‘‘(A) IN GENERAL.—In the case of a tax-
payer electing to expense qualified costs, in lieu 
of the dollar limitations in paragraph (1), the 
limitation on the aggregate costs which may be 
taken into account under subsection (a) for any 
taxable year shall not exceed 75 percent of the 
qualified costs. 
‘‘(B) QUALIFIED COSTS.—For purposes of 
this paragraph, the term ‘qualified costs’ 
means, with respect to any facility, those costs 
paid or incurred for purposes of—
‘‘(i) complying with the Highway Die-
sel Fuel Sulfur Control Requirements of 
the Environmental Protection Agency, as 
determined by the Administrator of the 
Environmental Protection Agency in con-
sultation with the Secretary; or 
‘‘(ii) meeting the standards for sulfur 
content specified in section 102(c)(1) of 
the Clean Diesel Act of 2003, as deter-
mined by the Administrator of the Envi-
ronmental Protection Agency in consulta-
tion with the Secretary. 
Such costs shall include expenditures for the 
construction of new process operation units or
the dismantling and reconstruction of existing 
process units to be used in the production of 
clean diesel fuel (as defined in section 101(2) of 
the Clean Diesel Fuel Act of 2003, associated 
adjacent or offsite equipment (including tank-
age, catalyst, and power supply), engineering, 
construction period interest, and sitework.’’. 
(b) DETERMINATION BY ADMINISTRATOR OF ENVI-
RONMENTAL PROTECTION AGENCY.—For purposes of 
paragraph (5) of section 179(b) of the Internal Revenue 
Code of 1986, as added by subsection (a), the Adminis-
trator of Environmental Protection Agency shall, by regu-
lation, identify those costs which are eligible for expensing 
under such section for purposes of complying with the 
Highway Diesel Fuel Sulfur Control Requirements of the 
Environmental Protection Agency and meeting the stand-
ards for sulfur content specified in section 102(c)(1) of 
this Act. 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to expenses paid or incurred after 
the date of the enactment of this Act. 
SEC. 205. CREDIT FOR PRODUCING LOW SULFUR CONTENT 
DIESEL FUEL. 
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to other credits) is amended by inserting 
after section 30C the following new section: 
‘‘SEC. 30D. CREDIT FOR PRODUCING CLEAN DIESEL FUEL. 
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to—
‘‘(1) $2.52, multiplied by 
‘‘(2) the barrel-of-oil equivalent of clean diesel 
fuel—
‘‘(A) sold by the taxpayer to an unrelated 
person during the taxable year; and 
‘‘(B) the production of which is attrib-
utable to the taxpayer. 
‘‘(b) LIMITATIONS AND ADJUSTMENTS.—
‘‘(1) CREDIT REDUCED FOR GRANTS, TAX-EX-
EMPT
BONDS, AND
SUBSIDIZED
ENERGY
FINANC-
ING.—
‘‘(A) IN
GENERAL.—The amount of the 
credit allowable under subsection (a) with re-
spect to any project for any taxable year shall 
be reduced by the amount which is the product 
of the amount so determined for such year and 
a fraction—
‘‘(i) the numerator of which is the 
sum, for the taxable year and all prior tax-
able years, of—
‘‘(I) grants provided by the 
United States, a State, or a political 
subdivision of a State for use in con-
nection with the project; 
‘‘(II) proceeds of any issue of 
State or local government obligations 
used to provide financing for the 
project the interest on which is ex-
empt from tax under section 103; and 
‘‘(III) the aggregate amount of 
subsidized energy financing (within 
the meaning of section 48(a)(4)(C)) 
provided 
in 
connection 
with 
the 
project; and 
‘‘(ii) the denominator of which is the 
aggregate amount of additions to the cap-
ital account for the project for the taxable 
year and all prior taxable years. 
‘‘(B) AMOUNTS DETERMINED AT CLOSE OF 
YEAR.—The amounts under subparagraph (A) 
for any taxable year shall be determined as of 
the close of the taxable year.
‘‘(2) CREDIT REDUCED FOR ENHANCED OIL RE-
COVERY CREDIT.—The amount allowable as a credit 
under subsection (a) with respect to any project for 
any taxable year (determined after application of 
paragraphs (1) and (2)) shall be reduced by the ex-
cess (if any) of—
‘‘(A) the aggregate amount allowed under 
section 38 for the taxable year and any prior 
taxable year by reason of any enhanced oil re-
covery credit determined under section 43 with 
respect to such project, over 
‘‘(B) the aggregate amount recaptured 
with respect to the amount described in sub-
paragraph (A) under this paragraph for any 
prior taxable year. 
‘‘(3) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed by subsection (a) for any taxable 
year shall not exceed the excess (if any) of—
‘‘(A) the regular tax for the taxable year 
reduced by the sum of the credits allowable 
under subpart A and this subpart (other than 
this section), over 
‘‘(B) the tentative minimum tax for the 
taxable year.