371
may not be used to meet the requirements of this Act for 
the current year. 
(e) FAILURE TO ACHIEVE REDUCTIONS GENERATING 
CREDIT.—If a covered entity that uses a credit under this 
section fails to achieve the anticipated reduction for which 
the credit was granted for the year from which the credit 
was taken, then—
(1) the covered entity’s requirements under this 
Act for that year shall be increased by the amount 
of the credit, plus the amount determined under 
subsection (c); 
(2) any tradeable allowances submitted by the 
covered entity for that year shall be counted first 
against the increase in those requirements; and 
(3) the covered entity may not use credits 
under this section to meet the increased require-
ments. 
SEC. 624. OTHER USES OF TRADEABLE ALLOWANCES. 
(a) IN GENERAL.—Subject to subsection (b)(2), 
tradeable allowances may be sold, exchanged, purchased, 
retired, or used as provided in this section. 
(b) LIMITATIONS ON INTERSECTOR TRADING.—
(1) INTERSECTOR TRADING.—Subject to para-
graph (2), a covered entity in a covered sector may 
purchase or otherwise acquire tradeable allowances
372
from a covered entity in another covered sector to 
satisfy the requirements of section 621. 
(2) EXCEPTION.—A covered entity in the elec-
tricity sector may not purchase or otherwise acquire 
a tradeable allowance from, or sell a tradeable allow-
ance to, an entity in a sector other than the elec-
tricity sector. 
(c) CLIMATE CHANGE CREDIT ORGANIZATION.—The 
Climate Change Credit Corporation established under sec-
tion 641 may sell tradeable allowances allocated to it 
under section 632(a)(2) to any covered entity or to any 
investor, broker, or dealer in such tradeable allowances. 
The Climate Change Credit Corporation shall use all pro-
ceeds from such sales in accordance with the provisions 
of section 642. 
(d) BANKING OF TRADEABLE ALLOWANCES.—Not-
withstanding the requirements of section 621, a covered 
entity that has more than a sufficient amount of tradeable 
allowances to satisfy the requirements of section 621, may 
refrain from submitting a tradeable allowance to satisfy 
the requirements in order to sell, exchange, or use the 
tradeable allowance in the future. 
SEC. 625. EXEMPTION OF SOURCE CATEGORIES. 
(a) IN GENERAL.—The Administrator may grant an 
exemption from the requirements of this Act to a source
373
category if the Administrator determines, after public no-
tice and comment, that it is not feasible to measure or 
estimate emissions from that source category, until such 
time as measurement or estimation becomes feasible. 
(b) REDUCTION OF LIMITATIONS.—If the Adminis-
trator exempts a source category under subsection (a), the 
Administrator shall also reduce the total tradeable allow-
ances under section 631(a)(1) by the amount of green-
house gas emissions that the exempted source category 
emitted in calendar year 2000, as identified in the 2000 
Inventory. 
(c) LIMITATION ON EXEMPTION.—The Administrator 
may not grant an exemption under subsection (a) to car-
bon dioxide produced from fossil fuel. 
CHAPTER 2—ESTABLISHMENT AND ALLO-
CATION OF TRADEABLE ALLOWANCES 
SEC. 631. ESTABLISHMENT OF TRADEABLE ALLOWANCES. 
(a) IN GENERAL.—The Administrator shall promul-
gate regulations to establish tradeable allowances, denomi-
nated in units of carbon dioxide equivalents, for calendar 
years beginning after 2009, equal to—
(1) 5896 million metric tons, measured in units 
of carbon dioxide equivalents, reduced by
374
(2) the amount of emissions of greenhouse 
gases in calendar year 2000 from non-covered enti-
ties. 
(b) SERIAL NUMBERS.—The Administrator shall as-
sign a unique serial number to each tradeable allowance 
established under subsection (a), and shall take such ac-
tion as may be necessary to prevent counterfeiting of 
tradeable allowances. 
(c) NATURE
OF
TRADEABLE
ALLOWANCES.—A 
tradeable allowance is not a property right, and nothing 
in this title or any other provision of law limits the author-
ity of the United States to terminate or limit a tradeable 
allowance. 
(d) NON-COVERED ENTITY.—In this section: 
(1) IN GENERAL.—The term ‘‘non-covered enti-
ty’’ means an entity that—
(A) owns or controls a source of green-
house gas emissions in the electric power, in-
dustrial, or commercial sector of the United 
States economy (as defined in the Inventory), 
refines or imports petroleum products for use in 
transportation, 
or 
produces 
or 
imports 
hydrofluorocarbons, perfluorocarbons, or sulfur 
hexafluoride; and 
(B) is not a covered entity.
375
(2) EXCEPTION.—Notwithstanding paragraph 
(1), an entity that is a covered entity for any cal-
endar year beginning after 2009 shall not be consid-
ered to be a non-covered entity for purposes of sub-
section (a) only because it emitted, or its products 
would have emitted, 10,000 metric tons or less of 
greenhouse gas, measured in units of carbon dioxide 
equivalents, in the year 2000. 
SEC. 632. DETERMINATION OF TRADEABLE ALLOWANCE 
ALLOCATIONS. 
(a) IN GENERAL.—The Secretary shall determine—
(1) the amount of tradeable allowances to be al-
located to each covered sector of that sector’s allot-
ments; and 
(2) the amount of tradeable allowances to be al-
located to the Climate Change Credit Corporation 
established under section 641. 
(b) ALLOCATION FACTORS.—In making the deter-
mination required by subsection (a), the Secretary shall 
consider—
(1) the distributive effect of the allocations on 
household income and net worth of individuals; 
(2) the impact of the allocations on corporate 
income, taxes, and asset value;
376
(3) the impact of the allocations on income lev-
els of consumers and on their energy consumption; 
(4) the effects of the allocations in terms of eco-
nomic efficiency; 
(5) the ability of covered entities to pass 
through compliance costs to their customers; 
(6) the degree to which the amount of alloca-
tions to the covered sectors should decrease over 
time; and 
(7) the need to maintain the international com-
petitiveness of United States manufacturing and 
avoid the additional loss of United States manufac-
turing jobs. 
(c) ALLOCATION RECOMMENDATIONS
AND IMPLE-
MENTATION.—Before allocating or providing tradeable al-
lowances under subsection (a) and within 24 months after 
the date of enactment of this Act, the Secretary shall sub-
mit the determinations under subsection (a) to the Senate 
Committee on Commerce, Science, and Transportation, 
the Senate Committee on Environment and Public Works, 
the House of Representatives Committee on Science, and 
the House of Representatives Committee on Energy and 
Commerce. The Secretary’s determinations under sub-
section (a)(1), including the allocations and provision of 
tradeable allowances pursuant to that determination, are
377
deemed to be a major rule (as defined in section 804(2) 
of title 5, United States Code), and subject to the provi-
sions of chapter 8 of that title. 
SEC. 633. ALLOCATION OF TRADEABLE ALLOWANCES. 
(a) IN GENERAL.—Beginning with calendar year 
2010 and after taking into account any initial allocations 
under section 635, the Administrator shall—
(1) allocate to each covered sector that sector’s 
allotments determined by the Administrator under 
section 632 (adjusted for any such initial allocations 
and the allocation to the Climate Change Credit 
Corporation established under section 641); and 
(2) allocate to the Climate Change Credit Cor-
poration established under section 641 the tradeable 
allowances allocable to that Corporation. 
(b) INTRASECTORIAL ALLOTMENTS.—The Adminis-
trator shall, by regulation, establish a process for the allo-
cation of tradeable allowances under this section, without 
cost to covered entities (except with respect to new en-
trants as provided in subsection (g)), that will—
(1) encourage investments that increase the ef-
ficiency of the processes that produce greenhouse 
gas emissions; 
(2) minimize the costs to the Government of al-
locating the tradeable allowances;
378
(3) not penalize a covered entity for emissions 
reductions made before 2010 and registered with the 
database; and 
(4) provide for the allocation and sale of 
tradeable allowances to new entrants in accordance 
with subsection (g). 
(c) POINT SOURCE ALLOCATION.—The Adminis-
trator shall allocate the tradeable allowances for the elec-
tricity generation, industrial, and commercial sectors to 
the entities owning or controlling the point sources of 
greenhouse gas emissions within that sector. 
(d) HYDROFLUOROCARBONS, PERFLUOROCARBONS, 
AND SULFUR HEXAFLUORIDE.—The Administrator shall 
allocate the tradeable allowances for producers or import-
ers of hydrofluorocarbons, perfluorocarbons, or sulfur 
hexafluoride to such producers or importers. 
(e) SPECIAL RULE FOR ALLOCATION WITHIN THE 
TRANSPORTATION SECTOR.—The Administrator shall al-
locate the tradeable allowances for the transportation sec-
tor to petroleum refiners or importers that produce or im-
port petroleum products that will be used as fuel for trans-
portation. 
(f) ALLOCATIONS TO RURAL ELECTRIC COOPERA-
TIVES.—
379
(1) IN
GENERAL.—The Administrator shall 
make the allocations described in paragraph (2) each 
year at no cost. The allocations shall be offset from 
the allowances allocated to the Climate Change 
Credit Corporation. 
(2) RURAL
ELECTRIC
COOPERATIVES.—For 
each electric generating unit that is owned or oper-
ated by a rural electric cooperative, the Adminis-
trator shall allocate allowances in an amount equal 
to the greenhouse gas emissions of each such unit in 
2000, plus an amount equal to the average emis-
sions growth expected for all such units. 
(g) NEW ENTRANTS.—
(1) ALLOCATION.—Of the tradeable allowances 
allocated under this section to a covered sector for 
a calendar year, the percentage of such allowances 
allocated to new entrants into the sector—
(A) shall be 5 percent for calendar year 
2010; and 
(B) shall be increased by 0.5 percent for 
2013 and each succeeding calendar year, except 
that such total percentage shall not exceed 10 
percent. 
(2) AUCTIONS.—For calendar year 2010 and 
each subsequent calendar year, the Administrator
380
shall conduct an auction for the purpose of selling 
to new entrants in each covered sector the tradeable 
allowances allocated for such purpose under para-
graph (1). 
SEC. 634. ENSURING TARGET ADEQUACY. 
(a) IN GENERAL.—Beginning 2 years after the date 
of enactment of this Act, the Under Secretary of Com-
merce for Oceans and Atmosphere shall review the allow-
ances established by section 631 no less frequently than 
biennially—
(1) to re-evaluate the levels established by that 
section, after taking into account the best available 
science and the most currently available data, and 
(2) to re-evaluate the environmental and public 
health impacts of specific concentration levels of 
greenhouse gases, 
to determine whether the allowances established by sub-
section (a) continue to be consistent with the objective of 
the United Nations’ Framework Convention on Climate 
Change of stabilizing levels of greenhouse gas emissions 
at a level that will prevent dangerous anthropogenic inter-
ference with the climate system. 
(b) REVIEW OF 2010 LEVELS.—The Under Secretary 
shall specifically review in 2008 the level established under 
section 631(a)(1), and transmit a report on his reviews,
381
together with any recommendations, including legislative 
recommendations, for modification of the levels, to the 
Senate Committee on Commerce, Science, and Transpor-
tation, the Senate Committee on Environment and Public 
Works, the House of Representatives Committee on 
Science, and the House of Representatives Committee on 
Energy and Commerce. 
SEC. 635. INITIAL ALLOCATIONS FOR EARLY PARTICIPA-
TION AND ACCELERATED PARTICIPATION. 
Before making any allocations under section 633, the 
Administrator shall allocate—
(1) to any covered entity an amount of 
tradeable allowances equivalent to the amount of 
greenhouse gas emissions reductions registered by 
that covered entity in the national greenhouse gas 
database if—
(A) the covered entity has requested to use 
the registered reduction in the year of alloca-
tion; 
(B) the reduction was registered prior to 
2010; and 
(C) the Administrator retires the unique 
serial number assigned to the reduction under 
section 611(c)(3); and
382
(2) to any covered entity that has entered into 
an accelerated participation agreement under section 
636, such tradeable allowances as the Administrator 
has determined to be appropriate under that section. 
SEC. 636. BONUS FOR ACCELERATED PARTICIPATION. 
(a) IN GENERAL.—If a covered entity executes an 
agreement with the Administrator under which it agrees 
to reduce its level of greenhouse gas emissions to a level 
no greater than the level of its greenhouse gas emissions 
for calendar year 1990 by the year 2010, then, for the 
6-year period beginning with calendar year 2010, the Ad-
ministrator shall—
(1) provide additional tradeable allowances to 
that entity when allocating allowances under section 
634 in order to recognize the additional emissions 
reductions that will be required of the covered entity; 
(2) allow that entity to satisfy 20 percent of its 
requirements under section 621 by—
(A) submitting tradeable allowances from 
another nation’s market in greenhouse gas 
emissions under the conditions described in sec-
tion 622(b)(1); 
(B) submitting a registered net increase in 
sequestration, as registered in the National 
Greenhouse Gas Database established under
383
section 611, and as adjusted by the appropriate 
sequestration discount rate established under 
section 651; or 
(C) submitting a greenhouse gas emission 
reduction (other than a registered net increase 
in sequestration) that was registered in the Na-
tional Greenhouse Gas Database by a person 
that is not a covered entity. 
(b) TERMINATION.—An entity that executes an 
agreement described in subsection (a) may terminate the 
agreement at any time. 
(c) FAILURE TO MEET COMMITMENT.—If an entity 
that executes an agreement described in subsection (a) 
fails to achieve the level of emissions to which it committed 
by calendar year 2010—
(1) its requirements under section 621 shall be 
increased by the amount of any tradeable allowances 
provided to it under subsection (a)(1); and 
(2) any tradeable allowances submitted there-
after shall be counted first against the increase in 
those requirements.
384
CHAPTER 3—CLIMATE CHANGE CREDIT 
CORPORATION 
SEC. 641. ESTABLISHMENT. 
(a) IN GENERAL.—The Climate Change Credit Cor-
poration is established as a nonprofit corporation without 
stock. The Corporation shall not be considered to be an 
agency or establishment of the United States Government. 
(b) APPLICABLE LAWS.—The Corporation shall be 
subject to the provisions of this title and, to the extent 
consistent with this title, to the District of Columbia Busi-
ness Corporation Act. 
(c) BOARD OF DIRECTORS.—The Corporation shall 
have a board of directors of 5 individuals who are citizens 
of the United States, of whom 1 shall be elected annually 
by the board to serve as chairman. No more than 3 mem-
bers of the board serving at any time may be affiliated 
with the same political party. The members of the board 
shall be appointed by the President of the United States, 
by and with the advice and consent of the Senate and shall 
serve for terms of 5 years. 
SEC. 642. PURPOSES AND FUNCTIONS. 
(a) TRADING.—The Corporation—
(1) shall receive and manage tradeable allow-
ances allocated to it under section 633(a)(2); and
385
(2) shall buy and sell tradeable allowances, 
whether allocated to it under that section or ob-
tained by purchase, trade, or donation from other 
entities; but 
(3) may not retire tradeable allowances unused. 
(b) USE OF TRADEABLE ALLOWANCES AND PRO-
CEEDS.—
(1) IN GENERAL.—The Corporation shall use 
the tradeable allowances, and proceeds derived from 
its trading activities in tradeable allowances, to re-
duce costs borne by consumers as a result of the 
greenhouse gas reduction requirements of this Act. 
The reductions—
(A) may be obtained by buy-down, subsidy, 
negotiation of discounts, consumer rebates, or 
otherwise; 
(B) shall be, as nearly as possible, equi-
tably distributed across all regions of the 
United States; and 
(C) may include arrangements for pref-
erential treatment to consumers who can least 
afford any such increased costs. 
(2) TRANSITION ASSISTANCE TO DISLOCATED 
WORKERS
AND
COMMUNITIES.—The Corporation 
shall allocate a percentage of the proceeds derived
386
from its trading activities in tradeable allowances to 
provide transition assistance to dislocated workers 
and communities. Transition assistance may take 
the form of—
(A) grants to employers, employer associa-
tions, and representatives of employees—
(i) to provide training, adjustment as-
sistance, and employment services to dis-
located workers; and 
(ii) to make income-maintenance and 
needs-related payments to dislocated work-
ers; and 
(B) grants to State and local governments 
to assist communities in attracting new employ-
ers or providing essential local government serv-
ices. 
(3) PHASE-OUT OF TRANSITION ASSISTANCE.—
The percentage allocated by the Corporation under 
paragraph (2)—
(A) shall be 20 percent for 2010; 
(B) shall be reduced by 2 percentage 
points each year thereafter; and 
(C) may not be reduced below zero. 
(4) TECHNOLOGY DEPLOYMENT PROGRAMS.—
The Corporation shall establish and carry out a pro-
387
gram, through direct grants, revolving loan pro-
grams, or other financial measures, to provide sup-
port for the deployment of technology to assist in 
compliance with this Act by distributing the pro-
ceeds from no less than 10 percent of the total al-
lowances allocated to it. The support shall include 
the following: 
(A) COAL GASIFICATION COMBINED-CYCLE 
AND
GEOLOGICAL
CARBON
STORAGE
PRO-
GRAM.—The Corporation shall establish and 
carry out a program, through direct grants, to 
provide incentives for the repowering of existing 
facilities or construction of new facilities pro-
ducing electricity or other products from coal 
gasification combined-cycle plants that capture 
and geologically store at least 90 percent of the 
carbon dioxide produced at the facility in ac-
cordance with requirements established by the 
Administrator to ensure the permanence of the 
storage and that such storage will not cause or 
contribute to significant adverse effects on pub-
lic health or the environment. The Corporation 
shall ensure that no less than 20 percent of the 
funding under this program is distributed to 
rural electric cooperatives.
388
(B) AGRICULTURAL PROGRAMS.—The Cor-
poration shall establish and carry out a pro-
gram, through direct grants, revolving loan pro-
grams, or other financial measures, to provide 
incentives for greenhouse gas emissions reduc-
tions or net increases in greenhouse gas seques-
tration on agricultural lands. The program shall 
include incentives for—
(i) production of wind energy on agri-
cultural lands; 
(ii) agricultural management practices 
that achieve verified, incremental increases 
in net carbon sequestration, in accordance 
with the requirements established by the 
Administrator under section 651; and 
(iii) production of renewable fuels 
that, after consideration of the energy 
needed to produce such fuels, result in a 
net reduction in greenhouse gas emissions. 
(c) COORDINATION WITH OTHER BENEFITS.—The 
Corporation shall not provide assistance under this section 
to any person if such person has received assistance under 
section 212 or 731.
389
CHAPTER 4—SEQUESTRATION 
ACCOUNTING; PENALTIES 
SEC. 651. PENALTIES. 
Any covered entity that fails to meet the require-
ments of section 621 for a year shall be liable for a civil 
penalty, payable to the Administrator, equal to thrice the 
market value (determined as of the last day of the year 
at issue) of the tradeable allowances that would be nec-
essary for that covered entity to meet those requirements 
on the date of the emission that resulted in the violation. 
SEC. 652. SEQUESTRATION ACCOUNTING. 
(a) SEQUESTRATION ACCOUNTING.—If a covered en-
tity uses a registered net increase in sequestration to sat-
isfy the requirements of section 621 for any year, that 
covered entity shall submit information to the Adminis-
trator every 5 years thereafter sufficient to allow the Ad-
ministrator to determine, using the methods and stand-
ards created under section 614, whether that net increase 
in sequestration still exists. Unless the Administrator de-
termines that the net increase in sequestration continues 
to exist, the covered entity shall offset any loss of seques-
tration by submitting additional tradeable allowances of 
equivalent amount in the calender year following that de-
termination.
390
(b) REGULATIONS REQUIRED.—The Secretary, act-
ing through the Under Secretary of Commerce for Science 
and Technology, in coordination with the Secretary of Ag-
riculture, the Secretary of Energy, and the Administrator, 
shall issue regulations establishing the sequestration ac-
counting rules for all classes of sequestration projects. 
(c) CRITERIA FOR REGULATIONS.—In issuing regula-
tions under this section, the Secretary shall use the fol-
lowing criteria: 
(1) If the range of possible amounts of net in-
crease in sequestration for a particular class of se-
questration project is not more than 10 percent of 
the median of that range, the amount of sequestra-
tion awarded shall be equal to the median value of 
that range. 
(2) If the range of possible amounts of net in-
crease in sequestration for a particular class of se-
questration project is more than 10 percent of the 
median of that range, the amount of sequestration 
awarded shall be equal to the fifth percentile of that 
range. 
(3) The regulations shall include procedures for 
accounting for potential leakage from sequestration 
projects and for ensuring that any registered in-
crease in sequestration is in addition to that which
391
would have occurred if this Act had not been en-
acted. 
(d) UPDATES.—The Secretary shall update the se-
questration accounting rules for every class of sequestra-
tion project at least once every 5 years. 
TITLE VII—ENERGY 
INDEPENDENCE 
Subtitle A—Renewable Fuels 
Standard 
SEC. 701. RENEWABLE FUELS STANDARD. 
(a) IN GENERAL.—Section 211 of the Clean Air Act 
(42 U.S.C. 7545) is amended—
(1) by redesignating subsection (o) as sub-
section (q); and 
(2) by inserting after subsection (n) the fol-
lowing: 
‘‘(o) RENEWABLE FUEL PROGRAM.—
‘‘(1) DEFINITIONS.—In this subsection: 
‘‘(A) CELLULOSIC
BIOMASS
ETHANOL.—
The term ‘cellulosic biomass ethanol’ means 
ethanol 
derived 
from 
any 
nonhazardous 
lignocellulosic or hemicellulosic matter that is 
available on a renewable or recurring basis, in-
cluding—
‘‘(i) dedicated energy crops and trees;
392
‘‘(ii) the following forest-related re-
sources—
‘‘(I) harvesting residue 
‘‘(II) pre-commercial thinnings; 
‘‘(III) slash; and 
‘‘(IV) bush; 
‘‘(iii) plants; 
‘‘(iv) grasses; 
‘‘(v) agricultural residues; 
‘‘(vi) fibers; 
‘‘(vii) animal wastes and other waste 
materials; and 
‘‘(viii) municipal solid waste. 
‘‘(B) RENEWABLE FUEL.—
‘‘(i) IN GENERAL.—The term ‘renew-
able fuel’ means motor vehicle fuel that—
‘‘(I)(aa) is produced from grain, 
starch, oilseeds, or other biomass; or 
‘‘(bb) is natural gas produced 
from a biogas source, including a 
landfill, sewage waste treatment plant, 
feedlot, or other place where decaying 
organic material is found; and 
‘‘(II) is used to replace or reduce 
the quantity of fossil fuel present in a
393
fuel mixture used to operate a motor 
vehicle. 
‘‘(ii) INCLUSION.—The term ‘renew-
able fuel’ includes cellulosic biomass eth-
anol and biodiesel (as defined in section 
312(f) of the Energy Policy Act of 1992). 
‘‘(C) SMALL REFINERY.—The term ‘small 
refinery’ means a refinery for which average ag-
gregate daily crude oil throughput for the cal-
endar year (as determined by dividing the ag-
gregate throughput for the calendar year by the 
number of days in the calendar year) does not 
exceed 75,000 barrels. 
‘‘(2) RENEWABLE FUEL PROGRAM.—
‘‘(A) IN GENERAL.—Not later than the be-
ginning of calendar year 2007, the Adminis-
trator shall promulgate regulations ensuring 
that gasoline sold or dispensed to consumers in 
the United States, on an annual average basis, 
contains the applicable volume of renewable fuel 
as specified in subparagraph (B). Regardless of 
the date of promulgation, such regulations shall 
contain compliance provisions for refiners, 
blenders, and importers, as appropriate, to en-
sure that the requirements of this subsection
394
are met, but shall not restrict where renewables 
can be used, or impose any per-gallon obligation 
for the use of renewables. If the Administrator 
does not promulgate such regulations, the appli-
cable percentage, on a volume percentage of 
gasoline basis, shall be 1.62 in 2007. 
‘‘(B) APPLICABLE VOLUME.—
‘‘(i) CALENDAR YEARS 2007 THROUGH 
2013.—For the purpose of subparagraph 
(A), the applicable volume for any of cal-
endar years 2007 through 2013 shall be 
determined in accordance with the fol-
lowing table:
‘‘Calendar year:
(In billions of gal-
lons) 
2007 .......................................................................
4.0
2008 .......................................................................
4.5
2009 .......................................................................
5.1
2010 .......................................................................
5.7
2011 .......................................................................
6.4
2012 .......................................................................
7.2
2013 .......................................................................
8.1
‘‘(ii) CALENDAR
YEAR
2014
AND 
THEREAFTER.—For the purpose of sub-
paragraph (A), the applicable volume for 
calendar year 2014 and each calendar year 
thereafter shall be equal to the product ob-
tained by multiplying—
395
‘‘(I) the number of gallons of 
gasoline that the Administrator esti-
mates will be sold or introduced into 
commerce in the calendar year; and 
‘‘(II) the ratio that—
‘‘(aa) 8.1 billion gallons of 
renewable fuels; bears to 
‘‘(bb) the number of gallons 
of gasoline sold or introduced 
into commerce in calendar year 
2013. 
‘‘(iii) 
CELLULOSIC
BIOMASS
ETH-
ANOL.—For the purpose of subparagraph 
(A), the applicable volume shall include, as 
a percentage of the total applicable volume, 
cellulosic biomass ethanol as follows: 
‘‘(I) For calendar year 2007, 1.0 
percent. 
‘‘(II) For calendar year 2008, 
1.5 percent. 
‘‘(III) For calendar year 2009, 
2.0 percent. 
‘‘(IV) For calendar year 2010, 
2.5 percent.
396
‘‘(V) For calendar year 2011, 3.0 
percent. 
‘‘(VI) For calendar year 2012, 
3.5 percent. 
‘‘(VII) For calendar year 2013 
and each subsequent calendar year, 
4.0 percent. 
‘‘(3) APPLICABLE
PERCENTAGES.—Not later 
than October 31 of each calendar year, through 
2012, the Administrator of the Energy Information 
Administration shall provide the Administrator an 
estimate of the volumes of gasoline sales in the 
United States for the coming calendar year. Based 
on such estimates, the Administrator shall by No-
vember 30 of each calendar year, through 2012, de-
termine and publish in the Federal Register, the re-
newable fuel obligation, on a volume percentage of 
gasoline basis, applicable to refiners, blenders, dis-
tributors and importers, as appropriate, for the com-
ing calendar year, to ensure that the requirements 
of paragraph (2) are met. For each calendar year, 
the Administrator shall establish a single applicable 
percentage that applies to all parties, and make pro-
vision to avoid redundant obligations. In determining 
the applicable percentages, the Administrator shall
397
make adjustments to account for the use of renew-
able fuels by exempt small refineries during the pre-
vious year. 
‘‘(4) CELLULOSIC BIOMASS ETHANOL.—For the 
purpose of paragraph (2), 1 gallon of cellulosic bio-
mass ethanol shall be considered to be the equivalent 
of 3.0 gallons of renewable fuel. 
‘‘(5) CREDIT PROGRAM.—
‘‘(A) IN GENERAL.—The regulations pro-
mulgated to carry out this subsection shall pro-
vide for the generation of an appropriate 
amount of credits by any person that refines, 
blends, or imports gasoline that contains a 
quantity of renewable fuel that is greater than 
the quantity required under paragraph (2). 
Such regulations shall provide for the genera-
tion of an appropriate amount of credits for 
biodiesel fuel. If a small refinery notifies the 
Administrator that it waives the exemption pro-
vided by this Act, the regulations shall provide 
for the generation of credits by the small refin-
ery beginning in the year following such notifi-
cation. 
‘‘(B) USE
OF
CREDITS.—A person that 
generates credits under subparagraph (A) may
398
use the credits, or transfer all or a portion of 
the credits to another person, for the purpose 
of complying with paragraph (2). 
‘‘(C) LIFE
OF
CREDITS.—A credit gen-
erated under this paragraph shall be valid to 
show compliance—
‘‘(i) in the calendar year in which the 
credit was generated or the next calendar 
year, or 
‘‘(ii) in the calendar year in which the 
credit was generated or the next two con-
secutive calendar years if the Adminis-
trator promulgates regulations under para-
graph (6). 
‘‘(D) INABILITY TO PURCHASE SUFFICIENT 
CREDITS.—The regulations promulgated to 
carry out this subsection shall include provi-
sions allowing any person that is unable to gen-
erate or purchase sufficient credits to meet the 
requirements under paragraph (2) to carry for-
ward a renewables deficit provided that, in the 
calendar year following the year in which the 
renewables deficit is created, such person shall 
achieve compliance with the renewables require-
ment under paragraph (2), and shall generate
399
or purchase additional renewables credits to off-
set the renewables deficit of the previous year. 
‘‘(6) SEASONAL
VARIATIONS
IN
RENEWABLE 
FUEL USE.—
‘‘(A) STUDY.—For each of calendar years 
2007 through 2013, the Administrator of the 
Energy Information Administration shall con-
duct a study of renewable fuels blending to de-
termine whether there are excessive seasonal 
variations in the use of renewable fuels. 
‘‘(B) REGULATION
OF
EXCESSIVE
SEA-
SONAL VARIATIONS.—If, for any calendar year, 
the Administrator of the Energy Information 
Administration, based on the study under sub-
paragraph (A), makes the determinations speci-
fied in subparagraph (C), the Administrator 
shall promulgate regulations to ensure that 35 
percent or more of the quantity of renewable 
fuels necessary to meet the requirement of 
paragraph (2) is used during each of the peri-
ods specified in subparagraph (D) of each sub-
sequent calendar year. 
‘‘(C) DETERMINATIONS.—The determina-
tions referred to in subparagraph (B) are 
that—
400
‘‘(i) less than 35 percent of the quan-
tity of renewable fuels necessary to meet 
the requirement of paragraph (2) has been 
used during one of the periods specified in 
subparagraph (D) of the calendar year; 
and 
‘‘(ii) a pattern of excessive seasonal 
variation described in clause (i) will con-
tinue in subsequent calendar years. 
‘‘(D) PERIODS.—The two periods referred 
to in this paragraph are—
‘‘(i) April through September; and 
‘‘(ii) January through March and Oc-
tober through December. 
‘‘(E) 
EXCLUSIONS.—Renewable 
fuels 
blended or consumed in 2007 in a State which 
has received a waiver under section 209(b) shall 
not be included in the study in subparagraph 
(A). 
‘‘(7) WAIVERS.—
‘‘(A) IN GENERAL.—The Administrator, in 
consultation with the Secretary of Agriculture 
and the Secretary of Energy, may waive the re-
quirement of paragraph (2) in whole or in part 
on petition by one or more States by reducing
401
the national quantity of renewable fuel required 
under this subsection—
‘‘(i) based on a determination by the 
Administrator, after public notice and op-
portunity for comment, that implementa-
tion of the requirement would severely 
harm the economy or environment of a 
State, a region, or the United States; or 
‘‘(ii) based on a determination by the 
Administrator, after public notice and op-
portunity for comment, that there is an in-
adequate domestic supply or distribution 
capacity to meet the requirement. 
‘‘(B) PETITIONS FOR WAIVERS.—The Ad-
ministrator, in consultation with the Secretary 
of Agriculture and the Secretary of Energy, 
shall approve or disapprove a State petition for 
a waiver of the requirement of paragraph (2) 
within 90 days after the date on which the peti-
tion is received by the Administrator. 
‘‘(C) TERMINATION OF WAIVERS.—A waiv-
er granted under subparagraph (A) shall termi-
nate after 1 year, but may be renewed by the 
Administrator after consultation with the Sec-
402
retary of Agriculture and the Secretary of En-
ergy. 
‘‘(8) STUDY AND WAIVER FOR INITIAL YEAR OF 
PROGRAM.—Not later than 180 days after the date 
of the enactment of this subsection, the Secretary of 
Energy (in this paragraph referred to as the ‘Sec-
retary’) shall complete for the Administrator a study 
assessing whether the renewable fuels requirement 
under paragraph (2) will likely result in significant 
adverse consumer impacts in 2007, on a national, 
regional, or State basis. Such study shall evaluate 
renewable fuel supplies and prices, blendstock sup-
plies, and supply and distribution system capabili-
ties. Based on such study, the Secretary shall make 
specific recommendations to the Administrator re-
garding waiver of the requirements of paragraph 
(2), in whole or in part, to avoid any such adverse 
impacts. Within 270 days after the date of the en-
actment of this subsection, the Administrator shall, 
consistent with the recommendations of the Sec-
retary waive, in whole or in part, the renewable fuels 
requirement under paragraph (2) by reducing the 
national quantity of renewable fuel required under 
this subsection in 2007. This provision shall not be 
interpreted as limiting the Administrator’s authority
403
to waive the requirements of paragraph (2) in whole, 
or in part, under paragraph (7), pertaining to waiv-
ers. 
‘‘(9) SMALL REFINERIES.—
‘‘(A) IN
GENERAL.—The requirement of 
paragraph (2) shall not apply to small refineries 
until January 1, 2011. Not later than Decem-
ber 31, 2009, the Secretary of Energy shall 
complete for the Administrator a study to de-
termine whether the requirement of paragraph 
(2) would impose a disproportionate economic 
hardship on small refineries. For any small re-
finery that the Secretary of Energy determines 
would experience a disproportionate economic 
hardship, the Administrator shall extend the 
small refinery exemption for such small refinery 
for no less than two additional years. 
‘‘(B) ECONOMIC HARDSHIP.—
‘‘(i) EXTENSION OF EXEMPTION.—A 
small refinery may at any time petition the 
Administrator for an extension of the ex-
emption from the requirement of para-
graph (2) for the reason of dispropor-
tionate economic hardship. In evaluating a 
hardship petition, the Administrator, in
404
consultation with the Secretary of Energy, 
shall consider the findings of the study 
under subparagraph (A) in addition to 
other economic factors. 
‘‘(ii) DEADLINE FOR ACTION ON PETI-
TIONS.—The Administrator shall act on 
any petition submitted by a small refinery 
for a hardship exemption not later than 90 
days after the receipt of the petition. 
‘‘(C) CREDIT PROGRAM.—If a small refin-
ery notifies the Administrator that it waives the 
exemption provided by this paragraph, the reg-
ulations shall provide for the generation of 
credits by the small refinery beginning in the 
year following such notification. 
‘‘(D) OPT-IN
FOR
SMALL
REFINERS.—A 
small refinery shall be subject to the require-
ments of this subsection if it notifies the Ad-
ministrator that it waives the exemption under 
subparagraph (A).’’. 
(b) 
PENALTIES
AND
ENFORCEMENT.—Section 
211(d) of the Clean Air Act (42 U.S.C. 7545(d)) is 
amended—
(1) in paragraph (1)—
405
(A) in the first sentence, by striking ‘‘or 
(n)’’ each place it appears and inserting ‘‘(n), 
or (o)’’; and 
(B) in the second sentence, by striking ‘‘or 
(m)’’ and inserting ‘‘(m), or (o)’’; and 
(2) in the first sentence of paragraph (2), by 
striking ‘‘and (n)’’ each place it appears and insert-
ing ‘‘(n), and (o)’’. 
(c) EXCLUSION FROM ETHANOL WAIVER.—Section 
211(h) of the Clean Air Act (42 U.S.C. 7545(h)) is 
amended—
(1) by redesignating paragraph (5) as para-
graph (6); and 
(2) by inserting after paragraph (4) the fol-
lowing: 
‘‘(5) EXCLUSION FROM ETHANOL WAIVER.—
‘‘(A) PROMULGATION OF REGULATIONS.—
Upon notification, accompanied by supporting 
documentation, from the Governor of a State 
that the Reid vapor pressure limitation estab-
lished by paragraph (4) will increase emissions 
that contribute to air pollution in any area in 
the State, the Administrator shall, by regula-
tion, apply, in lieu of the Reid vapor pressure 
limitation established by paragraph (4), the
406
Reid vapor pressure limitation established by 
paragraph (1) to all fuel blends containing gas-
oline and 10 percent denatured anhydrous eth-
anol that are sold, offered for sale, dispensed, 
supplied, offered for supply, transported or in-
troduced into commerce in the area during the 
high ozone season. 
‘‘(B) DEADLINE
FOR
PROMULGATION.—
The Administrator shall promulgate regulations 
under subparagraph (A) not later than 90 days 
after the date of receipt of a notification from 
a Governor under that subparagraph. 
‘‘(C) EFFECTIVE DATE.—
‘‘(i) IN GENERAL.—With respect to an 
area in a State for which the Governor 
submits a notification under subparagraph 
(A), the regulations under that subpara-
graph shall take effect on the later of—
‘‘(I) the first day of the first high 
ozone season for the area that begins 
after the date of receipt of the notifi-
cation; or 
‘‘(II) 1 year after the date of re-
ceipt of the notification.
407
‘‘(ii) EXTENSION OF EFFECTIVE DATE 
BASED
ON
DETERMINATION
OF
INSUFFI-
CIENT SUPPLY.—
‘‘(I) IN GENERAL.—If, after re-
ceipt of a notification with respect to 
an area from a Governor of a State 
under subparagraph (A), the Adminis-
trator determines, on the Administra-
tor’s own motion or on petition of any 
person and after consultation with the 
Secretary of Energy, that the promul-
gation of regulations described in sub-
paragraph (A) would result in an in-
sufficient supply of gasoline in the 
State, the Administrator, by regula-
tion—
‘‘(aa) shall extend the effec-
tive date of the regulations under 
clause (i) with respect to the area 
for not more than 1 year; and 
‘‘(bb) may renew the exten-
sion under item (aa) for two ad-
ditional periods, each of which 
shall not exceed 1 year.
408
‘‘(II) DEADLINE FOR ACTION ON 
PETITIONS.—The Administrator shall 
act on any petition submitted under 
subclause (I) not later than 180 days 
after the date of receipt of the peti-
tion.’’. 
(d) SURVEY OF RENEWABLE FUEL MARKET.—
(1) SURVEY AND REPORT.—Not later than De-
cember 1, 2008, and annually thereafter, the Admin-
istrator shall—
(A) conduct, with respect to each conven-
tional gasoline use area and each reformulated 
gasoline use area in each State, a survey to de-
termine the market shares of—
(i) conventional gasoline containing 
ethanol; 
(ii) reformulated gasoline containing 
ethanol; 
(iii) conventional gasoline containing 
renewable fuel; and 
(iv) reformulated gasoline containing 
renewable fuel; and 
(B) submit to the Congress, and make 
publicly available, a report on the results of the 
survey under subparagraph (A).
409
(2) RECORDKEEPING
AND
REPORTING
RE-
QUIREMENTS.—The Administrator may require any 
refiner, blender, or importer to keep such records 
and make such reports as are necessary to ensure 
that the survey conducted under paragraph (1) is 
accurate. The Administrator shall rely, to the extent 
practicable, on existing reporting and recordkeeping 
requirements to avoid duplicative requirements. 
(3) APPLICABLE
LAW.—Activities carried out 
under this subsection shall be conducted in a man-
ner designed to protect confidentiality of individual 
responses. 
SEC. 702. ELIMINATION OF OXYGEN CONTENT REQUIRE-
MENT FOR REFORMULATED GASOLINE. 
(a) ELIMINATION.—
(1) IN GENERAL.—Section 211(k) of the clean 
air act (42 U.S.C. 7545(k)) is amended—
(A) In paragraph (2)—
(i) in the second sentence of subpara-
graph (A), by striking ‘‘(including the oxy-
gen content requirement contained in sub-
paragraph (B))’’; 
(ii) by striking subparagraph (B); and
410
(iii) by redesignating subparagraphs 
(C) and (D) as subparagraphs (B) and 
(C), respectively; 
(B) in paragraph (3)(A), by striking clause 
(v); and 
(C) In paragraph (7)—
(i) In subparagraph (A) 
(I) by striking clause (i); and 
(II) by redesignating clauses (ii) 
and (iii) as clauses (i) and (ii), respec-
tively; and 
(ii) in subparagraph (C)—
(I) by striking clause (ii); and 
(II) by redesignating clause (iii) 
as clause (ii). 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) take effect on the date that is 1 
year after the date of enactment of this Act, except 
that the amendments shall take effect upon that 
date of enactment in any State that has received a 
waiver under section 209(b) of the Clean Air Act 
(42 U.S.C. 7543(b)). 
(b) MAINTENANCE OF TOXIC AIR POLLUTANT EMIS-
SION REDUCTIONS.—Section 211(k)(1) of the Clean Air 
Act (42 U.S.C. 7545(k)(1)) is amended—
411
(1) by striking ‘‘Within 1 year after the enact-
ment of the Clean Air Act Amendments of 1990,’’ 
and inserting the following: 
‘‘(A) IN GENERAL.—Not later than November 
15, 1991,’’; and 
(2) by adding at the end the following: 
‘‘(B) MAINTENANCE OF TOXIC AIR POL-
LUTANT EMISSIONS REDUCTIONS FROM REFOR-
MULATED GASOLINE.—
‘‘(i) DEFINITION OF PADD.—In this 
subparagraph, the term ‘PADD’ means a 
Petroleum Administration for Defense Dis-
trict 
‘‘(ii) REGULATIONS REGARDING EMIS-
SIONS
OF
TOXIC
AIR
POLLUTANTS.—Not 
later than 270 days after the date of en-
actment of this subparagraph, the Admin-
istrator shall establish, for each refinery or 
importer, standards for toxic air pollutants 
from use of the reformulated gasoline pro-
duced or distributed by the refinery or im-
porter that maintain the reduction of the 
average annual aggregate emissions of 
toxic air pollutants for reformulated gaso-
line produced or distributed by the refinery
412
or importer during calendar years 2002 
and 2003, determined on the basis of data 
collected by the Administrator with respect 
to the refinery or importer. 
‘‘(iii) STANDARDS
APPLICABLE
TO 
SPECIFIC REFINERIES OR IMPORTERS.—
‘‘(I) APPLICABILITY
OF
STAND-
ARDS.—For any calendar year, the 
standards applicable to a refinery or 
importer under clause (ii) shall apply 
to the quantity of gasoline produced 
or distributed by the refinery or im-
porter in the calendar year only to the 
extent that the quantity is less than 
or equal to the average annual quan-
tity of reformulated gasoline produced 
or distributed by the refinery or im-
porter during calendar years 2002 
and 2003. 
‘‘(II) APPLICABILITY OF OTHER 
STANDARDS.—For any calendar year, 
the quantity of gasoline produced or 
distributed by a refinery or importer 
that is in excess of the quantity sub-
ject to subclause (I) shall be subject
413
to standards for toxic air pollutants 
promulgated under subparagraph (A) 
and paragraph (3)(B). 
‘‘(iv) CREDIT PROGRAM.—The Admin-
istrator shall provide for the granting and 
use of credits for emissions of toxic air pol-
lutants in the same manner as provided in 
paragraph (7). 
‘‘(v) 
REGIONAL
PROTECTION
OF 
TOXICS REDUCTION BASELINES.—
‘‘(I) IN
GENERAL.—Not later 
than 60 days after the date of enact-
ment of this subparagraph, and not 
later than April 1 of each calendar 
year that begins after that date of en-
actment, the Administrator shall pub-
lish in the Federal Register a report 
that specifies, with respect to the pre-
vious calendar year—
‘‘(aa) the quantity of refor-
mulated gasoline produced that is 
in excess of the average annual 
quantity of reformulated gasoline 
produced in 2002 and 2003; and
414
‘‘(bb) the reduction of the 
average annual aggregate emis-
sions of toxic air pollutants in 
each PADD, based on retail sur-
vey data or data from other ap-
propriate sources. 
‘‘(II) EFFECT
OF
FAILURE
TO 
MAINTAIN
AGGREGATE
TOXICS
RE-
DUCTIONS.—If, in any calendar year, 
the reduction of the average annual 
aggregate emissions of toxic air pol-
lutants in a PADD fails to meet or 
exceed the reduction of the average 
annual aggregate emissions of toxic 
air pollutants in the PADD in cal-
endar years 2002 and 2003, the Ad-
ministrator, not later than 90 days 
after the date of publication of the re-
port for the calendar year under sub-
clause (I), shall—
‘‘(aa) identify, to the max-
imum extent practicable, the rea-
sons for the failure, including the 
sources, volumes, and character-
istics of reformulated gasoline
415
that contributed to the failure; 
and 
‘‘(bb) promulgate revisions 
to the regulations promulgated 
under clause (ii), to take effect 
not earlier than 180 days but not 
later than 270 days after the 
date of promulgation, to provide 
that, 
notwithstanding 
clause 
(iii)(II), all reformulated gasoline 
produced or distributed at each 
refinery or importer shall meet 
the standards applicable under 
clause (ii) not later than April 1 
of the year following the report 
under this subclause and for sub-
sequent years. 
‘‘(vi) 
REGULATIONS
TO
CONTROL 
HAZARDOUS
AIR
POLLUTANTS
FROM 
MOTOR
VEHICLES
AND
MOTOR
VEHICLE 
FUELS.—Not later than July 1, 2006, the 
Administrator shall promulgate final regu-
lations to control hazardous air pollutants 
from motor vehicles and motor vehicle 
fuels, as provided for in section 80.1045 of
416
title 40, Code of Federal Regulations (as 
in effect on the date of enactment of this 
subparagraph).’’. 
(c) CONSOLIDATION IN REFORMULATED GASOLINE 
REGULATIONS.—Not later than 180 days after the date 
of enactment of this Act, the Administrator of the Envi-
ronmental Protection Agency shall revise the reformulated 
gasoline regulations under subpart D of part 80 of title 
40, Code of Federal Regulations (or any successor regula-
tions), to consolidate the regulations applicable to VOC–
Control Regions 1 and 2 under section 80.41 of that title 
by eliminating the less stringent requirements applicable 
to gasoline designated for VOC–Control Region 2 and in-
stead applying the more stringent requirements applicable 
to gasoline designated for VOC–Control Region 1. 
(d) AUTHORITY
OF ADMINISTRATOR.—Nothing in 
this section affects or prejudices any legal claim or action 
with respect to regulations promulgated by the Adminis-
trator of the Environmental Protection Agency before the 
date of enactment of this act regarding—
(1) emissions of toxic air pollutants from motor 
vehicles; or 
(2) the adjustment of standards applicable to a 
specific refinery or importer made under the prior 
regulations.
417
(e) DETERMINATION REGARDING
A STATE PETI-
TION.—Section 211(k) of the Clean Air Act (42 U.S.C. 
7545(k)) is amended by inserting after paragraph (10) the 
following: 
‘‘(11) DETERMINATION
REGARDING
A
STATE 
PETITION.—
‘‘(A) IN GENERAL.—Notwithstanding any 
other provision of this section, not later than 30 
days after the date of enactment of this para-
graph, the Administrator shall determine the 
adequacy of any petition received from a Gov-
ernor of a State to exempt gasoline sold in that 
State from the requirements under paragraph 
(2)(B). 
‘‘(B) 
APPROVAL.—If 
a 
determination 
under subparagraph (A) is not made by the 
date that is 30 days after the date of enactment 
of this paragraph, the petition shall be consid-
ered to be approved.’’. 
SEC. 703. PUBLIC HEALTH AND ENVIRONMENTAL IMPACTS 
OF FUELS AND FUEL ADDITIVES. 
Section 211(b) of the Clean Air Act (42 U.S.C. 
7545(b)) is amended—
(1) in paragraph (2)—
418
(A) by striking ‘‘may also’’ and inserting 
‘‘shall, on a regular basis,’’; and 
(B) by striking subparagraph (A) and in-
serting the following: 
‘‘(A) to conduct tests to determine poten-
tial public health and environmental effects of 
the fuel or additive (including carcinogenic, 
teratogenic, or mutagenic effects); and’’; and 
(2) by adding at the end the following: 
‘‘(4) STUDY ON CERTAIN FUEL ADDITIVES AND 
BLENDSTOCKS.—
‘‘(A) IN GENERAL.—Not later than 2 years 
after the date of enactment of this paragraph, 
the Administrator shall—
‘‘(i) conduct a study on the effects on 
public health, air quality, and water re-
sources of increased use of, and the feasi-
bility of using as substitutes for methyl 
tertiary butyl ether in gasoline 
‘‘(I) ethyl tertiary butyl ether; 
‘‘(II) tertiary amyl methyl ether; 
‘‘(III) di-isopropyl ether; 
‘‘(IV) tertiary butyl alcohol;
419
‘‘(V) other ethers and heavy alco-
hols, as determined by the Adminis-
trator; 
‘‘(VI) ethanol; 
‘‘(VII) iso-octane; and 
‘‘(VIII) alkylates; 
‘‘(ii) conduct a study on the effects on 
public health, air quality, and water re-
sources of the adjustment for ethanol-
blended reformulated gasoline to the VOC 
performance requirements otherwise appli-
cable 
under 
sections 
211(k)(1) 
and 
211(k)(3); and 
‘‘(iii) submit to the Committee on En-
vironment and Public Works of the Senate 
and the Committee on Energy and Com-
merce of the House of Representatives a 
report describing the results of these stud-
ies. 
‘‘(B) CONTRACTS
FOR
STUDY.—In car-
rying out this paragraph, the Administrator 
may enter into one or more contracts with non-
governmental entities including but not limited 
to National Energy Laboratories and institu-
tions of higher education (as defined in section
420
101 of the Higher Education Act of 1965 (20 
U.S.C. 1001)).’’. 
SEC. 704. ANALYSES OF MOTOR VEHICLE FUEL CHANGES. 
Section 211 of the Clean Air Act (42 U.S.C. 7545) 
is amended by inserting after subsection (o) (as added by 
section 101(a)(2)) the following: 
‘‘(p) ANALYSES OF MOTOR VEHICLE FUEL CHANGES 
AND EMISSIONS MODEL.—
‘‘(1) ANTI-BACKSLIDING ANALYSIS.—
‘‘(A) DRAFT ANALYSIS.—Not later than 4 
years after the date of enactment of this sub-
section, the Administrator shall publish for pub-
lic comment a draft analysis of the changes in 
emissions of air pollutants and air quality due 
to the use of motor vehicle fuel and fuel addi-
tives resulting from implementation of the 
amendments made by the New Apollo Energy 
Act of 2005. 
‘‘(B) FINAL ANALYSIS.—After providing a 
reasonable opportunity for comment, but not 
later than 5 years after the date of enactment 
of this paragraph, the Administrator shall pub-
lish the analysis in final form. 
‘‘(2) EMISSIONS MODEL.—For the purposes of 
this subsection, as soon as the necessary data are
421
available, the Administrator shall develop and final-
ize an emissions model that reasonably reflects the 
effects of gasoline characteristics or components on 
emissions from vehicles in the motor vehicle fleet 
during calendar year 2005.’’. 
SEC. 705. ADDITIONAL OPT-IN AREAS UNDER REFORMU-
LATED GASOLINE PROGRAM. 
Section 211(k)(6) of the Clean Air Act (42 U.S.C. 
7545(k)(6)) is amended—
(1) by striking ‘‘(6) Opt-in areas.—(A) Upon’’ 
and inserting the following: 
‘‘(6) OPT-IN AREAS.—
‘‘(A) CLASSIFIED AREAS.—
‘‘(i) IN GENERAL.—Upon’’; 
(2) in subparagraph (B), by striking ‘‘(B) If’’ 
and inserting the following: 
‘‘(ii) EFFECT OF INSUFFICIENT DO-
MESTIC CAPACITY TO PRODUCE REFORMU-
LATED GASOLINE.—If’’; 
(3) in subparagraph (A)(ii) (as redesignated by 
paragraph (2))—
(A) in the first sentence, by striking ‘‘sub-
paragraph (A)’’ and inserting ‘‘clause (i)’’; and
422
(B) in the second sentence, by striking 
‘‘this paragraph’’ and inserting ‘‘this subpara-
graph’’; and 
(4) by adding at the end the following: 
‘‘(B) OZONE TRANSPORT REGION.—
‘‘(i) APPLICATION OF PROHIBITION.—
‘‘(I) IN
GENERAL.—In addition 
to the provisions of subparagraph (A), 
upon the application of the Governor 
of a State in the ozone transport re-
gion established by section 184(a), the 
Administrator, not later than 180 
days after the date of receipt of the 
application, shall apply the prohibition 
specified in paragraph (5) to any area 
in the State (other than an area clas-
sified as a marginal, moderate, seri-
ous, or severe ozone nonattainment 
area under subpart 2 of part D of 
title I) unless the Administrator deter-
mines under clause (iii) that there is 
insufficient capacity to supply refor-
mulated gasoline. 
‘‘(II) PUBLICATION OF APPLICA-
TION.—As soon as practicable after
423
the date of receipt of an application 
under subclause (I), the Adminis-
trator shall publish the application in 
the Federal Register. 
‘‘(ii) PERIOD
OF
APPLICABILITY.—
Under clause (i), the prohibition specified 
in paragraph (5) shall apply in a State—
‘‘(I) commencing as soon as prac-
ticable but not later than 2 years 
after the date of approval by the Ad-
ministrator of the application of the 
Governor of the State; and 
‘‘(II) ending not earlier than 4 
years after the commencement date 
determined under subclause (I). 
‘‘(iii) EXTENSION OF COMMENCEMENT 
DATE
BASED
ON
INSUFFICIENT
CAPAC-
ITY.—
‘‘(I) IN GENERAL.—If, after re-
ceipt of an application from a Gov-
ernor of a State under clause (i), the 
Administrator determines, on the Ad-
ministrator’s own motion or on peti-
tion of any person, after consultation 
with the Secretary of Energy, that
424
there is insufficient capacity to supply 
reformulated gasoline, the Adminis-
trator, by regulation—
‘‘(aa) shall extend the com-
mencement date with respect to 
the State under clause (ii)(I) for 
not more than 1 year; and 
‘‘(bb) may renew the exten-
sion under item (aa) for 2 addi-
tional periods, each of which 
shall not exceed 1 year. 
‘‘(II) DEADLINE FOR ACTION ON 
PETITIONS.—The Administrator shall 
act on any petition submitted under 
subclause (I) not later than 180 days 
after the date of receipt of the peti-
tion.’’. 
SEC. 706. FEDERAL ENFORCEMENT OF STATE FUELS RE-
QUIREMENTS. 
Section 211(c)(4)(C) of the Clean Air Act (42 U.S.C. 
7545(c)(4)(C)) is amended—
(1) by striking ‘‘(C) A State’’ and inserting the 
following:
425
‘‘(C) AUTHORITY OF STATE TO CONTROL 
FUELS AND FUEL ADDITIVES FOR REASONS OF 
NECESSITY.—
‘‘(i) IN GENERAL.—A State’’; and 
(2) by adding at the end the following: 
‘‘(ii) ENFORCEMENT BY THE ADMIN-
ISTRATOR.—In any case in which a State 
prescribes and enforces a control or prohi-
bition under clause (i), the Administrator, 
at the request of the State, shall enforce 
the control or prohibition as if the control 
or prohibition had been adopted under the 
other provisions of this section.’’. 
SEC. 707. FUEL SYSTEM REQUIREMENTS HARMONIZATION 
STUDY. 
(a) STUDY.—
(1) IN
GENERAL.—The Administrator of the 
Environmental Protection Agency and the Secretary 
of Energy shall jointly conduct a study of Federal, 
State, and local requirements concerning motor vehi-
cle fuels, including—
(A) requirements relating to reformulated 
gasoline, volatility (measured in Reid vapor 
pressure), oxygenated fuel, and diesel fuel; and
426
(B) other requirements that vary from 
State to State, region to region, or locality to 
locality. 
(2) REQUIRED ELEMENTS.—The study shall as-
sess—
(A) the effect of the variety of require-
ments described in paragraph (1) on the supply, 
quality, and price of motor vehicle fuels avail-
able to the consumer; 
(B) the effect of the requirements de-
scribed in paragraph (1) on achievement of—
(i) national, regional, and local air 
quality standards and goals; and 
(ii) related environmental and public 
health protection standards and goals; 
(C) the effect of Federal, State, and local 
motor vehicle fuel regulations, including mul-
tiple motor vehicle fuel requirements, on—
(i) domestic refineries; 
(ii) the fuel distribution system; and 
(iii) industry investment in new capac-
ity; 
(D) the effect of the requirements de-
scribed in paragraph (1) on emissions from ve-
hicles, refineries, and fuel handling facilities;
427
(E) the feasibility of developing national or 
regional motor vehicle fuel slates for the 48 
contiguous States that, while protecting and im-
proving air quality at the national, regional, 
and local levels, could—
(i) enhance flexibility in the fuel dis-
tribution infrastructure and improve fuel 
fungibility; 
(ii) reduce price volatility and costs to 
consumers and producers; 
(iii) provide increased liquidity to the 
gasoline market; and 
(iv) enhance fuel quality, consistency, 
and supply; and 
(F) the feasibility of providing incentives, 
and the need for the development of national 
standards necessary, to promote cleaner burn-
ing motor vehicle fuel. 
(b) REPORT.—
(1) IN
GENERAL.—Not later than June 1, 
2006, the Administrator of the Environmental Pro-
tection Agency and the Secretary of Energy shall 
submit to Congress a report on the results of the 
study conducted under subsection (a). 
(2) RECOMMENDATIONS.—
428
(A) IN GENERAL.—The report shall con-
tain recommendations for legislative and admin-
istrative actions that may be taken—
(i) to improve air quality; 
(ii) to reduce costs to consumers and 
producers; and 
(iii) to increase supply liquidity. 
(B) 
REQUIRED
CONSIDERATIONS.—The 
recommendations under subparagraph (A) shall 
take into account the need to provide advance 
notice of required modifications to refinery and 
fuel distribution systems in order to ensure an 
adequate supply of motor vehicle fuel in all 
States. 
(3) CONSULTATION.—In developing the report, 
the Administrator of the Environmental Protection 
Agency and the Secretary of Energy shall consult 
with—
(A) the Governors of the States; 
(B) automobile manufacturers; 
(C) motor vehicle fuel producers and dis-
tributors; and 
(D) the public.
429
SEC. 708. REPORT ON RENEWABLE MOTOR FUEL. 
Not later than January 1, 2007, the Secretary of En-
ergy and the Secretary of Agriculture shall jointly prepare 
and submit to Congress a report containing recommenda-
tions for achieving, by January 1, 2025, at least 25 per-
cent renewable fuel content (calculated on an average an-
nual basis) for all gasoline sold or introduced into com-
merce in the United States. 
Subtitle B—Renewable Portfolio 
Standard 
SEC. 711. RENEWABLE PORTFOLIO STANDARD. 
(a) IN GENERAL.—Title VI of the Public Utility Reg-
ulatory Policies Act of 1978 is amended by adding at the 
end the following: 
‘‘SEC. 609. FEDERAL RENEWABLE PORTFOLIO STANDARD. 
‘‘(a) MINIMUM RENEWABLE GENERATION REQUIRE-
MENT.—For each calendar year beginning in calendar 
year 2007, each retail electric supplier shall submit to the 
Secretary, not later than April 1 of the following calendar 
year, renewable energy credits in an amount equal to the 
required annual percentage specified in subsection (b). 
‘‘(b) REQUIRED ANNUAL PERCENTAGE.—(1) For 
calendar years 2007 through 2022, the required annual 
percentage of the retail electric supplier’s base amount 
that shall be generated from renewable energy resources 
shall be the percentage specified in the following table:
430
‘‘Calendar years
Required annual 
percentage 
2007 through 2008 ................................................
1.0
2009 through 2010 ................................................
2.2
2011 through 2012 ................................................
3.4
2013 through 2014 ................................................
4.6
2015 through 2016 ................................................
5.8
2017 through 2018 ................................................
7.0
2019 through 2020 ................................................
8.5
2021 through 2022 ................................................
10.0
‘‘(2) Not later than January 1, 2017, the Secretary 
may, by rule, establish required annual percentages in 
amounts not less than 10.0 for calendar years 2022 
through 2030. 
‘‘(c) SUBMISSION OF CREDITS.—(1) A retail electric 
supplier may satisfy the requirements of subsection (a) 
through the submission of renewable energy credits—
‘‘(A) issued to the retail electric supplier under 
subsection (d); 
‘‘(B) obtained by purchase or exchange under 
subsection (e); or 
‘‘(C) borrowed under subsection (f). 
‘‘(2) A credit may be counted toward compliance with 
subsection (a) only once. 
‘‘(d) ISSUANCE
OF CREDITS.—(1) The Secretary 
shall establish, not later than 1 year after the date of en-
actment of this section, a program to issue, monitor the 
sale or exchange of, and track renewable energy credits.
431
‘‘(2) Under the program, an entity that generates 
electric energy through the use of a renewable energy re-
source may apply to the Secretary for the issuance of re-
newable energy credits. The application shall indicate—
‘‘(A) the type of renewable energy resource used 
to produce the electricity, 
‘‘(B) the location where the electric energy was 
produced, and 
‘‘(C) any other information the Secretary deter-
mines appropriate. 
‘‘(3)(A) Except as provided in paragraphs (B), (C), 
and (D), the Secretary shall issue to an entity one renew-
able energy credit for each kilowatt-hour of electric energy 
the entity generates after the date of enactment of this 
section and in each subsequent calendar year through the 
use of a renewable energy resource at an eligible facility. 
‘‘(B) For incremental hydropower, the credits shall 
be calculated based on the expected increase in average 
annual generation resulting from the efficiency improve-
ments or capacity additions. The number of credits shall 
be calculated using the same water flow information used 
to determine a historic average annual generation baseline 
for the hydroelectric facility and certified by the Secretary 
or the Federal Energy Regulatory Commission. The cal-
culation of the credits for incremental hydropower shall
432
not be based on any operational changes at the hydro-
electric facility not directly associated with the efficiency 
improvements or capacity additions. 
‘‘(C) The Secretary shall issue two renewable energy 
credits for each kilowatt-hour of electric energy generated 
and supplied to the grid in that calendar year through the 
use of a renewable energy resource at an eligible facility 
located on Indian land. For purposes of this paragraph, 
renewable energy generated by biomass cofired with other 
fuels is eligible for two credits only if the biomass was 
grown on the land eligible under this paragraph. 
‘‘(D) For renewable energy resources produced from 
a generation offset, the Secretary shall issue two renew-
able energy credits for each kilowatt-hour generated. 
‘‘(E) To be eligible for a renewable energy credit, the 
unit of electric energy generated through the use of a re-
newable energy resource may be sold or may be used by 
the generator. If both a renewable energy resource and 
a nonrenewable energy resource are used to generate the 
electric energy, the Secretary shall issue credits based on 
the proportion of the renewable energy resource used. The 
Secretary shall identify renewable energy credits by type 
and date of generation. 
‘‘(5) When a generator sells electric energy generated 
through the use of a renewable energy resource to a retail
433
electric supplier under a contract subject to section 210 
of this Act, the retail electric supplier is treated as the 
generator of the electric energy for the purposes of this 
section for the duration of the contract. 
‘‘(6) The Secretary may issue credits for existing fa-
cility offsets to be applied against a retail electric sup-
plier’s own required annual percentage. The credits are 
not tradeable and may only be used in the calendar year 
generation actually occurs. 
‘‘(e) CREDIT TRADING.—A renewable energy credit 
may be sold or exchanged by the entity to whom issued 
or by any other entity who acquires the credit. A renew-
able energy credit for any year that is not used to satisfy 
the minimum renewable generation requirement of sub-
section (a) for that year may be carried forward for use 
within the next 4 years. 
‘‘(f) CREDIT BORROWING.—At any time before the 
end of calendar year 2007, a retail electric supplier that 
has reason to believe it will not have sufficient renewable 
energy credits to comply with subsection (a) may—
‘‘(1) submit a plan to the Secretary dem-
onstrating that the retail electric supplier will earn 
sufficient credits within the next 3 calendar years 
which, when taken into account, will enable the re-
tail electric supplier’s to meet the requirements of
434
subsection (a) for calendar year 2007 and the subse-
quent calendar years involved; and 
‘‘(2) upon the approval of the plan by the Sec-
retary, apply credits that the plan demonstrates will 
be earned within the next 3 calendar years to meet 
the requirements of subsection (a) for each calendar 
year involved. 
‘‘(g) CREDIT COST CAP.—The Secretary shall offer 
renewable energy credits for sale at the lesser of 3 cents 
per kilowatt-hour or 200 percent of the average market 
value of credits for the applicable compliance period. On 
January 1 of each year following calendar year 2007, the 
Secretary shall adjust for inflation the price charged per 
credit for such calendar year, based on the Gross Domestic 
Product Implicit Price Deflator. Amounts received by the 
Secretary under this subsection are authorized to be ap-
propriated for purposes of section 610. 
‘‘(h) ENFORCEMENT.—The Secretary may bring an 
action in the appropriate United States district court to 
impose a civil penalty on a retail electric supplier that does 
not comply with subsection (a), unless the retail electric 
supplier was unable to comply with subsection (a) for rea-
sons outside of the supplier’s reasonable control (including 
weather-related damage, mechanical failure, lack of trans-
mission capacity or availability, strikes, lockouts, actions
435
of a governmental authority). A retail electric supplier who 
does not submit the required number of renewable energy 
credits under subsection (a) shall be subject to a civil pen-
alty of not more than the greater of 3 cents or 200 percent 
of the average market value of credits for the compliance 
period for each renewable energy credit not submitted. 
‘‘(i) INFORMATION
COLLECTION.—The Secretary 
may collect the information necessary to verify and 
audit—
‘‘(1) the annual electric energy generation and 
renewable energy generation of any entity applying 
for renewable energy credits under this section, 
‘‘(2) the validity of renewable energy credits 
submitted by a retail electric supplier to the Sec-
retary, and 
‘‘(3) the quantity of electricity sales of all retail 
electric suppliers. 
‘‘(j) ENVIRONMENTAL
SAVINGS
CLAUSE.—Incre-
mental hydropower shall be subject to all applicable envi-
ronmental laws and licensing and regulatory requirements. 
‘‘(k) STATE SAVINGS CLAUSE.—This section does not 
preclude a State from requiring additional renewable en-
ergy generation in that State, or from specifying tech-
nology mix. 
‘‘(l) DEFINITIONS.—For purposes of this section:
436
‘‘(1) BIOMASS.—The term ‘biomass’ means any 
organic material that is available on a renewable or 
recurring basis, including dedicated energy crops, 
trees grown for energy production, wood waste and 
wood residues, plants (including aquatic plants, 
grasses, and agricultural crops), residues, fibers, 
animal wastes and other organic waste materials, 
and fats and oils, except that with respect to mate-
rial removed from National Forest System lands the 
term includes only organic material from—
‘‘(A) thinnings from trees that are less 
than 12 inches in diameter; 
‘‘(B) slash; 
‘‘(C) brush; and 
‘‘(D) mill residues. 
‘‘(2) ELIGIBLE
FACILITY.—The term ‘eligible 
facility’ means—
‘‘(A) a facility for the generation of electric 
energy from a renewable energy resource that is 
placed in service on or after the date of enact-
ment of this section; or 
‘‘(B) a repowering or cofiring increment 
that is placed in service on or after the date of 
enactment of this section at a facility for the 
generation of electric energy from a renewable
437
energy resource that was placed in service be-
fore that date. 
‘‘(3) 
ELIGIBLE
RENEWABLE
ENERGY
RE-
SOURCE.—The term ‘renewable energy resource’ 
means solar, wind, ocean, or geothermal energy, bio-
mass (excluding solid waste and paper that is com-
monly recycled), landfill gas, a generation offset, or 
incremental hydropower. 
‘‘(4) GENERATION OFFSET.—The term ‘genera-
tion offset’ means reduced electricity usage metered 
at a site where a customer consumes energy from a 
renewable energy technology. 
‘‘(5) EXISTING FACILITY OFFSET.—The term 
‘existing facility offset’ means renewable energy gen-
erated from an existing facility, not classified as an 
eligible facility, that is owned or under contract to 
a retail electric supplier on the date of enactment of 
this section. 
‘‘(6) INCREMENTAL HYDROPOWER.—The term 
‘incremental hydropower’ means additional genera-
tion that is achieved from increased efficiency or ad-
ditions of capacity after the date of enactment of 
this section at a hydroelectric dam that was placed 
in service before that date.
438
‘‘(7) INDIAN
LAND.—The term ‘Indian land’ 
means—
‘‘(A) any land within the limits of any In-
dian reservation, pueblo, or rancheria, 
‘‘(B) any land not within the limits of any 
Indian reservation, pueblo, or rancheria title to 
which was on the date of enactment of this 
paragraph either held by the United States for 
the benefit of any Indian tribe or individual or 
held by any Indian tribe or individual subject to 
restriction by the United States against alien-
ation, 
‘‘(C) any dependent Indian community, 
and 
‘‘(D) any land conveyed to any Alaska Na-
tive corporation under the Alaska Native 
Claims Settlement Act. 
‘‘(8) INDIAN TRIBE.—The term ‘Indian tribe’ 
means any Indian tribe, band, nation, or other orga-
nized group or community, including any Alaskan 
Native village or regional or village corporation as 
defined in or established pursuant to the Alaska Na-
tive Claims Settlement Act (43 U.S.C. 1601 et seq.), 
which is recognized as eligible for the special pro-
439
grams and services provided by the United States to 
Indians because of their status as Indians. 
‘‘(9) RENEWABLE ENERGY.—The term ‘renew-
able energy’ means electric energy generated by a re-
newable energy resource. 
‘‘(10) RENEWABLE
ENERGY
RESOURCE.—The 
term ‘renewable energy resource’ means solar, wind, 
ocean, or geothermal energy, biomass (including mu-
nicipal solid waste), landfill gas, a generation offset, 
or incremental hydropower. 
‘‘(11) 
REPOWERING
OR
COFIRING
INCRE-
MENT.—The term ‘repowering or cofiring increment’ 
means the additional generation from a modification 
that is placed in service on or after the date of en-
actment of this section to expand electricity produc-
tion at a facility used to generate electric energy 
from a renewable energy resource or to cofire bio-
mass that was placed in service before the date of 
enactment of this section, or the additional genera-
tion above the average generation in the 3 years pre-
ceding the date of enactment of this section, to ex-
pand electricity production at a facility used to gen-
erate electric energy from a renewable energy re-
source or to cofire biomass that was placed in serv-
ice before the date of enactment of this section.
440
‘‘(12) RETAIL ELECTRIC SUPPLIER.—The term 
‘retail electric supplier’ means a person that sells 
electric energy to electric consumers and sold not 
less than 1,000,000 megawatt-hours of electric en-
ergy to electric consumers for purposes other than 
resale during the preceding calendar year; except 
that such term does not include the United States, 
a State or any political subdivision of a State, or any 
agency, authority, or instrumentality of any one or 
more of the foregoing, or a rural electric cooperative. 
‘‘(13) RETAIL
ELECTRIC
SUPPLIER’S
BASE 
AMOUNT.—The term ‘retail electric supplier’s base 
amount’ means the total amount of electric energy 
sold by the retail electric supplier to electric cus-
tomers during the most recent calendar year for 
which information is available, excluding electric en-
ergy generated by—
‘‘(A) an eligible renewable energy resource; 
‘‘(B) municipal solid waste; or 
‘‘(C) a hydroelectric facility. 
‘‘(m) SUNSET.—This section expires December 31, 
2030. 
‘‘SEC. 610. STATE GRANT PROGRAM. 
‘‘(a) IN GENERAL.—The Secretary is authorized to 
distribute, subject to available appropriations, amounts re-
441 
ceived from sales under subsection (g) of section 609 to 
States to be used for the purposes of the program estab-
lished under subsection (b) of this section. 
‘‘(b) GRANT PROGRAM.— 
‘‘(1) IN GENERAL.—Not later than 1 year after 
the date of enactment of this Act, the Secretary 
shall establish a program to promote State renew-
able energy production and use. 
‘‘(2) USE OF FUND.—The Secretary shall make 
funds available under this section to State energy 
agencies for grant programs for the construction of 
renewable energy facilities. 
‘‘(c) PREFERENCE.—In allocating funds under the 
program, the Secretary shall give preference to the fol-
lowing: 
‘‘(1) States that have a disproportionately small 
share of economically sustainable renewable energy 
generation capacity. 
‘‘(2) State grant programs that are most likely 
to stimulate or enhance innovative renewable energy 
technologies.’’. 
(b) TABLE OF CONTENTS.—The table of contents for 
such title VI is amended by adding the following new items 
at the end thereof: 
‘‘Sec. 609. Federal renewable portfolio standard. 
‘‘Sec. 610. State grant program.’’.
442
Subtitle C—Oil Savings 
SEC. 721. OIL SAVINGS. 
(a) IN GENERAL.—Appropriate Federal departments 
and agencies, as identified by the President, shall propose 
voluntary, regulatory, and other actions sufficient to 
achieve—
(1) by 2010 a reduction in the demand for oil 
in the United States by at least 600,000 barrels per 
day from the demand projected, as of January 1, 
2005, by the Energy Information Administration for 
the year 2010; 
(2) by 2015 a reduction in the demand for oil 
in the United States by at least 1,700,000 barrels 
per day from the demand projected, as of January 
1, 2005, by the Energy Information Administration 
for the year 2015; and 
(3) by 2020 a reduction in the demand for oil 
in the United States by at least 3,000,000 barrels 
per day from the demand projected, as of January 
1, 2005, by the Energy Information Administration 
for the year 2020. 
(b) MONITORING AND REPORTS TO CONGRESS.—Not 
later than 12 months after the date of the enactment of 
this Act, and each year thereafter, the departments and
443
agencies referred to in subsection (a) shall report to the 
Congress on—
(1) proposed and finalized regulatory and other 
actions taken to achieve the requirements under sub-
section (a); 
(2) progress made in achieving the actions re-
quired under subsection (a); and 
(3) lack of funding or authority preventing the 
implementation of the actions required under sub-
section (a). 
(c) REQUEST TO CONGRESS.—If the President deter-
mines that the departments and agencies referred to in 
subsection (a) lack authority or funding to implement the 
actions proposed under subsection (a), the President shall 
request the necessary authority or funding from the Con-
gress not later than 9 months after the date of enactment 
of this Act. 
(d) FINAL ACTIONS.—Not later than 12 months after 
the date of the enactment of this Act, the departments 
and agencies referred to in subsection (a) shall finalize the 
actions proposed pursuant to subsection (a) for which they 
have authority and funding.
444
SEC. 722. DETERMINATION OF EQUIVALENCY BETWEEN 
CAFE CREDITS AND GREENHOUSE GAS CRED-
ITS. 
The Secretary of Transportation, the Administrator 
of the Environmental Protection Agency, and the Sec-
retary of Commerce shall jointly conduct and submit to 
the Congress within 2 years of the date of the enactment 
of this section a study—
(1) showing a methodology for determining the 
equivalency of credits earned under Section 32903 of 
title 49, United States Code, and tradeable allow-
ances under title VI of the New Apollo Energy Act 
of 2005; and 
(2) recommending an appeals process for re-
solving any dispute that may arise out of such a de-
termination, which may incorporate an arbitration 
option. 
SEC. 723. ELIMINATION OF 2–FLEET RULE. 
(a) IN GENERAL.—Section 32904 of title 49, United 
States Code, is amended—
(1) by striking subsection (b); and 
(2) by redesignating subsections (c) through (e) 
as subsections (b) through (d), respectively. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to model years 2010 and later.
445
Subtitle D—Loan Guarantees for 
Biorefineries 
and 
Renewable 
Electricity Generation Facilities 
SEC. 731. LOAN GUARANTEES FOR BIOREFINERIES AND RE-
NEWABLE ENERGY PRODUCTION FACILITIES. 
(a) AUTHORITY.—The Secretary of Energy may 
guarantee not more than 80 percent of the principal of 
any loan made to any person or other entity for any of 
the following: 
(1) The construction of any new facility that 
primarily makes cellulosic biomass ethanol or bio-
methanol or generates electricity, or any combina-
tion thereof, from wind energy, biomass, solar en-
ergy, ocean energy or geothermal sources. 
(2) The modification of any facility that pri-
marily generates electricity from wind energy, bio-
mass, solar energy, ocean energy, or geothermal 
sources if such modification adds additional electric 
generation capacity from any of such sources. 
(3) The modification of any facility that pri-
marily makes cellulosic biomass ethanol, biometh-
anol, or electricity from wind energy, biomass, solar 
energy, ocean energy or geothermal sources if such 
modification adds additional capacity to make cel-
446
lulosic biomass ethanol or biomethanol from any 
such source or combination of sources. 
(4) The conversion of any facility that primarily 
makes ethanol to a facility that primarily makes cel-
lulosic biomass ethanol. 
(5) The construction of any new ninety percent 
sequestration coal power facility. 
(b) CONDITIONS.—
(1) LOAN MAKER.—A loan guaranteed under 
this section shall be made by a financial institution 
subject to the examination of the Secretary. 
(2) ENVIRONMENTAL LAWS.—Any project for 
which a loan guarantee is issued under this section 
shall be required by the Secretary as a condition of 
the loan guarantee to comply with all applicable 
Federal, State, and local environmental laws. 
(3) OTHER
REQUIREMENTS.—Loan require-
ments, including term, fees, maximum size, collateral 
requirements, and other features, shall be deter-
mined by the Secretary. 
(c) LIMITATION ON AMOUNT.—The Secretary of En-
ergy may make commitments to guarantee loans under 
this section only to the extent that the total amount of 
loan principal guaranteed by the Secretary does not exceed
447
$49,000,000,000. Of such total amount, the Secretary 
may make commitments to guarantee—
(1) not more than $7,000,000,000 of loan prin-
cipal for each of the following project types—
(A) biomass facilities; 
(B) geothemal energy facilities; 
(C) ninety percent sequestration coal 
power facilities; 
(D) ocean energy facilities; and 
(E) solar energy facilities; 
(2) not more than $7,000,000,000 of loan prin-
cipal for cellulosic biomass ethanol; 
(3) not more than $2,000,000,000 of loan prin-
cipal for biomethanol facilities; and 
(4) not more than $5,000,000,000 of loan prin-
cipal for wind energy facilities. 
(d) COORDINATION WITH OTHER BENEFITS.—The 
Secretary shall not guarantee under this section any loan 
made to any person if such person has received assistance 
under section 212 or 642. 
(e) REGULATIONS.—The Secretary of Energy may 
issue regulations to carry out the provisions of this sec-
tion. 
(f) DEFINITIONS.—As used in this section:
448
(1) The term ‘‘agricultural livestock’’ includes 
bovine, swine, poultry, and sheep. 
(2) The term ‘‘agricultural livestock waste nu-
trients’’ means agricultural livestock manure and lit-
ter, including wood shavings, straw, rice hulls, and 
other bedding material for the disposition of ma-
nure. 
(3) The term ‘‘biomass facility’’ means a facil-
ity that generates electricity from closed-loop bio-
mass, open-loop biomass, or both. 
(4) The term ‘‘biomethanol facility’’ means a 
facility that generates methanol from biomass, ani-
mal waste, or municipal solid waste. 
(5) The term ‘‘cellulosic biomass ethanol’’ 
means ethanol derived from any nonhazardous 
lignocellulosic or hemicellulosic matter that is avail-
able on a renewable or recurring basis, including—
(A) dedicated energy crops and trees; 
(B) the following forest-related resources—
(i) harvesting residue; 
(ii) pre-commercial thinnings; 
(iii) slash; and 
(iv) bush; 
(C) plants; 
(D) grasses
449
(E) agricultural residues 
(F) fibers; 
(G) animal wastes and other waste mate-
rials; and 
(H) municipal solid waste. 
(6) The term ‘‘cellulosic biomass ethanol facil-
ity’’ means a facility that produces cellulosic biomass 
ethanol. 
(7) The term ‘‘closed-loop biomass’’ means any 
organic material from a plant which is planted exclu-
sively for purposes of being used at a biomass facil-
ity to produce electricity.’’ 
(8) The term ‘‘geothermal energy facility’’ 
means a facility that generates electricity from geo-
thermal energy. 
(9) The term ‘‘ninety percent sequestration coal 
power facility’’ means a facility that generates elec-
tricity using coal as a fuel source and sequesters, 
rather than releases to the atmosphere, at least 90 
percent of the carbon dioxide emissions resulting 
from such coal combustion. 
(10) The term ‘‘ocean energy facility’’ means a 
facility that generates electricity from ocean tidal, 
wave, current or thermal processes.
450
(11) The term ‘‘open-loop biomass’’ means any 
agricultural livestock waste nutrients, or any solid, 
nonhazardous, cellulosic waste material which is seg-
regated from other waste materials and which is de-
rived from: 
(A) any of the following forest-related re-
sources: 
mill 
and 
harvesting 
residues, 
precommercial thinnings, slash, and brush, but 
not including old-growth timber or black liquor, 
(B) old wood waste materials, including 
waste pallets, crates, dunnage, manufacturing 
and construction wood wastes (other than pres-
sure-treated, 
chemically-treated, 
or 
painted 
wood wastes), and landscape or right-of-way 
tree trimmings, but not including unsegregated 
municipal 
solid 
waste 
(garbage) 
or 
postconsumer wastepaper which can be recycled 
affordably, or 
(C) agriculture sources, including orchard 
tree crops, vineyard, grain, legumes, sugar, and 
other crop by-products or residues. 
Such term shall not include closed-loop biomass or 
biomass burned in conjunction with fossil fuel (co-
firing) beyond such fossil fuel required for startup 
and flame stabilization.
451
(12) The term ‘‘sequestration’’ means the cap-
ture, long-term separation, isolation, or removal of 
greenhouse gases from the atmosphere. 
(13) The term ‘‘solar energy facility’’ means a 
facility that generates electricity from solar energy 
with a capacity of 25 kilowatts or more. 
(14) The term ‘‘wind energy facility’’ means a 
facility that generates electricity from from wind en-
ergy. 
(g) AUTHORIZATION
OF APPROPRIATIONS.—There 
are authorized to be appropriated to the Secretary of En-
ergy such sums as may be necessary to cover the cost of 
loan guarantees, as defined by section 502(5) of the Fed-
eral Credit Reform Act of 1990 (2 U.S.C. 661a(5)). 
TITLE VIII—TAX OFFSETS 
SEC. 801. REFERENCES. 
(a) SHORT TITLE.—This title may be cited as the 
‘‘Balanced Energy Supply Tax Policy Act of 2005’’ . 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this title an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
452
Subtitle A—Budget Neutrality 
SEC. 811. TAX REDUCTIONS LIMITED TO REVENUE RAISED 
BY TAX OFFSETS. 
(a) IN GENERAL.—The aggregate tax benefits pro-
vided by this Act, and any amendment made by this Act, 
shall not exceed the revenue raised by this Act, and any 
amendment made by this Act. 
(b) ADJUSTMENT OF TAX BENEFITS.—If the Sec-
retary of the Treasury determines for any year that the 
tax benefits provided by this Act, and any amendment 
made by this Act, exceed the revenue raised by this Act, 
and any amendment made by this Act, the Secretary shall 
reduce such excess to zero by adjusting such benefits in 
the manner determined by the Secretary in his sole discre-
tion. 
(c) REPORT TO CONGRESS.—Not later than 1 year 
after the date of the enactment of this Act, and annually 
thereafter, the Secretary of the Treasury shall submit a 
report to Congress on the total budget authority granted 
by this Act, and the amendments made by this Act, to-
gether with such recommendations as the Secretary deter-
mines necessary or appropriate to either—
(1) reduce such authority, or 
(2) to increase receipts to the Treasury of the 
United States to pay for such authority.
453
Subtitle B—Denial of Treaty 
Benefits 
SEC. 821. DENIAL OF TREATY BENEFITS FOR CERTAIN DE-
DUCTIBLE PAYMENTS. 
(a) IN GENERAL.—Section 894 (relating to income 
affected by treaty) is amended by adding at the end the 
following new subsection: 
‘‘(d) DENIAL OF TREATY BENEFITS FOR CERTAIN 
DEDUCTIBLE PAYMENTS.—
‘‘(1) IN GENERAL.—A foreign entity shall not 
be entitled under any income tax treaty of the 
United States with a foreign country to any reduced 
rate of any withholding tax imposed by this title on 
any deductible foreign payment unless such entity is 
predominantly owned by individuals who are resi-
dents of such foreign country. 
‘‘(2) DEDUCTIBLE
FOREIGN
PAYMENT.—For 
purposes of paragraph (1), the term ‘deductible for-
eign payment’ means any payment—
‘‘(A) which is made by a domestic entity 
directly or indirectly to a related person which 
is a foreign entity, and 
‘‘(B) which is allowable as a deduction 
under this chapter.
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‘‘(3) DOMESTIC AND FOREIGN ENTITIES; RE-
LATED PERSON.—For purposes of this subsection—
‘‘(A) DOMESTIC ENTITY.—The term ‘do-
mestic entity’ means any domestic corporation 
or domestic partnership. 
‘‘(B) FOREIGN
ENTITY.—The term ‘for-
eign entity’ means any foreign corporation or 
foreign partnership. 
‘‘(C) RELATED
PERSON.—The term ‘re-
lated person’ has the meaning given such term 
by section 954(d)(3) (determined by sub-
stituting ‘domestic entity’ for ‘controlled foreign 
corporation’ each place it appears). 
‘‘(4) PREDOMINANT
OWNERSHIP.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—An entity is predomi-
nantly owned by individuals who are residents 
of a foreign country if—
‘‘(i) in the case of a corporation, more 
than 50 percent (by value) of the stock of 
such corporation is owned (within the 
meaning of section 883(c)(4)) by individ-
uals who are residents of such foreign 
country, or
455
‘‘(ii) in the case of a partnership, 
more than 50 percent (by value) of the 
beneficial interests in such partnership are 
so owned. 
‘‘(B) PUBLICLY TRADED CORPORATIONS.—
A foreign corporation also shall be treated as 
predominantly owned by individuals who are 
residents of a foreign country if—
‘‘(i)(I) the stock of such corporation is 
primarily and regularly traded on an estab-
lished securities market in such foreign 
country, and 
‘‘(II) such corporation has activities 
within such foreign country which are sub-
stantial in relation to the total activities of 
such corporation and its related persons, 
or 
‘‘(ii) such corporation is wholly owned 
(directly or indirectly) by another foreign 
corporation which is described in clause (i). 
‘‘(C) SPECIAL RULE.—
‘‘(i) IN GENERAL.—A foreign corpora-
tion shall be treated as meeting the re-
quirements of subparagraph (A) if—
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‘‘(I) such requirements would be 
met if ‘30 percent’ were substituted 
for ‘50 percent’ in subparagraph 
(A)(i), 
‘‘(II) the treaty country is a 
member of a multinational economic 
association such as the European 
Union, and 
‘‘(III) at least 50 percent of the 
value of the stock of the corporation is 
owned (within the meaning of section 
883(c)(4)) by individuals who are resi-
dents of the treaty country or other 
qualified foreign countries. 
‘‘(ii) 
QUALIFIED
FOREIGN
COUN-
TRY.—For purposes of this subparagraph, 
the term ‘qualified foreign country’ means 
any foreign country if—
‘‘(I) such foreign country is a 
member of the multinational economic 
association of which the treaty coun-
try is a member, and 
‘‘(II) such foreign country has a 
tax treaty with the United States pro-
viding a withholding tax rate reduc-
457
tion which is not less than the with-
holding tax rate reduction applicable 
(without regard to this subsection) to 
the payment received by such foreign 
corporation. 
‘‘(5) EXCEPTION
FOR
CORPORATIONS
WITH 
SUBSTANTIAL
BUSINESS
ACTIVITIES
IN
TREATY 
COUNTRY.—Paragraph (1) shall not apply to a pay-
ment received by a foreign corporation if such cor-
poration has substantial business activities in the 
treaty country and if such corporation establishes to 
the satisfaction of the Secretary that the payment is 
subject to an effective rate of income tax imposed by 
such country greater than 90 percent of the max-
imum rate of tax specified in section 11. 
‘‘(6) EXCEPTION FOR PAYMENTS RECEIVED BY 
CONTROLLED
FOREIGN
CORPORATION.—Paragraph 
(1) shall not apply to any deductible foreign pay-
ment made by a corporation if the recipient of the 
payment is a controlled foreign corporation and the 
payor is a United States shareholder (as defined in 
section 951(b)) of such corporation. 
‘‘(7) CONDUIT PAYMENTS.—Under regulations 
prescribed by the Secretary, paragraph (1) shall not
458
apply to a payment received by a foreign entity re-
ferred to in paragraph (1) if—
‘‘(A) within a reasonable period after such 
entity receives such payment, such entity makes 
a comparable payment directly or indirectly to 
another related person, 
‘‘(B) such related person is a resident of a 
foreign country with which the United States 
has an income tax treaty, 
‘‘(C) such related person is predominantly 
owned by individuals who are residents of such 
country, and 
‘‘(D) the withholding tax rate applicable 
under such treaty is equal to or greater than 
the withholding tax rate applicable (without re-
gard to this paragraph) to the payment received 
by such foreign entity. 
A similar rule shall apply where the payment is in-
cludible in the gross income of a related person by 
reason of a foreign law comparable to subpart F of 
part III of subchapter N.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act.
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Subtitle C—Abusive Tax Shelter 
Shutdown and Taxpayer Ac-
countability 
SEC. 831. FINDINGS AND PURPOSE. 
(a) FINDINGS.—The Congress hereby finds that: 
(1) Many corporate tax shelter transactions are 
complicated ways of accomplishing nothing aside 
from claimed tax benefits, and the legal opinions 
justifying those transactions take an inappropriately 
narrow and restrictive view of well-developed court 
doctrines under which—
(A) the taxation of a transaction is deter-
mined in accordance with its substance and not 
merely its form, 
(B) transactions which have no significant 
effect on the taxpayer’s economic or beneficial 
interests except for tax benefits are treated as 
sham transactions and disregarded, 
(C) transactions involving multiple steps 
are collapsed when those steps have no substan-
tial economic meaning and are merely designed 
to create tax benefits, 
(D) transactions with no business purpose 
are not given effect, and
460
(E) in the absence of a specific congres-
sional authorization, it is presumed that Con-
gress did not intend a transaction to result in 
a negative tax where the taxpayer’s economic 
position or rate of return is better after tax 
than before tax. 
(2) Permitting aggressive and abusive tax shel-
ters not only results in large revenue losses but also 
undermines voluntary compliance with the Internal 
Revenue Code of 1986. 
(b) PURPOSE.—The purpose of this subtitle is to 
eliminate abusive tax shelters by denying tax attributes 
claimed to arise from transactions that do not meet a 
heightened economic substance requirement and by repeal-
ing the provision that permits legal opinions to be used 
to avoid penalties on tax underpayments resulting from 
transactions without significant economic substance or 
business purpose. 
SEC. 832. CLARIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE. 
(a) IN GENERAL.—Section 7701 is amended by re-
designating subsection (o) as subsection (p) and by insert-
ing after subsection (n) the following new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE; ETC.—