIGESTER PROP5 ERTY.—The term ‘qualified anaerobic digester prop6 erty’ means an anaerobic digester for manure or

7 crop waste which achieves at least 65 percent effi8 ciency measured in terms of the fraction of energy

9 input converted to electricity and useful thermal en10 ergy.

11 ‘‘(7) QUALIFIED WIND ENERGY SYSTEMS

12 EQUIPMENT PROPERTY.—The term ‘qualified wind

13 energy systems equipment property’ means wind en14 ergy systems equipment with a turbine size of not

15 more than 75 kilowatts rated capacity.

16 ‘‘(e) SPECIAL RULES.—For purposes of this

17 section—

18 ‘‘(1) SPECIAL RULE FOR PROPERTY FINANCED

19 BY SUBSIDIZED ENERGY FINANCING OR INDUSTRIAL

20 DEVELOPMENT BONDS.—

21 ‘‘(A) REDUCTION OF BASIS.—For purposes

22 of applying the energy percentage to any prop23 erty, if such property is financed in whole or in

24 part by—

25 ‘‘(i) subsidized energy financing, or
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1 ‘‘(ii) the proceeds of a private activity

2 bond (within the meaning of section 141)

3 the interest on which is exempt from tax

4 under section 103, the amount taken into

5 account as the basis of such property shall

6 not exceed the amount which (but for this

7 subparagraph) would be so taken into ac8 count multiplied by the fraction deter9 mined under subparagraph (B).

10 ‘‘(B) DETERMINATION OF FRACTION.—For

11 purposes of subparagraph (A), the fraction de12 termined under this subparagraph is 1 reduced

13 by a fraction—

14 ‘‘(i) the numerator of which is that

15 portion of the basis of the property which

16 is allocable to such financing or proceeds,

17 and

18 ‘‘(ii) the denominator of which is the

19 basis of the property.

20 ‘‘(C) SUBSIDIZED ENERGY FINANCING.—

21 For purposes of subparagraph (A), the term

22 ‘subsidized energy financing’ means financing

23 provided under a Federal, State, or local pro24 gram a principal purpose of which is to provide
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1 subsidized financing for projects designed to

2 conserve or produce energy.

3 ‘‘(2) CERTAIN PROGRESS EXPENDITURE RULES

4 MADE APPLICABLE.—Rules similar to the rules of

5 subsections (c)(4) and (d) of section 46 (as in effect

6 on the day before the date of the enactment of the

7 Revenue Reconciliation Act of 1990) shall apply for

8 purposes of this section.

9 ‘‘(f) APPLICATION OF SECTION.—

10 ‘‘(1) IN GENERAL.—Except as provided by

11 paragraph (2), this section shall apply to property

12 placed in service after December 31, 2001, and be13 fore January 1, 2009.

14 ‘‘(2) EXCEPTIONS.—

15 ‘‘(A) SOLAR ENERGY AND GEOTHERMAL

16 ENERGY PROPERTY.—Paragraph (1) shall not

17 apply to solar energy property or geothermal

18 energy property.

19 ‘‘(B) CERTAIN ELECTRIC HEAT PUMPS

20 AND CENTRAL AIR CONDITIONERS.—In the case

21 of property which is described in subsection

22 (d)(3)(A)(iii)(I) or (d)(3)(A)(v)(I), this section

23 shall apply to property placed in service after

24 December 31, 2001, and before January 1,

25 2006.’’.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 48 is amended to read as follows:

3 ‘‘SEC. 48. REFORESTATION CREDIT.

4 ‘‘(a) IN GENERAL.—For purposes of section 46, the

5 reforestation credit for any taxable year is 20 percent of

6 the portion of the amortizable basis of any qualified timber

7 property which was acquired during such taxable year and

8 which is taken into account under section 194 (after the

9 application of section 194(b)(1)).

10 ‘‘(b) DEFINITIONS.—For purposes of this subpart,

11 the terms ‘amortizable basis’ and ‘qualified timber prop12 erty’ have the respective meanings given to such terms by

13 section 194.’’.

14 (2) Section 39(d) is amended by adding at the

15 end the following:

16 ‘‘(10) NO CARRYBACK OF ENERGY CREDIT BE17 FORE EFFECTIVE DATE.—No portion of the unused

18 business credit for any taxable year which is attrib19 utable to the energy credit determined under section

20 48A may be carried back to a taxable year ending

21 before January 1, 2002.’’.

22 (3) Section 280C is amended by adding at the

23 end the following:

24 ‘‘(d) CREDIT FOR ENERGY PROPERTY EXPENSES.—
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1 ‘‘(1) IN GENERAL.—No deduction shall be al2 lowed for that portion of the expenses for energy

3 property (as defined in section 48A(c)) otherwise al4 lowable as a deduction for the taxable year which is

5 equal to the amount of the credit determined for

6 such taxable year under section 48A(a).

7 ‘‘(2) SIMILAR RULE WHERE TAXPAYER CAP8 ITALIZES RATHER THAN DEDUCTS EXPENSES.—If—

9 ‘‘(A) the amount of the credit allowable for

10 the taxable year under section 48A (determined

11 without regard to section 38(c)), exceeds

12 ‘‘(B) the amount allowable as a deduction

13 for the taxable year for expenses for energy

14 property (determined without regard to para15 graph (1)), the amount chargeable to capital

16 account for the taxable year for such expenses

17 shall be reduced by the amount of such excess.

18 ‘‘(3) CONTROLLED GROUPS.—Paragraph (3) of

19 subsection (b) shall apply for purposes of this sub20 section.’’.

21 (4) Section 29(b)(3)(A)(i)(III) is amended by

22 striking ‘section 48(a)(4)(C)’ and inserting ‘section

23 48A(e)(1)(C)’.

24 (5) Section 50(a)(2)(E) is amended by striking

25 ‘section 48(a)(5)’ and inserting ‘section 48A(e)(2)’.
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1 (6) Section 168(e)(3)(B) is amended—

2 (A) by striking clause (vi)(I) and inserting

3 the following:

4 ‘‘(I) is described in paragraph (1) or

5 (2) of section 48A(d) (or would be so de6 scribed if ‘solar and wind’ were substituted

7 for ‘solar’ in paragraph (1)(B)),’’, and

8 (B) in the last sentence by striking ‘‘sec9 tion 48(a)(3)’’ and inserting ‘‘section

10 48A(c)(2)(A)’’.

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

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

13 is amended by striking the item relating to section 48 and

14 inserting the following:

‘‘Sec. 48. Reforestation credit.

‘‘Sec. 48A. Energy credit.’’.

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

16 this section shall apply to property placed in service after

17 December 31, 2001, under rules similar to the rules of

18 section 48(m) of the Internal Revenue Code of 1986 (as

19 in effect on the day before the date of the enactment of

20 the Revenue Reconciliation Act of 1990).

21 SEC. 102. ENERGY-EFFICIENT COMMERCIAL BUILDING

22 PROPERTY DEDUCTION.

23 (a) IN GENERAL.—Part VI of subchapter B of chap24 ter 1 (relating to itemized deductions for individuals and
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1 corporations) is amended by adding at the end the fol2 lowing:

3 ‘‘SEC. 199. ENERGY-EFFICIENT COMMERCIAL BUILDING

4 PROPERTY.

5 ‘‘(a) IN GENERAL.—There shall be allowed as a de6 duction for the taxable year an amount equal to the en7 ergy-efficient commercial building property expenditures

8 made by a taxpayer for the taxable year.

9 ‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The

10 amount of energy-efficient commercial building property

11 expenditures taken into account under subsection (a) shall

12 not exceed an amount equal to the product of—

13 ‘‘(1) $2.25, and

14 ‘‘(2) the square footage of the building with re15 spect to which the expenditures are made.

16 ‘‘(c) YEAR DEDUCTION ALLOWED.—The deduction

17 under subsection (a) shall be allowed in the taxable year

18 in which the construction of the building is completed.

19 ‘‘(d) ENERGY-EFFICIENT COMMERCIAL BUILDING

20 PROPERTY EXPENDITURES.—For purposes of this

21 section—

22 ‘‘(1) IN GENERAL.—The term ‘energy-efficient

23 commercial building property expenditures’ means

24 an amount paid or incurred for energy-efficient com25 mercial building property installed on or in connec-
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1 tion with new construction or reconstruction of

2 property—

3 ‘‘(A) for which depreciation is allowable

4 under section 167,

5 ‘‘(B) which is located in the United States,

6 and

7 ‘‘(C) the construction or erection of which

8 is completed by the taxpayer.

9 Such property includes all residential rental prop10 erty, including low-rise multifamily structures and

11 single family housing property which is not within

12 the scope of Standard 90.1–1999 (described in para13 graph (3)).

14 ‘‘(2) LABOR COSTS INCLUDED.—Such term in15 cludes expenditures for labor costs properly allocable

16 to the onsite preparation, assembly, or original in17 stallation of the property.

18 ‘‘(3) ENERGY EXPENDITURES EXCLUDED.—

19 Such term does not include any expenditures taken

20 into account in determining any credit allowed under

21 section 48A.

22 ‘‘(e) ENERGY-EFFICIENT COMMERCIAL BUILDING

23 PROPERTY.—For purposes of subsection (d)—

24 ‘‘(1) IN GENERAL.—The term ‘energy-efficient

25 commercial building property’ means any property
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1 which reduces total annual energy and power costs

2 with respect to the lighting, heating, cooling, ventila3 tion, and hot water supply systems of the building

4 by 50 percent or more in comparison to a reference

5 building which meets the requirements of Standard

6 90.1–1999 of the American Society of Heating, Re7 frigerating, and Air Conditioning Engineers and the

8 Illuminating Engineering Society of North America

9 using methods of calculation under subparagraph

10 (B) and certified by qualified professionals as pro11 vided under paragraph (6).

12 ‘‘(2) METHODS OF CALCULATION.—The Sec13 retary, in consultation with the Secretary of Energy,

14 shall promulgate regulations which describe in detail

15 methods for calculating and verifying energy and

16 power consumption and cost, taking into consider17 ation the provisions of the 1998 California Nonresi18 dential ACM Manual. These procedures shall meet

19 the following requirements:

20 ‘‘(A) In calculating tradeoffs and energy

21 performance, the regulations shall prescribe the

22 costs per unit of energy and power, such as kil23 owatt hour, kilowatt, gallon of fuel oil, and

24 cubic foot or Btu of natural gas, which may be

25 dependent on time of usage.
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1 ‘‘(B) The calculational methodology shall

2 require that compliance be demonstrated for a

3 whole building. If some systems of the building,

4 such as lighting, are designed later than other

5 systems of the building, the method shall pro6 vide that either—

7 ‘‘(i) the expenses taken into account

8 under paragraph (1) shall not occur until

9 the date designs for all energy-using sys10 tems of the building are completed, or

11 ‘‘(ii) the expenses taken into account

12 under paragraph (1) shall be a fraction of

13 such expenses based on the performance of

14 less than all energy-using systems in ac15 cordance with subparagraph (C), and the

16 energy performance of all systems and

17 components not yet designed shall be as18 sumed to comply minimally with the re19 quirements of such Standard 90.1–1999.

20 ‘‘(C) The expenditures in connection with

21 the design of subsystems in the building, such

22 as the envelope, the heating, ventilation, air

23 conditioning and water heating system, and the

24 lighting system shall be allocated to the appro25 priate building subsystem based on system-spe-
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1 cific energy cost savings targets in regulations

2 promulgated by the Secretary of Energy which

3 are equivalent, using the calculation method4 ology, to the whole building requirement of 50

5 percent savings.

6 ‘‘(D) The calculational methods under this

7 paragraph need not comply fully with section

8 11 of such Standard 90.1–1999.

9 ‘‘(E) The calculational methods shall be

10 fuel neutral, such that the same energy effi11 ciency features shall qualify a building for the

12 deduction under this section regardless of

13 whether the heating source is a gas or oil fur14 nace or an electric heat pump.

15 ‘‘(F) The calculational methods shall pro16 vide appropriate calculated energy savings for

17 design methods and technologies not otherwise

18 credited in either such Standard 90.1–1999 or

19 in the 1998 California Nonresidential ACM

20 Manual, including the following:

21 ‘‘(i) Natural ventilation.

22 ‘‘(ii) Evaporative cooling.

23 ‘‘(iii) Automatic lighting controls such

24 as occupancy sensors, photocells, and time25 clocks.
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1 ‘‘(iv) Daylighting.

2 ‘‘(v) Designs utilizing semi-condi3 tioned spaces which maintain adequate

4 comfort conditions without air conditioning

5 or without heating.

6 ‘‘(vi) Improved fan system efficiency,

7 including reductions in static pressure.

8 ‘‘(vii) Advanced unloading mecha9 nisms for mechanical cooling, such as mul10 tiple or variable speed compressors.

11 ‘‘(viii) The calculational methods may

12 take into account the extent of commis13 sioning in the building, and allow the tax14 payer to take into account measured per15 formance which exceeds typical perform16 ance.

17 ‘‘(3) COMPUTER SOFTWARE.—

18 ‘‘(A) IN GENERAL.—Any calculation under

19 this subsection shall be prepared by qualified

20 computer software.

21 ‘‘(B) QUALIFIED COMPUTER SOFTWARE.—

22 For purposes of this paragraph, the term

23 ‘qualified computer software’ means software—

24 ‘‘(i) for which the software designer

25 has certified that the software meets all
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1 procedures and detailed methods for calcu2 lating energy and power consumption and

3 costs as required by the Secretary,

4 ‘‘(ii) which provides such forms as re5 quired to be filed by the Secretary in con6 nection with energy efficiency of property

7 and the deduction allowed under this sec8 tion, and

9 ‘‘(iii) which provides a notice form

10 which summarizes the energy efficiency

11 features of the building and its projected

12 annual energy costs.

13 ‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC

14 PROPERTY.—In the case of energy-efficient commer15 cial building property installed on or in public prop16 erty, the Secretary shall promulgate a regulation to

17 allow the allocation of the deduction to the person

18 primarily responsible for designing the property in

19 lieu of the public entity which is the owner of such

20 property. Such person shall be treated as the tax21 payer for purposes of this section.

22 ‘‘(5) NOTICE TO OWNER.—The qualified indi23 vidual shall provide an explanation to the owner of

24 the building regarding the energy efficiency features

25 of the building and its projected annual energy costs
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1 as provided in the notice under paragraph

2 (3)(B)(iii).

3 ‘‘(6) CERTIFICATION.—

4 ‘‘(A) IN GENERAL.—Except as provided in

5 this paragraph, the Secretary, in consultation

6 with the Secretary of Energy, shall establish re7 quirements for certification and compliance pro8 cedures similar to the procedures under section

9 45F(d).

10 ‘‘(B) QUALIFIED INDIVIDUALS.—Individuals

11 qualified to determine compliance shall be only

12 those individuals who are recognized by an or13 ganization certified by the Secretary for such

14 purposes.

15 ‘‘(C) PROFICIENCY OF QUALIFIED INDIVID16 UALS.—The Secretary shall consult with non17 profit organizations and State agencies with ex18 pertise in energy efficiency calculations and in19 spections to develop proficiency tests and train20 ing programs to qualify individuals to determine

21 compliance.

22 ‘‘(f) TERMINATION.—This section shall not apply

23 with respect to any energy-efficient commercial building

24 property expenditures in connection with property—
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1 ‘‘(1) the plans for which are not certified under

2 subsection (e)(6) on or before December 31, 2006,

3 and

4 ‘‘(2) the construction of which is not completed

5 on or before December 31, 2008.’’.

6 (b) CONFORMING AMENDMENTS.—Section 1016(a) is

7 amended by striking ‘‘and’’ at the end of paragraph (26),

8 by striking the period at the end of paragraph (27) and

9 inserting ‘‘, and’’, and by inserting the following:

10 ‘‘(28) for amounts allowed as a deduction under

11 section 199(a).’’.

12 (c) CLERICAL AMENDMENT.—The table of sections

13 for part VI of subchapter B of chapter 1 is amended by

14 adding at the end the following:

‘‘Sec. 199. Energy-efficient commercial building property.’’.

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

16 this section shall apply to taxable years beginning after

17 December 31, 2001.

18 SEC. 103. CREDIT FOR ENERGY-EFFICIENT APPLIANCES.

19 (a) IN GENERAL.—Subpart D of part IV of sub20 chapter A of chapter 1 (relating to business-related cred21 its) is amended by adding at the end the following:

22 ‘‘SEC. 45E. ENERGY-EFFICIENT APPLIANCE CREDIT.

23 ‘‘(a) GENERAL RULE.—For purposes of section 38,

24 the energy-efficient appliance credit determined under this

25 section for the taxable year is an amount equal to the ap-
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1 plicable amount determined under subsection (b) with re2 spect to qualified energy-efficient appliances produced by

3 the taxpayer during the calendar year ending with or with4 in the taxable year.

5 ‘‘(b) APPLICABLE AMOUNT.—For purposes of sub6 section (a), the applicable amount determined under this

7 subsection with respect to a taxpayer is the sum of—

8 ‘‘(1) in the case of an energy-efficient clothes

9 washer described in subsection (d)(2)(A) or an en10 ergy-efficient refrigerator described in subsection

11 (d)(3)(B)(i), an amount equal to—

12 ‘‘(A) $50, multiplied by

13 ‘‘(B) the number of such washers and re14 frigerators produced by the taxpayer during

15 such calendar year, and

16 ‘‘(2) in the case of an energy-efficient clothes

17 washer described in subsection (d)(2)(B) or an en18 ergy-efficient refrigerator described in subsection

19 (d)(3)(B)(ii), an amount equal to—

20 ‘‘(A) $100, multiplied by

21 ‘‘(B) the number of such washers and re22 frigerators produced by the taxpayer during

23 such calendar year.

24 ‘‘(c) LIMITATION ON MAXIMUM CREDIT.—
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1 ‘‘(1) IN GENERAL.—The maximum amount of

2 credit allowed under subsection (a) with respect to

3 a taxpayer for all taxable years shall be—

4 ‘‘(A) $30,000,000 with respect to the cred5 it determined under subsection (b)(1), and

6 ‘‘(B) $30,000,000 with respect to the cred7 it determined under subsection (b)(2).

8 ‘‘(2) LIMITATION BASED ON GROSS RE9 CEIPTS.—The credit allowed under subsection (a)

10 with respect to a taxpayer for the taxable year shall

11 not exceed an amount equal to 2 percent of the aver12 age annual gross receipts of the taxpayer for the 3

13 taxable years preceding the taxable year in which

14 the credit is determined.

15 ‘‘(3) GROSS RECEIPTS.—For purposes of this

16 subsection, the rules of paragraphs (2) and (3) of

17 section 448(c) shall apply.

18 ‘‘(d) QUALIFIED ENERGY-EFFICIENT APPLIANCE.—

19 For purposes of this section—

20 ‘‘(1) IN GENERAL.—The term ‘qualified energy21 efficient appliance’ means—

22 ‘‘(A) an energy-efficient clothes washer, or

23 ‘‘(B) an energy-efficient refrigerator.

24 ‘‘(2) ENERGY-EFFICIENT CLOTHES WASHER.—

25 The term ‘energy-efficient clothes washer’ means a
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1 residential clothes washer, including a residential

2 style coin operated washer, which is manufactured

3 with—

4 ‘‘(A) a 1.26 Modified Energy Factor (re5 ferred to in this paragraph as ‘MEF’) (as de6 termined by the Secretary of Energy), or

7 ‘‘(B) a 1.42 MEF (as determined by the

8 Secretary of Energy) (1.5 MEF for calendar

9 years beginning after 2004).

10 ‘‘(3) ENERGY-EFFICIENT REFRIGERATOR.—The

11 term ‘energy-efficient refrigerator’ means an auto12 matic defrost refrigerator-freezer which—

13 ‘‘(A) has an internal volume of at least

14 16.5 cubic feet, and

15 ‘‘(B) consumes—

16 ‘‘(i) 10 percent less kWh per year

17 than the energy conservation standards

18 promulgated by the Department of Energy

19 for such refrigerator for 2001, or

20 ‘‘(ii) 15 percent less kWh per year

21 than such energy conservation standards.

22 ‘‘(e) SPECIAL RULES.—

23 ‘‘(1) IN GENERAL.—Rules similar to the rules

24 of subsections (c), (d), and (e) of section 52 shall

25 apply for purposes of this section.
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1 ‘‘(2) AGGREGATION RULES.—All persons treat2 ed as a single employer under subsection (a) or (b)

3 of section 52 or subsection (m) or (o) of section 414

4 shall be treated as one person for purposes of sub5 section (a).

6 ‘‘(f) VERIFICATION.—The taxpayer shall submit such

7 information or certification as the Secretary, in consulta8 tion with the Secretary of Energy, determines necessary

9 to claim the credit amount under subsection (a).

10 ‘‘(g) TERMINATION.—This section shall not apply—

11 ‘‘(1) with respect to energy-efficient refrig12 erators described in subsection (d)(3)(B)(i) produced

13 in calendar years beginning after 2005, and

14 ‘‘(2) with respect to all other qualified energy15 efficient appliances produced in calendar years be16 ginning after 2007.’’.

17 (b) LIMITATION ON CARRYBACK.—Section 39(d) (re18 lating to transition rules), as amended by section

19 101(b)(2), is amended by adding at the end the following:

20 ‘‘(11) NO CARRYBACK OF ENERGY-EFFICIENT

21 APPLIANCE CREDIT BEFORE 2002.—No portion of

22 the unused business credit for any taxable year

23 which is attributable to the energy-efficient appli24 ance credit determined under section 45E may be
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1 carried to a taxable year beginning before January

2 1, 2002.’’.

3 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C

4 (relating to certain expenses for which credits are allow5 able), as amended by section 102(b)(3), is amended by

6 adding at the end the following:

7 ‘‘(e) CREDIT FOR ENERGY-EFFICIENT APPLIANCE

8 EXPENSES.—No deduction shall be allowed for that por9 tion of the expenses for qualified energy-efficient appli10 ances (as defined in section 45E(d)) otherwise allowable

11 as a deduction for the taxable year which is equal to the

12 amount of the credit determined for such taxable year

13 under section 45E(a).’’.

14 (d) CONFORMING AMENDMENT.—Section 38(b) (re15 lating to general business credit) is amended by striking

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

17 at the end of paragraph (13) and inserting ‘‘, plus’’, and

18 by adding at the end the following:

19 ‘‘(14) the energy-efficient appliance credit de20 termined under section 45E(a).’’.

21 (e) CLERICAL AMENDMENT.—The table of sections

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

23 is amended by inserting after the item relating to section

24 45D the following:

‘‘Sec. 45E. Energy-efficient appliance credit.’’.
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1 (f) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 2001.

4 TITLE II—RESIDENTIAL ENERGY

5 SYSTEMS

6 SEC. 201. CREDIT FOR CONSTRUCTION OF NEW ENERGY-EF7 FICIENT HOME.

8 (a) IN GENERAL.—Subpart D of part IV of sub9 chapter A of chapter 1 (relating to business related cred10 its), as amended by section 103(a), is amended by insert11 ing after section 45E the following:

12 ‘‘SEC. 45F. NEW ENERGY-EFFICIENT HOME CREDIT.

13 ‘‘(a) IN GENERAL.—For purposes of section 38, in

14 the case of an eligible contractor, the credit determined

15 under this section for the taxable year is an amount equal

16 to the aggregate adjusted bases of all energy-efficient

17 property installed in a qualified new energy-efficient home

18 during construction of such home.

19 ‘‘(b) LIMITATIONS.—

20 ‘‘(1) MAXIMUM CREDIT.—

21 ‘‘(A) IN GENERAL.—The credit allowed by

22 this section with respect to a dwelling shall not

23 exceed—

24 ‘‘(i) in the case of a dwelling described

25 in subsection (c)(3)(D)(i), $1,500, and
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1 ‘‘(ii) in the case of a dwelling de2 scribed in subsection (c)(3)(D)(ii), $2,500.

3 ‘‘(B) PRIOR CREDIT AMOUNTS ON SAME

4 DWELLING TAKEN INTO ACCOUNT.—If a credit

5 was allowed under subsection (a) with respect

6 to a dwelling in 1 or more prior taxable years,

7 the amount of the credit otherwise allowable for

8 the taxable year with respect to that dwelling

9 shall not exceed the amount under clause (i) or

10 (ii) (as the case may be), reduced by the sum

11 of the credits allowed under subsection (a) with

12 respect to the dwelling for all prior taxable

13 years.

14 ‘‘(2) COORDINATION WITH REHABILITATION

15 AND ENERGY CREDITS.—For purposes of this

16 section—

17 ‘‘(A) the basis of any property referred to

18 in subsection (a) shall be reduced by that por19 tion of the basis of any property which is attrib20 utable to qualified rehabilitation expenditures

21 (as defined in section 47(c)(2)) or to the energy

22 percentage of energy property (as determined

23 under section 48A(a)), and
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1 ‘‘(B) expenditures taken into account

2 under either section 47 or 48A(a) shall not be

3 taken into account under this section.

4 ‘‘(c) DEFINITIONS.—For purposes of this section—

5 ‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi6 ble contractor’ means the person who constructed

7 the new energy-efficient home, or in the case of a

8 manufactured home which conforms to Federal

9 Manufactured Home Construction and Safety Stand10 ards (24 C.F.R. 3280), the manufactured home pro11 ducer of such home.

12 ‘‘(2) ENERGY-EFFICIENT PROPERTY.—The

13 term ‘energy-efficient property’ means any energy14 efficient building envelope component, and any en15 ergy-efficient heating or cooling equipment which

16 can, individually or in combination with other com17 ponents, meet the requirements of this section.

18 ‘‘(3) QUALIFIED NEW ENERGY-EFFICIENT

19 HOME.—The term ‘qualified new energy-efficient

20 home’ means a dwelling—

21 ‘‘(A) located in the United States,

22 ‘‘(B) the construction of which is substan23 tially completed after December 31, 2000,

24 ‘‘(C) the original use of which is as a prin25 cipal residence (within the meaning of section
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1 121) which commences with the person who ac2 quires such dwelling from the eligible con3 tractor, and

4 ‘‘(D) which is certified to have a projected

5 level of annual heating and cooling energy con6 sumption, measured in terms of average annual

7 energy cost to the homeowner which is at

8 least—

9 ‘‘(i) 30 percent less than the annual

10 level of heating and cooling energy con11 sumption of a reference dwelling con12 structed in accordance with the standards

13 of chapter 4 of the 2000 International En14 ergy Conservation Code, or

15 ‘‘(ii) 50 percent less than such annual

16 level of heating and cooling energy con17 sumption.

18 ‘‘(4) CONSTRUCTION.—The term ‘construction’

19 includes reconstruction and rehabilitation.

20 ‘‘(5) ACQUIRE.—The term ‘acquire’ includes

21 purchase and, in the case of reconstruction and re22 habilitation, such term includes a binding written

23 contract for such reconstruction or rehabilitation.

24 ‘‘(6) BUILDING ENVELOPE COMPONENT.—The

25 term ‘building envelope component’ means—
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1 ‘‘(A) insulation material or system which is

2 specifically and primarily designed to reduce the

3 heat loss or gain of a dwelling when installed in

4 or on such dwelling, and

5 ‘‘(B) exterior windows (including skylights)

6 and doors.

7 ‘‘(7) MANUFACTURED HOME INCLUDED.—The

8 term ‘dwelling’ includes a manufactured home con9 forming to Federal Manufactured Home Construc10 tion and Safety Standards (24 C.F.R. 3280).

11 ‘‘(d) CERTIFICATION.—

12 ‘‘(1) METHOD.—A certification described in

13 subsection (c)(3)(D) shall be determined on the

14 basis of 1 of the following methods:

15 ‘‘(A) A component-based method, using the

16 applicable technical energy efficiency specifica17 tions or ratings (including product labeling re18 quirements) for the energy-efficient building en19 velope component or energy-efficient heating or

20 cooling equipment. The Secretary shall, in con21 sultation with the Administrator of the Envi22 ronmental Protection Agency, develop prescrip23 tive component-based packages that are equiva24 lent in energy performance to properties that

25 qualify under subparagraph (B).
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1 ‘‘(B) An energy performance-based method

2 that calculates projected energy usage and cost

3 reductions in the dwelling in relation to a ref4 erence dwelling—

5 ‘‘(i) heated by the same energy source

6 and heating system type, and

7 ‘‘(ii) constructed in accordance with

8 the standards of chapter 4 of the 2000

9 International Energy Conservation Code.

10 Computer software shall be used in support of an

11 energy performance-based method certification under

12 subparagraph (B). Such software shall meet proce13 dures and methods for calculating energy and cost

14 savings in regulations promulgated by the Secretary

15 of Energy. Such regulations on the specifications for

16 software and verification protocols shall be based on

17 the 1998 California Residential Alternative Calcula18 tion Method Approval Manual.

19 ‘‘(2) PROVIDER.—Such certification shall be

20 provided by—

21 ‘‘(A) in the case of a method described in

22 paragraph (1)(A), a local building regulatory

23 authority, a utility, a manufactured home pro24 duction inspection primary inspection agency
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1 (IPIA), or a home energy rating organization,

2 or

3 ‘‘(B) in the case of a method described in

4 paragraph (1)(B), an individual recognized by

5 an organization designated by the Secretary for

6 such purposes.

7 ‘‘(3) FORM.—

8 ‘‘(A) IN GENERAL.—Such certification

9 shall be made in writing in a manner that

10 specifies in readily verifiable fashion the energy11 efficient building envelope components and en12 ergy-efficient heating or cooling equipment in13 stalled and their respective rated energy effi14 ciency performance, and in the case of a meth15 od described in paragraph (1)(B), accompanied

16 by written analysis documenting the proper ap17 plication of a permissible energy performance

18 calculation method to the specific circumstances

19 of such dwelling.

20 ‘‘(B) FORM PROVIDED TO BUYER.—A form

21 documenting the energy-efficient building enve22 lope components and energy-efficient heating or

23 cooling equipment installed and their rated en24 ergy efficiency performance shall be provided to

25 the buyer of the dwelling. The form shall in-
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1 clude labeled R-value for insulation products,

2 NFRC-labeled U-factor and Solar Heat Gain

3 Coefficient for windows, skylights, and doors,

4 labeled AFUE ratings for furnaces and boilers,

5 labeled HSPF ratings for electric heat pumps,

6 and labeled SEER ratings for air conditioners.

7 ‘‘(C) RATINGS LABEL AFFIXED IN DWELL8 ING.—A permanent label documenting the rat9 ings in subparagraph (B) shall be affixed to the

10 front of the electrical distribution panel of the

11 dwelling, or shall be otherwise permanently dis12 played in a readily inspectable location in the

13 dwelling.

14 ‘‘(4) REGULATIONS.—

15 ‘‘(A) IN GENERAL.—In prescribing regula16 tions under this subsection for energy perform17 ance-based certification methods, the Secretary,

18 after examining the requirements for energy

19 consultants and home energy ratings providers

20 specified by the Mortgage Industry National

21 Accreditation Procedures for Home Energy

22 Rating Systems, shall prescribe procedures for

23 calculating annual energy usage and cost reduc24 tions for heating and cooling and for the report25 ing of the results. Such regulations shall—
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1 ‘‘(i) provide that any calculation pro2 cedures be fuel neutral such that the same

3 energy efficiency measures allow a home to

4 qualify for the credit under this section re5 gardless of whether the dwelling uses a gas

6 or oil furnace or boiler or an electric heat

7 pump, and

8 ‘‘(ii) require that any computer soft9 ware allow for the printing of the Federal

10 tax forms necessary for the credit under

11 this section and for the printing of forms

12 for disclosure to the homebuyer.

13 ‘‘(B) PROVIDERS.—For purposes of para14 graph (2)(B), the Secretary shall establish re15 quirements for the designation of individuals

16 based on the requirements for energy consult17 ants and home energy raters specified by the

18 Mortgage Industry National Accreditation Pro19 cedures for Home Energy Rating Systems.

20 ‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub21 title, if a credit is allowed under this section for any ex22 penditure with respect to any property, the increase in the

23 basis of such property which would (but for this sub24 section) result from such expenditure shall be reduced by

25 the amount of the credit so allowed.
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1 ‘‘(f) TERMINATION.—Subsection (a) shall apply to

2 dwellings purchased during the period beginning on Janu3 ary 1, 2001, and ending on December 31, 2005.’’.

4 (b) CREDIT MADE PART OF GENERAL BUSINESS

5 CREDIT.—Subsection (b) of section 38 (relating to current

6 year business credit), as amended by section 103(d), is

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

8 by striking the period at the end of paragraph (14) and

9 inserting ‘‘, plus’’, and by adding at the end the following:

10 ‘‘(15) the new energy-efficient home credit de11 termined under section 45F.’’.

12 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C

13 (relating to certain expenses for which credits are allow14 able), as amended by section 103(c), is amended by adding

15 at the end the following:

16 ‘‘(f) NEW ENERGY-EFFICIENT HOME EXPENSES.—

17 No deduction shall be allowed for that portion of expenses

18 for a new energy-efficient home otherwise allowable as a

19 deduction for the taxable year which is equal to the

20 amount of the credit determined for such taxable year

21 under section 45F.’’.

22 (d) CREDIT ALLOWED AGAINST REGULAR AND MIN23 IMUM TAX.—

24 (1) IN GENERAL.—Subsection (c) of section 38

25 (relating to limitation based on amount of tax) is
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1 amended by redesignating paragraph (3) as para2 graph (4) and by inserting after paragraph (2) the

3 following new paragraph:

4 ‘‘(3) SPECIAL RULES FOR NEW ENERGY EFFI5 CIENT HOME CREDIT.—

6 ‘‘(A) IN GENERAL.—In the case of the new

7 energy efficient home credit—

8 ‘‘(i) this section and section 39 shall

9 be applied separately with respect to the

10 credit, and

11 ‘‘(ii) in applying paragraph (1) to the

12 credit—

13 ‘‘(I) subparagraphs (A) and (B)

14 thereof shall not apply, and

15 ‘‘(II) the limitation under para16 graph (1) (as modified by subclause

17 (I)) shall be reduced by the credit al18 lowed under subsection (a) for the

19 taxable year (other than the new en20 ergy efficient home credit).

21 ‘‘(B) NEW ENERGY EFFICIENT HOME

22 CREDIT.—For purposes of this subsection, the

23 term ‘new energy efficient home credit’ means

24 the credit allowable under subsection (a) by rea25 son of section 45F.’’.
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1 (2) CONFORMING AMENDMENT.—Subclause (II)

2 of section 38(c)(2)(A)(ii) is amended by inserting

3 ‘‘or the new energy efficient home credit’’ after ‘‘em4 ployment credit’’.

5 (e) LIMITATION ON CARRYBACK.—Subsection (d) of

6 section 39, as amended by section 103(b), is amended by

7 adding at the end the following:

8 ‘‘(12) NO CARRYBACK OF NEW ENERGY-EFFI9 CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—

10 No portion of the unused business credit for any

11 taxable year which is attributable to the credit deter12 mined under section 45F may be carried back to any

13 taxable year ending before January 1, 2001.’’.

14 (f) DEDUCTION FOR CERTAIN UNUSED BUSINESS

15 CREDITS.—Subsection (c) of section 196 is amended by

16 striking ‘‘and’’ at the end of paragraph (7), by striking

17 the period at the end of paragraph (8) and inserting ‘‘,

18 and’’, and by adding after paragraph (8) the following:

19 ‘‘(9) the new energy-efficient home credit deter20 mined under section 45F.’’.

21 (g) CLERICAL AMENDMENT.—The table of sections

22 for subpart D of part IV of subchapter A of chapter 1,

23 as amended by section 103(d), is amended by inserting

24 after the item relating to section 45E the following:

‘‘Sec. 45F. New energy-efficient home credit.’’.
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1 (h) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years ending after De3 cember 31, 2000.

4 SEC. 202. CREDIT FOR ENERGY EFFICIENCY IMPROVE5 MENTS TO EXISTING HOMES.

6 (a) IN GENERAL.—Subpart A of part IV of sub7 chapter A of chapter 1 (relating to nonrefundable personal

8 credits) is amended by inserting after section 25A the fol9 lowing new section:

10 ‘‘SEC. 25B. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST11 ING HOMES.

12 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in13 dividual, there shall be allowed as a credit against the tax

14 imposed by this chapter for the taxable year an amount

15 equal to 20 percent of the amount paid or incurred by

16 the taxpayer for qualified energy efficiency improvements

17 installed during such taxable year.

18 ‘‘(b) LIMITATIONS.—

19 ‘‘(1) MAXIMUM CREDIT.—The credit allowed by

20 this section with respect to a dwelling shall not ex21 ceed $2,000.

22 ‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER

23 ON SAME DWELLING TAKEN INTO ACCOUNT.—If a

24 credit was allowed to the taxpayer under subsection

25 (a) with respect to a dwelling in 1 or more prior tax-
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1 able years, the amount of the credit otherwise allow2 able for the taxable year with respect to that dwell3 ing shall not exceed the amount of $2,000 reduced

4 by the sum of the credits allowed under subsection

5 (a) to the taxpayer with respect to the dwelling for

6 all prior taxable years.

7 ‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the

8 credit allowable under subsection (a) exceeds the limita9 tion imposed by section 26(a) for such taxable year re10 duced by the sum of the credits allowable under subpart

11 A of part IV of subchapter A (other than this section),

12 such excess shall be carried to the succeeding taxable year

13 and added to the credit allowable under subsection (a) for

14 such taxable year.

15 ‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE16 MENTS.—For purposes of this section, the term ‘qualified

17 energy efficiency improvements’ means any energy effi18 cient building envelope component which is certified to

19 meet or exceed the prescriptive criteria for such compo20 nent in the 2000 International Energy Conservation Code,

21 or any combination of energy efficiency measures which

22 achieves at least a 30 percent reduction in heating and

23 cooling energy usage for the dwelling (as measured in

24 terms of energy cost to the taxpayer), if—
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1 ‘‘(1) such component or combinations of meas2 ures is installed in or on a dwelling—

3 ‘‘(A) located in the United States, and

4 ‘‘(B) owned and used by the taxpayer as

5 the taxpayer’s principal residence (within the

6 meaning of section 121),

7 ‘‘(2) the original use of such component or com8 bination of measures commences with the taxpayer,

9 and

10 ‘‘(3) such component or combination of meas11 ures reasonably can be expected to remain in use for

12 at least 5 years.

13 ‘‘(e) CERTIFICATION.—The certification described in

14 subsection (d) shall be—

15 ‘‘(1) in the case of any component described in

16 subsection (d), determined on the basis of applicable

17 energy efficiency ratings (including product labeling

18 requirements) for affected building envelope compo19 nents,

20 ‘‘(2) in the case of combinations of measures

21 described in subsection (d), determined by the per22 formance-based methods described in section

23 45F(d),

24 ‘‘(3) provided by a third party, such as a local

25 building regulatory authority, a utility, a manufac-
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1 tured home production inspection primary inspection

2 agency (IPIA), or a home energy rating organiza3 tion, consistent with the requirements of section

4 45F(d)(2), and

5 ‘‘(4) made in writing on forms which specify in

6 readily inspectable fashion the energy-efficient com7 ponents and other measures and their respective ef8 ficiency ratings, and which shall include a perma9 nent label affixed to the electrical distribution panel

10 as described in section 45F(d)(3)(C).

11 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—

12 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC13 CUPANCY.—In the case of any dwelling unit which is

14 jointly occupied and used during any calendar year

15 as a residence by 2 or more individuals the following

16 shall apply:

17 ‘‘(A) The amount of the credit allowable

18 under subsection (a) by reason of expenditures

19 for the qualified energy efficiency improvements

20 made during such calendar year by any of such

21 individuals with respect to such dwelling unit

22 shall be determined by treating all of such indi23 viduals as 1 taxpayer whose taxable year is

24 such calendar year.
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1 ‘‘(B) There shall be allowable with respect

2 to such expenditures to each of such individ3 uals, a credit under subsection (a) for the tax4 able year in which such calendar year ends in

5 an amount which bears the same ratio to the

6 amount determined under subparagraph (A) as

7 the amount of such expenditures made by such

8 individual during such calendar year bears to

9 the aggregate of such expenditures made by all

10 of such individuals during such calendar year.

11 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

12 HOUSING CORPORATION.—In the case of an indi13 vidual who is a tenant-stockholder (as defined in sec14 tion 216) in a cooperative housing corporation (as

15 defined in such section), such individual shall be

16 treated as having paid his tenant-stockholder’s pro17 portionate share (as defined in section 216(b)(3)) of

18 the cost of qualified energy efficiency improvements

19 made by such corporation.

20 ‘‘(3) CONDOMINIUMS.—

21 ‘‘(A) IN GENERAL.—In the case of an indi22 vidual who is a member of a condominium man23 agement association with respect to a condo24 minium which he owns, such individual shall be

25 treated as having paid his proportionate share
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1 of the cost of qualified energy efficiency im2 provements made by such association.

3 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO4 CIATION.—For purposes of this paragraph, the

5 term ‘condominium management association’

6 means an organization which meets the require7 ments of paragraph (1) of section 528(c) (other

8 than subparagraph (E) thereof) with respect to

9 a condominium project substantially all of the

10 units of which are used as residences.

11 ‘‘(4) BUILDING ENVELOPE COMPONENT.—The

12 term ‘building envelope component’ means—

13 ‘‘(A) insulation material or system which is

14 specifically and primarily designed to reduce the

15 heat loss or gain or a dwelling when installed

16 in or on such dwelling, and

17 ‘‘(B) exterior windows (including skylights)

18 and doors.

19 ‘‘(5) MANUFACTURED HOMES INCLUDED.—For

20 purposes of this section, the term ‘dwelling’ includes

21 a manufactured home which conforms to Federal

22 Manufactured Home Construction and Safety Stand23 ards (24 C.F.R. 3280).

24 ‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub25 title, if a credit is allowed under this section for any ex-
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1 penditure with respect to any property, the increase in the

2 basis of such property which would (but for this sub3 section) result from such expenditure shall be reduced by

4 the amount of the credit so allowed.

5 ‘‘(h) TERMINATION.—Subsection (a) shall apply to

6 qualified energy efficiency improvements installed during

7 the period beginning on the date of the enactment of this

8 section and ending on December 31, 2005.’’.

9 (b) CONFORMING AMENDMENTS.—

10 (1) Subsection (c) of section 23 is amended by

11 inserting ‘‘, section 25B, and section 1400C’’ after

12 ‘‘other than this section’’.

13 (2) Subparagraph (C) of section 25(e)(1) is

14 amended by striking ‘‘section 23’’ and inserting

15 ‘‘sections 23, 25B, and 1400C’’.

16 (3) Subsection (d) of section 1400C is amended

17 by inserting ‘‘and section 25B’’ after ‘‘other than

18 this section’’.

19 (4) Subsection (a) of section 1016, as amended

20 by section 102(b), is amended by striking ‘‘and’’ at

21 the end of paragraph (27), by striking the period at

22 the end of paragraph (28) and inserting ‘‘; and’’,

23 and by adding at the end the following:
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1 ‘‘(29) to the extent provided in section 25B(f),

2 in the case of amounts with respect to which a credit

3 has been allowed under section 25B.’’.

4 (5) The table of sections for subpart A of part

5 IV of subchapter A of chapter 1 is amended by in6 serting after the item relating to section 25A the fol7 lowing new item:

‘‘Sec. 25B. Energy efficiency improvements to existing homes.’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to taxable years ending on or after

10 the date of the enactment of this Act.

11 SEC. 203. CREDIT FOR RESIDENTIAL SOLAR, WIND, AND

12 FUEL CELL ENERGY PROPERTY.

13 (a) IN GENERAL.—Subpart A of part IV of sub14 chapter A of chapter 1 (relating to nonrefundable personal

15 credits), as amended by section 201(a), is amended by in16 serting after section 25B the following:

17 ‘‘SEC. 25C. RESIDENTIAL SOLAR, WIND, AND FUEL CELL EN18 ERGY PROPERTY.

19 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in20 dividual, there shall be allowed as a credit against the tax

21 imposed by this chapter for the taxable year an amount

22 equal to the sum of—

23 ‘‘(1) 15 percent of the qualified photovoltaic

24 property expenditures,
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1 ‘‘(2) 15 percent of the qualified solar water

2 heating property expenditures,

3 ‘‘(3) 30 percent of the qualified wind energy

4 property expenditures, and

5 ‘‘(4) 20 percent for the qualified fuel cell prop6 erty expenditures,

7 made by the taxpayer during the taxable year.

8 ‘‘(b) LIMITATIONS.—

9 ‘‘(1) MAXIMUM CREDIT.—The credit allowed

10 under subsection (a)(2) shall not exceed $2,000 for

11 each system of solar energy property.

12 ‘‘(2) TYPE OF PROPERTY.—No expenditure may

13 be taken into account under this section unless such

14 expenditure is made by the taxpayer for property in15 stalled on or in connection with a dwelling unit

16 which is located in the United States and which is

17 used as a residence.

18 ‘‘(3) SAFETY CERTIFICATIONS.—No credit shall

19 be allowed under this section for an item of property

20 unless—

21 ‘‘(A) in the case of solar water heating

22 property, such property is certified for perform23 ance and safety by the non-profit Solar Rating

24 Certification Corporation or a comparable enti-
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1 ty endorsed by the government of the State in

2 which such property is installed, and

3 ‘‘(B) in the case of a photovoltaic, wind en4 ergy, or fuel cell property, such property meets

5 appropriate fire and electric code requirements.

6 ‘‘(c) DEFINITIONS.—For purposes of this section—

7 ‘‘(1) QUALIFIED SOLAR WATER HEATING PROP8 ERTY EXPENDITURE.—The term ‘qualified solar

9 water heating property expenditure’ means an ex10 penditure for property which uses solar energy to

11 heat water for use in a dwelling unit with respect to

12 which a majority of the energy is derived from the

13 sun.

14 ‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX15 PENDITURE.—The term ‘qualified photovoltaic prop16 erty expenditure’ means an expenditure for property

17 which uses solar energy to generate electricity for

18 use in a dwelling unit.

19 ‘‘(3) SOLAR PANELS.—No expenditure relating

20 to a solar panel or other property installed as a roof

21 (or portion thereof) shall fail to be treated as prop22 erty described in paragraph (1) or (2) solely because

23 it constitutes a structural component of the struc24 ture on which it is installed.
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1 ‘‘(4) QUALIFIED WIND ENERGY PROPERTY EX2 PENDITURE.—The term ‘qualified wind energy prop3 erty expenditure’ means an expenditure for property

4 which uses wind energy to generate electricity for

5 use in a dwelling unit.

6 ‘‘(5) QUALIFIED FUEL CELL PROPERTY EX7 PENDITURE.—The term ‘qualified fuel cell property

8 expenditure’ means an expenditure for property

9 which uses an electrochemical fuel cell system to

10 generate electricity for use in a dwelling unit.

11 ‘‘(6) LABOR COSTS.—Expenditures for labor

12 costs properly allocable to the onsite preparation, as13 sembly, or original installation of the property de14 scribed in paragraph (1), (2), (4), or (5) and for

15 piping or wiring to interconnect such property to the

16 dwelling unit shall be taken into account for pur17 poses of this section.

18 ‘‘(7) ENERGY STORAGE MEDIUM.—Expendi19 tures which are properly allocable to a swimming

20 pool, hot tub, or any other energy storage medium

21 which has a function other than the function of such

22 storage shall not be taken into account for purposes

23 of this section.

24 ‘‘(d) SPECIAL RULES.—For purposes of this

25 section—
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1 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC2 CUPANCY.—In the case of any dwelling unit which is

3 jointly occupied and used during any calendar year

4 as a residence by 2 or more individuals the following

5 shall apply:

6 ‘‘(A) The amount of the credit allowable

7 under subsection (a) by reason of expenditures

8 (as the case may be) made during such cal9 endar year by any of such individuals with re10 spect to such dwelling unit shall be determined

11 by treating all of such individuals as 1 taxpayer

12 whose taxable year is such calendar year.

13 ‘‘(B) There shall be allowable with respect

14 to such expenditures to each of such individ15 uals, a credit under subsection (a) for the tax16 able year in which such calendar year ends in

17 an amount which bears the same ratio to the

18 amount determined under subparagraph (A) as

19 the amount of such expenditures made by such

20 individual during such calendar year bears to

21 the aggregate of such expenditures made by all

22 of such individuals during such calendar year.

23 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

24 HOUSING CORPORATION.—In the case of an indi25 vidual who is a tenant-stockholder (as defined in sec-
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1 tion 216) in a cooperative housing corporation (as

2 defined in such section), such individual shall be

3 treated as having made his tenant-stockholder’s pro4 portionate share (as defined in section 216(b)(3)) of

5 any expenditures of such corporation.

6 ‘‘(3) CONDOMINIUMS.—

7 ‘‘(A) IN GENERAL.—In the case of an indi8 vidual who is a member of a condominium man9 agement association with respect to a condo10 minium which such individual owns, such indi11 vidual shall be treated as having made his pro12 portionate share of any expenditures of such as13 sociation.

14 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO15 CIATION.—For purposes of this paragraph, the

16 term ‘condominium management association’

17 means an organization which meets the require18 ments of paragraph (1) of section 528(c) (other

19 than subparagraph (E) thereof) with respect to

20 a condominium project substantially all of the

21 units of which are used as residences.

22 ‘‘(4) JOINT OWNERSHIP OF ITEMS OF SOLAR OR

23 WIND ENERGY PROPERTY.—

24 ‘‘(A) IN GENERAL.—Any expenditure oth25 erwise qualifying as an expenditure described in
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1 paragraph (1), (2), or (4) of subsection (c) shall

2 not be treated as failing to so qualify merely

3 because such expenditure was made with re4 spect to 2 or more dwelling units.

5 ‘‘(B) LIMITS APPLIED SEPARATELY.—In

6 the case of any expenditure described in sub7 paragraph (A), the amount of the credit allow8 able under subsection (a) shall (subject to para9 graph (1)) be computed separately with respect

10 to the amount of the expenditure made for each

11 dwelling unit.

12 ‘‘(5) ALLOCATION IN CERTAIN CASES.—If less

13 than 80 percent of the use of an item is for nonbusi14 ness residential purposes, only that portion of the

15 expenditures for such item which is properly allo16 cable to use for nonbusiness residential purposes

17 shall be taken into account. For purposes of this

18 paragraph, use for a swimming pool shall be treated

19 as use which is not for residential purposes.

20 ‘‘(6) WHEN EXPENDITURE MADE; AMOUNT OF

21 EXPENDITURE.—

22 ‘‘(A) IN GENERAL.—Except as provided in

23 subparagraph (B), an expenditure with respect

24 to an item shall be treated as made when the

25 original installation of the item is completed.
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1 ‘‘(B) EXPENDITURES PART OF BUILDING

2 CONSTRUCTION.—In the case of an expenditure

3 in connection with the construction or recon4 struction of a structure, such expenditure shall

5 be treated as made when the original use of the

6 constructed or reconstructed structure by the

7 taxpayer begins.

8 ‘‘(C) AMOUNT.—The amount of any ex9 penditure shall be the cost thereof.

10 ‘‘(7) REDUCTION OF CREDIT FOR GRANTS, TAX11 EXEMPT BONDS, AND SUBSIDIZED ENERGY FINANC12 ING.—The rules of section 29(b)(3) shall apply for

13 purposes of this section.

14 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this

15 subtitle, if a credit is allowed under this section for any

16 expenditure with respect to any property, the increase in

17 the basis of such property which would (but for this sub18 section) result from such expenditure shall be reduced by

19 the amount of the credit so allowed.

20 ‘‘(f) TERMINATION.—The credit allowed under this

21 section shall not apply to taxable years beginning after

22 December 31, 2011.’’.

23 (b) CONFORMING AMENDMENTS.—

24 (1) Subsection (a) of section 1016, as amended

25 by section 201(b)(4), is amended by striking ‘‘and’’
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1 at the end of paragraph (28), by striking the period

2 at the end of paragraph (29) and inserting ‘‘; and’’,

3 and by adding at the end the following:

4 ‘‘(30) to the extent provided in section 25C(e),

5 in the case of amounts with respect to which a credit

6 has been allowed under section 25C.’’.

7 (2) The table of sections for subpart A of part

8 IV of subchapter A of chapter 1, as amended by sec9 tion 201(b)(2), is amended by inserting after the

10 item relating to section 25B the following:

‘‘Sec. 25C. Residential solar, wind, and fuel cell energy property.’’.

11 (c) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to expenditures made after the

13 date of the enactment of this Act, in taxable years ending

14 after such date.

15 TITLE III—ELECTRICITY

16 FACILITIES AND PRODUCTION

17 SEC. 301. INCENTIVE FOR DISTRIBUTED GENERATION.

18 (a) DEPRECIATION OF DISTRIBUTED POWER PROP19 ERTY.—

20 (1) IN GENERAL.—Subparagraph (C) of section

21 168(e)(3) (relating to 7-year property) is amended

22 by redesignating clause (ii) as clause (iii) and by in23 serting after clause (i) the following:
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1 ‘‘(ii) any distributed power property,

2 and’’.

3 (2) 10-YEAR CLASS LIFE.—The table contained

4 in section 168(g)(3)(B) is amended by inserting

5 after the item relating to subparagraph (C)(i) the

6 following:

‘‘(C)(ii) ....................................................................................................... 10’’.

7 (b) DISTRIBUTED POWER PROPERTY.—Section

8 168(i) is amended by adding at the end the following:

9 ‘‘(15) DISTRIBUTED POWER PROPERTY.—The

10 term ‘distributed power property’ means property—

11 ‘‘(A) which is used in the generation of

12 electricity for primary use—

13 ‘‘(i) in nonresidential real or residen14 tial rental property used in the taxpayer’s

15 trade or business, or

16 ‘‘(ii) in the taxpayer’s industrial man17 ufacturing process or plant activity, with a

18 rated total capacity in excess of 500 kilo19 watts,

20 ‘‘(B) which also may produce usable ther21 mal energy or mechanical power for use in a

22 heating or cooling application, as long as at

23 least 40 percent of the total useful energy pro24 duced consists of—
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1 ‘‘(i) with respect to assets described in

2 subparagraph (A)(i), electrical power

3 (whether sold or used by the taxpayer), or

4 ‘‘(ii) with respect to assets described

5 in subparagraph (A)(ii), electrical power

6 (whether sold or used by the taxpayer) and

7 thermal or mechanical energy used in the

8 taxpayer’s industrial manufacturing proc9 ess or plant activity,

10 ‘‘(C) which is not used to transport pri11 mary fuel to the generating facility or to dis12 tribute energy within or outside of the facility,

13 and

14 ‘‘(D) where it is reasonably expected that

15 not more than 50 percent of the produced elec16 tricity will be sold to, or used by, unrelated per17 sons.

18 For purposes of subparagraph (B), energy output is

19 determined on the basis of expected annual output

20 levels, measured in British thermal units (Btu),

21 using standard conversion factors established by the

22 Secretary.’’.

23 (c) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to property placed in service after

25 the date of the enactment of this Act.
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1 SEC. 302. MODIFICATIONS TO CREDIT FOR ELECTRICITY

2 PRODUCED FROM RENEWABLE AND WASTE

3 PRODUCTS.

4 (a) INCREASE IN CREDIT RATE.—

5 (1) IN GENERAL.—Section 45(a)(1) is amended

6 by striking ‘‘1.5 cents’’ and inserting ‘‘1.8 cents’’.

7 (2) CONFORMING AMENDMENTS.—

8 (A) Section 45(b)(2) is amended by strik9 ing ‘‘1.5 cent’’ and inserting ‘‘1.8 cent’’.

10 (B) Section 45(d)(2)(B) is amended by in11 serting ‘‘(calendar year 2001 in the case of the

12 1.8 cent amount in subsection (a))’’ after

13 ‘‘1992’’.

14 (b) EXPANSION OF QUALIFIED RESOURCES.—

15 (1) IN GENERAL.—Section 45(c)(1) (relating to

16 qualified energy resources) is amended by striking

17 ‘‘and’’ at the end of subparagraph (B), by striking

18 the period at the end of subparagraph (C) and in19 serting ‘‘, and’’, and by adding at the end the fol20 lowing:

21 ‘‘(D) alternative resources.’’.

22 (2) DEFINITION OF ALTERNATIVE RE23 SOURCES.—Section 45(c) (relating to definitions) is

24 amended—

25 (A) by redesignating paragraph (3) as

26 paragraph (5),
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1 (B) by redesignating paragraph (4) as

2 paragraph (3), and

3 (C) by inserting after paragraph (3), as re4 designated by subparagraph (B), the following:

5 ‘‘(4) ALTERNATIVE RESOURCES.—

6 ‘‘(A) IN GENERAL.—The term ‘alternative

7 resources’ means—

8 ‘‘(i) solar,

9 ‘‘(ii) biomass (other than closed loop

10 biomass),

11 ‘‘(iii) municipal solid waste,

12 ‘‘(iv) incremental hydropower,

13 ‘‘(v) geothermal,

14 ‘‘(vi) landfill gas, and

15 ‘‘(vii) steel cogeneration.

16 ‘‘(B) BIOMASS.—The term ‘biomass’

17 means any solid, nonhazardous, cellulosic waste

18 material or any organic carbohydrate matter,

19 which is segregated from other waste materials,

20 and which is derived from—

21 ‘‘(i) any of the following forest-related

22 resources: mill residues, precommercial

23 thinnings, slash, and brush, but not includ24 ing old-growth timber,
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1 ‘‘(ii) waste pallets, crates, dunnage,

2 untreated wood waste from construction or

3 manufacturing activities, and landscape or

4 right-of-way tree trimmings, but not in5 cluding unsegregated municipal solid waste

6 or post-consumer wastepaper, or

7 ‘‘(iii) any of the following agriculture

8 sources: orchard tree crops, vineyard,

9 grain, legumes, sugar, and other crop by10 products or residues, including any pack11 aging and other materials which are

12 nontoxic and biodegradable and are associ13 ated with the processing, feeding, selling,

14 transporting, and disposal of such agricul15 tural materials.

16 ‘‘(C) MUNICIPAL SOLID WASTE.—The term

17 ‘municipal solid waste’ has the same meaning

18 given the term ‘solid waste’ under section 2(27)

19 of the Solid Waste Utilization Act (42 U.S.C.

20 6903).

21 ‘‘(D) INCREMENTAL HYDROPOWER.—The

22 term ‘incremental hydropower’ means additional

23 generating capacity achieved from—

24 ‘‘(i) increased efficiency, or

25 ‘‘(ii) additions of new capacity,
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1 at a licensed non-Federal hydroelectric project

2 originally placed in service before the date of

3 the enactment of this paragraph.

4 ‘‘(E) GEOTHERMAL.—The term ‘geo5 thermal’ means energy derived from a geo6 thermal deposit (within the meaning of section

7 613(e)(2)), but only, in the case of electricity

8 generated by geothermal power, up to (but not

9 including) the electrical transmission stage.

10 ‘‘(F) LANDFILL GAS.—The term ‘landfill

11 gas’ means gas generated from the decomposi12 tion of any household solid waste, commercial

13 solid waste, and industrial solid waste disposed

14 of in a municipal solid waste landfill unit (as

15 such terms are defined in regulations promul16 gated under subtitle D of the Solid Waste Dis17 posal Act (42 U.S.C. 6941 et seq.).

18 ‘‘(G) STEEL COGENERATION.—The term

19 ‘steel cogeneration’ means the production of

20 electricity and steam (or other form of thermal

21 energy) from any or all waste sources defined

22 in paragraphs (2) and (3) and subparagraphs

23 (B) and (C) of this paragraph within an oper24 ating facility which produces or integrates the

25 production of coke, direct reduced iron ore,
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1 iron, or steel provided that the cogeneration

2 meets any regulatory energy-efficiency stand3 ards established by the Secretary, and only to

4 the extent that such energy is produced from—

5 ‘‘(i) gases or heat generated from the

6 production of metallurgical coke,

7 ‘‘(ii) gases or heat generated from the

8 production of direct reduced iron ore or

9 iron, from blast furnace or direct

10 ironmaking processes, or

11 ‘‘(iii) gases or heat generated from

12 the manufacture of steel.’’.

13 (3) QUALIFIED FACILITY.—Section 45(c)(5)

14 (defining qualified facility), as redesignated by para15 graph 2(A), is amended by adding at the end the

16 following:

17 ‘‘(D) ALTERNATIVE RESOURCES FACIL18 ITY.—

19 ‘‘(i) IN GENERAL.—Except as pro20 vided in clauses (ii), (iii), and (iv), in the

21 case of a facility using alternative re22 sources to produce electricity, the term

23 ‘qualified facility’ means any facility of the

24 taxpayer which is originally placed in serv-
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1 ice after the date of the enactment of this

2 subparagraph.

3 ‘‘(ii) BIOMASS FACILITY.—In the case

4 of a facility using biomass described in

5 paragraph (4)(A)(ii) to produce electricity,

6 the term ‘qualified facility’ means any fa7 cility of the taxpayer.

8 ‘‘(iii) GEOTHERMAL FACILITY.—In

9 the case of a facility using geothermal to

10 produce electricity, the term ‘qualified fa11 cility’ means any facility of the taxpayer

12 which is originally placed in service after

13 December 31, 1992.

14 ‘‘(iv) STEEL COGENERATION FACILI15 TIES.—In the case of a facility using steel

16 cogeneration to produce electricity, the

17 term ‘qualified facility’ means any facility

18 permitted to operate under the environ19 mental requirements of the Clean Air Act

20 Amendments of 1990 which is owned by

21 the taxpayer and originally placed in serv22 ice after the date of the enactment of this

23 subparagraph. Such a facility may be

24 treated as originally placed in service when

25 such facility was last upgraded to increase
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1 efficiency or generation capability after

2 such date.

3 ‘‘(v) SPECIAL RULES.—In the case of

4 a qualified facility described in this sub5 paragraph, the 10-year period referred to

6 in subsection (a) shall be treated as begin7 ning no earlier than the date of the enact8 ment of this subparagraph.’’.

9 (4) GOVERNMENT-OWNED FACILITY.—Section

10 45(d)(6) (relating to credit eligibility in the case of

11 government-owned facilities using poultry waste) is

12 amended—

13 (A) by inserting ‘‘or alternative resources’’

14 after ‘‘poultry waste’’, and

15 (B) by inserting ‘‘OR ALTERNATIVE RE16 SOURCES’’ after ‘‘POULTRY WASTE’’ in the

17 heading thereof.

18 (5) QUALIFIED FACILITIES WITH CO-PRODUC19 TION.—Section 45(b) (relating to limitations and ad20 justments) is amended by adding at the end the fol21 lowing:

22 ‘‘(4) INCREASED CREDIT FOR CO-PRODUCTION

23 FACILITIES.—

24 ‘‘(A) IN GENERAL.—In the case of a quali25 fied facility described in subsection (c)(3)(D)(i)
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1 which has a co-production facility or a qualified

2 facility described in subparagraph (A), (B), or

3 (C) of subsection (c)(3) which adds a co-pro4 duction facility after the date of the enactment

5 of this paragraph, the amount in effect under

6 subsection (a)(1) for an eligible taxable year of

7 a taxpayer shall (after adjustment under para8 graph (2) and before adjustment under para9 graphs (1) and (3)) be increased by .25 cents.

10 ‘‘(B) CO-PRODUCTION FACILITY.—For

11 purposes of subparagraph (A), the term ‘co-pro12 duction facility’ means a facility which—

13 ‘‘(i) enables a qualified facility to

14 produce heat, mechanical power, chemicals,

15 liquid fuels, or minerals from qualified en16 ergy resources in addition to electricity,

17 and

18 ‘‘(ii) produces such energy on a con19 tinuous basis.

20 ‘‘(C) ELIGIBLE TAXABLE YEAR.—For pur21 poses of subparagraph (A), the term ‘eligible

22 taxable year’ means any taxable year in which

23 the amount of gross receipts attributable to the

24 co-production facility of a qualified facility are

25 at least 10 percent of the amount of gross re-
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1 ceipts attributable to electricity produced by

2 such facility.’’.

3 (6) QUALIFIED FACILITIES LOCATED WITHIN

4 QUALIFIED INDIAN LANDS.—Section 45(b) (relating

5 to limitations and adjustments), as amended by

6 paragraph (5), is amended by adding at the end the

7 following:

8 ‘‘(5) INCREASED CREDIT FOR QUALIFIED FA9 CILITY LOCATED WITHIN QUALIFIED INDIAN

10 LAND.—In the case of a qualified facility described

11 in subsection (c)(3)(D) which—

12 ‘‘(A) is located within—

13 ‘‘(i) qualified Indian lands (as defined

14 in section 7871(c)(3)), or

15 ‘‘(ii) lands which are held in trust by

16 a Native Corporation (as defined in section

17 3(m) of the Alaska Native Claims Settle18 ment Act (43 U.S.C. 1602(m)) for Alaska

19 Natives, and

20 ‘‘(B) is operated with the explicit written

21 approval of the Indian tribal government or Na22 tive Corporation (as so defined) having jurisdic23 tion over such lands,

24 the amount in effect under subsection (a)(1) for a

25 taxable year shall (after adjustment under para-
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1 graphs (2) and (4) and before adjustment under

2 paragraphs (1) and (3)) be increased by .25 cents.’’.

3 (7) ELECTRICITY PRODUCED FROM CERTAIN

4 RESOURCES CO-FIRED IN COAL PLANTS.—Section

5 45(d) (relating to definitions and special rules) is

6 amended by adding at the end the following:

7 ‘‘(8) SPECIAL RULE FOR ELECTRICITY PRO8 DUCED FROM CERTAIN RESOURCES CO-FIRED IN

9 COAL PLANTS.—In the case of electricity produced

10 from biomass (including closed loop biomass), mu11 nicipal solid waste, or animal waste, co-fired in a fa12 cility which produces electricity from coal—

13 ‘‘(A) subsection (a)(1) shall be applied by

14 substituting ‘1 cent’ for ‘1.8 cents’,

15 ‘‘(B) such facility shall be considered a

16 qualified facility for purposes of this section,

17 and

18 ‘‘(C) the 10-year period referred to in sub19 section (a) shall be treated as beginning no ear20 lier than the date of the enactment of this para21 graph.’’.

22 (8) CONFORMING AMENDMENTS.—

23 (A) The heading for section 45 is amended

24 by inserting ‘‘AND WASTE ENERGY’’ after

25 ‘‘RENEWABLE’’.
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1 (B) The item relating to section 45 in the

2 table of sections subpart D of part IV of sub3 chapter A of chapter 1 is amended by inserting

4 ‘‘and waste energy’’ after ‘‘renewable’’.

5 (c) ADDITIONAL MODIFICATIONS OF RENEWABLE

6 AND WASTE ENERGY RESOURCE CREDIT.—

7 (1) CREDITS FOR CERTAIN TAX EXEMPT ORGA8 NIZATIONS AND GOVERNMENTAL UNITS.—Section

9 45(d) (relating to definitions and special rules), as

10 amended by subsection (b)(7), is amended by adding

11 at the end the following:

12 ‘‘(9) CREDITS FOR CERTAIN TAX EXEMPT OR13 GANIZATIONS AND GOVERNMENTAL UNITS.—

14 ‘‘(A) ALLOWANCE OF CREDIT.—Any credit

15 which would be allowable under subsection (a)

16 with respect to a qualified facility of an entity

17 if such entity were not exempt from tax under

18 this chapter shall be treated as a credit allow19 able under subpart C to such entity if such en20 tity is—

21 ‘‘(i) an organization described in sec22 tion 501(c)(12)(C) and exempt from tax

23 under section 501(a),

24 ‘‘(ii) an organization described in sec25 tion 1381(a)(2)(C), or
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1 ‘‘(iii) an entity the income of which is

2 excludable from gross income under section

3 115.

4 ‘‘(B) USE OF CREDIT.—

5 ‘‘(i) TRANSFER OF CREDIT.—An enti6 ty described in subparagraph (A) may as7 sign, trade, sell, or otherwise transfer any

8 credit allowable to such entity under sub9 paragraph (A) to any taxpayer.

10 ‘‘(ii) USE OF CREDIT AS AN OFF11 SET.—Notwithstanding any other provision

12 of law, in the case of an entity described

13 in clause (i) or (ii) of subparagraph (A),

14 any credit allowable to such entity under

15 subparagraph (A) may be applied by such

16 entity, without penalty, as a prepayment of

17 any loan, debt, or other obligation the enti18 ty has incurred under subchapter I of

19 chapter 31 of title 7 of the Rural Elec20 trification Act of 1936 (7 U.S.C. 901 et

21 seq.).

22 ‘‘(C) CREDIT NOT INCOME.—Neither a

23 transfer under clause (i) or a use under clause

24 (ii) of subparagraph (B) of any credit allowable
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1 under subparagraph (A) shall result in income

2 for purposes of section 501(c)(12).

3 ‘‘(D) TRANSFER PROCEEDS TREATED AS

4 ARISING FROM ESSENTIAL GOVERNMENT FUNC5 TION.—Any proceeds derived by an entity de6 scribed in subparagraph (A)(iii) from the trans7 fer of any credit under subparagraph (B)(i)

8 shall be treated as arising from an essential

9 government function.

10 ‘‘(E) CREDITS NOT REDUCED BY TAX-EX11 EMPT BONDS OR CERTAIN OTHER SUBSIDIES.—

12 Subsection (b)(3) shall not apply to reduce any

13 credit allowable under subparagraph (A) with

14 respect to—

15 ‘‘(i) proceeds described in subpara16 graph (A)(ii) of such subsection, or

17 ‘‘(ii) any loan, debt, or other obliga18 tion incurred under subchapter I of chap19 ter 31 of title 7 of the Rural Electrification

20 Act of 1936 (7 U.S.C. 901 et seq.),

21 used to provide financing for any qualified facil22 ity.

23 ‘‘(F) TREATMENT OF UNRELATED PER24 SONS.—For purposes of this paragraph, sales

25 among and between entities described in sub-
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1 paragraph (A) shall be treated as sales between

2 unrelated parties.’’.

3 (2) COORDINATION WITH OTHER CREDITS.—

4 Section 45(d), as amended by paragraph (1), is

5 amended by adding at the end the following:

6 ‘‘(10) COORDINATION WITH OTHER CREDITS.—

7 This section shall not apply to any qualified facility

8 with respect to which a credit under any other sec9 tion is allowed for the taxable year unless the tax10 payer elects to waive the application of such credit

11 to such facility.’’.

12 (3) EXPANSION TO INCLUDE ANIMAL WASTE.—

13 Section 45 (relating to electricity produced from cer14 tain renewable resources), as amended by para15 graphs (2) and (4) of subsection (b), is amended—

16 (A) by striking ‘‘poultry’’ each place it ap17 pears in subsection (c)(1)(C) and subsection

18 (d)(6) and inserting ‘‘animal’’,

19 (B) by striking ‘‘POULTRY’’ in the heading

20 of paragraph (6) of subsection (d) and inserting

21 ‘‘ANIMAL’’,

22 (C) by striking paragraph (3) of subsection

23 (c) and inserting the following:
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1 ‘‘(3) ANIMAL WASTE.—The term ‘animal waste’

2 means poultry manure and litter and other animal

3 wastes, including—

4 ‘‘(A) wood shavings, straw, rice hulls, and

5 other bedding material for the disposition of

6 manure, and

7 ‘‘(B) byproducts, packaging, and other ma8 terials which are nontoxic and biodegradable

9 and are associated with the processing, feeding,

10 selling, transporting, and disposal of such ani11 mal wastes.’’, and

12 (D) by striking subparagraph (C) of sub13 section (c)(5) and inserting the following:

14 ‘‘(C) ANIMAL WASTE FACILITY.—

15 ‘‘(i) IN GENERAL.—Except as pro16 vided in clause (ii), in the case of a facility

17 using animal waste (other than poultry) to

18 produce electricity, the term ‘qualified fa19 cility’ means any facility of the taxpayer

20 which is originally placed in service after

21 the date of the enactment of this clause.

22 ‘‘(ii) POULTRY WASTE.—In the case

23 of a facility using animal waste relating to

24 poultry to produce electricity, the term

25 ‘qualified facility’ means any facility of the
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1 taxpayer which is originally placed in serv2 ice after December 31, 1999.’’.

3 (4) TREATMENT OF QUALIFIED FACILITIES NOT

4 IN COMPLIANCE WITH POLLUTION LAWS.—Section

5 45(c)(5) (relating to qualified facilities), as amended

6 by paragraphs (2) and (3) of subsection (b), is

7 amended by adding at the end the following:

8 ‘‘(E) NONCOMPLIANCE WITH POLLUTION

9 LAWS.—For purposes of this paragraph, a facil10 ity which is not in compliance with the applica11 ble State and Federal pollution prevention, con12 trol, and permit requirements for any period of

13 time shall not be considered to be a qualified

14 facility during such period.’’.

15 (5) PERMANENT EXTENSION OF QUALIFIED FA16 CILITY DATES.—Section 45(c)(5) (relating to quali17 fied facility), as redesignated by subsection (b)(2), is

18 amended by striking ‘‘, and before January 1, 2002’’

19 in subparagraphs (A) and (B).

20 (d) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to electricity and other energy pro22 duced after the date of the enactment of this Act.
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1 SEC. 303. TREATMENT OF FACILITIES USING BAGASSE TO

2 PRODUCE ENERGY AS SOLID WASTE DIS3 POSAL FACILITIES ELIGIBLE FOR TAX-EX4 EMPT FINANCING.

5 (a) IN GENERAL.—Section 142 (relating to exempt

6 facility bond) is amended by adding at the end the fol7 lowing:

8 ‘‘(k) SOLID WASTE DISPOSAL FACILITIES.—For pur9 poses of subsection (a)(6), the term ‘solid waste disposal

10 facilities’ includes property located in Hawaii and used for

11 the collection, storage, treatment, utilization, processing,

12 or final disposal of bagasse in the manufacture of eth13 anol.’’.

14 (b) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to bonds issued after the date of

16 the enactment of this Act.

17 SEC. 304. DEPRECIATION OF PROPERTY USED IN THE

18 TRANSMISSION OF ELECTRICITY.

19 (a) DEPRECIATION OF PROPERTY USED IN THE

20 TRANSMISSION OF ELECTRICITY.—

21 (1) IN GENERAL.—Subparagraph (C) of section

22 168(e)(3) (relating to 7-year property), as amended

23 by section 301(a)(1), is amended by striking ‘‘and’’

24 at the end of clause (ii), by redesignating clause (iii)

25 as clause (iv), and by inserting after clause (ii) the

26 following:
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1 ‘‘(iii) any property used in the trans2 mission of electricity, and’’.

3 (2) 10-YEAR CLASS LIFE.—The table contained

4 in section 168(g)(3)(B), as amended by section

5 301(a)(2), is amended by inserting after the item re6 lating to subparagraph (C)(ii) the following:

‘‘(C)(iii) ...................................................................................................... 10’’.

7 (b) DEFINITION OF PROPERTY USED IN THE TRANS8 MISSION OF ELECTRICITY.—Section 168(i), as amended

9 by section 301(b), is amended by adding at the end the

10 following:

11 ‘‘(16) PROPERTY USED IN THE TRANSMISSION

12 OF ELECTRICITY.—The term ‘property used in the

13 transmission of electricity’ means property used in

14 the transmission of electricity for sale.’’.

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

16 this section shall apply to property placed in service after

17 the date of the enactment of this Act.

18 TITLE IV—INCENTIVES FOR

19 EARLY COMMERCIAL APPLI20 CATIONS OF ADVANCED

21 CLEAN COAL TECHNOLOGIES

22 SEC. 401. CREDIT FOR INVESTMENT IN QUALIFYING AD23 VANCED CLEAN COAL TECHNOLOGY.

24 (a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN

25 COAL TECHNOLOGY FACILITY CREDIT.—Section 46 (re-
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1 lating to amount of credit) is amended by striking ‘‘and’’

2 at the end of paragraph (2), by striking the period at the

3 end of paragraph (3) and inserting ‘‘, and’’, and by adding

4 at the end the following:

5 ‘‘(4) the qualifying advanced clean coal tech6 nology facility credit.’’.

7 (b) AMOUNT OF QUALIFYING ADVANCED CLEAN

8 COAL TECHNOLOGY FACILITY CREDIT.—Subpart E of

9 part IV of subchapter A of chapter 1 (relating to rules

10 for computing investment credit), as amended by section

11 101(a), is amended by inserting after section 48A the fol12 lowing:

13 ‘‘SEC. 48B. QUALIFYING ADVANCED CLEAN COAL TECH14 NOLOGY FACILITY CREDIT.

15 ‘‘(a) IN GENERAL.—For purposes of section 46, the

16 qualifying advanced clean coal technology facility credit

17 for any taxable year is an amount equal to 10 percent

18 of the qualified investment in a qualifying advanced clean

19 coal technology facility for such taxable year.

20 ‘‘(b) QUALIFYING ADVANCED CLEAN COAL TECH21 NOLOGY FACILITY.—

22 ‘‘(1) IN GENERAL.—For purposes of subsection

23 (a), the term ‘qualifying advanced clean coal tech24 nology facility’ means a facility of the taxpayer

25 which—
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1 ‘‘(A)(i)(I) replaces a conventional tech2 nology facility of the taxpayer and the original

3 use of which commences with the taxpayer, or

4 ‘‘(II) is a retrofitted or repowered conven5 tional technology facility, the retrofitting or

6 repowering of which is completed by the tax7 payer (but only with respect to that portion of

8 the basis which is properly attributable to such

9 retrofitting or repowering), or

10 ‘‘(ii) is acquired through purchase (as de11 fined by section 179(d)(2)),

12 ‘‘(B) is depreciable under section 167,

13 ‘‘(C) has a useful life of not less than 4

14 years,

15 ‘‘(D) is located in the United States, and

16 ‘‘(E) uses qualifying advanced clean coal

17 technology.

18 ‘‘(2) SPECIAL RULE FOR SALE-LEASEBACKS.—

19 For purposes of subparagraph (A) of paragraph (1),

20 in the case of a facility which—

21 ‘‘(A) is originally placed in service by a

22 person, and

23 ‘‘(B) is sold and leased back by such per24 son, or is leased to such person, within 3

25 months after the date such facility was origi-
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1 nally placed in service, for a period of not less

2 than 12 years,

3 such facility shall be treated as originally placed in

4 service not earlier than the date on which such prop5 erty is used under the leaseback (or lease) referred

6 to in subparagraph (B). The preceding sentence

7 shall not apply to any property if the lessee and les8 sor of such property make an election under this

9 sentence. Such an election, once made, may be re10 voked only with the consent of the Secretary.

11 ‘‘(3) QUALIFYING ADVANCED CLEAN COAL

12 TECHNOLOGY.—For purposes of paragraph (1)—

13 ‘‘(A) IN GENERAL.—The term ‘qualifying

14 advanced clean coal technology’ means, with re15 spect to clean coal technology—

16 ‘‘(i) multiple applications, with a com17 bined capacity of not more than 2,000

18 megawatts, of advanced pulverized coal or

19 atmospheric fluidized bed combustion

20 technology—

21 ‘‘(I) installed as a new, retrofit,

22 or repowering application,

23 ‘‘(II) operated between 2001 and

24 2011, and
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1 ‘‘(III) with a design net heat rate

2 of not more than 9,500 Btu per kilo3 watt hour when the design coal has a

4 heat content of more than 8,000 Btu

5 per pound, or a design net heat rate

6 of not more than 9,900 Btu per kilo7 watt hour when the design coal has a

8 heat content of 8,000 Btu per pound

9 or less,

10 ‘‘(ii) multiple applications, with a

11 combined capacity of not more than 1,000

12 megawatts, of pressurized fluidized bed

13 combustion technology—

14 ‘‘(I) installed as a new, retrofit,

15 or repowering application,

16 ‘‘(II) operated between 2001 and

17 2015, and

18 ‘‘(III) with a design net heat rate

19 of not more than 8,400 Btu per kilo20 watt hour when the design coal has a

21 heat content of more than 8,000 Btu

22 per pound, or a design net heat rate

23 of not more than 9,900 Btu per kilo24 watt hour when the design coal has a
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1 heat content of 8,000 Btu per pound

2 or less,

3 ‘‘(iii) multiple applications, with a

4 combined capacity of not more than 5,000

5 megawatts, of integrated gasification com6 bined cycle technology, with or without fuel

7 or chemical co-production—

8 ‘‘(I) installed as a new, retrofit,

9 or repowering application,

10 ‘‘(II) operated between 2001 and

11 2015,

12 ‘‘(III) with a design net heat rate

13 of not more than 8,550 Btu per kilo14 watt hour when the design coal has a

15 heat content of more than 8,000 Btu

16 per pound, or a design net heat rate

17 of not more than 9,900 Btu per kilo18 watt hour when the design coal has a

19 heat content of 8,000 Btu per pound

20 or less, and

21 ‘‘(IV) with a net thermal effi22 ciency on any fuel or chemical co-pro23 duction of not less than 39 percent

24 (higher heating value), and
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1 ‘‘(iv) multiple applications, with a

2 combined capacity of not more than 2,000

3 megawatts of technology for the production

4 of electricity—

5 ‘‘(I) installed as a new, retrofit,

6 or repowering application,

7 ‘‘(II) operated between 2001 and

8 2015, and

9 ‘‘(III) with a carbon emission

10 rate which is not more than 85 per11 cent of conventional technology.

12 ‘‘(B) EXCEPTIONS.—Such term shall not

13 include clean coal technology projects receiving

14 or scheduled to receive funding under the Clean

15 Coal Technology Program of the Department of

16 Energy.

17 ‘‘(C) CLEAN COAL TECHNOLOGY.—The

18 term ‘clean coal technology’ means advanced

19 technology which uses coal to produce 75 per20 cent or more of its thermal output as electricity

21 including advanced pulverized coal or atmos22 pheric fluidized bed combustion, pressurized flu23 idized bed combustion, integrated gasification

24 combined cycle with or without fuel or chemical

25 co-production, and any other technology for the
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1 production of electricity which exceeds the per2 formance of conventional technology.

3 ‘‘(D) CONVENTIONAL TECHNOLOGY.—The

4 term ‘conventional technology’ means—

5 ‘‘(i) coal-fired combustion technology

6 with a design net heat rate of not less than

7 9,500 Btu per kilowatt hour (HHV) and a

8 carbon equivalents emission rate of not

9 more than 0.54 pounds of carbon per kilo10 watt hour when the design coal has a heat

11 content of more than 8,000 Btu per

12 pound,

13 ‘‘(ii) coal-fired combustion technology

14 with a design net heat rate of not less than

15 10,500 Btu per kilowatt hour (HHV) and

16 a carbon equivalents emission rate of not

17 more than 0.60 pounds of carbon per kilo18 watt hour when the design coal has a heat

19 content of 8,000 Btu per pound or less, or

20 ‘‘(iii) natural gas-fired combustion

21 technology with a design net heat rate of

22 not less than 7,500 Btu per kilowatt hour

23 (HHV) and a carbon equivalents emission

24 rate of not more than 0.24 pounds of car25 bon per kilowatt hour.
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1 ‘‘(E) DESIGN NET HEAT RATE.—The de2 sign net heat rate shall be based on the design

3 annual heat input to and the design annual net

4 electrical output from the qualifying advanced

5 clean coal technology (determined without re6 gard to such technology’s co-generation of

7 steam).

8 ‘‘(F) SELECTION CRITERIA.—Selection cri9 teria for clean coal technology facilities—

10 ‘‘(i) shall be established by the Sec11 retary of Energy as part of a competitive

12 solicitation,

13 ‘‘(ii) shall include primary criteria of

14 minimum design net heat rate, maximum

15 design thermal efficiency, and lowest cost

16 to the government, and

17 ‘‘(iii) shall include supplemental cri18 teria as determined appropriate by the

19 Secretary of Energy.

20 ‘‘(4) NONCOMPLIANCE WITH POLLUTION

21 LAWS.—For purposes of this subsection, a facility

22 which is not in compliance with the applicable State

23 and Federal pollution prevention, control, and per24 mit requirements for any period of time shall not be
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1 considered to be a qualifying advanced clean coal

2 technology facility during such period.

3 ‘‘(c) QUALIFIED INVESTMENT.—For purposes of sub4 section (a), the term ‘qualified investment’ means, with

5 respect to any taxable year, the basis of a qualifying ad6 vanced clean coal technology facility placed in service by

7 the taxpayer during such taxable year.

8 ‘‘(d) QUALIFIED PROGRESS EXPENDITURES.—

9 ‘‘(1) INCREASE IN QUALIFIED INVESTMENT.—

10 In the case of a taxpayer who has made an election

11 under paragraph (5), the amount of the qualified in12 vestment of such taxpayer for the taxable year (de13 termined under subsection (c) without regard to this

14 section) shall be increased by an amount equal to

15 the aggregate of each qualified progress expenditure

16 for the taxable year with respect to progress expend17 iture property.

18 ‘‘(2) PROGRESS EXPENDITURE PROPERTY DE19 FINED.—For purposes of this subsection, the term

20 ‘progress expenditure property’ means any property

21 being constructed by or for the taxpayer and which

22 it is reasonable to believe will qualify as a qualifying

23 advanced clean coal technology facility which is

24 being constructed by or for the taxpayer when it is

25 placed in service.
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1 ‘‘(3) QUALIFIED PROGRESS EXPENDITURES DE2 FINED.—For purposes of this subsection—

3 ‘‘(A) SELF-CONSTRUCTED PROPERTY.—In

4 the case of any self-constructed property, the

5 term ‘qualified progress expenditures’ means

6 the amount which, for purposes of this subpart,

7 is properly chargeable (during such taxable

8 year) to capital account with respect to such

9 property.

10 ‘‘(B) NONSELF-CONSTRUCTED PROP11 ERTY.—In the case of nonself-constructed prop12 erty, the term ‘qualified progress expenditures’

13 means the amount paid during the taxable year

14 to another person for the construction of such

15 property.

16 ‘‘(4) OTHER DEFINITIONS.—For purposes of

17 this subsection—

18 ‘‘(A) SELF-CONSTRUCTED PROPERTY.—

19 The term ‘self-constructed property’ means

20 property for which it is reasonable to believe

21 that more than half of the construction expendi22 tures will be made directly by the taxpayer.

23 ‘‘(B) NONSELF-CONSTRUCTED PROP24 ERTY.—The term ‘nonself-constructed property’
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1 means property which is not self-constructed

2 property.

3 ‘‘(C) CONSTRUCTION, ETC.—The term

4 ‘construction’ includes reconstruction and erec5 tion, and the term ‘constructed’ includes recon6 structed and erected.

7 ‘‘(D) ONLY CONSTRUCTION OF QUALI8 FYING ADVANCED CLEAN COAL TECHNOLOGY

9 FACILITY TO BE TAKEN INTO ACCOUNT.—Con10 struction shall be taken into account only if, for

11 purposes of this subpart, expenditures therefor

12 are properly chargeable to capital account with

13 respect to the property.

14 ‘‘(5) ELECTION.—An election under this sub15 section may be made at such time and in such man16 ner as the Secretary may by regulations prescribe.

17 Such an election shall apply to the taxable year for

18 which made and to all subsequent taxable years.

19 Such an election, once made, may not be revoked ex20 cept with the consent of the Secretary.

21 ‘‘(e) CREDITS FOR CERTAIN TAX EXEMPT ORGANI22 ZATIONS AND GOVERNMENTAL UNITS.—

23 ‘‘(1) ALLOWANCE OF CREDIT.—Any credit

24 which would be allowable under subsection (a) with

25 respect to a qualifying advanced clean coal tech-
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1 nology facility of an entity if such entity were not

2 exempt from tax under this chapter shall be treated

3 as a credit allowable under subpart C to such entity

4 if such entity is—

5 ‘‘(A) an organization described in section

6 501(c)(12)(C) and exempt from tax under sec7 tion 501(a),

8 ‘‘(B) an organization described in section

9 1381(a)(2)(C),

10 ‘‘(C) an entity the income of which is ex11 cludable from gross income under section 115,

12 or

13 ‘‘(D) the Tennessee Valley Authority.

14 ‘‘(2) USE OF CREDIT.—

15 ‘‘(A) TRANSFER OF CREDIT.—An entity

16 described in subparagraph (A), (B), or (C) of

17 paragraph (1) may assign, trade, sell, or other18 wise transfer any credit allowable to such entity

19 under paragraph (1) to any taxpayer.

20 ‘‘(B) USE OF CREDIT AS AN OFFSET.—

21 Notwithstanding any other provision of law, in

22 the case of an entity described in subparagraph

23 (A) or (B) of paragraph (1), any credit allow24 able to such entity under paragraph (1) may be

25 applied by such entity, without penalty, as a
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1 prepayment of any loan, debt, or other obliga2 tion the entity has incurred under subchapter I

3 of chapter 31 of title 7 of the Rural Electrifica4 tion Act of 1936 (7 U.S.C. 901 et seq.).

5 ‘‘(C) USE BY TVA.—

6 ‘‘(i) IN GENERAL.—Notwithstanding

7 any other provision of law, in the case of

8 an entity described in paragraph (1)(D),

9 any credit allowable under paragraph (1)

10 to such entity may be applied as a credit

11 against the payments required to be made

12 in any fiscal year under section 15d(e) of

13 the Tennessee Valley Authority Act of

14 1933 (16 U.S.C. 831n–4(e)) as an annual

15 return on the appropriations investment

16 and an annual repayment sum.

17 ‘‘(ii) TREATMENT OF CREDITS.—The

18 aggregate amount of credits described in

19 paragraph (1) shall be treated in the same

20 manner and to the same extent as if such

21 credits were a payment in cash and shall

22 be applied first against the annual return

23 on the appropriations investment.

24 ‘‘(iii) CREDIT CARRYOVER.—With re25 spect to any fiscal year, if the aggregate
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1 amount of credits described in paragraph

2 (1) exceeds the aggregate amount of pay3 ment obligations described in clause (i),

4 the excess amount shall remain available

5 for application as credits against the

6 amounts of such payment obligations in

7 succeeding fiscal years in the same manner

8 as described in this subparagraph.

9 ‘‘(3) CREDIT NOT INCOME.—Neither a transfer

10 under subparagraph (A) or a use under subpara11 graph (B) of paragraph (2) of any credit allowable

12 under paragraph (1) shall result in income for pur13 poses of section 501(c)(12).

14 ‘‘(4) TRANSFER PROCEEDS TREATED AS ARIS15 ING FROM ESSENTIAL GOVERNMENT FUNCTION.—

16 Any proceeds derived by an entity described in para17 graph (1)(C) from the transfer of any credit under

18 paragraph (2)(A) shall be treated as arising from an

19 essential government function.

20 ‘‘(f) COORDINATION WITH OTHER CREDITS.—This

21 section shall not apply to any property with respect to

22 which the rehabilitation credit under section 47 or the en23 ergy credit under section 48A is allowed unless the tax24 payer elects to waive the application of such credit to such

25 property.
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1 ‘‘(g) TERMINATION.—This section shall not apply

2 with respect to any qualified investment made more than

3 10 years after the effective date of this section.’’.

4 (c) RECAPTURE.—Section 50(a) (relating to other

5 special rules) is amended by adding at the end the fol6 lowing:

7 ‘‘(6) SPECIAL RULES RELATING TO QUALIFYING

8 ADVANCED CLEAN COAL TECHNOLOGY FACILITY.—

9 For purposes of applying this subsection in the case

10 of any credit allowable by reason of section 48B, the

11 following shall apply:

12 ‘‘(A) GENERAL RULE.—In lieu of the

13 amount of the increase in tax under paragraph

14 (1), the increase in tax shall be an amount

15 equal to the investment tax credit allowed under

16 section 38 for all prior taxable years with re17 spect to a qualifying advanced clean coal tech18 nology facility (as defined by section 48B(b)(1))

19 multiplied by a fraction whose numerator is the

20 number of years remaining to fully depreciate

21 under this title the qualifying advanced clean

22 coal technology facility disposed of, and whose

23 denominator is the total number of years over

24 which such facility would otherwise have been

25 subject to depreciation. For purposes of the
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1 preceding sentence, the year of disposition of

2 the qualifying advanced clean coal technology

3 facility property shall be treated as a year of re4 maining depreciation.

5 ‘‘(B) PROPERTY CEASES TO QUALIFY FOR

6 PROGRESS EXPENDITURES.—Rules similar to

7 the rules of paragraph (2) shall apply in the

8 case of qualified progress expenditures for a

9 qualifying advanced clean coal technology facil10 ity under section 48B, except that the amount

11 of the increase in tax under subparagraph (A)

12 of this paragraph shall be substituted in lieu of

13 the amount described in such paragraph (2).

14 ‘‘(C) APPLICATION OF PARAGRAPH.—This

15 paragraph shall be applied separately with re16 spect to the credit allowed under section 38 re17 garding a qualifying advanced clean coal tech18 nology facility.’’.

19 (d) TRANSITIONAL RULE.—Section 39(d) of the In20 ternal Revenue Code of 1986 (relating to transitional

21 rules), as amended by section 201(e), is amended by add22 ing at the end the following:

23 ‘‘(13) NO CARRYBACK OF SECTION 48B CREDIT

24 BEFORE EFFECTIVE DATE.—No portion of the un25 used business credit for any taxable year which is
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1 attributable to the qualifying advanced clean coal

2 technology facility credit determined under section

3 48B may be carried back to a taxable year ending

4 before January 1, 2002.’’.

5 (e) TECHNICAL AMENDMENTS.—

6 (1) Section 49(a)(1)(C) is amended by striking

7 ‘‘and’’ at the end of clause (ii), by striking the pe8 riod at the end of clause (iii) and inserting ‘‘, and’’,

9 and by adding at the end the following:

10 ‘‘(iv) the portion of the basis of any

11 qualifying advanced clean coal technology

12 facility attributable to any qualified invest13 ment (as defined by section 48B(c)).’’.

14 (2) Section 50(a)(4) is amended by striking

15 ‘‘and (2)’’ and inserting ‘‘(2), and (6)’’.

16 (3) Section 50(c) is amended by adding at the

17 end the following:

18 ‘‘(6) NONAPPLICATION.—Paragraphs (1) and

19 (2) shall not apply to any advanced clean coal tech20 nology facility credit under section 48B.’’.

21 (4) The table of sections for subpart E of part

22 IV of subchapter A of chapter 1, as amended by sec23 tion 101(c), is amended by inserting after the item

24 relating to section 48A the following:

‘‘Sec. 48B. Qualifying advanced clean coal technology facility credit.’’.
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1 (f) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to periods after December 31,

3 2001, under rules similar to the rules of section 48(m)

4 of the Internal Revenue Code of 1986 (as in effect on the

5 day before the date of the enactment of the Revenue Rec6 onciliation Act of 1990).

7 SEC. 402. CREDIT FOR PRODUCTION FROM QUALIFYING

8 ADVANCED CLEAN COAL TECHNOLOGY.

9 (a) CREDIT FOR PRODUCTION FROM QUALIFYING

10 ADVANCED CLEAN COAL TECHNOLOGY.—Subpart D of

11 part IV of subchapter A of chapter 1 of the Internal Rev12 enue Code of 1986 (relating to business related credits),

13 as amended by section 201(a), is amended by adding at

14 the end the following:

15 ‘‘SEC. 45G. CREDIT FOR PRODUCTION FROM QUALIFYING

16 ADVANCED CLEAN COAL TECHNOLOGY.

17 ‘‘(a) GENERAL RULE.—For purposes of section 38,

18 the qualifying advanced clean coal technology production

19 credit of any taxpayer for any taxable year is equal to—

20 ‘‘(1) the applicable amount of advanced clean

21 coal technology production credit, multiplied by

22 ‘‘(2) the sum of—

23 ‘‘(A) the kilowatt hours of electricity, plus

24 ‘‘(B) each 3,413 Btu of fuels or chemicals,
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1 produced by the taxpayer during such taxable year

2 at a qualifying advanced clean coal technology facil3 ity during the 10-year period beginning on the date

4 the facility was originally placed in service.

5 ‘‘(b) APPLICABLE AMOUNT.—For purposes of this

6 section, the applicable amount of advanced clean coal tech7 nology production credit with respect to production from

8 a qualifying advanced clean coal technology facility shall

9 be determined as follows:

10 ‘‘(1) Where the design coal has a heat content

11 of more than 8,000 Btu per pound:

12 ‘‘(A) In the case of a facility originally

13 placed in service before 2008, if—

‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not more than 8,400 ............................................................ $.0050 $.0030

More than 8,400 but not more than 8,550 .......................... $.0010 $.0010

More than 8,550 but not more than 8,750 .......................... $.0005 $.0005.

14 ‘‘(B) In the case of a facility originally

15 placed in service after 2007 and before 2012,

16 if—

‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not more than 7,770 ............................................................ $.0090 $.0075

More than 7,770 but not more than 8,125 .......................... $.0070 $.0050

More than 8,125 but not more than 8,350 .......................... $.0060 $.0040.
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1 ‘‘(C) In the case of a facility originally

2 placed in service after 2011 and before 2015,

3 if—

‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not more than 7,380 ............................................................ $.0120 $.0090

More than 7,380 but not more than 7,720 .......................... $.0095 $.0070.

4 ‘‘(2) Where the design coal has a heat content

5 of not more than 8,000 Btu per pound:

6 ‘‘(A) In the case of a facility originally

7 placed in service before 2008, if—

‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not more than 8,500 ............................................................ $.0050 $.0030

More than 8,500 but not more than 8,650 .......................... $.0010 $.0010

More than 8,650 but not more than 8,750 .......................... $.0005 $.0005.

8 ‘‘(B) In the case of a facility originally

9 placed in service after 2007 and before 2012,

10 if—

‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not more than 8,000 ............................................................ $.0090 $.0075

More than 8,000 but not more than 8,250 .......................... $.0070 $.0050

More than 8,250 but not more than 8,400 .......................... $.0060 $.0040.

11 ‘‘(C) In the case of a facility originally

12 placed in service after 2011 and before 2015,

13 if—

‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not more than 7,800 ............................................................ $.0120 $.0090
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‘‘The facility design net heat rate, Btu/kWh (HHV) is

equal to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

More than 7,800 but not more than 7,950 .......................... $.0095 $.0070.

1 ‘‘(3) Where the clean coal technology facility is

2 producing fuel or chemicals:

3 ‘‘(A) In the case of a facility originally

4 placed in service before 2008, if—

‘‘The facility design net thermal efficiency (HHV) is equal

to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not less than 40.6 percent ................................................... $.0050 $.0030

Less than 40.6 but not less than 40 percent ....................... $.0010 $.0010

Less than 40 but not less than 39 percent .......................... $.0005 $.0005.

5 ‘‘(B) In the case of a facility originally

6 placed in service after 2007 and before 2012,

7 if—

‘‘The facility design net thermal efficiency (HHV) is equal

to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not less than 43.9 percent ................................................... $.0090 $.0075

Less than 43.9 but not less than 42 percent ....................... $.0070 $.0050

Less than 42 but not less than 40.9 percent ....................... $.0060 $.0040.

8 ‘‘(C) In the case of a facility originally

9 placed in service after 2011 and before 2015,

10 if—

‘‘The facility design net thermal efficiency (HHV) is equal

to:

The applicable amount is:

For 1st 5 years

of such service

For 2d 5 years of

such service

Not less than 44.2 percent ................................................... $.0120 $.0090

Less than 44.2 but not less than 43.6 percent .................... $.0095 $.0070.

11 ‘‘(c) INFLATION ADJUSTMENT FACTOR.—For cal12 endar years after 2001, each amount in paragraphs (1),
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1 (2), and (3) shall be adjusted by multiplying such amount

2 by the inflation adjustment factor for the calendar year

3 in which the amount is applied. If any amount as in4 creased under the preceding sentence is not a multiple of

5 0.01 cent, such amount shall be rounded to the nearest

6 multiple of 0.01 cent.

7 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur8 poses of this section—

9 ‘‘(1) IN GENERAL.—Any term used in this sec10 tion which is also used in section 48B shall have the

11 meaning given such term in section 48B.

12 ‘‘(2) APPLICABLE RULES.—The rules of para13 graphs (3), (4), and (5) of section 45(d) and section

14 48B(e) shall apply.

15 ‘‘(3) INFLATION ADJUSTMENT FACTOR.—The

16 term ‘inflation adjustment factor’ means, with re17 spect to a calendar year, a fraction the numerator

18 of which is the GDP implicit price deflator for the

19 preceding calendar year and the denominator of

20 which is the GDP implicit price deflator for the cal21 endar year 2000.

22 ‘‘(4) GDP IMPLICIT PRICE DEFLATOR.—The

23 term ‘GDP implicit price deflator’ means the most

24 recent revision of the implicit price deflator for the

25 gross domestic product as computed by the Depart-
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1 ment of Commerce before March 15 of the calendar

2 year.’’.

3 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec4 tion 38(b), as amended by section 201(b), is amended by

5 striking ‘‘plus’’ at the end of paragraph (14), by striking

6 the period at the end of paragraph (15) and inserting ‘‘,

7 plus’’, and by adding at the end the following:

8 ‘‘(16) the qualifying advanced clean coal tech9 nology production credit determined under section

10 45G(a).’’.

11 (c) TRANSITIONAL RULE.—Section 39(d) (relating to

12 transitional rules), as amended by section 401(d), is

13 amended by adding at the end the following:

14 ‘‘(14) NO CARRYBACK OF SECTION 45G CREDIT

15 BEFORE EFFECTIVE DATE.—No portion of the un16 used business credit for any taxable year which is

17 attributable to the qualifying advanced clean coal

18 technology production credit determined under sec19 tion 45G may be carried back to a taxable year end20 ing before the date of the enactment of section

21 45G.’’.

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

23 for subpart D of part IV of subchapter A of chapter 1,

24 as amended by section 201(g), is amended by adding at

25 the end the following:
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‘‘Sec. 45G. Credit for production from qualifying advanced clean coal technology.’’.

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

2 this section shall apply to production after the date of the

3 enactment of this Act.

4 SEC. 403. RISK POOL FOR QUALIFYING ADVANCED CLEAN

5 COAL TECHNOLOGY.

6 (a) ESTABLISHMENT.—The Secretary of the Treas7 ury shall establish a financial risk pool which shall be

8 available to any United States owner of a qualifying ad9 vanced clean coal technology which has qualified for an

10 advanced clean coal technology production credit (as de11 fined in section 45G of the Internal Revenue Code of

12 1986, as added by section 402) to offset for the first 3

13 years of the operation of such technology the costs (not

14 to exceed 5 percent of the total cost of installation) for

15 modifications resulting from the technology’s failure to

16 achieve its design performance.

17 (b) AUTHORIZATION OF APPROPRIATIONS.—There is

18 authorized to be appropriated such sums as are necessary

19 to carry out the purposes of this section.
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1 TITLE V—HEATING FUELS AND

2 STORAGE.

3 SEC. 501. FULL EXPENSING OF HOME HEATING OIL AND

4 PROPANE STORAGE FACILITIES.

5 (a) IN GENERAL.—Section 179(b) (relating to limita6 tions) is amended by adding at the end the following:

7 ‘‘(5) FULL EXPENSING OF HOME HEATING OIL

8 AND PROPANE STORAGE FACILITIES.—Paragraphs

9 (1) and (2) shall not apply to section 179 property

10 which is any storage facility (not including a build11 ing or its structural components) used in connection

12 with the distribution of home heating oil or liquefied

13 petroleum gas.’’.

14 (b) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to property placed in service on

16 or after the date of the enactment of this Act.

17 SEC. 502. ARBITRAGE RULES NOT TO APPLY TO PREPAY18 MENTS FOR NATURAL GAS AND OTHER COM19 MODITIES.

20 (a) IN GENERAL.—Subsection (b) of section 148 (de21 fining higher yielding investments) is amended by adding

22 at the end the following:

23 ‘‘(4) INVESTMENT PROPERTY NOT TO INCLUDE

24 CERTAIN PREPAYMENTS TO ENSURE COMMODITY

25 SUPPLY.—The term ‘investment property’ shall not
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1 include a prepayment entered into for the purpose of

2 obtaining a supply of a commodity reasonably ex3 pected to be used in a business of one or more utili4 ties each of which is owned and operated by a State

5 or local government, any political subdivision or in6 strumentality thereof, or any governmental unit act7 ing for or on behalf of such a utility.’’.

8 (b) EFFECTIVE DATE.—The amendment made by

9 this section shall apply to obligations issued after the date

10 of the enactment of this Act.

11 SEC. 503. PRIVATE LOAN FINANCING TEST NOT TO APPLY

12 TO PREPAYMENTS FOR NATURAL GAS AND

13 OTHER COMMODITIES.

14 (a) IN GENERAL.—Section 141(c)(2) (providing ex15 ceptions to the private loan financing test) is amended by

16 striking ‘‘or’’ at the end of subparagraph (A), by striking

17 the period at the end of subparagraph (B) and inserting

18 ‘‘, or’’, and by adding at the end the following:

19 ‘‘(C) arises from a transaction described in

20 section 148(b)(4).’’.

21 (b) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to obligations issued after the date

23 of the enactment of this Act.
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1 TITLE VI—OIL AND GAS

2 PRODUCTION

3 SEC. 601. CREDIT FOR PRODUCTION OF RE-REFINED LU4 BRICATING OIL.

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 (relating to business related cred7 its), as amended by section 402(a), is amended by adding

8 at the end the following:

9 ‘‘SEC. 45H. CREDIT FOR PRODUCING RE-REFINED LUBRI10 CATING OIL.

11 ‘‘(a) GENERAL RULE.—For purposes of section 38,

12 the re-refined lubricating oil production credit of any tax13 payer for any taxable year is equal to $4.05 per barrel

14 of qualified re-refined lubricating oil production which is

15 attributable to the taxpayer (within the meaning of section

16 29(d)(3)).

17 ‘‘(b) QUALIFIED RE-REFINED LUBRICATING OIL

18 PRODUCTION.—For purposes of this section—

19 ‘‘(1) IN GENERAL.—The term ‘qualified re-re20 fined lubricating oil production’ means a base oil

21 manufactured from at least 95 percent used oil and

22 not more than 2 percent of previously unused oil by

23 a re-refining process at a qualified facility which ef24 fectively removes physical and chemical impurities

25 and spent and unspent additives to the extent that
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1 such base oil meets industry standards for engine oil

2 as defined by the American Petroleum Institute doc3 ument API 1509 as in effect on the date of the en4 actment of this section.

5 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

6 WHICH MAY QUALIFY.—Re-refined lubricating oil

7 produced during any taxable year shall not be treat8 ed as qualified re-refined lubricating oil production

9 but only to the extent average daily production dur10 ing the taxable year exceeds 7,000 barrels.

11 ‘‘(3) BARREL.—The term ‘barrel’ has the

12 meaning given such term by section 613A(e)(4).

13 ‘‘(4) NONCOMPLIANCE WITH POLLUTION

14 LAWS.—For purposes of paragraph (1), a facility

15 which is not in compliance with the applicable State

16 and Federal pollution prevention, control, and per17 mit requirements for any period of time shall not be

18 considered to be a qualified facility during such pe19 riod.

20 ‘‘(c) INFLATION ADJUSTMENT.—In the case of any

21 taxable year beginning in a calendar year after 2001, the

22 dollar amount contained in subsection (a) shall be in23 creased to an amount equal to such dollar amount multi24 plied by the inflation adjustment factor for such calendar
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1 year (determined under section 29(d)(2)(B) by sub2 stituting ‘2000’ for ‘1979’).’’.

3 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec4 tion 38(b) (relating to current year business credit), as

5 amended by section 402(b), is amended by striking ‘plus’

6 at the end of paragraph (15), by striking the period at

7 the end of paragraph (16), and inserting ‘, plus’, and by

8 adding at the end the following:

9 ‘‘(17) the re-refined lubricating oil production

10 credit determined under section 45H(a).’’.

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

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

13 as amended by section 402(d), is amended by adding at

14 the end the following:

‘‘Sec. 45H. Credit for producing re-refined lubricating oil.’’.

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

16 this section shall apply to production after the date of the

17 enactment of this Act.

18 SEC. 602. OIL AND GAS FROM MARGINAL WELLS.

19 (a) IN GENERAL.—Subpart D of part IV of sub20 chapter A of chapter 1 (relating to business credits), as

21 amended by section 601(a), is amended by adding at the

22 end the following:
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1 ‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM

2 MARGINAL WELLS.

3 ‘‘(a) GENERAL RULE.—For purposes of section 38,

4 the marginal well production credit for any taxable year

5 is an amount equal to the product of—

6 ‘‘(1) the credit amount, and

7 ‘‘(2) the qualified credit oil production and the

8 qualified natural gas production which is attrib9 utable to the taxpayer.

10 ‘‘(b) CREDIT AMOUNT.—For purposes of this

11 section—

12 ‘‘(1) IN GENERAL.—The credit amount is—

13 ‘‘(A) $3 per barrel of qualified crude oil

14 production, and

15 ‘‘(B) 50 cents per 1,000 cubic feet of

16 qualified natural gas production.

17 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN18 CREASE.—

19 ‘‘(A) IN GENERAL.—The $3 and 50 cents

20 amounts under paragraph (1) shall each be re21 duced (but not below zero) by an amount which

22 bears the same ratio to such amount (deter23 mined without regard to this paragraph) as—

24 ‘‘(i) the excess (if any) of the applica25 ble reference price over $14 ($1.56 for

26 qualified natural gas production), bears to
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1 ‘‘(ii) $3 ($0.33 for qualified natural

2 gas production).

3 The applicable reference price for a taxable

4 year is the reference price of the calendar year

5 preceding the calendar year in which the tax6 able year begins.

7 ‘‘(B) INFLATION ADJUSTMENT.—In the

8 case of any taxable year beginning in a calendar

9 year after 2001, each of the dollar amounts

10 contained in subparagraph (A) shall be in11 creased to an amount equal to such dollar

12 amount multiplied by the inflation adjustment

13 factor for such calendar year (determined under

14 section 43(b)(3)(B) by substituting ‘2000’ for

15 ‘1990’).

16 ‘‘(C) REFERENCE PRICE.—For purposes of

17 this paragraph, the term ‘reference price’

18 means, with respect to any calendar year—

19 ‘‘(i) in the case of qualified crude oil

20 production, the reference price determined

21 under section 29(d)(2)(C), and

22 ‘‘(ii) in the case of qualified natural

23 gas production, the Secretary’s estimate of

24 the annual average wellhead price per
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1 1,000 cubic feet for all domestic natural

2 gas.

3 ‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS

4 PRODUCTION.—For purposes of this section—

5 ‘‘(1) IN GENERAL.—The terms ‘qualified crude

6 oil production’ and ‘qualified natural gas production’

7 mean domestic crude oil or natural gas which is pro8 duced from a qualified marginal well.

9 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

10 WHICH MAY QUALIFY.—

11 ‘‘(A) IN GENERAL.—Crude oil or natural

12 gas produced during any taxable year from any

13 well shall not be treated or qualified crude oil

14 production or qualified natural gas production

15 to the extent production from the well during

16 the taxable year exceeds 1,095 barrels or barrel

17 equivalents.

18 ‘‘(B) PROPORTIONATE REDUCTIONS.—

19 ‘‘(i) SHORT TAXABLE YEARS.—In the

20 case of a short taxable year, the limitations

21 under this paragraph shall be proportion22 ately reduced to reflect the ratio which the

23 number of days in such taxable year bears

24 to 365.
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1 ‘‘(ii) WELLS NOT IN PRODUCTION EN2 TIRE YEAR.—In the case of a well which is

3 not capable of production during each day

4 of a taxable year, the limitations under

5 this paragraph applicable to the well shall

6 be proportionately reduced to reflect the

7 ratio which the number of days of produc8 tion bears to the total number of days in

9 the taxable year.

10 ‘‘(3) DEFINITIONS.—

11 ‘‘(A) QUALIFIED MARGINAL WELL.—The

12 term ‘qualified marginal well’ means a domestic

13 well—

14 ‘‘(i) the production from which during

15 the taxable year is treated as marginal

16 production under section 613A(c)(6), or

17 ‘‘(ii) which, during the taxable year—

18 ‘‘(I) has average daily production

19 of not more than 25 barrel equiva20 lents, and

21 ‘‘(II) produces water at a rate

22 not less than 95 percent of total well

23 effluent.

24 ‘‘(B) CRUDE OIL, ETC.—The terms ‘crude

25 oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have
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1 the meanings given such terms by section

2 613A(e).

3 ‘‘(C) BARREL EQUIVALENT.—The term

4 ‘barrel equivalent’ means, with respect to nat5 ural gas, a conversation ratio of 6,000 cubic

6 feet of natural gas to 1 barrel of crude oil.

7 ‘‘(d) OTHER RULES.—

8 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX9 PAYER.—In the case of a qualified marginal well in

10 which there is more than one owner of operating in11 terests in the well and the crude oil or natural gas

12 production exceeds the limitation under subsection

13 (c)(2), qualifying crude oil production or qualifying

14 natural gas production attributable to the taxpayer

15 shall be determined on the basis of the ratio which

16 taxpayer’s revenue interest in the production bears

17 to the aggregate of the revenue interests of all oper18 ating interest owners in the production.

19 ‘‘(2) OPERATING INTEREST REQUIRED.—Any

20 credit under this section may be claimed only on

21 production which is attributable to the holder of an

22 operating interest.

23 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

24 SOURCES EXCLUDED.—In the case of production

25 from a qualified marginal well which is eligible for
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1 the credit allowed under section 29 for the taxable

2 year, no credit shall be allowable under this section

3 unless the taxpayer elects not to claim the credit

4 under section 29 with respect to the well.

5 ‘‘(4) NONCOMPLIANCE WITH POLLUTION

6 LAWS.—For purposes of subsection (c)(3)(A), a

7 marginal well which is not in compliance with the

8 applicable State and Federal pollution prevention,

9 control, and permit requirements for any period of

10 time shall not be considered to be a qualified mar11 ginal well during such period.’’.

12 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec13 tion 38(b), as amended by section 601(b), is amended by

14 striking ‘plus’ at the end of paragraph (16), by striking

15 the period at the end of paragraph (17) and inserting ‘‘,

16 plus’’, and by adding at the end the following:

17 ‘‘(18) the marginal oil and gas well production

18 credit determined under section 45I(a).’’.

19 (c) CREDIT ALLOWED AGAINST REGULAR AND MIN20 IMUM TAX.—

21 (1) IN GENERAL.—Subsection (c) of section 38

22 (relating to limitation based on amount of tax), as

23 amended by section 201(d)(1), is amended by redes24 ignating paragraph (4) as paragraph (5) and by in25 serting after paragraph (3) the following:
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1 ‘‘(4) SPECIAL RULES FOR MARGINAL OIL AND

2 GAS WELL PRODUCTION CREDIT.—

3 ‘‘(A) IN GENERAL.—In the case of the

4 marginal oil and gas well production credit—

5 ‘‘(i) this section and section 39 shall

6 be applied separately with respect to the

7 credit, and

8 ‘‘(ii) in applying paragraph (1) to the

9 credit—

10 ‘‘(I) subparagraphs (A) and (B)

11 thereof shall not apply, and

12 ‘‘(II) the limitation under para13 graph (1) (as modified by subclause

14 (I)) shall be reduced by the credit al15 lowed under subsection (a) for the

16 taxable year (other than the marginal

17 oil and gas well production credit).

18 ‘‘(B) MARGINAL OIL AND GAS WELL PRO19 DUCTION CREDIT.—For purposes of this sub20 section, the term ‘marginal oil and gas well pro21 duction credit’ means the credit allowable under

22 subsection (a) by reason of section 45I(a).’’.

23 (2) CONFORMING AMENDMENTS.—Subclause

24 (II) of section 38(c)(2)(A)(ii), as amended by section

25 201(d)(2), and subclause (II) of section
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1 38(c)(3)(A)(ii), as added by section 201(d)(1), are

2 each amended by inserting ‘‘or the marginal oil and

3 gas well production credit’’ after ‘‘home credit’’.

4 (d) CARRYBACK.—Subsection (a) of section 39 (relat5 ing to carryback and carryforward of unused credits gen6 erally) is amended by adding at the end the following:

7 ‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL

8 AND GAS WELL PRODUCTION CREDIT.—In the case

9 of the marginal oil and gas well production credit—

10 ‘‘(A) this section shall be applied sepa11 rately from the business credit (other than the

12 marginal oil and gas well production credit),

13 ‘‘(B) paragraph (1) shall be applied by

14 substituting ‘10 taxable years’ for ‘1 taxable

15 years’ in subparagraph (A) thereof, and

16 ‘‘(C) paragraph (2) shall be applied—

17 ‘‘(i) by substituting ‘31 taxable years’

18 for ‘21 taxable years’ in subparagraph (A)

19 thereof, and

20 ‘‘(ii) by substituting ‘30 taxable years’

21 for ‘20 taxable years’ in subparagraph (A)

22 thereof.’’.

23 (e) COORDINATION WITH SECTION 29.—Section

24 29(a) is amended by striking ‘‘There’’ and inserting ‘‘At

25 the election of the taxpayer, there’’.
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1 (f) CLERICAL AMENDMENT.—The table of sections

2 for subpart D of part IV of subchapter A of chapter I,

3 as amended by section 601(c), is amended by adding at

4 the end the following:

‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.

5 (g) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to production in taxable years be7 ginning after December 31, 2001.

8 SEC. 603. DEDUCTION FOR DELAY RENTAL PAYMENTS.

9 (a) IN GENERAL.—Section 263 (relating to capital

10 expenditures) is amended by adding at the end the fol11 lowing:

12 ‘‘(j) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL

13 AND GAS WELLS.—

14 ‘‘(1) IN GENERAL.—Notwithstanding subsection

15 (a), a taxpayer may elect to treat delay rental pay16 ments incurred in connection with the development

17 of oil or gas within the United States (as defined in

18 section 638) as payments which are not chargeable

19 to capital account. Any payments so treated shall be

20 allowed as a deduction in the taxable year in which

21 paid or incurred.

22 ‘‘(2) DELAY RENTAL PAYMENTS.—For purposes

23 of paragraph (1), the term ‘delay rental payment’

24 means an amount paid for the privilege of deferring
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1 development of an oil or gas well under an oil or gas

2 lease.’’.

3 (b) CONFORMING AMENDMENT.—Section 263A(c)(3)

4 is amended by inserting ‘‘263(j),’’ after ‘263(i),’.

5 (c) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to amounts paid or incurred in tax7 able years beginning after December 31, 2001.

8 SEC. 604. ELECTION TO EXPENSE GEOLOGICAL AND GEO9 PHYSICAL EXPENDITURES.

10 (a) IN GENERAL.—Section 263 (relating to capital

11 expenditures), as amended by section 603(a), is amended

12 by adding at the end the following:

13 ‘‘(k) GEOLOGICAL AND GEOPHYSICAL EXPENDI14 TURES FOR DOMESTIC OIL AND GAS WELLS.—Notwith15 standing subsection (a), a taxpayer may elect to treat geo16 logical and geophysical expenses incurred in connection

17 with the exploration for, or development of, oil or gas with18 in the United States (as defined in section 638) as ex19 penses which are not chargeable to capital account. Any

20 expenses so treated shall be allowed as a deduction in the

21 taxable year in which paid or incurred.’’.

22 (b) CONFORMING AMENDMENT.—Section

23 263A(c)(3), as amended by section 603(b), is amended by

24 inserting ‘‘263(k),’’ after ‘‘263(j),’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to costs paid or incurred in taxable

3 years beginning after December 31, 2001.

4 SEC. 605. GAS PIPELINES TREATED AS 7-YEAR PROPERTY.

5 (a) IN GENERAL.—Subparagraph (C) of section

6 168(e)(3) (relating to classification of certain property),

7 as amended by section 304(a)(1), is amended by striking

8 ‘‘and’’ at the end of clause (iii), by redesignating clause

9 (iv) as clause (v), and by inserting after clause (iii) the

10 following:

11 ‘‘(iv) any gas pipeline, and’’.

12 (b) GAS PIPELINE.—Subsection (i) of section 168, as

13 amended by section 304(b), is amended by adding at the

14 end the following:

15 ‘‘(17) GAS PIPELINE.—The term ‘gas pipeline’

16 means the pipe, storage facilities, equipment, dis17 tribution infrastructure, and appurtenances used to

18 deliver natural gas.’’

19 (c) EFFECTIVE DATE.—

20 (1) IN GENERAL.—The amendments made by

21 this section shall apply to property placed in service

22 on or after the date of the enactment of this Act.

23 (2) ACCOUNTING RULE FOR PUBLIC UTILITY

24 PROPERTY.—If any gas pipeline is public utility

25 property (as defined in section 46(f)(5) of the Inter-
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1 nal Revenue Code of 1986, as in effect on the day

2 before the date of the enactment of the Revenue

3 Reconciliation Act of 1990), the amendments made

4 by this section shall only apply to such property if,

5 with respect to such property, the taxpayer uses a

6 normalization method of accounting.

7 SEC. 606. CRUDE OIL AND NATURAL GAS DEVELOPMENT

8 CREDIT.

9 (a) IN GENERAL.—Subpart D of part IV of sub10 chapter A of chapter 1 (relating to business related cred11 its), as amended by section 602(a), is amended by adding

12 at the end the following:

13 ‘‘SEC. 45J. CRUDE OIL AND NATURAL GAS DEVELOPMENT

14 CREDIT.

15 ‘‘(a) IN GENERAL.—For purposes of section 38, the

16 crude oil and natural gas development credit determined

17 under this section for any taxable year shall be an amount

18 equal to the taxpayer’s qualified investment for the taxable

19 year.

20 ‘‘(b) REDUCTION AS OIL AND GAS PRICES IN21 CREASE.—

22 ‘‘(1) IN GENERAL.—The amount which would

23 (but for this subsection) be taken into account under

24 subsection (a) for the taxable year shall be reduced

25 (but not below zero) by an amount which bears the
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1 same ratio to such amount (determined without re2 gard to this subsection) as—

3 ‘‘(A) the excess (if any) of the applicable

4 reference price over $11, bears to

5 ‘‘(B) $3.

6 The applicable reference price for a taxable

7 year is the reference price of the calendar year

8 preceding the calendar year in which the tax9 able year begins.

10 ‘‘(2) INFLATION ADJUSTMENT.—In the case of

11 any taxable year beginning in a calendar year after

12 2001, each of the dollar amounts contained in para13 graph (1) shall be increased to an amount equal to

14 such dollar amount multiplied by the inflation ad15 justment factor for such calendar year (determined

16 under section 43(b)(3)(B) by substituting ‘2000’ for

17 ‘1990’).

18 ‘‘(3) REFERENCE PRICE.—For purposes of this

19 subsection, the term ‘reference price’ means, with re20 spect to any calendar year, the reference price deter21 mined under section 29(d)(2)(C).

22 ‘‘(c) QUALIFIED INVESTMENT.—For purposes of this

23 section, the term ‘qualified investment’ means amounts

24 paid or incurred—
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1 ‘‘(1) for the purpose of drilling and equipping

2 crude oil and natural gas wells (including pollution

3 control equipment used in connection with such

4 wells), or

5 ‘‘(2) for the purpose of performing secondary or

6 tertiary recovery techniques,

7 on properties located within the United States (as defined

8 in section 638), but only to the extent that the expenditure

9 is not taken into account for purposes of a credit under

10 any other section.

11 ‘‘(d) SPECIAL RULES.—For purposes of this

12 section—

13 ‘‘(1) AGGREGATION OF QUALIFIED INVESTMENT

14 EXPENSES.—

15 ‘‘(A) CONTROLLED GROUPS; COMMON CON16 TROL.—In determining the amount of the cred17 it under this section, all members of the same

18 controlled group of corporations (within the

19 meaning of section 52(a)) and all persons under

20 common control (within the meaning of section

21 52(b)) shall be treated as a single taxpayer for

22 purposes of this section.

23 ‘‘(B) APPORTIONMENT OF CREDIT.—The

24 credit (if any) allowable by this section to mem25 bers of any group (or to any person) described
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1 in subparagraph (A) shall be such member’s or

2 person’s proportionate share of the qualified in3 vestment expenses giving rise to the credit de4 termined under regulations prescribed by the

5 Secretary.

6 ‘‘(2) PARTNERSHIPS, S CORPORATIONS, ES7 TATES AND TRUSTS.—

8 ‘‘(A) PARTNERSHIPS AND S CORPORA9 TIONS.—In the case of a partnership, the credit

10 shall be allocated among partners under regula11 tions prescribed by the Secretary. A similar rule

12 shall apply in the case of an S corporation and

13 its shareholders.

14 ‘‘(B) PASS-THRU IN THE CASE OF ES15 TATES AND TRUSTS.—Under regulations pre16 scribed by the Secretary, rules similar to the

17 rules of subsection (d) of section 52 shall apply.

18 ‘‘(3) ADJUSTMENTS FOR CERTAIN ACQUISI19 TIONS AND DISPOSITIONS.—Under regulations pre20 scribed by the Secretary, rules similar to the rules

21 contained in section 41(f)(3) shall apply with respect

22 to the acquisition or disposition of a taxpayer.

23 ‘‘(4) SHORT TAXABLE YEARS.—In the case of

24 any short taxable year, qualified investment expenses

25 shall be annualized in such circumstances and under
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1 such methods as the Secretary may prescribe by reg2 ulation.

3 ‘‘(5) DENIAL OF DOUBLE BENEFIT.—

4 ‘‘(A) DISALLOWANCE OF DEDUCTION.—

5 Any deduction allowable under this chapter for

6 any costs taken into account in computing the

7 amount of the credit determined under sub8 section (a) shall be reduced by the amount of

9 such credit attributable to such costs.

10 ‘‘(B) BASIS ADJUSTMENTS.—For purposes

11 of this subtitle, if a credit is determined under

12 this section for any expenditure with respect to

13 any property, the increase in the basis of such

14 property which would (but for this subsection)

15 result from such expenditures shall be reduced

16 by the amount of the credit so allowed.’’.

17 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec18 tion 38(b), as amended by section 602(b), is amended by

19 striking ‘‘plus’’ at the end of paragraph (17), by striking

20 the period at the end of paragraph (18) and inserting

21 ‘‘, plus’’, and by adding at the end the following:

22 ‘‘(19) the crude oil and natural gas develop23 ment credit determined under section 45J(a).’’.
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1 (c) TRANSITIONAL RULE.—Section 39(d) (relating to

2 transitional rules), as amended by section 402(c), is

3 amended by adding at the end the following:

4 ‘‘(15) NO CARRYBACK OF SECTION 45J CREDIT

5 BEFORE EFFECTIVE DATE.—No portion of the un6 used business credit for any taxable year which is

7 attributable to the crude oil and natural gas develop8 ment credit determined under section 48J may be

9 carried back to a taxable year ending before January

10 1, 2002.’’.

11 (d) CREDIT ALLOWED AGAINST REGULAR AND MIN12 IMUM TAX.—

13 (1) IN GENERAL.—Subsection (c) of section 38

14 (relating to limitation based on amount of tax), as

15 amended by section 602(c)(1), is amended by redes16 ignating paragraph (5) as paragraph (6) and by in17 serting after paragraph (4) the following:

18 ‘‘(5) SPECIAL RULES FOR CRUDE OIL AND NAT19 URAL GAS DEVELOPMENT CREDIT.—

20 ‘‘(A) IN GENERAL.—In the case of the

21 crude oil and natural gas development credit—

22 ‘‘(i) this section and section 39 shall

23 be applied separately with respect to the

24 credit, and
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1 ‘‘(ii) in applying paragraph (1) to the

2 credit—

3 ‘‘(I) subparagraphs (A) and (B)

4 thereof shall not apply, and

5 ‘‘(II) the limitation under para6 graph (1) (as modified by subclause

7 (I)) shall be reduced by the credit al8 lowed under subsection (a) for the

9 taxable year (other than the crude oil

10 and natural gas development credit).

11 ‘‘(B) CRUDE OIL AND NATURAL GAS DE12 VELOPMENT CREDIT.—For purposes of this

13 subsection, the term ‘crude oil and natural gas

14 development credit’ means the credit allowable

15 under subsection (a) by reason of section

16 45J(a).’’.

17 (2) CONFORMING AMENDMENTS.—Subclause

18 (II) of section 38(c)(2)(A)(ii) and subclause (II) of

19 section 38(c)(3)(A)(ii), as amended by section

20 602(c)(2), and subclause (II) of section

21 38(c)(4)(A)(ii), as added by section 602(c)(1), are

22 each amended by inserting ‘‘or the crude oil and

23 natural gas development credit’’ after ‘‘well produc24 tion credit’’.
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1 (e) CLERICAL AMENDMENT.—The table of sections

2 for subpart D of part IV of subchapter A of chapter 1,

3 as amended by section 602(f), is amended by adding at

4 the end the following:

‘‘Sec. 45J. Crude oil and natural gas development credit.’’.

5 (f) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to expenditures paid or incurred

7 in taxable years beginning after December 31, 2001.

8 SEC. 607. CREDIT FOR CAPTURE OF COALMINE METHANE

9 GAS.

10 (a) IN GENERAL.—Subpart D of part IV of sub11 chapter A of chapter 1 (relating to business related cred12 its), as amended by section 606(a), is amended by adding

13 at the end the following:

14 ‘‘SEC. 45K. CAPTURE OF COALMINE METHANE GAS.

15 ‘‘(a) IN GENERAL.—For purposes of section 38, the

16 coalmine methane gas capture credit of any taxpayer for

17 any taxable year is $1.21 for 1,000,000 Btu of coalmine

18 methane gas captured by the taxpayer and utilized as a

19 fuel source or sold by or on behalf of the taxpayer to an

20 unrelated person during such taxable year (within the

21 meaning of section 45).

22 ‘‘(b) COALMINE METHANE GAS.—For purposes of

23 this section, the term ‘coalmine methane gas’ means any

24 methane gas which is being liberated, or would be liber25 ated, during qualified coal mining operations or as a result
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1 of past qualified coal mining operations, or which is ex2 tracted up to 10 years in advance of qualified coal mining

3 operations as part of specific plan to mine a coal deposit.

4 ‘‘(c) SPECIAL RULE FOR ADVANCED EXTRACTION.—

5 In the case of coalmine methane gas which is captured

6 in advance of qualified coal mining operations, the credit

7 under subsection (a) shall be allowed only after the date

8 the coal extraction occurs in the immediate area where the

9 coalmine methane gas was removed.

10 ‘‘(d) NONCOMPLIANCE WITH POLLUTION LAWS.—For

11 purposes of subsections (b) and (c), coal mining operations

12 which are not in compliance with the applicable State and

13 Federal pollution prevention, control, and permit require14 ments for any period of time shall not be considered to

15 be qualified coal mining operations during such period.

16 ‘‘(e) APPLICATION OF RULES.—For purposes of this

17 section, rules similar to the rules of paragraphs (3), (4),

18 and (5) of section 45(d) shall apply.’’.

19 (b) CREDIT TREATED AS BUSINESS CREDIT.—Sec20 tion 38(b), as amended by section 606(b), is amended by

21 striking ‘‘plus’’ at the end of paragraph (18), by striking

22 the period at the end of paragraph (19) and inserting

23 ‘‘, plus’’, and by adding at the end the following:

24 ‘‘(20) the coalmine methane gas capture credit

25 determined under section 45K(a).’’.
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1 (c) CLERICAL AMENDMENT.—The table of sections

2 for subpart D of part IV of subchapter A of chapter 1,

3 as amended by section 606(c), is amended by adding at

4 the end the following:

‘‘Sec. 45K. Capture of coalmine methane gas.’’.

5 (d) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to the capture of coalmine methane

7 gas after the date of the enactment of this Act.

8 SEC. 608. ALLOCATION OF ALCOHOL FUELS CREDIT TO

9 PATRONS OF A COOPERATIVE.

10 (a) IN GENERAL.—Section 40(d) (relating to alcohol

11 used as fuel) is amended by adding at the end the fol12 lowing:

13 ‘‘(6) ALLOCATION OF SMALL ETHANOL PRO14 DUCER CREDIT TO PATRONS OF COOPERATIVE.—

15 ‘‘(A) IN GENERAL.—In the case of a coop16 erative organization described in section

17 1381(a), any portion of the credit determined

18 under subsection (a)(3) for the taxable year

19 may, at the election of the organization made

20 on a timely filed return (including extensions)

21 for such year, be apportioned pro rata among

22 patrons of the organization on the basis of the

23 quantity or value of business done with or for

24 such patrons for the taxable year. Such an elec-
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1 tion, once made, shall be irrevocable for such

2 taxable year.

3 ‘‘(B) TREATMENT OF ORGANIZATIONS AND

4 PATRONS.—The amount of the credit appor5 tioned to patrons pursuant to subparagraph

6 (A)—

7 ‘‘(i) shall not be included in the

8 amount determined under subsection (a)

9 for the taxable year of the organization,

10 and

11 ‘‘(ii) shall be included in the amount

12 determined under subsection (a) for the

13 taxable year of each patron in which the

14 patronage dividend for the taxable year re15 ferred to in subparagraph (A) is includible

16 in gross income.

17 ‘‘(C) SPECIAL RULE FOR DECREASING

18 CREDIT FOR TAXABLE YEAR.—If the amount of

19 the credit of a cooperative organization deter20 mined under subsection (a)(3) for a taxable

21 year is less than the amount of such credit

22 shown on the cooperative organization’s return

23 for such year, an amount equal to the excess of

24 such reduction over the amount not apportioned

25 to the patrons under subparagraph (A) for the
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1 taxable year shall be treated as an increase in

2 tax imposed by this chapter on the organiza3 tion. Any such increase shall not be treated as

4 tax imposed by this chapter for purposes of de5 termining the amount of any credit under this

6 subpart or subpart A, B, E, or G of this part.’’.

7 (b) TECHNICAL AMENDMENT.—Section 1388 (relat8 ing to definitions and special rules for cooperative organi9 zations) is amended by adding at the end the following:

10 ‘‘(k) CROSS REFERENCE.—For provisions relating to

11 the apportionment of the alcohol fuels credit between coop12 erative organizations and their patrons, see section

13 40(d)(6).’’.

14 (c) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to taxable years beginning after

16 December 31, 2001.

17 SEC. 609. EXTENSION OF CREDIT FOR PRODUCING FUEL

18 FROM A NONCONVENTIONAL SOURCE.

19 (a) INCLUSION OF ALASKA NATURAL GAS.—Section

20 29(c)(1) (defining qualified fuels) is amended by striking

21 ‘‘and’’ at the end of subparagraph (B)(ii), by striking the

22 period at the end of subparagraph (C) and inserting ‘‘,

23 and’’, and by adding at the end the following:

24 ‘‘(D) Alaska natural gas.’’.
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1 (b) DEFINITION.—Section 29(c) is amended by add2 ing at the end the following:

3 ‘‘(4) ALASKA NATURAL GAS.—The term ‘Alaska

4 natural gas’ means gas produced in compliance with

5 the applicable State and Federal pollution preven6 tion, control, and permit requirements from the area

7 generally known as the North Slope of Alaska (in8 cluding the continental shelf thereof within the

9 meaning of section 638(1)), determined without re10 gard to the area of the Alaska National Wildlife Ref11 uge (including the continental shelf thereof within

12 the meaning of section 638(1)).’’.

13 (c) AMOUNT OF CREDIT.—

14 (1) IN GENERAL.—Section 29(a)(1) (relating to

15 allowance of credit) is amended by inserting ‘‘($1.45

16 in the case of a qualified fuel described in subsection

17 (c)(1)(D))’’ after ‘‘$3’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) Section 29(b)(2) is amended by strik20 ing ‘‘The $3 amount’’ and inserting ‘‘The $3

21 and $1.45 amounts’’.

22 (B) Section 29(d)(2)(B) is amended by in23 serting ‘‘(calendar year 2001 in the case of the

24 $1.45 amount in subsection (a)(1))’’ after

25 ‘‘1979’’.
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1 (d) EXTENSION OF CREDIT.—Section 29(g) (relating

2 to extension for certain facilities) is amended by adding

3 at the end the following:

4 ‘‘(3) SPECIAL RULE FOR ALASKA NATURAL GAS

5 WELLS.—In the case of a well for producing quali6 fied fuel described in subsection (c)(1)(D)—

7 ‘‘(A) for purposes of subsection (f)(1)(A),

8 such well shall be treated as being placed in

9 service before January 1, 1993, if such well is

10 placed in service before January 1, 2009, and

11 ‘‘(B) subsection (f)(2) shall be applied with

12 respect to such well by substituting ‘after De13 cember 31, 2001, and before January 1, 2009’

14 for ‘before January 1, 2003’.’’.

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

16 this section shall apply to taxable years ending after De17 cember 31, 2001.

Æ