[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1979 Placed on Calendar Senate (PCS)]






                                                       Calendar No. 320
107th CONGRESS
  2d Session
                                S. 1979

                          [Report No. 107-140]

                   To provide energy tax incentives.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 1, 2002

   Mr. Baucus, from the Committee on Finance, reported the following 
     original bill; which was read twice and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
                   To provide energy tax incentives.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Energy Tax 
Incentives Act of 2002''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment 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 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.
TITLE I--EXTENSION AND MODIFICATION OF RENEWABLE ELECTRICITY PRODUCTION 
                               TAX CREDIT

Sec. 101. 5-year extension of credit for producing electricity from 
                            wind and poultry waste.
Sec. 102. Credit for electricity produced from biomass.
Sec. 103. Credit for electricity produced from swine and bovine waste 
                            nutrients, geothermal energy, and solar 
                            energy.
Sec. 104. Treatment of persons not able to use entire credit.
          TITLE II--ALTERNATIVE VEHICLES AND FUELS INCENTIVES

Sec. 201. Alternative motor vehicle credit.
Sec. 202. Modification of credit for qualified electric vehicles.
Sec. 203. Extension of deduction for certain refueling property.
Sec. 204. Credit for installation of alternative fueling stations.
Sec. 205. Credit for retail sale of alternative fuels as motor vehicle 
                            fuel.
Sec. 206. Small ethanol producer credit.
Sec. 207. All alcohol fuels taxes transferred to Highway Trust Fund.
Sec. 208. Increased flexibility in alcohol fuels tax credit.
Sec. 209. Incentives for biodiesel.
        TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

Sec. 301. Credit for construction of new energy efficient home.
Sec. 302. Credit for energy efficient appliances.
Sec. 303. Credit for residential energy efficient property.
Sec. 304. Credit for business installation of qualified fuel cells.
Sec. 305. Energy efficient commercial buildings deduction.
Sec. 306. Allowance of deduction for qualified new or retrofitted 
                            energy management devices.
Sec. 307. Three-year applicable recovery period for depreciation of 
                            qualified energy management devices.
Sec. 308. Energy credit for combined heat and power system property.
Sec. 309. Credit for energy efficiency improvements to existing homes.
                    TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements 
        in Existing Coal-based Electricity Generation Facilities

Sec. 401. Credit for production from a qualifying clean coal technology 
                            unit.
 Subtitle B--Incentives for Early Commercial Applications of Advanced 
                        Clean Coal Technologies

Sec. 411. Credit for investment in qualifying advanced clean coal 
                            technology.
Sec. 412. Credit for production from a qualifying advanced clean coal 
                            technology unit.
     Subtitle C--Treatment of Persons Not Able To Use Entire Credit

Sec. 421. Treatment of persons not able to use entire credit.
                    TITLE V--OIL AND GAS PROVISIONS

Sec. 501. Oil and gas from marginal wells.
Sec. 502. Natural gas gathering lines treated as 7-year property.
Sec. 503. Repeal of requirement of certain approved terminals to offer 
                            dyed diesel fuel and kerosene for 
                            nontaxable purposes.
Sec. 504. Expensing of capital costs incurred in complying with 
                            environmental protection agency sulfur 
                            regulations.
Sec. 505. Environmental tax credit.
Sec. 506. Determination of small refiner exception to oil depletion 
                            deduction.
Sec. 507. Marginal production income limit extension.
Sec. 508. Amortization of geological and geophysical expenditures.
Sec. 509. Amortization of delay rental payments.
Sec. 510. Study of coal bed methane.
Sec. 511. Extension and modification of credit for producing fuel from 
                            a nonconventional source.
Sec. 512. Natural gas distribution lines treated as 15-year property.
          TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

Sec. 601. Ongoing study and reports regarding tax issues resulting from 
                            future restructuring decisions.
Sec. 602. Modifications to special rules for nuclear decommissioning 
                            costs.
Sec. 603. Treatment of certain income of cooperatives.
                    TITLE VII--ADDITIONAL PROVISIONS

Sec. 701. Extension of accelerated depreciation and wage credit 
                            benefits on Indian reservations.
Sec. 702. Study of effectiveness of certain provisions by GAO.

TITLE I--EXTENSION AND MODIFICATION OF RENEWABLE ELECTRICITY PRODUCTION 
                               TAX CREDIT

SEC. 101. 5-YEAR EXTENSION OF CREDIT FOR PRODUCING ELECTRICITY FROM 
              WIND AND POULTRY WASTE.

    (a) In General.--Subparagraphs (A) and (C) of section 45(c)(3) 
(relating to qualified facility) are each amended by striking ``January 
1, 2002'' and inserting ``January 1, 2007''.
    (b) Effective Date.--The amendments made by this section shall 
apply to electricity sold after the date of the enactment of this Act, 
in taxable years ending after such date.

SEC. 102. CREDIT FOR ELECTRICITY PRODUCED FROM BIOMASS.

    (a) Extension and Modification of Placed-In-Service Rules.--
Paragraph (3) of section 45(c) is amended--
            (1) by striking subparagraph (B) and inserting the 
        following new subparagraph:
                    ``(B) Closed-loop biomass facility.--
                            ``(i) In general.--In the case of a 
                        facility using closed-loop biomass to produce 
                        electricity, the term `qualified facility' 
                        means any facility--
                                    ``(I) owned by the taxpayer which 
                                is originally placed in service after 
                                December 31, 1992, and before January 
                                1, 2007, or
                                    ``(II) owned by the taxpayer which 
                                is originally placed in service before 
                                January 1, 1993, and modified to use 
                                closed-loop biomass to co-fire with 
                                coal before January 1, 2007.
                            ``(ii) Special rules.--In the case of a 
                        qualified facility described in clause 
                        (i)(II)--
                                    ``(I) the 10-year period referred 
                                to in subsection (a) shall be treated 
                                as beginning no earlier than the date 
                                of the enactment of this subclause, and
                                    ``(II) the owner of such facility 
                                may transfer the credit allowable under 
                                subsection (a) to the lessee operator 
                                of such facility subject to the 
                                regulations prescribed under subsection 
                                (d)(6)((B)(ii).'', and
            (2) by adding at the end the following new subparagraph:
                    ``(D) Biomass facility.--
                            ``(i) In general.--In the case of a 
                        facility using biomass (other than closed-loop 
                        biomass) to produce electricity, the term 
                        `qualified facility' means any facility owned 
                        by the taxpayer which is originally placed in 
                        service before January 1, 2005.
                            ``(ii) Special rule for posteffective date 
                        facilities.--In the case of any facility 
                        described in clause (i) which is placed in 
                        service after the date of the enactment of this 
                        clause, the 3-year period beginning on the date 
                        the facility is originally placed in service 
                        shall be substituted for the 10-year period in 
                        subsection (a)(2)(A)(ii).
                            ``(iii) Special rules for preeffective date 
                        facilities.--In the case of any facility 
                        described in clause (i) which is placed in 
                        service before the date of the enactment of 
                        this clause--
                                    ``(I) subsection (a)(1) shall be 
                                applied by substituting `1.0 cents' for 
                                `1.5 cents', and
                                    ``(II) the 3-year period beginning 
                                after December 31, 2002, shall be 
                                substituted for the 10-year period in 
                                subsection (a)(2)(A)(ii).
                            ``(iv) Credit eligibility.--In the case of 
                        any facility described in clause (i), the owner 
                        of such facility may transfer the credit 
                        allowable under subsection (a) to the lessee 
                        operator of such facility subject to the 
                        regulations prescribed under subsection 
                        (d)(6)((B)(ii).''.
    (b) Definition of Biomass.--
            (1) In general.--Section 45(c)(1) (defining qualified 
        energy resources) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (B),
                    (B) by striking the period at the end of 
                subparagraph (C) and inserting ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) biomass (other than closed-loop biomass).''.
            (2) Biomass defined.--Section 45(c) (relating to 
        definitions) is amended by adding at the end the following new 
        paragraph:
            ``(5) Biomass.--The term `biomass' means any solid, 
        nonhazardous, cellulosic waste material which is segregated 
        from other waste materials and which is derived from--
                    ``(A) any of the following forest-related 
                resources: mill residues, precommercial thinnings, 
                slash, and brush, but not including old-growth timber 
                (other than old-growth timber which has been permitted 
                or contracted for removal by any appropriate Federal 
                authority through the National Environmental Policy Act 
                or by any appropriate State authority),
                    ``(B) solid wood waste materials, including waste 
                pallets, crates, dunnage, manufacturing and 
                construction wood wastes (other than pressure-treated, 
                chemically-treated, or painted wood wastes), and 
                landscape or right-of-way tree trimmings, but not 
                including municipal solid waste (garbage), gas derived 
                from the biodegradation of solid waste, or paper that 
                is commonly recycled, or
                    ``(C) agriculture sources, including orchard tree 
                crops, vineyard, grain, legumes, sugar, and other crop 
                by-products or residues.''.
    (c) Coordination With Section 29.--Section 45(c) (relating to 
definitions) is amended by adding at the end the following new 
paragraph:
            ``(6) Coordination with section 29.--The term `qualified 
        facility' shall not include any facility the production from 
        which is taken into account in determining any credit under 
        section 29 for the taxable year or any prior taxable year.''.
    (d) Clerical Amendments.--
            (1) The heading for subsection (c) of section 45 is amended 
        by inserting ``and Special Rules'' after ``Definitions''.
            (2) The heading for subsection (d) of section 45 is amended 
        by inserting ``Additional'' before ``Definitions''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to electricity sold 
        after the date of the enactment of this Act.
            (2) Certain biomass facilities.--With respect to any 
        facility described in section 45(c)(3)(D)(i) of the Internal 
        Revenue Code of 1986, as added by this section, which is placed 
        in service before the date of the enactment of this Act, the 
        amendments made by this section shall apply to electricity sold 
        after December 31, 2002.

SEC. 103. CREDIT FOR ELECTRICITY PRODUCED FROM SWINE AND BOVINE WASTE 
              NUTRIENTS, GEOTHERMAL ENERGY, AND SOLAR ENERGY.

    (a) Expansion of Qualified Energy Resources.--
            (1) In general.--Section 45(c)(1) (defining qualified 
        energy resources), as amended by this Act, is amended by 
        striking ``and'' at the end of subparagraph (C), by striking 
        the period at the end of subparagraph (D) and inserting a 
        comma, and by adding at the end the following new 
        subparagraphs:
                    ``(E) swine and bovine waste nutrients,
                    ``(F) geothermal energy, and
                    ``(G) solar energy.''.
            (2) Definitions.--Section 45(c) (relating to definitions 
        and special rules), as amended by this Act, is amended by 
        redesignating paragraph (6) as paragraph (8) and by inserting 
        after paragraph (5) the following new paragraphs:
            ``(6) Swine and bovine waste nutrients.--The term `swine 
        and bovine waste nutrients' means swine and bovine manure and 
        litter, including bedding material for the disposition of 
        manure.
            ``(7) Geothermal energy.--The term `geothermal energy' 
        means energy derived from a geothermal deposit (within the 
        meaning of section 613(e)(2)).''.
    (b) Extension and Modification of Placed-In-Service Rules.--Section 
45(c)(3) (relating to qualified facility), as amended by this Act, is 
amended by adding at the end the following new subparagraphs:
                    ``(E) Swine and bovine waste nutrients facility.--
                In the case of a facility using swine and bovine waste 
                nutrients to produce electricity, the term `qualified 
                facility' means any facility owned by the taxpayer 
                which is originally placed in service after the date of 
                the enactment of this subparagraph and before January 
                1, 2007.
                    ``(F) Geothermal or solar energy facility.--
                            ``(i) In general.--In the case of a 
                        facility using geothermal or solar energy 
to produce electricity, the term `qualified facility' means any 
facility owned by the taxpayer which is originally placed in service 
after the date of the enactment of this clause and before January 1, 
2007.
                            ``(ii) Special rule.--In the case of any 
                        facility described in clause (i), the 5-year 
                        period beginning on the date the facility was 
                        originally placed in service shall be 
                        substituted for the 10-year period in 
                        subsection (a)(2)(A)(ii).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to electricity sold after the date of the enactment of this Act, 
in taxable years ending after such date.

SEC. 104. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

    (a) In General.--Paragraph (6) of section 45(d) (relating to 
additional definitions and special rules), as amended by this Act, is 
amended to read as follows:
            ``(6) Treatment of persons not able to use entire credit.--
                    ``(A) Allowance of credit.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subsection--
                                    ``(I) any credit allowable under 
                                subsection (a) with respect to a 
                                qualified facility owned by a person 
                                described in clause (ii) may be 
                                transferred or used as provided in this 
                                paragraph, and
                                    ``(II) the determination as to 
                                whether the credit is allowable shall 
                                be made without regard to the tax-
                                exempt status of the person.
                            ``(ii) Persons described.--A person is 
                        described in this clause if the person is--
                                    ``(I) an organization described in 
                                section 501(c)(12)(C) and exempt from 
                                tax under section 501(a),
                                    ``(II) an organization described in 
                                section 1381(a)(2)(C),
                                    ``(III) a public utility (as 
                                defined in section 136(c)(2)(B)),
                                    ``(IV) any State or political 
                                subdivision thereof, the District of 
                                Columbia, any possession of the United 
                                States, or any agency or 
                                instrumentality of any of the 
                                foregoing, or
                                    ``(V) any Indian tribal government 
                                (within the meaning of section 7871) or 
                                any agency or instrumentality thereof.
                    ``(B) Transfer of credit.--
                            ``(i) In general.--A person described in 
                        subparagraph (A)(ii) may transfer any credit to 
                        which subparagraph (A)(i) applies through an 
                        assignment to any other person not described in 
                        subparagraph (A)(ii). Such transfer may be 
                        revoked only with the consent of the Secretary.
                            ``(ii) Regulations.--The Secretary shall 
                        prescribe such regulations as necessary to 
                        ensure that any credit described in clause (i) 
                        is claimed once and not reassigned by such 
                        other person.
                            ``(iii) Transfer proceeds treated as 
                        arising from essential government function.--
                        Any proceeds derived by a person described in 
                        subclause (III), (IV), or (V) of subparagraph 
                        (A)(ii) from the transfer of any credit under 
                        clause (i) shall be treated as arising from the 
                        exercise of an essential government function.
                    ``(C) Use of credit as an offset.--Notwithstanding 
                any other provision of law, in the case of a person 
                described in subclause (I), (II), or (V) of 
                subparagraph (A)(ii), any credit to which subparagraph 
                (A)(i) applies may be applied by such person, to the 
                extent provided by the Secretary of Agriculture, as a 
                prepayment of any loan, debt, or other obligation the 
                entity has incurred under subchapter I of chapter 31 of 
                title 7 of the Rural Electrification Act of 1936 (7 
                U.S.C. 901 et seq.), as in effect on the date of the 
                enactment of the Energy Tax Incentives Act of 2002.
                    ``(D) Credit not income.--Any transfer under 
                subparagraph (B) or use under subparagraph (C) of any 
                credit to which subparagraph (A)(i) applies shall not 
                be treated as income for purposes of section 
                501(c)(12).
                    ``(E) Treatment of unrelated persons.--For purposes 
                of subsection (a)(2)(B), sales among and between 
                persons described in subparagraph (A)(ii) shall be 
                treated as sales between unrelated parties.''.
    (b) Credits Not Reduced by Tax-Exempt Bonds or Certain Other 
Subsidies.--Section 45(b)(3) (relating to credit reduced for grants, 
tax-exempt bonds, subsidized energy financing, and other credits) is 
amended--
            (1) by striking clause (ii),
            (2) by redesignating clauses (iii) and (iv) as clauses (ii) 
        and (iii),
            (3) by inserting ``(other than any loan, debt, or other 
        obligation incurred under subchapter I of chapter 31 of title 7 
        of the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
        seq.), as in effect on the date of the enactment of the Energy 
        Tax Incentives Act of 2002)'' after ``project'' in clause (ii) 
        (as so redesignated), and
            (4) by striking ``tax-exempt bonds,'' in the heading and 
        inserting ``certain''.
    (c) Effective Date.--The amendments made by this section shall 
apply to electricity sold after the date of the enactment of this Act, 
in taxable years ending after such date.

       TITLE II--ALTERNATIVE MOTOR VEHICLES AND FUELS INCENTIVES

SEC. 201. ALTERNATIVE MOTOR VEHICLE CREDIT.

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

``SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the sum of--
            ``(1) the new qualified fuel cell motor vehicle credit 
        determined under subsection (b),
            ``(2) the new qualified hybrid motor vehicle credit 
        determined under subsection (c), and
            ``(3) the new qualified alternative fuel motor vehicle 
        credit determined under subsection (d).
    ``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified fuel cell motor vehicle credit determined under this 
        subsection with respect to a new qualified fuel cell motor 
        vehicle placed in service by the taxpayer during the taxable 
        year is--
                    ``(A) $4,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $20,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(2) Increase for fuel efficiency.--
                    ``(A) In general.--The amount determined under 
                paragraph (1)(A) with respect to a new qualified fuel 
                cell motor vehicle which is a passenger automobile or 
                light truck shall be increased by--
                            ``(i) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                            ``(ii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2000 model year city fuel economy,
                            ``(iii) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                            ``(iv) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy,
                            ``(v) $3,000, if such vehicle achieves at 
                        least 250 percent but less than 275 percent of 
                        the 2000 model year city fuel economy,
                            ``(vi) $3,500, if such vehicle achieves at 
                        least 275 percent but less than 300 percent of 
                        the 2000 model year city fuel economy, and
                            ``(vii) $4,000, if such vehicle achieves at 
                        least 300 percent of the 2000 model year city 
                        fuel economy.
                    ``(B) 2000 model year city fuel economy.--For 
                purposes of subparagraph (A), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined in accordance with the following tables:
                            ``(i) In the case of a passenger 
                        automobile:

``If vehicle inertia weight class        The 2000 model year city fuel 
        is:                                                 economy is:
    1,500 or 1,750 lbs............................            43.7 mpg 
    2,000 lbs.....................................            38.3 mpg 
    2,250 lbs.....................................            34.1 mpg 
    2,500 lbs.....................................            30.7 mpg 
    2,750 lbs.....................................            27.9 mpg 
    3,000 lbs.....................................            25.6 mpg 
    3,500 lbs.....................................            22.0 mpg 
    4,000 lbs.....................................            19.3 mpg 
    4,500 lbs.....................................            17.2 mpg 
    5,000 lbs.....................................            15.5 mpg 
    5,500 lbs.....................................            14.1 mpg 
    6,000 lbs.....................................            12.9 mpg 
    6,500 lbs.....................................            11.9 mpg 
    7,000 to 8,500 lbs............................            11.1 mpg.
                            ``(ii) In the case of a light truck:

``If vehicle inertia weight class        The 2000 model year city fuel 
        is:                                                 economy is:
    1,500 or 1,750 lbs............................            37.6 mpg 
    2,000 lbs.....................................            33.7 mpg 
    2,250 lbs.....................................            30.6 mpg 
    2,500 lbs.....................................            28.0 mpg 
    2,750 lbs.....................................            25.9 mpg 
    3,000 lbs.....................................            24.1 mpg 
    3,500 lbs.....................................            21.3 mpg 
    4,000 lbs.....................................            19.0 mpg 
    4,500 lbs.....................................            17.3 mpg 
    5,000 lbs.....................................            15.8 mpg 
    5,500 lbs.....................................            14.6 mpg 
    6,000 lbs.....................................            13.6 mpg 
    6,500 lbs.....................................            12.8 mpg 
    7,000 to 8,500 lbs............................            12.0 mpg.
                    ``(C) Vehicle inertia weight class.--For purposes 
                of subparagraph (B), the term `vehicle inertia weight 
                class' has the same meaning as when defined in 
                regulations prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of the 
                administration of title II of the Clean Air Act (42 
                U.S.C. 7521 et seq.).
            ``(3) New qualified fuel cell motor vehicle.--For purposes 
        of this subsection, the term `new qualified fuel cell motor 
        vehicle' means a motor vehicle--
                    ``(A) which is propelled by power derived from one 
                or more cells which convert chemical energy directly 
                into electricity by combining oxygen with hydrogen fuel 
                which is stored on board the vehicle in any form and 
                may or may not require reformation prior to use,
                    ``(B) which, in the case of a passenger automobile 
                or light truck--
                            ``(i) for 2002 and later model vehicles, 
                        has received a certificate of conformity under 
                        the Clean Air Act and meets or exceeds the 
                        equivalent qualifying California low emission 
                        vehicle standard under section 243(e)(2) of the 
                        Clean Air Act for that make and model year, and
                            ``(ii) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Bin 5 Tier II emission 
                        level established in regulations prescribed by 
                        the Administrator of the Environmental 
                        Protection Agency under section 202(i) of the 
                        Clean Air Act for that make and model year 
                        vehicle,
                    ``(C) the original use of which commences with the 
                taxpayer,
                    ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(E) which is made by a manufacturer.
    ``(c) New Qualified Hybrid Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified hybrid motor vehicle credit determined under this 
        subsection with respect to a new qualified hybrid motor vehicle 
        placed in service by the taxpayer during the taxable year is 
        the credit amount determined under paragraph (2).
            ``(2) Credit amount.--
                    ``(A) In general.--The credit amount determined 
                under this paragraph shall be determined in accordance 
                with the following tables:
                            ``(i) In the case of a new qualified hybrid 
                        motor vehicle which is a passenger automobile 
                        or light truck and which provides the following 
                        percentage of the maximum available power:

``If percentage of the maximum                    The credit amount is:
        available power is:
    At least 5 percent but less than 10 percent...                $250 
    At least 10 percent but less than 20 percent..                $500 
    At least 20 percent but less than 30 percent..                $750 
    At least 30 percent...........................              $1,000.
                            ``(ii) In the case of a new qualified 
                        hybrid motor vehicle which is a heavy duty 
                        hybrid motor vehicle and which provides the 
                        following percentage of the maximum available 
                        power:
                                    ``(I) If such vehicle has a gross 
                                vehicle weight rating of not more than 
                                14,000 pounds:

``If percentage of the maximum                    The credit amount is:
        available power is:
    At least 20 percent but less than 30 percent..              $1,000 
    At least 30 percent but less than 40 percent..              $1,750 
    At least 40 percent but less than 50 percent..              $2,000 
    At least 50 percent but less than 60 percent..              $2,250 
    At least 60 percent...........................              $2,500.
                                    ``(II) If such vehicle has a gross 
                                vehicle weight rating of more than 
                                14,000 but not more than 26,000 pounds:

``If percentage of the maximum                    The credit amount is:
        available power is:
    At least 20 percent but less than 30 percent..              $4,000 
    At least 30 percent but less than 40 percent..              $4,500 
    At least 40 percent but less than 50 percent..              $5,000 
    At least 50 percent but less than 60 percent..              $5,500 
    At least 60 percent...........................              $6,000.
                                    ``(III) If such vehicle has a gross 
                                vehicle weight rating of more than 
                                26,000 pounds:

``If percentage of the maximum                    The credit amount is:
        available power is:
    At least 20 percent but less than 30 percent..              $6,000 
    At least 30 percent but less than 40 percent..              $7,000 
    At least 40 percent but less than 50 percent..              $8,000 
    At least 50 percent but less than 60 percent..              $9,000 
    At least 60 percent...........................             $10,000.
                    ``(B) Increase for fuel efficiency.--
                            ``(i) Amount.--The amount determined under 
                        subparagraph (A)(i) with respect to a new 
                        qualified hybrid motor vehicle which is a 
                        passenger automobile or light truck shall be 
                        increased by--
                                    ``(I) $500, if such vehicle 
                                achieves at least 125 percent but less 
                                than 150 percent of the 2000 model year 
                                city fuel economy,
                                    ``(II) $1,000, if such vehicle 
                                achieves at least 150 percent but less 
                                than 175 percent of the 2000 model year 
                                city fuel economy,
                                    ``(III) $1,500, if such vehicle 
                                achieves at least 175 percent but less 
                                than 200 percent of the 2000 model year 
                                city fuel economy,
                                    ``(IV) $2,000, if such vehicle 
                                achieves at least 200 percent but less 
                                than 225 percent of the 2000 model year 
                                city fuel economy,
                                    ``(V) $2,500, if such vehicle 
                                achieves at least 225 percent but less 
                                than 250 percent of the 2000 model year 
                                city fuel economy, and
                                    ``(VI) $3,000, if such vehicle 
                                achieves at least 250 percent of the 
                                2000 model year city fuel economy.
                            ``(ii) 2000 model year city fuel economy.--
                        For purposes of clause (i), the 2000 model year 
                        city fuel economy with respect to a vehicle 
                        shall be determined using the tables provided 
                        in subsection (b)(2)(B) with respect to such 
                        vehicle.
                    ``(C) Increase for accelerated emissions 
                performance.--The amount determined under subparagraph 
                (A)(ii) with respect to an applicable heavy duty hybrid 
                motor vehicle shall be increased by the increased 
                credit amount determined in accordance with the 
                following tables:
                            ``(i) In the case of a vehicle which has a 
                        gross vehicle weight rating of not more than 
                        14,000 pounds:

``If the model year is:                 The increased credit amount is:
    2002..........................................              $3,500 
    2003..........................................              $3,000 
    2004..........................................              $2,500 
    2005..........................................              $2,000 
    2006..........................................              $1,500.
                            ``(ii) In the case of a vehicle which has a 
                        gross vehicle weight rating of more than 14,000 
                        pounds but not more than 26,000 pounds:

``If the model year is:                 The increased credit amount is:
    2002..........................................              $9,000 
    2003..........................................              $7,750 
    2004..........................................              $6,500 
    2005..........................................              $5,250 
    2006..........................................              $4,000.
                            ``(iii) In the case of a vehicle which has 
                        a gross vehicle weight rating of more than 
                        26,000 pounds:

``If the model year is:                 The increased credit amount is:
    2002..........................................             $14,000 
    2003..........................................             $12,000 
    2004..........................................             $10,000 
    2005..........................................              $8,000 
    2006..........................................              $6,000.
                    ``(D) Definitions.--
                            ``(i) Applicable heavy duty hybrid motor 
                        vehicle.--For purposes of subparagraph (C), the 
                        term `applicable heavy duty hybrid motor 
                        vehicle' means a heavy duty hybrid motor 
                        vehicle which is powered by an internal 
                        combustion or heat engine which is certified as 
                        meeting the emission standards set in the 
                        regulations prescribed by the Administrator of 
                        the Environmental Protection Agency for 2007 
                        and later model year diesel heavy duty engines, 
                        or for 2008 and later model year ottocycle 
                        heavy duty engines, as applicable.
                            ``(ii) Heavy duty hybrid motor vehicle.--
                        For purposes of this paragraph, the term `heavy 
                        duty hybrid motor vehicle' means a new 
                        qualified hybrid motor vehicle which has a 
                        gross vehicle weight rating of more than 10,000 
                        pounds and draws propulsion energy from both of 
                        the following onboard sources of stored energy:
                                    ``(I) An internal combustion or 
                                heat engine using consumable fuel 
                                which, for 2002 and later model 
                                vehicles, has received a certificate of 
                                conformity under the Clean Air Act and 
                                meets or exceeds a level of not greater 
                                than 3.0 grams per brake horsepower-
                                hour of oxides of nitrogen and 0.01 per 
                                brake horsepower-hour of particulate 
                                matter.
                                    ``(II) A rechargeable energy 
                                storage system.
                            ``(iii) Maximum available power.--
                                    ``(I) Passenger automobile or light 
                                truck.--For purposes of subparagraph 
                                (A)(i), the term `maximum available 
                                power' means the maximum power 
                                available from the rechargeable energy 
                                storage system, during a standard 10 
                                second pulse power or equivalent test, 
                                divided by such maximum power and the 
                                SAE net power of the heat engine.
                                    ``(II) Heavy duty hybrid motor 
                                vehicle.--For purposes of subparagraph 
                                (A)(ii), the term `maximum available 
                                power' means the maximum power 
                                available from the rechargeable energy 
                                storage system, during a standard 10 
                                second pulse power or equivalent test, 
                                divided by the vehicle's total traction 
                                power. The term `total traction power' 
                                means the sum of the peak power from 
                                the rechargeable energy storage system 
                                and the heat engine peak power of the 
                                vehicle, except that if such storage 
                                system is the sole means by which the 
                                vehicle can be driven, the total 
                                traction power is the peak power of 
                                such storage system.
            ``(3) New qualified hybrid motor vehicle.--For purposes of 
        this subsection, the term `new qualified hybrid motor vehicle' 
        means a motor vehicle--
                    ``(A) which draws propulsion energy from onboard 
                sources of stored energy which are both--
                            ``(i) an internal combustion or heat engine 
                        using combustible fuel, and
                            ``(ii) a rechargeable energy storage 
                        system,
                    ``(B) which, in the case of a passenger automobile 
                or light truck--
                            ``(i) for 2002 and later model vehicles, 
                        has received a certificate of conformity under 
                        the Clean Air Act and meets or exceeds the 
                        equivalent qualifying California low emission 
vehicle standard under section 243(e)(2) of the Clean Air Act for that 
make and model year, and
                            ``(ii) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Bin 5 Tier II emission 
                        level established in regulations prescribed by 
                        the Administrator of the Environmental 
                        Protection Agency under section 202(i) of the 
                        Clean Air Act for that make and model year 
                        vehicle,
                    ``(C) the original use of which commences with the 
                taxpayer,
                    ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(E) which is made by a manufacturer.
    ``(d) New Qualified Alternative Fuel Motor Vehicle Credit.--
            ``(1) Allowance of credit.--Except as provided in paragraph 
        (5), the credit determined under this subsection is an amount 
        equal to the applicable percentage of the incremental cost of 
        any new qualified alternative fuel motor vehicle placed in 
        service by the taxpayer during the taxable year.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage with respect to any new 
        qualified alternative fuel motor vehicle is--
                    ``(A) 40 percent, plus
                    ``(B) 30 percent, if such vehicle--
                            ``(i) has received a certificate of 
                        conformity under the Clean Air Act and meets or 
                        exceeds the most stringent standard available 
                        for certification under the Clean Air Act for 
                        that make and model year vehicle (other than a 
                        zero emission standard), or
                            ``(ii) has received an order certifying the 
                        vehicle as meeting the same requirements as 
                        vehicles which may be sold or leased in 
                        California and meets or exceeds the most 
                        stringent standard available for certification 
                        under the State laws of California (enacted in 
                        accordance with a waiver granted under section 
                        209(b) of the Clean Air Act) for that make and 
                        model year vehicle (other than a zero emission 
                        standard).
            ``(3) Incremental cost.--For purposes of this subsection, 
        the incremental cost of any new qualified alternative fuel 
        motor vehicle is equal to the amount of the excess of the 
        manufacturer's suggested retail price for such vehicle over 
        such price for a gasoline or diesel fuel motor vehicle of the 
        same model, to the extent such amount does not exceed--
                    ``(A) $5,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $25,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(4) Qualified alternative fuel motor vehicle defined.--
        For purposes of this subsection--
                    ``(A) In general.--The term `qualified alternative 
                fuel motor vehicle' means any motor vehicle--
                            ``(i) which is only capable of operating on 
                        an alternative fuel,
                            ``(ii) the original use of which commences 
                        with the taxpayer,
                            ``(iii) which is acquired by the taxpayer 
                        for use or lease, but not for resale, and
                            ``(iv) which is made by a manufacturer.
                    ``(B) Alternative fuel.--The term `alternative 
                fuel' means compressed natural gas, liquefied natural 
                gas, liquefied petroleum gas, hydrogen, and any liquid 
                at least 85 percent of the volume of which consists of 
                methanol.
            ``(5) Credit for mixed-fuel vehicles.--
                    ``(A) In general.--In the case of a mixed-fuel 
                vehicle placed in service by the taxpayer during the 
                taxable year, the credit determined under this 
                subsection is an amount equal to--
                            ``(i) in the case of a 75/25 mixed-fuel 
                        vehicle, 70 percent of the credit which would 
                        have been allowed under this subsection if such 
                        vehicle was a qualified alternative fuel motor 
                        vehicle, and
                            ``(ii) in the case of a 90/10 mixed-fuel 
                        vehicle, 90 percent of the credit which would 
                        have been allowed under this subsection if such 
                        vehicle was a qualified alternative fuel motor 
                        vehicle.
                    ``(B) Mixed-fuel vehicle.--For purposes of this 
                subsection, the term `mixed-fuel vehicle' means any 
                motor vehicle described in subparagraph (C) or (D) of 
                paragraph (3), which--
                            ``(i) is certified by the manufacturer as 
                        being able to perform efficiently in normal 
                        operation on a combination of an alternative 
                        fuel and a petroleum-based fuel,
                            ``(ii) either--
                                    ``(I) has received a certificate of 
                                conformity under the Clean Air Act, or
                                    ``(II) has received an order 
                                certifying the vehicle as meeting the 
                                same requirements as vehicles which may 
                                be sold or leased in California and 
                                meets or exceeds the low emission 
                                vehicle standard under section 88.105-
                                94 of title 40, Code of Federal 
                                Regulations, for that make and model 
                                year vehicle,
                            ``(iii) the original use of which commences 
                        with the taxpayer,
                            ``(iv) which is acquired by the taxpayer 
                        for use or lease, but not for resale, and
                            ``(v) which is made by a manufacturer.
                    ``(C) 75/25 mixed-fuel vehicle.--For purposes of 
                this subsection, the term `75/25 mixed-fuel vehicle' 
                means a mixed-fuel vehicle which operates using at 
                least 75 percent alternative fuel and not more than 25 
                percent petroleum-based fuel.
                    ``(D) 90/10 mixed-fuel vehicle.--For purposes of 
                this subsection, the term `90/10 mixed-fuel vehicle' 
                means a mixed-fuel vehicle which operates using at 
                least 90 percent alternative fuel and not more than 10 
                percent petroleum-based fuel.
    ``(e) Application With Other Credits.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess (if 
any) of--
            ``(1) the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and sections 27, 
        29, and 30, over
            ``(2) the tentative minimum tax for the taxable year.
    ``(f) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Consumable fuel.--The term `consumable fuel' means 
        any solid, liquid, or gaseous matter which releases energy when 
        consumed by an auxiliary power unit.
            ``(2) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
            ``(3) City fuel economy.--The city fuel economy with 
        respect to any vehicle shall be measured in a manner which is 
        substantially similar to the manner city fuel economy is 
        measured in accordance with procedures under part 600 of 
        subchapter Q of chapter I of title 40, Code of Federal 
        Regulations, as in effect on the date of the enactment of this 
        section.
            ``(4) Other terms.--The terms `automobile', `passenger 
        automobile', `light truck', and `manufacturer' have the 
        meanings given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency for 
        purposes of the administration of title II of the Clean Air Act 
        (42 U.S.C. 7521 et seq.).
            ``(5)  Reduction in basis.--For purposes of this subtitle, 
        the basis of any property for which a credit is allowable under 
        subsection (a) shall be reduced by the amount of such credit so 
        allowed (determined without regard to subsection (e)).
            ``(6) No double benefit.--The amount of any deduction or 
        other credit allowable under this chapter--
                    ``(A) for any incremental cost taken into account 
                in computing the amount of the credit determined under 
                subsection (d) shall be reduced by the amount of such 
                credit attributable to such cost, and
                    ``(B) with respect to a vehicle described under 
                subsection (b) or (c), shall be reduced by the amount 
                of credit allowed under subsection (a) for such vehicle 
                for the taxable year.
            ``(7) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity at the time of any sale or lease the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
            ``(8) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
            ``(9) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection (a) 
        with respect to any property referred to in section 50(b) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
            ``(10) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
            ``(11) Carryback and carryforward allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (e) for such 
                taxable year (in this paragraph referred to as the 
                `unused credit year'), such excess shall be allowed as 
                a credit carryback for each of the 3 taxable years 
                beginning after September 30, 2002, which precede the 
                unused credit year and a credit carryforward for each 
                of the 20 taxable years which succeed the unused credit 
                year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryback and 
                credit carryforward under subparagraph (A).
            ``(12) Interaction with air quality and motor vehicle 
        safety standards.--Unless otherwise provided in this section, a 
        motor vehicle shall not be considered eligible for a credit 
        under this section unless such vehicle is in compliance with--
                    ``(A) the applicable provisions of the Clean Air 
                Act for the applicable make and model year of the 
                vehicle (or applicable air quality provisions of State 
                law in the case of a State which has adopted such 
                provision under a waiver under section 209(b) of the 
                Clean Air Act), and
                    ``(B) the motor vehicle safety provisions of 
                sections 30101 through 30169 of title 49, United States 
                Code.
    ``(g) Regulations.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        Secretary shall promulgate such regulations as necessary to 
        carry out the provisions of this section.
            ``(2) Coordination in prescription of certain 
        regulations.--The Secretary of the Treasury, in coordination 
        with the Secretary of Transportation and the Administrator of 
        the Environmental Protection Agency, shall prescribe such 
        regulations as necessary to determine whether a motor vehicle 
        meets the requirements to be eligible for a credit under this 
        section.
    ``(h) Termination.--This section shall not apply to any property 
purchased after--
            ``(1) in the case of a new qualified fuel cell motor 
        vehicle (as described in subsection (b)), December 31, 2011, 
        and
            ``(2) in the case of any other property, December 31, 
        2006.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (27), by striking the period at the end of 
        paragraph (28) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(29) to the extent provided in section 30B(f)(5).''.
            (2) Section 55(c)(2) is amended by inserting ``30B(e),'' 
        after ``30(b)(3)''.
            (3) Section 6501(m) is amended by inserting ``30B(f)(10),'' 
        after ``30(d)(4),''.
            (4) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 30A the following new item:

        ``Sec. 30B. Alternative motor vehicle credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after September 30, 2002, in 
taxable years ending after such date.

SEC. 202. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

    (a) Amount of Credit.--
            (1) In general.--Section 30(a) (relating to allowance of 
        credit) is amended by striking ``10 percent of''.
            (2) Limitation of credit according to type of vehicle.--
        Section 30(b) (relating to limitations) is amended--
                    (A) by striking paragraphs (1) and (2) and 
                inserting the following new paragraph:
            ``(1) Limitation according to type of vehicle.--The amount 
        of the credit allowed under subsection (a) for any vehicle 
        shall not exceed the greatest of the following amounts 
        applicable to such vehicle:
                    ``(A) In the case of a vehicle which conforms to 
                the Motor Vehicle Safety Standard 500 prescribed by the 
                Secretary of Transportation, as in effect on the date 
                of the enactment of the Energy Tax Incentives Act of 
                2002, the lesser of--
                            ``(i) 10 percent of the manufacturer's 
                        suggested retail price of the vehicle, or
                            ``(ii) $3,500.
                    ``(B) In the case of a vehicle not described in 
                subparagraph (A) with a gross vehicle weight rating not 
                exceeding 8,500 pounds--
                            ``(i) $3,500, or
                            ``(ii) $6,000, if such vehicle is--
                                    ``(I) capable of a driving range of 
                                at least 100 miles on a single charge 
                                of the vehicle's rechargeable batteries 
                                as measured pursuant to the urban 
                                dynamometer schedules under appendix I 
                                to part 86 of title 40, Code of Federal 
                                Regulations, or
                                    ``(II) capable of a payload 
                                capacity of at least 1,000 pounds.
                    ``(C) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 8,500 but not exceeding 14,000 
                pounds, $10,000.
                    ``(D) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 14,000 but not exceeding 26,000 
                pounds, $20,000.
                    ``(E) In the case of a vehicle with a gross vehicle 
                weight rating exceeding 26,000 pounds, $40,000.'', and
                    (B) by redesignating paragraph (3) as paragraph 
                (2).
            (3) Conforming amendments.--
                    (A) Section 53(d)(1)(B)(iii) is amended by striking 
                ``section 30(b)(3)(B)'' and inserting ``section 
                30(b)(2)(B)''.
            (3) Section 55(c)(2), as amended by this Act, is amended by 
        striking ``30(b)(3)'' and inserting ``30(b)(2)''.
    (b) Qualified Battery Electric Vehicle.--
            (1) In general.--Section 30(c)(1)(A) (defining qualified 
        electric vehicle) is amended to read as follows:
                    ``(A) which is--
                            ``(i) operated solely by use of a battery 
                        or battery pack, or
                            ``(ii) powered primarily through the use of 
                        an electric battery or battery pack using a 
                        flywheel or capacitor which stores energy 
                        produced by an electric motor through 
                        regenerative braking to assist in vehicle 
                        operation,''.
            (2) Leased vehicles.--Section 30(c)(1)(C) is amended by 
        inserting ``or lease'' after ``use''.
            (3) Conforming amendments.--
                    (A) Subsections (a), (b)(2), and (c) of section 30 
                are each amended by inserting ``battery'' after 
                ``qualified'' each place it appears.
                    (B) The heading of subsection (c) of section 30 is 
                amended by inserting ``Battery'' after ``Qualified''.
                    (C) The heading of section 30 is amended by 
                inserting ``battery'' after ``qualified''.
                    (D) The item relating to section 30 in the table of 
                sections for subpart B of part IV of subchapter A of 
                chapter 1 is amended by inserting ``battery'' after 
                ``qualified''.
                    (E) Section 179A(c)(3) is amended by inserting 
                ``battery'' before ``electric''.
                    (F) The heading of paragraph (3) of section 179A(c) 
                is amended by inserting ``battery'' before 
                ``electric''.
    (c) Additional Special Rules.--Section 30(d) (relating to special 
rules) is amended by adding at the end the following new paragraphs:
            ``(5) No double benefit.--The amount of any deduction or 
        other credit allowable under this chapter for any cost taken 
        into account in computing the amount of the credit determined 
        under subsection (a) shall be reduced by the amount of such 
        credit attributable to such cost.
            ``(6) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a vehicle 
        which is acquired by an entity exempt from tax under this 
        chapter, the person which sells or leases such vehicle to the 
        entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity at the time of any sale or lease the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
            ``(7) Carryback and carryforward allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (b)(3) for 
                such taxable year (in this paragraph referred to as the 
                `unused credit year'), such excess shall be allowed as 
                a credit carryback for each of the 3 taxable years 
                beginning after September 30, 2002, which precede the 
                unused credit year and a credit carryforward for each 
                of the 20 taxable years which succeed the unused credit 
                year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryback and 
                credit carryforward under subparagraph (A).''.
    (d) Extension.--Section 30(e) (relating to termination) is amended 
by striking ``2004'' and inserting ``2006''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after September 30, 2002, in 
taxable years ending after such date.

SEC. 203. EXTENSION OF DEDUCTION FOR CERTAIN REFUELING PROPERTY.

    (a) In General.--Section 179A(f) (relating to termination) is 
amended by striking ``2004'' and inserting ``2006''.
    (b) Extension of Phaseout.--Section 179A(b)(1)(B) (relating to 
phaseout) is amended--
            (1) by striking ``calendar year 2002'' in clause (i) and 
        inserting ``calendar years 2003 and 2004'',
            (2) by striking ``2003'' in clause (ii) and inserting 
        ``2005'', and
            (3) by striking ``2004'' in clause (iii) and inserting 
        ``2006''.
    (c) Conforming Amendment.--Section 179A(c) (relating to qualified 
clean-fuel vehicle property defined) is amended by striking paragraph 
(3).
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2002, in taxable 
years ending after such date.

SEC. 204. CREDIT FOR INSTALLATION OF ALTERNATIVE FUELING STATIONS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 30C. CLEAN-FUEL VEHICLE REFUELING PROPERTY CREDIT.

    ``(a) Credit Allowed.--There shall be allowed as a credit against 
the tax imposed by this chapter for the taxable year an amount equal to 
50 percent of the amount paid or incurred by the taxpayer during the 
taxable year for the installation of qualified clean-fuel vehicle 
refueling property.
    ``(b) Limitation.--The credit allowed under subsection (a)--
            ``(1) with respect to any retail clean-fuel vehicle 
        refueling property, shall not exceed $30,000, and
            ``(2) with respect to any residential clean-fuel vehicle 
        refueling property, shall not exceed $1,000.
    ``(c) Year Credit Allowed.--The credit allowed under subsection (a) 
shall be allowed in the taxable year in which the qualified clean-fuel 
vehicle refueling property is placed in service by the taxpayer.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified clean-fuel vehicle refueling property.--The 
        term `qualified clean-fuel vehicle refueling property' has the 
        same meaning given such term by section 179A(d).
            ``(2) Residential clean-fuel vehicle refueling property.--
        The term `residential clean-fuel vehicle refueling property' 
        means qualified clean-fuel vehicle refueling property which is 
        installed on property which is used as the principal residence 
        (within the meaning of section 121) of the taxpayer.
            ``(3) Retail clean-fuel vehicle refueling property.--The 
        term `retail clean-fuel vehicle refueling property' means 
        qualified clean-fuel vehicle refueling property which is 
        installed on property (other than property described in 
        paragraph (2)) used in a trade or business of the taxpayer.
    ``(e) Application With Other Credits.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess (if 
any) of--
            ``(1) the regular tax for the taxable year reduced by the 
        sum of the credits allowable under subpart A and sections 27, 
        29, 30, and 30B, over
            ``(2) the tentative minimum tax for the taxable year.
    ``(f) Basis Reduction.--For purposes of this title, the basis of 
any property shall be reduced by the portion of the cost of such 
property taken into account under subsection (a).
    ``(g) No Double Benefit.--No deduction shall be allowed under 
section 179A with respect to any property with respect to which a 
credit is allowed under subsection (a).
    ``(h) Refueling Property Installed for Tax-Exempt Entities.--In the 
case of qualified clean-fuel vehicle refueling property installed on 
property owned or used by an entity exempt from tax under this chapter, 
the person which installs such refueling property for the entity shall 
be treated as the taxpayer with respect to the refueling property for 
purposes of this section (and such refueling property shall be treated 
as retail clean-fuel vehicle refueling property) and the credit shall 
be allowed to such person, but only if the person clearly discloses to 
the entity in any installation contract the specific amount of the 
credit allowable under this section.
    ``(i) Carryforward Allowed.--
            ``(1) In general.--If the credit amount allowable under 
        subsection (a) for a taxable year exceeds the amount of the 
        limitation under subsection (b) for such taxable year (referred 
        to as the `unused credit year' in this subsection), such excess 
        shall be allowed as a credit carryforward for each of the 20 
        taxable years following the unused credit year.
            ``(2) Rules.--Rules similar to the rules of section 39 
        shall apply with respect to the credit carryforward under 
        paragraph (1).
    ``(j) Special Rules.--Rules similar to the rules of paragraphs (4) 
and (5) of section 179A(e) shall apply.
    ``(k) Regulations.--The Secretary shall prescribe such regulations 
as necessary to carry out the provisions of this section.
    ``(l) Termination.--This section shall not apply to any property 
placed in service after December 31, 2006.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (28), by striking the 
        period at the end of paragraph (29) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(30) to the extent provided in section 30C(f).''.
            (2) Section 55(c)(2), as amended by this Act, is amended by 
        inserting ``30C(e),'' after ``30B(e)''.
            (3) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 30B the 
        following new item:

        ``Sec. 30C. Clean-fuel vehicle refueling property credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after September 30, 2002, in 
taxable years ending after such date.

SEC. 205. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE 
              FUEL.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 40 the following new section:

``SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR 
              VEHICLE FUEL.

    ``(a) General Rule.--For purposes of section 38, the alternative 
fuel retail sales credit for any taxable year is the applicable amount 
for each gasoline gallon equivalent of alternative fuel sold at retail 
by the taxpayer during such year as a fuel to propel any qualified 
motor vehicle.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Applicable amount.--The term `applicable amount' 
        means the amount determined in accordance with the following 
        table:

``In the case of any taxable year            The applicable amount is--
        ending in--
    2002 and 2003.................................            30 cents 
    2004..........................................            40 cents 
    2005 and 2006.................................            50 cents.
            ``(2) Alternative fuel.--The term `alternative fuel' means 
        compressed natural gas, liquefied natural gas, liquefied 
        petroleum gas, hydrogen, and any liquid at least 85 percent of 
        the volume of which consists of methanol or ethanol.
            ``(3) Gasoline gallon equivalent.--The term `gasoline 
        gallon equivalent' means, with respect to any alternative fuel, 
        the amount (determined by the Secretary) of such fuel having a 
        Btu content of 114,000.
            ``(4) Qualified motor vehicle.--The term `qualified motor 
        vehicle' means any motor vehicle (as defined in section 
        30(c)(2)) which meets any applicable Federal or State emissions 
        standards with respect to each fuel by which such vehicle is 
        designed to be propelled.
            ``(5) Sold at retail.--
                    ``(A) In general.--The term `sold at retail' means 
                the sale, for a purpose other than resale, after 
                manufacture, production, or importation.
                    ``(B) Use treated as sale.--If any person uses 
                alternative fuel (including any use after importation) 
                as a fuel to propel any qualified alternative fuel 
                motor vehicle (as defined in section 30B(d)(4)) before 
                such fuel is sold at retail, then such use shall be 
                treated in the same manner as if such fuel were sold at 
                retail as a fuel to propel such a vehicle by such 
                person.
    ``(c) No Double Benefit.--The amount of any deduction or other 
credit allowable under this chapter for any fuel taken into account in 
computing the amount of the credit determined under subsection (a) 
shall be reduced by the amount of such credit attributable to such 
fuel.
    ``(d) Pass-Thru in the Case of Estates and Trusts.--Under 
regulations prescribed by the Secretary, rules similar to the rules of 
subsection (d) of section 52 shall apply.
    ``(e) Termination.--This section shall not apply to any fuel sold 
at retail after December 31, 2006.''.
    (b) Credit Treated as Business Credit.--Section 38(b) (relating to 
current year business credit) is amended by striking ``plus'' at the 
end of paragraph (14), by striking the period at the end of paragraph 
(15) and inserting ``, plus'', and by adding at the end the following 
new paragraph:
            ``(16) the alternative fuel retail sales credit determined 
        under section 40A(a).''.
    (c) Transitional Rule.--Section 39(d) (relating to transitional 
rules) is amended by adding at the end the following new paragraph:
            ``(11) No carryback of section 40a credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the alternative fuel retail sales 
        credit determined under section 40A(a) may be carried back to a 
        taxable year ending before January 1, 2002.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 40 the following new item:

        ``Sec. 40A. Credit for retail sale of alternative fuels as 
                            motor vehicle fuel.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to fuel sold at retail after September 30, 2002, in taxable years 
ending after such date.

SEC. 206. SMALL ETHANOL PRODUCER CREDIT.

    (a) Allocation of Alcohol Fuels Credit to Patrons of a 
Cooperative.--Section 40(g) (relating to alcohol used as fuel) is 
amended by adding at the end the following new paragraph:
            ``(6) Allocation of small ethanol producer credit to 
        patrons of cooperative.--
                    ``(A) Election to allocate.--
                            ``(i) In general.--In the case of a 
                        cooperative organization described in section 
                        1381(a), any portion of the credit determined 
                        under subsection (a)(3) for the taxable year 
                        may, at the election of the organization, be 
                        apportioned pro rata among patrons of the 
                        organization on the basis of the quantity or 
                        value of business done with or for such patrons 
                        for the taxable year.
                            ``(ii) Form and effect of election.--An 
                        election under clause (i) for any taxable year 
                        shall be made on a timely filed return for such 
                        year. Such election, once made, shall be 
                        irrevocable for such taxable year.
                    ``(B) Treatment of organizations and patrons.--The 
                amount of the credit apportioned to patrons under 
                subparagraph (A)--
                            ``(i) shall not be included in the amount 
                        determined under subsection (a) with respect to 
                        the organization for the taxable year,
                            ``(ii) shall be included in the amount 
                        determined under subsection (a) for the taxable 
                        year of each patron for which the patronage 
                        dividends for the taxable year described in 
                        subparagraph (A) are included in gross income, 
                        and
                            ``(iii) shall be included in gross income 
                        of such patrons for the taxable year in the 
                        manner and to the extent provided in section 
                        87.
                    ``(C) Special rules for decrease in credits for 
                taxable year.--If the amount of the credit of a 
                cooperative organization determined under subsection 
                (a)(3) for a taxable year is less than the amount of 
                such credit shown on the return of the cooperative 
                organization for such year, an amount equal to the 
                excess of--
                            ``(i) such reduction, over
                            ``(ii) the amount not apportioned to such 
                        patrons under subparagraph (A) for the taxable 
                        year,
                shall be treated as an increase in tax imposed by this 
                chapter on the organization. Such increase shall not be 
                treated as tax imposed by this chapter for purposes of 
                determining the amount of any credit under this subpart 
                or subpart A, B, E, or G.''.
    (b) Improvements to Small Ethanol Producer Credit.--
            (1) Definition of small ethanol producer.--Section 40(g) 
        (relating to definitions and special rules for eligible small 
        ethanol producer credit) is amended by striking ``30,000,000'' 
        each place it appears and inserting ``60,000,000''.
            (2) Small ethanol producer credit not a passive activity 
        credit.--Clause (i) of section 469(d)(2)(A) is amended by 
striking ``subpart D'' and inserting ``subpart D, other than section 
40(a)(3),''.
            (3) Allowing credit against minimum tax.--
                    (A) In general.--Subsection (c) of section 38 
                (relating to limitation based on amount of tax) is 
                amended by redesignating paragraph (3) as paragraph (4) 
                and by inserting after paragraph (2) the following new 
                paragraph:
            ``(3) Special rules for small ethanol producer credit.--
                    ``(A) In general.--In the case of the small ethanol 
                producer credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to the credit, 
                        and
                            ``(ii) in applying paragraph (1) to the 
                        credit--
                                    ``(I) subparagraphs (A) and (B) 
                                thereof shall not apply, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the small 
                                ethanol producer credit).
                    ``(B) Small ethanol producer credit.--For purposes 
                of this subsection, the term `small ethanol producer 
                credit' means the credit allowable under subsection (a) 
                by reason of section 40(a)(3).''.
                    (B) Conforming amendment.--Subclause (II) of 
                section 38(c)(2)(A)(ii) is amended by striking 
                ``(other'' and all that follows through ``credit)'' and 
                inserting ``(other than the empowerment zone employment 
                credit or the small ethanol producer credit)''.
            (4) Small ethanol producer credit not added back to income 
        under section 87.--Section 87 (relating to income inclusion of 
        alcohol fuel credit) is amended to read as follows:

``SEC. 87. ALCOHOL FUEL CREDIT.

    ``Gross income includes an amount equal to the sum of--
            ``(1) the amount of the alcohol mixture credit determined 
        with respect to the taxpayer for the taxable year under section 
        40(a)(1), and
            ``(2) the alcohol credit determined with respect to the 
        taxpayer for the taxable year under section 40(a)(2).''.
    (c) Conforming Amendment.--Section 1388 (relating to definitions 
and special rules for cooperative organizations) is amended by adding 
at the end the following new subsection:
    ``(k) Cross Reference.--For provisions relating to the 
apportionment of the alcohol fuels credit between cooperative 
organizations and their patrons, see section 40(g)(6).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 207. ALL ALCOHOL FUELS TAXES TRANSFERRED TO HIGHWAY TRUST FUND.

    (a) In General.--Section 9503(b)(4) (relating to certain taxes not 
transferred to Highway Trust Fund) is amended--
            (1) by adding ``or'' at the end of subparagraph (C),
            (2) by striking the comma at the end of subparagraph 
        (D)(iii) and inserting a period, and
            (3) by striking subparagraphs (E) and (F).
    (b) Effective Date.--The amendments made by this section shall 
apply to taxes imposed after September 30, 2003.

SEC. 208. INCREASED FLEXIBILITY IN ALCOHOL FUELS TAX CREDIT.

    (a) Alcohol Fuels Credit May Be Transferred.--
            (1) In general.--Section 40 (relating to alcohol used as 
        fuel) is amended by adding at the end the following new 
        subsection:
    ``(i) Credit May Be Transferred.--
            ``(1) In general.--A taxpayer may transfer any credit 
        allowable under paragraph (1) or (2) of subsection (a) with 
        respect to alcohol used in the production of ethyl tertiary 
        butyl ether through an assignment to a qualified assignee. Such 
        transfer may be revoked only with the consent of the Secretary.
            ``(2) Qualified assignee.--For purposes of this subsection, 
        the term `qualified assignee' means any person who is--
                    ``(A) liable for taxes imposed under section 4081,
                    ``(B) required to register under section 4101, and
                    ``(C) a member of the same controlled group of 
                corporations (within the meaning of section 52(a)) as 
                the taxpayer described in paragraph (1).
            ``(3) Regulations.--The Secretary shall prescribe such 
        regulations as necessary to insure that any credit described in 
        paragraph (1) is claimed once and not reassigned by a qualified 
        assignee.''.
            (2) Passive loss rules inapplicable to assignee.--Section 
        469(d)(2)(A)(i) is amended to read as follows:
                            ``(i) subpart D (other than section 40 
                        through the application of subsection (i) 
                        thereof) of part IV of subchapter A, or''.
    (b) Alcohol Fuels Credit May Be Taken Against Motor Fuels Tax 
Liability.--
            (1) In general.--Subpart C of part III of subchapter A of 
        chapter 32 (relating to special provisions applicable to 
        petroleum products) is amended by adding at the end the 
        following new section:

``SEC. 4104. CREDIT AGAINST MOTOR FUELS TAXES.

    ``(a) Election To Use Credit Against Motor Fuels Taxes.--There is 
hereby allowed as a credit against the taxes imposed by section 4081, 
any credit allowed under paragraph (1) or (2) of section 40(a) with 
respect to alcohol used in the production of ethyl tertiary butyl ether 
to the extent--
            ``(1) such credit is not claimed by the taxpayer or the 
        qualified assignee under section 40(i) as a credit under 
        section 40, and
            ``(2) the taxpayer or qualified assignee elects to claim 
        such credit under this section.
    ``(b) Election Irrevocable.--Any election under subsection (a) 
shall be irrevocable.
    ``(c) Required Statement.--Any return claiming a credit pursuant to 
an election under this section shall be accompanied by a statement that 
the credit was not, and will not, be claimed on an income tax return.
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as necessary to avoid the claiming of double benefits and to prescribe 
the taxable periods with respect to which the credit may be claimed.''.
            (2) Clerical amendment.--The table of sections for subpart 
        C of part III of subchapter A of chapter 32 is amended by 
        adding at the end the following new item:

                              ``Sec. 4104. Credit against motor fuels 
                                        taxes.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on and after the date of the enactment of this Act.

SEC. 209. INCENTIVES FOR BIODIESEL.

    (a) Credit for Biodiesel Used as a Fuel.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 (relating to business related credits), as amended by 
        this Act, is amended by inserting after section 40A the 
        following new section:

``SEC. 40B. BIODIESEL USED AS FUEL.

    ``(a) General Rule.--For purposes of section 38, the biodiesel 
fuels credit determined under this section for the taxable year is an 
amount equal to the biodiesel mixture credit.
    ``(b) Definition of Biodiesel Mixture Credit.--For purposes of this 
section--
            ``(1) Biodiesel mixture credit.--
                    ``(A) In general.--The biodiesel mixture credit of 
                any taxpayer for any taxable year is the sum of the 
                products of the biodiesel mixture rate for each 
                qualified biodiesel mixture and the number of gallons 
                of such mixture of the taxpayer for the taxable year.
                    ``(B) Biodiesel mixture rate.--For purposes of 
                subparagraph (A), the biodiesel mixture rate for each 
                qualified biodiesel mixture shall be 1 cent for each 
                whole percentage point (not exceeding 20 percentage 
                points) of biodiesel in such mixture.
            ``(2) Qualified biodiesel mixture.--
                    ``(A) In general.--The term `qualified biodiesel 
                mixture' means a mixture of diesel and biodiesel 
                which--
                            ``(i) is sold by the taxpayer producing 
                        such mixture to any person for use as a fuel, 
                        or
                            ``(ii) is used as a fuel by the taxpayer 
                        producing such mixture.
                    ``(B) Sale or use must be in trade or business, 
                etc.--Biodiesel used in the production of a qualified 
                biodiesel mixture shall be taken into account--
                            ``(i) only if the sale or use described in 
                        subparagraph (A) is in a trade or business of 
                        the taxpayer, and
                            ``(ii) for the taxable year in which such 
                        sale or use occurs.
                    ``(C) Casual off-farm production not eligible.--No 
                credit shall be allowed under this section with respect 
                to any casual off-farm production of a qualified 
                biodiesel mixture.
    ``(c) Coordination With Exemption From Excise Tax.--The amount of 
the credit determined under this section with respect to any biodiesel 
shall, under regulations prescribed by the Secretary, be properly 
reduced to take into account any benefit provided with respect to such 
biodiesel solely by reason of the application of section 4041(n) or 
section 4081(f).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Biodiesel defined.--
                    ``(A) In general.--The term `biodiesel' means the 
                monoalkyl esters of long chain fatty acids derived from 
                virgin vegetable oils for use in compressional-ignition 
                (diesel) engines. Such term shall include esters 
                derived from vegetable oils from corn, soybeans, 
                sunflower seeds, cottonseeds, canola, crambe, 
                rapeseeds, safflowers, flaxseeds, rice bran, and 
                mustard seeds.
                    ``(B) Registration requirements.--Such term shall 
                only include a biodiesel which meets--
                            ``(i) the registration requirements for 
                        fuels and fuel additives established by the 
                        Environmental Protection Agency under section 
                        211 of the Clean Air Act (42 U.S.C. 7545), and
                            ``(ii) the requirements of the American 
                        Society of Testing and Materials D6751.
            ``(2) Biodiesel mixture not used as a fuel, etc.--
                    ``(A) Imposition of tax.--If--
                            ``(i) any credit was determined under this 
                        section with respect to biodiesel used in the 
                        production of any qualified biodiesel mixture, 
                        and
                            ``(ii) any person--
                                    ``(I) separates the biodiesel from 
                                the mixture, or
                                    ``(II) without separation, uses the 
                                mixture other than as a fuel,
                        then there is hereby imposed on such person a 
                        tax equal to the product of the biodiesel 
                        mixture rate applicable under subsection 
                        (b)(1)(B) and the number of gallons of the 
                        mixture.
                    ``(B) Applicable laws.--All provisions of law, 
                including penalties, shall, insofar as applicable and 
                not inconsistent with this section, apply in respect of 
                any tax imposed under subparagraph (A) as if such tax 
                were imposed by section 4081 and not by this chapter.
            ``(3) Pass-thru in the case of estates and trusts.--Under 
        regulations prescribed by the Secretary, rules similar to the 
        rules of subsection (d) of section 52 shall apply.
    ``(e) Election To Have Biodiesel Fuels Credit Not Apply.--
            ``(1) In general.--A taxpayer may elect to have this 
        section not apply for any taxable year.
            ``(2) Time for making election.--An election under 
        paragraph (1) for any taxable year may be made (or revoked) at 
        any time before the expiration of the 3-year period beginning 
        on the last date prescribed by law for filing the return for 
        such taxable year (determined without regard to extensions).
            ``(3) Manner of making election.--An election under 
        paragraph (1) (or revocation thereof) shall be made in such 
        manner as the Secretary may by regulations prescribe.''.
    ``(f) Termination.--This section shall not apply to any fuel sold 
after December 31, 2005.''.
            (2) Credit treated as part of general business credit.--
        Section 38(b), as amended by this Act, is amended by striking 
        ``plus'' at the end of paragraph (15), by striking the period 
        at the end of paragraph (16) and inserting ``, plus'', and by 
        adding at the end the following new paragraph:
            ``(17) the biodiesel fuels credit determined under section 
        40B.''.
            (3) Conforming amendments.--
                    (A) Section 39(d), as amended by this Act, is 
                amended by adding at the end the following new 
                paragraph:
            ``(12) No carryback of biodiesel fuels credit before 
        january 1, 2003.--No portion of the unused business credit for 
        any taxable year which is attributable to the biodiesel fuels 
        credit determined under section 40B may be carried back to a 
        taxable year beginning before January 1, 2003.''.
                    (B) Section 196(c) is amended by striking ``and'' 
                at the end of paragraph (9), by striking the period at 
                the end of paragraph (10), and by adding at the end the 
                following new paragraph:
            ``(11) the biodiesel fuels credit determined under section 
        40B.''.
                    (C) Section 6501(m), as amended by this Act, is 
                amended by inserting ``40B(e),'' after ``40(f),''.
                    (D) The table of sections for subpart D of part IV 
                of subchapter A of chapter 1, as amended by this Act, 
                is amended by adding after the item relating to section 
                40A the following new item:

                              ``Sec. 40B. Biodiesel used as fuel.''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2002.
    (b) Reduction of Motor Fuel Excise Taxes on Biodiesel Mixtures.--
            (1) In general.--Section 4081 (relating to manufacturers 
        tax on petroleum products) is amended by adding at the end the 
        following new subsection:
    ``(f) Biodiesel Mixtures.--Under regulations prescribed by the 
Secretary--
            ``(1) In general.--In the case of the removal or entry of a 
        qualified biodiesel mixture, the rate of tax under subsection 
        (a) shall be the otherwise applicable rate reduced by the 
        biodiesel mixture rate (if any) applicable to the mixture.
            ``(2) Tax prior to mixing.--
                    ``(A) In general.--In the case of the removal or 
                entry of diesel fuel for use in producing at the time 
                of such removal or entry a qualified biodiesel mixture, 
                the rate of tax under subsection (a) shall be the 
                otherwise applicable rate, reduced by the amount 
                determined under subparagraph (B).
                    ``(B) Applicable reduction.--For purposes of 
                subparagraph (A), the amount determined under this 
                subparagraph is an amount equal to the biodiesel 
                mixture rate for the qualified biodiesel mixture to be 
                produced from the diesel fuel, divided by a percentage 
                equal to 100 percent minus the percentage of biodiesel 
                which will be in the mixture.
            ``(3) Definitions.--For purposes of this subsection, any 
        term used in this subsection which is also used in section 40B 
        shall have the meaning given such term by section 40B.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of paragraphs (6) and (7) of subsection (c) shall apply for 
        purposes of this subsection.''.
            (2) Conforming amendments.--
                    (A) Section 4041 is amended by adding at the end 
                the following new subsection:
    ``(n) Biodiesel Mixtures.--Under regulations prescribed by the 
Secretary, in the case of the sale or use of a qualified biodiesel 
mixture (as defined in section 40B(b)(2)), the rates under paragraphs 
(1) and (2) of subsection (a) shall be the otherwise applicable rates, 
reduced by any applicable biodiesel mixture rate (as defined in section 
40B(b)(1)(B)).''.
                    (B) Section 6427 is amended by redesignating 
                subsection (p) as subsection (q) and by inserting after 
                subsection (o) the following new subsection:
    ``(p) Biodiesel Mixtures.--Except as provided in subsection (k), if 
any diesel fuel on which tax was imposed by section 4081 at a rate not 
determined under section 4081(f) is used by any person in producing a 
qualified biodiesel mixture (as defined in section 40B(b)(2)) which is 
sold or used in such person's trade or business, the Secretary shall 
pay (without interest) to such person an amount equal to the per gallon 
applicable biodiesel mixture rate (as defined in section 40B(b)(1)(B)) 
with respect to such fuel.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to any fuel sold after December 31, 2002, and 
        before January 1, 2006.
    (c) Highway Trust Fund Held Harmless.--There are hereby transferred 
(from time to time) from the funds of the Commodity Credit Corporation 
amounts determined by the Secretary of the Treasury to be equivalent to 
the reductions that would occur (but for this subsection) in the 
receipts of the Highway Trust Fund by reason of the amendments made by 
this section.

        TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

SEC. 301. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor, the credit determined under this section for the 
taxable year is an amount equal to the aggregate adjusted bases of all 
energy efficient property installed in a qualifying new home during 
construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a qualifying new home shall not 
                exceed--
                            ``(i) in the case of a 30-percent home, 
                        $1,250, and
                            ``(ii) in the case of a 50-percent home, 
                        $2,000.
                    ``(B) 30- or 50-percent home.--For purposes of 
                subparagraph (A)--
                            ``(i) 30-percent home.--The term `30-
                        percent home' means a qualifying new home which 
                        is certified to have a projected level of 
                        annual heating and cooling energy consumption, 
                        measured in terms of average annual energy cost 
                        to the homeowner, which is at least 30 percent 
                        less than the annual level of heating and 
                        cooling energy consumption of a reference 
                        qualifying new home constructed in accordance 
                        with the standards of chapter 4 of the 2000 
                        International Energy Conservation Code.
                            ``(ii) 50-percent home.--The term `50-
                        percent home' means a qualifying new home which 
                        is certified to have a projected level of 
                        annual heating and cooling energy consumption, 
                        measured in terms of average annual energy cost 
                        to the homeowner, which is at least 50 percent 
                        less than such annual level of heating and 
                        cooling energy consumption.
                    ``(B) Prior credit amounts on same home taken into 
                account.--If a credit was allowed under subsection (a) 
                with respect to a qualifying new home in 1 or more 
                prior taxable years, the amount of the credit otherwise 
                allowable for the taxable year with respect to that 
                home shall not exceed the amount under clause (i) or 
                (ii) of subparagraph (A) (as the case may be), reduced 
                by the sum of the credits allowed under subsection (a) 
                with respect to the home for all prior taxable years.
            ``(2) Coordination with rehabilitation and energy 
        credits.--For purposes of this section--
                    ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to the 
                rehabilitation credit (as determined under section 
                47(a)) or to the energy percentage of energy property 
                (as determined under section 48(a)), and
                    ``(B) expenditures taken into account under either 
                section 47 or 48(a) shall not be taken into account 
                under this section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible contractor.--The term `eligible contractor' 
        means the person who constructed the qualifying new home, or in 
        the case of a manufactured home which conforms to Federal 
        Manufactured Home Construction and Safety Standards (24 C.F.R. 
        3280), the manufactured home producer of such home.
            ``(2) Energy efficient property.--The term `energy 
        efficient property' means any energy efficient building 
        envelope component, and any energy efficient heating or cooling 
        equipment which can, individually or in combination with other 
        components, meet the requirements of this section.
            ``(3) Qualifying new home.--The term `qualifying new home' 
        means a dwelling--
                    ``(A) located in the United States,
                    ``(B) the construction of which is substantially 
                completed after the date of the enactment of this 
                section, and
                    ``(C) the first use of which after construction is 
                as a principal residence (within the meaning of section 
                121).
            ``(4) Construction.--The term `construction' includes 
        reconstruction and rehabilitation.
            ``(5) Building envelope component.--The term `building 
        envelope component' means--
                    ``(A) any insulation material or system which is 
                specifically and primarily designed to reduce the heat 
                loss or gain of a qualifying new home when installed in 
                or on such home, and
                    ``(B) exterior windows (including skylights) and 
                doors.
            ``(6) Manufactured home included.--The term `qualifying new 
        home' includes a manufactured home conforming to Federal 
        Manufactured Home Construction and Safety Standards (24 C.F.R. 
        3280).
    ``(d) Certification.--
            ``(1) Method of certification.--
                    ``(A) In general.--A certification described in 
                subsection (b)(1)(B) shall be determined either by a 
                component-based method or a performance-based method.
                    ``(B) Component-based method.--A component-based 
                method is a method which uses the applicable technical 
                energy efficiency specifications or ratings (including 
                product labeling requirements) for the energy efficient 
                building envelope component or energy efficient heating 
                or cooling equipment. The Secretary shall, in 
                consultation with the Administrator of the 
                Environmental Protection Agency, develop prescriptive 
                component-based packages that are equivalent in energy 
                performance to properties that qualify under 
                subparagraph (C).
                    ``(C) Performance-based method.--
                            ``(i) In general.--A performance-based 
                        method is a method which calculates projected 
                        energy usage and cost reductions in the 
                        qualifying new home in relation to a reference 
                        qualifying new home--
                                    ``(I) heated by the same energy 
                                source and heating system type, and
                                    ``(II) constructed in accordance 
                                with the standards of chapter 4 of the 
                                2000 International Energy Conservation 
                                Code.
                            ``(ii) Computer software.--Computer 
                        software shall be used in support of a 
                        performance-based method certification under 
                        clause (i). Such software shall meet procedures 
                        and methods for calculating energy and cost 
                        savings in regulations promulgated by the 
                        Secretary of Energy. Such regulations on the 
                        specifications for software and verification 
                        protocols shall be based on the 2001 California 
                        Residential Alternative Calculation Method 
                        Approval Manual.
            ``(2) Provider.--A certification described in subsection 
        (b)(1)(B) shall be provided by--
                    ``(A) in the case of a component-based method, a 
                local building regulatory authority, a utility, a 
                manufactured home production inspection primary 
                inspection agency (IPIA), or a home energy rating 
                organization, or
                    ``(B) in the case of a performance-based method, an 
                individual recognized by an organization designated by 
                the Secretary for such purposes.
            ``(3) Form.--
                    ``(A) In general.--A certification described in 
                subsection (b)(1)(B) shall be made in writing in a 
                manner that specifies in readily verifiable fashion the 
                energy efficient building envelope components and 
                energy efficient heating or cooling equipment installed 
                and their respective rated energy efficiency 
                performance, and in the case of a performance-based 
                method, accompanied by a written analysis documenting 
                the proper application of a permissible energy 
                performance calculation method to the specific 
                circumstances of such qualifying new home.
                    ``(B) Form provided to buyer.--A form documenting 
                the energy efficient building envelope components and 
                energy efficient heating or cooling equipment installed 
                and their rated energy efficiency performance shall be 
                provided to the buyer of the qualifying new home. The 
                form shall include labeled R-value for insulation 
                products, NFRC-labeled U-factor and Solar Heat Gain 
                Coefficient for windows, skylights, and doors, labeled 
                AFUE ratings for furnaces and boilers, labeled HSPF 
                ratings for electric heat pumps, and labeled SEER 
                ratings for air conditioners.
                    ``(C) Ratings label affixed in dwelling.--A 
                permanent label documenting the ratings in subparagraph 
                (B) shall be affixed to the front of the electrical 
                distribution panel of the qualifying new home, or shall 
                be otherwise permanently displayed in a readily 
                inspectable location in such home.
            ``(4) Regulations.--
                    ``(A) In general.--In prescribing regulations under 
                this subsection for performance-based certification 
                methods, the Secretary, after examining the 
                requirements for energy consultants and home energy 
                ratings providers specified by the Mortgage Industry 
                National Accreditation Procedures for Home Energy 
                Rating Systems, shall prescribe procedures for 
                calculating annual energy usage and cost reductions for 
                heating and cooling and for the reporting of the 
                results. Such regulations shall--
                            ``(i) provide that any calculation 
                        procedures be fuel neutral such that the same 
                        energy efficiency measures allow a qualifying 
                        new home to be eligible for the credit under 
                        this section regardless of whether such home 
uses a gas or oil furnace or boiler or an electric heat pump, and
                            ``(ii) require that any computer software 
                        allow for the printing of the Federal tax forms 
                        necessary for the credit under this section and 
                        for the printing of forms for disclosure to the 
                        homebuyer.
                    ``(B) Providers.--For purposes of paragraph (2)(B), 
                the Secretary shall establish requirements for the 
                designation of individuals based on the requirements 
                for energy consultants and home energy raters specified 
                by the Mortgage Industry National Accreditation 
                Procedures for Home Energy Rating Systems.
    ``(e) Termination.--Subsection (a) shall apply to qualifying new 
homes purchased during the period beginning on the date of the 
enactment of this section and ending on December 31, 2007.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to current year business credit), as amended by 
this Act, is amended by striking ``plus'' at the end of paragraph (16), 
by striking the period at the end of paragraph (17) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(18) the new energy efficient home credit determined 
        under section 45G.''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding at the 
end the following new subsection:
    ``(d) New Energy Efficient Home Expenses.--No deduction shall be 
allowed for that portion of expenses for a qualifying new home 
otherwise allowable as a deduction for the taxable year which is equal 
to the amount of the credit determined for such taxable year under 
section 45G.''.
    (d) Limitation on Carryback.--Subsection (d) of section 39, as 
amended by this Act, is amended by adding at the end the following new 
paragraph:
            ``(13) No carryback of new energy efficient home credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the credit 
        determined under section 45G may be carried back to any taxable 
        year ending on or before the date of the enactment of section 
        45G.''.
    (e) Deduction for Certain Unused Business Credits.--Subsection (c) 
of section 196, as amended by this Act, is amended by striking ``and'' 
at the end of paragraph (10), by striking the period at the end of 
paragraph (11) and inserting ``, and'', and by adding after paragraph 
(11) the following new paragraph:
            ``(12) the new energy efficient home credit determined 
        under section 45G.''.
    (f) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

                              ``Sec. 45G. New energy efficient home 
                                        credit.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 302. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the energy 
efficient appliance credit determined under this section for the 
taxable year is an amount equal to the applicable amount determined 
under subsection (b) with respect to the eligible production of 
qualified energy efficient appliances produced by the taxpayer during 
the calendar year ending with or within the taxable year.
    ``(b) Applicable Amount; Eligible Production.--For purposes of 
subsection (a)--
            ``(1) Applicable amount.--The applicable amount is--
                    ``(A) $50, in the case of--
                            ``(i) a clothes washer which is 
                        manufactured with at least a 1.26 MEF, or
                            ``(ii) a refrigerator which consumes at 
                        least 10 percent less kWh per year than the 
                        energy conservation standards for refrigerators 
                        promulgated by the Department of Energy 
                        effective July 1, 2001, and
                    ``(B) $100, in the case of--
                            ``(i) a clothes washer which is 
                        manufactured with at least a 1.42 MEF (at least 
                        1.5 MEF for washers produced after 2004), or
                            ``(ii) a refrigerator which consumes at 
                        least 15 percent less kWh per year than such 
                        energy conservation standards.
            ``(2) Eligible production.--
                    ``(A) In general.--The eligible production of each 
                category of qualified energy efficient appliances is 
                the excess of--
                            ``(i) the number of appliances in such 
                        category which are produced by the taxpayer 
                        during such calendar year, over
                            ``(ii) the average number of appliances in 
                        such category which were produced by the 
                        taxpayer during calendar years 1999, 2000, and 
                        2001.
                    ``(B) Categories.--For purposes of subparagraph 
                (A), the categories are--
                            ``(i) clothes washers described in 
                        paragraph (1)(A)(i),
                            ``(ii) clothes washers described in 
                        paragraph (1)(B)(i),
                            ``(iii) refrigerators described in 
                        paragraph (1)(A)(ii), and
                            ``(iv) refrigerators described in paragraph 
                        (1)(B)(ii).
    ``(c) Limitation on Maximum Credit.--
            ``(1) In general.--The maximum amount of credit allowed 
        under subsection (a) with respect to a taxpayer for all taxable 
        years shall be--
                    ``(A) $30,000,000 with respect to the credit 
                determined under subsection (b)(1)(A), and
                    ``(B) $30,000,000 with respect to the credit 
                determined under subsection (b)(1)(B).
            ``(2) Limitation based on gross receipts.--The credit 
        allowed under subsection (a) with respect to a taxpayer for the 
        taxable year shall not exceed an amount equal to 2 percent of 
        the average annual gross receipts of the taxpayer for the 3 
        taxable years preceding the taxable year in which the credit is 
        determined.
            ``(3) Gross receipts.--For purposes of this subsection, the 
        rules of paragraphs (2) and (3) of section 448(c) shall apply.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified energy efficient appliance.--The term 
        `qualified energy efficient appliance' means--
                    ``(A) a clothes washer described in subparagraph 
                (A)(i) or (B)(i) of subsection (b)(1), or
                    ``(B) a refrigerator described in subparagraph 
                (A)(ii) or (B)(ii) of subsection (b)(1).
            ``(2) Clothes washer.--The term `clothes washer' means a 
        residential clothes washer, including a residential style coin 
        operated washer.
            ``(3) Refrigerator.--The term `refrigerator' means an 
        automatic defrost refrigerator-freezer which has an internal 
volume of at least 16.5 cubic feet.
            ``(4) MEF.--The term `MEF' means Modified Energy Factor (as 
        determined by the Secretary of Energy).
    ``(e) Special Rules.--
            ``(1) In general.--Rules similar to the rules of 
        subsections (c), (d), and (e) of section 52 shall apply for 
        purposes of this section.
            ``(2) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 or 
        subsection (m) or (o) of section 414 shall be treated as 1 
        person for purposes of subsection (a).
    ``(f) Verification.--The taxpayer shall submit such information or 
certification as the Secretary, in consultation with the Secretary of 
Energy, determines necessary to claim the credit amount under 
subsection (a).
    ``(g) Termination.--This section shall not apply--
            ``(1) with respect to refrigerators described in subsection 
        (b)(1)(A)(ii) produced after December 31, 2004, and
            ``(2) with respect to all other qualified energy efficient 
        appliances produced after December 31, 2006.''.
    (b) Limitation on Carryback.--Section 39(d) (relating to transition 
rules), as amended by this Act, is amended by adding at the end the 
following new paragraph:
            ``(14) No carryback of energy efficient appliance credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the energy 
        efficient appliance credit determined under section 45H may be 
        carried to a taxable year ending before January 1, 2003.''.
    (c) Conforming Amendment.--Section 38(b) (relating to general 
business credit), as amended by this Act, is amended by striking 
``plus'' at the end of paragraph (17), by striking the period at the 
end of paragraph (18) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(19) the energy efficient appliance credit determined 
        under section 45H(a).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

                              ``Sec. 45H. Energy efficient appliance 
                                        credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to appliances produced after December 31, 2002, in taxable years 
ending after such date.

SEC. 303. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25B the following new section:

``SEC. 25C. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the sum of--
            ``(1) 15 percent of the qualified photovoltaic property 
        expenditures made by the taxpayer during such year,
            ``(2) 15 percent of the qualified solar water heating 
        property expenditures made by the taxpayer during such year,
            ``(3) 30 percent of the qualified fuel cell property 
        expenditures made by the taxpayer during such year,
            ``(4) 30 percent of the qualified wind energy property 
        expenditures made by the taxpayer during such year, and
            ``(5) the sum of the qualified Tier 2 energy efficient 
        building property expenditures made by the taxpayer during such 
        year.
    ``(b) Limitations.--
            ``(1) Maximum credit.--The credit allowed under subsection 
        (a) shall not exceed--
                    ``(A) $2,000 for property described in subsection 
                (d)(1),
                    ``(B) $2,000 for property described in subsection 
                (d)(2),
                    ``(C) $1,000 for each kilowatt of capacity of 
                property described in subsection (d)(4),
                    ``(D) $2,000 for property described in subsection 
                (d)(5), and
                    ``(E) for property described in subsection (d)(6)--
                            ``(i) $75 for each electric heat pump water 
                        heater,
                            ``(ii) $250 for each electric heat pump,
                            ``(iii) $500 for each natural gas heat 
                        pump,
                            ``(iv) $250 for each central air 
                        conditioner,
                            ``(v) $75 for each natural gas water 
                        heater, and
                            ``(vi) $250 for each geothermal heat pump.
            ``(2) Safety certifications.--No credit shall be allowed 
        under this section for an item of property unless--
                    ``(A) in the case of solar water heating property, 
                such property is certified for performance and safety 
                by the non-profit Solar Rating Certification 
                Corporation or a comparable entity endorsed by the 
                government of the State in which such property is 
                installed,
                    ``(B) in the case of a photovoltaic property, a 
                fuel cell property, or a wind energy property, such 
                property meets appropriate fire and electric code 
                requirements, and
                    ``(C) in the case of property described in 
                subsection (d)(6), such property meets the performance 
                and quality standards, and the certification 
                requirements (if any), which--
                            ``(i) have been prescribed by the Secretary 
                        by regulations (after consultation with the 
                        Secretary of Energy or the Administrator of the 
                        Environmental Protection Agency, as 
                        appropriate),
                            ``(ii) in the case of the energy efficiency 
                        ratio (EER)--
                                    ``(I) require measurements to be 
                                based on published data which is tested 
                                by manufacturers at 95 degrees 
                                Fahrenheit, and
                                    ``(II) do not require ratings to be 
                                based on certified data of the Air 
                                Conditioning and Refrigeration 
                                Institute, and
                            ``(iii) are in effect at the time of the 
                        acquisition of the property.
            ``(3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and sections 23 and 
                25D) and section 27 for the taxable year.
    ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by subsection (b)(3) for 
such taxable year, such excess shall be carried to the succeeding 
taxable year and added to the credit allowable under subsection (a) for 
such succeeding taxable year.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified solar water heating property expenditure.--
        The term `qualified solar water heating property expenditure' 
        means an expenditure for property to heat water for use in a 
        dwelling unit located in the United States and used as a 
        residence by the taxpayer if at least half of the energy used 
        by such property for such purpose is derived from the sun.
            ``(2) Qualified photovoltaic property expenditure.--The 
        term `qualified photovoltaic property expenditure' means an 
        expenditure for property that uses solar energy to generate 
        electricity for use in such a dwelling unit.
            ``(3) Solar panels.--No expenditure relating to a solar 
        panel or other property installed as a roof (or portion 
        thereof) shall fail to be treated as property described in 
        paragraph (1) or (2) solely because it constitutes a structural 
        component of the structure on which it is installed.
            ``(4) Qualified fuel cell property expenditure.--The term 
        `qualified fuel cell property expenditure' means an expenditure 
        for qualified fuel cell property (as defined in section 
        48(a)(4)) installed on or in connection with such a dwelling 
        unit.
            ``(5) Qualified wind energy property expenditure.--The term 
        `qualified wind energy property expenditure' means an 
        expenditure for property which uses wind energy to generate 
        electricity for use in such a dwelling unit.
            ``(6) Qualified tier 2 energy efficient building property 
        expenditure.--
                    ``(A) In general.--The term `qualified Tier 2 
                energy efficient building property expenditure' means 
                an expenditure for any Tier 2 energy efficient building 
                property.
                    ``(B) Tier 2 energy efficient building property.--
                The term `Tier 2 energy efficient building property' 
                means--
                            ``(i) an electric heat pump water heater 
                        which yields an energy factor of at least 1.7 
                        in the standard Department of Energy test 
                        procedure,
                            ``(ii) an electric heat pump which has a 
                        heating seasonal performance factor (HSPF) of 
                        at least 9, a seasonal energy efficiency ratio 
                        (SEER) of at least 15, and an energy efficiency 
                        ratio (EER) of at least 12.5,
                            ``(iii) a natural gas heat pump which has a 
                        coefficient of performance of at least 1.25 for 
                        heating and of at least 0.70 for cooling,
                            ``(iv) a central air conditioner which has 
                        a seasonal energy efficiency ratio (SEER) of at 
                        least 15 and an energy efficiency ratio (EER) 
                        of at least 12.5,
                            ``(v) a natural gas water heater which has 
                        an energy factor of at least 0.80 in the 
                        standard Department of Energy test procedure, 
                        and
                            ``(vi) a geothermal heat pump which has an 
                        energy efficiency ratio (EER) of at least 21.
            ``(7) Labor costs.--Expenditures for labor costs properly 
        allocable to the onsite preparation, assembly, or original 
        installation of the property described in paragraph (1), (2), 
        (4), (5), or (6) and for piping or wiring to interconnect such 
        property to the dwelling unit shall be taken into account for 
        purposes of this section.
            ``(8) Swimming pools, etc., used as storage medium.--
        Expenditures which are properly allocable to a swimming pool, 
        hot tub, or any other energy storage medium which has a 
        function other than the function of such storage shall not be 
        taken into account for purposes of this section.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Dollar amounts in case of joint occupancy.--In the 
        case of any dwelling unit which is jointly occupied and used 
        during any calendar year as a residence by 2 or more 
        individuals the following shall apply:
                    ``(A) The amount of the credit allowable, under 
                subsection (a) by reason of expenditures (as the case 
                may be) made during such calendar year by any of such 
                individuals with respect to such dwelling unit shall be 
                determined by treating all of such individuals as 1 
                taxpayer whose taxable year is such calendar year.
                    ``(B) There shall be allowable, with respect to 
                such expenditures to each of such individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount determined under subparagraph (A) 
                as the amount of such expenditures made by such 
                individual during such calendar year bears to the 
                aggregate of such expenditures made by all of such 
                individuals during such calendar year.
            ``(2) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having made his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation.
            ``(3) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which the individual 
                owns, such individual shall be treated as having made 
                the individual's proportionate share of any 
                expenditures of such association.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
            ``(4) Allocation in certain cases.--If less than 80 percent 
        of the use of an item is for nonbusiness purposes, only that 
        portion of the expenditures for such item which is properly 
        allocable to use for nonbusiness purposes shall be taken into 
        account.
            ``(5) When expenditure made; amount of expenditure.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an expenditure with respect to an 
                item shall be treated as made when the original 
                installation of the item is completed.
                    ``(B) Expenditures part of building construction.--
                In the case of an expenditure in connection with the 
                construction or reconstruction of a structure, such 
                expenditure shall be treated as made when the original 
                use of the constructed or reconstructed structure by 
the taxpayer begins.
                    ``(C) Amount.--The amount of any expenditure shall 
                be the cost thereof.
            ``(6) Property financed by subsidized energy financing.--
        For purposes of determining the amount of expenditures made by 
        any individual with respect to any dwelling unit, there shall 
        not be taken in to account expenditures which are made from 
        subsidized energy financing (as defined in section 
        48(a)(5)(C)).
    ``(f) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(g) Termination.--The credit allowed under this section shall not 
apply to expenditures after December 31, 2007.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016, as amended by this Act, 
        is amended by striking ``and'' at the end of paragraph (29), by 
        striking the period at the end of paragraph (30) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(31) to the extent provided in section 25C(f), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25C.''.
            (2) Section 24(b)(3)(B) is amended by striking ``23 and 
        25B'' and inserting ``23, 25B, and 25C''.
            (3) Section 25(e)(1)(C) is amended by inserting ``25C,'' 
        after ``25B,''.
            (4) Section 25B(g)(2) is amended by striking ``section 23'' 
        and inserting ``sections 23 and 25C''.
            (5) Section 26(a)(1) is amended by striking ``and 25B'' and 
        inserting ``25B, and 25C''.
            (6) Section 904(h) is amended by striking ``and 25B'' and 
        inserting ``25B, and 25C''.
            (7) Section 1400C(d) is amended by striking ``and 25B'' and 
        inserting ``25B, and 25C''.
            (8) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 25B the following new item:

                              ``Sec. 25C. Residential energy efficient 
                                        property.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures after December 31, 2002, in taxable years ending 
after such date.

SEC. 304. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS.

    (a) In General.--Subparagraph (A) of section 48(a)(3) (defining 
energy property) is amended by striking ``or'' at the end of clause 
(i), by adding ``or'' at the end of clause (ii), and by inserting after 
clause (ii) the following new clause:
                            ``(iii) qualified fuel cell property,''.
    (b) Qualified Fuel Cell Property.--Subsection (a) of section 48 is 
amended by redesignating paragraphs (4) and (5) as paragraphs (5) and 
(6), respectively, and by inserting after paragraph (3) the following 
new paragraph:
            ``(4) Qualified fuel cell property.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified fuel cell 
                property' means a fuel cell power plant that--
                            ``(i) generates at least 1 kilowatt of 
                        electricity using an electrochemical process, 
                        and
                            ``(ii) has an electricity-only generation 
                        efficiency greater than 30 percent.
                    ``(B) Limitation.--In the case of qualified fuel 
                cell property placed in service during the taxable 
                year, the credit determined under paragraph (1) for 
                such year with respect to such property shall not 
                exceed an amount equal to the lesser of--
                            ``(i) 30 percent of the basis of such 
                        property, or
                            ``(ii) $1,000 for each kilowatt of capacity 
                        of such property.
                    ``(C) Fuel cell power plant.--The term `fuel cell 
                power plant' means an integrated system comprised of a 
                fuel cell stack assembly and associated balance of 
                plant components that converts a fuel into electricity 
                using electrochemical means.
                    ``(D) Termination.--Such term shall not include any 
                property placed in service after December 31, 2007.''.
    (c) Limitation.--Section 48(a)(2)(A) (relating to energy 
percentage) is amended to read as follows:
                    ``(A) In general.--The energy percentage is--
                            ``(i) in the case of qualified fuel cell 
                        property, 30 percent, and
                            ``(ii) in the case of any other energy 
                        property, 10 percent.''.
    (d) Conforming Amendments.--
                    (A) Section 29(b)(3)(A)(i)(III) is amended by 
                striking ``section 48(a)(4)(C)'' and inserting 
                ``section 48(a)(5)(C)''.
                    (B) Section 48(a)(1) is amended by inserting 
                ``except as provided in paragraph (4)(B),'' before 
                ``the energy''.
    (e) Effective Date.--The amendments made by this subsection shall 
apply to property placed in service after December 31, 2002, under 
rules similar to the rules of section 48(m) of the Internal Revenue 
Code of 1986 (as in effect on the day before the date of the enactment 
of the Revenue Reconciliation Act of 1990).

SEC. 305. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

    (a) In General.--Part VI of subchapter B of chapter 1 is amended by 
inserting after section 179A the following new section:

``SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

    ``(a) In General.--There shall be allowed as a deduction for the 
taxable year an amount equal to the energy efficient commercial 
building property expenditures made by a taxpayer for the taxable year.
    ``(b) Maximum Amount of Deduction.--The amount of energy efficient 
commercial building property expenditures taken into account under 
subsection (a) shall not exceed an amount equal to the product of--
            ``(1) $2.25, and
            ``(2) the square footage of the building with respect to 
        which the expenditures are made.
    ``(c) Year Deduction Allowed.--The deduction under subsection (a) 
shall be allowed in the taxable year in which the construction of the 
building is completed.
    ``(d) Energy Efficient Commercial Building Property Expenditures.--
For purposes of this section--
            ``(1) In general.--The term `energy efficient commercial 
        building property expenditures' means an amount paid or 
        incurred for energy efficient commercial building property 
        installed on or in connection with new construction or 
        reconstruction of property--
                    ``(A) for which depreciation is allowable under 
                section 167,
                    ``(B) which is located in the United States, and
                    ``(C) the construction or erection of which is 
                completed by the taxpayer.
        Such property includes all residential rental property, 
        including low-rise multifamily structures and single family 
        housing property which is not within the scope of Standard 
        90.1-1999 (described in paragraph (2)). Such term includes 
        expenditures for labor costs properly allocable to the onsite 
        preparation, assembly, or original installation of the 
        property.
            ``(2) Energy efficient commercial building property.--For 
        purposes of paragraph (1)--
                    ``(A) In general.--The term `energy efficient 
                commercial building property' means any property which 
                reduces total annual energy and power costs with 
                respect to the lighting, heating, cooling, ventilation, 
                and hot water supply systems of the building by 50 
                percent or more in comparison to a reference building 
                which meets the requirements of Standard 90.1-1999 of 
                the American Society of Heating, Refrigerating, and Air 
                Conditioning Engineers and the Illuminating Engineering 
                Society of North America using methods of calculation 
                under subparagraph (B) and certified by qualified 
                professionals as provided under paragraph (5).
                    ``(B) Methods of calculation.--The Secretary, in 
                consultation with the Secretary of Energy, shall 
                promulgate regulations which describe in detail methods 
                for calculating and verifying energy and power 
                consumption and cost, taking into consideration the 
                provisions of the 2001 California Nonresidential 
                Alternative Calculation Method Approval Manual. These 
                regulations shall meet the following requirements:
                            ``(i) In calculating tradeoffs and energy 
                        performance, the regulations shall prescribe 
                        the costs per unit of energy and power, such as 
                        kilowatt hour, kilowatt, gallon of fuel oil, 
                        and cubic foot or Btu of natural gas, which may 
                        be dependent on time of usage.
                            ``(ii) The calculational methodology shall 
                        require that compliance be demonstrated for a 
                        whole building. If some systems of the 
                        building, such as lighting, are designed later 
                        than other systems of the building, the method 
                        shall provide that either--
                                    ``(I) the expenses taken into 
                                account under paragraph (1) shall not 
                                occur until the date designs for all 
                                energy-using systems of the building 
                                are completed,
                                    ``(II) the energy performance of 
                                all systems and components not yet 
                                designed shall be assumed to comply 
                                minimally with the requirements of such 
                                Standard 90.1-1999, or
                                    ``(III) the expenses taken into 
                                account under paragraph (1) shall be a 
                                fraction of such expenses based on the 
                                performance of less than all energy-
                                using systems in accordance with clause 
                                (iii).
                            ``(iii) The expenditures in connection with 
                        the design of subsystems in the building, such 
                        as the envelope, the heating, ventilation, air 
                        conditioning and water heating system, and the 
                        lighting system shall be allocated to the 
                        appropriate building subsystem based on system-
                        specific energy cost savings targets in 
                        regulations promulgated by the Secretary of 
                        Energy which are equivalent, using the 
                        calculation methodology, to the whole building 
                        requirement of 50 percent savings.
                            ``(iv) The calculational methods under this 
                        subparagraph need not comply fully with section 
                        11 of such Standard 90.1-1999.
                            ``(v) The calculational methods shall be 
                        fuel neutral, such that the same energy 
                        efficiency features shall qualify a building 
                        for the deduction under this subsection 
                        regardless of whether the heating source is a 
                        gas or oil furnace or an electric heat pump.
                            ``(vi) The calculational methods shall 
                        provide appropriate calculated energy savings 
                        for design methods and technologies not 
                        otherwise credited in either such Standard 
                        90.1-1999 or in the 2001 California 
                        Nonresidential Alternative Calculation Method 
                        Approval Manual, including the following:
                                    ``(I) Natural ventilation.
                                    ``(II) Evaporative cooling.
                                    ``(III) Automatic lighting controls 
                                such as occupancy sensors, photocells, 
                                and timeclocks.
                                    ``(IV) Daylighting.
                                    ``(V) Designs utilizing semi-
                                conditioned spaces that maintain 
                                adequate comfort conditions without air 
                                conditioning or without heating.
                                    ``(VI) Improved fan system 
                                efficiency, including reductions in 
                                static pressure.
                                    ``(VII) Advanced unloading 
                                mechanisms for mechanical cooling, such 
                                as multiple or variable speed 
                                compressors.
                                    ``(VIII) The calculational methods 
                                may take into account the extent of 
                                commissioning in the building, and 
                                allow the taxpayer to take into account 
                                measured performance that exceeds 
                                typical performance.
                    ``(C) Computer software.--
                            ``(i) In general.--Any calculation under 
                        this paragraph shall be prepared by qualified 
                        computer software.
                            ``(ii) Qualified computer software.--For 
                        purposes of this subparagraph, the term 
                        `qualified computer software' means software--
                                    ``(I) for which the software 
                                designer has certified that the 
                                software meets all procedures and 
                                detailed methods for calculating energy 
                                and power consumption and costs as 
                                required by the Secretary,
                                    ``(II) which provides such forms as 
                                required to be filed by the Secretary 
                                in connection with energy efficiency of 
                                property and the deduction allowed 
                                under this subsection, and
                                    ``(III) which provides a notice 
                                form which summarizes the energy 
                                efficiency features of the building and 
                                its projected annual energy costs.
            ``(3) Allocation of deduction for public property.--In the 
        case of energy efficient commercial building property installed 
        on or in public property, the Secretary shall promulgate a 
        regulation to allow the allocation of the deduction to the 
        person primarily responsible for designing the property in lieu 
        of the public entity which is the owner of such property. Such 
        person shall be treated as the taxpayer for purposes of this 
        subsection.
            ``(4) Notice to owner.--The qualified individual shall 
        provide an explanation to the owner of the building regarding 
        the energy efficiency features of the building and its 
        projected annual energy costs as provided in the notice under 
        paragraph (2)(C)(ii)(III).
            ``(5) Certification.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the Secretary shall prescribe procedures for 
                the inspection and testing for compliance of buildings 
                that are comparable, given the difference between 
                commercial and residential buildings, to the 
                requirements in the Mortgage Industry National 
                Accreditation Procedures for Home Energy Rating 
                Systems.
                    ``(B) Qualified individuals.--Individuals qualified 
                to determine compliance shall be only those individuals 
                who are recognized by an organization certified by the 
                Secretary for such purposes. The Secretary may qualify 
                a Home Ratings Systems Organization, a local building 
                code agency, a State or local energy office, a utility, 
                or any other organization which meets the requirements 
                prescribed under this section.
                    ``(C) Proficiency of qualified individuals.--The 
                Secretary shall consult with nonprofit organizations 
                and State agencies with expertise in energy efficiency 
                calculations and inspections to develop proficiency 
                tests and training programs to qualify individuals to 
                determine compliance.
    ``(e) Basis Reduction.--For purposes of this subtitle, if a 
deduction is allowed under this section with respect to any energy 
efficient commercial building property, the basis of such property 
shall be reduced by the amount of the deduction so allowed.
    ``(f) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(g) Termination.--This section shall not apply with respect to 
any energy efficient commercial building property expenditures in 
connection with property--
            ``(1) the plans for which are not certified under 
        subsection (d)(5) on or before December 31, 2007, and
            ``(2) the construction of which is not completed on or 
        before December 31, 2009.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (30), by striking the 
        period at the end of paragraph (31) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(32) to the extent provided in section 179B(e).''.
            (2) Section 1245(a) is amended by inserting ``179B,'' after 
        ``179A,'' both places it appears in paragraphs (2)(C) and 
        (3)(C).
            (3) Section 1250(b)(3) is amended by inserting before the 
        period at the end of the first sentence ``or by section 179B''.
            (4) Section 263(a)(1) is amended by striking ``or'' at the 
        end of subparagraph (G), by striking the period at the end of 
        subparagraph (H) and inserting ``, or'', and by inserting after 
        subparagraph (H) the following new subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 179B.''.
            (5) Section 312(k)(3)(B) is amended by striking ``or 179A'' 
        each place it appears in the heading and text and inserting ``, 
        179A, or 179B''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by inserting after section 179A 
the following new item:

                              ``Sec. 179B. Energy efficient commercial 
                                        buildings deduction.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after September 30, 2002.

SEC. 306. ALLOWANCE OF DEDUCTION FOR QUALIFIED NEW OR RETROFITTED 
              ENERGY MANAGEMENT DEVICES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations), as amended by 
this Act, is amended by inserting after section 179B the following new 
section:

``SEC. 179C. DEDUCTION FOR QUALIFIED NEW OR RETROFITTED ENERGY 
              MANAGEMENT DEVICES.

    ``(a) Allowance of Deduction.--In the case of a taxpayer who is a 
supplier of electric energy or natural gas or a provider of electric 
energy or natural gas services, there shall be allowed as a deduction 
an amount equal to the cost of each qualified energy management device 
placed in service during the taxable year.
    ``(b) Maximum Deduction.--The deduction allowed by this section 
with respect to each qualified energy management device shall not 
exceed $30.
    ``(c) Qualified Energy Management Device.--The term `qualified 
energy management device' means any tangible property to which section 
168 applies if such property is a meter or metering device--
            ``(1) which is acquired and used by the taxpayer to enable 
        consumers to manage their purchase or use of electricity or 
        natural gas in response to energy price and usage signals, and
            ``(2) which permits reading of energy price and usage 
        signals on at least a daily basis.
    ``(d) Property Used Outside the United States Not Qualified.--No 
deduction shall be allowed under subsection (a) with respect to 
property which is used predominantly outside the United States or with 
respect to the portion of the cost of any property taken into account 
under section 179.
    ``(e) Basis Reduction.--
            ``(1) In general.--For purposes of this title, the basis of 
        any property shall be reduced by the amount of the deduction 
        with respect to such property which is allowed by subsection 
        (a).
            ``(2) Ordinary income recapture.--For purposes of section 
        1245, the amount of the deduction allowable under subsection 
        (a) with respect to any property that is of a character subject 
        to the allowance for depreciation shall be treated as a 
        deduction allowed for depreciation under section 167.''.
    (b) Conforming Amendments.--
            (1) Section 263(a)(1), as amended by this Act, is amended 
        by striking ``or'' at the end of subparagraph (H), by striking 
        the period at the end of subparagraph (I) and inserting ``, 
        or'', and by inserting after subparagraph (I) the following new 
        subparagraph:
                    ``(J) expenditures for which a deduction is allowed 
                under section 179C.''.
            (2) Section 312(k)(3)(B), as amended by this Act, is 
        amended by striking ``or 179B'' each place it appears in the 
        heading and text and inserting ``, 179B, or 179C''.
            (3) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (31), by striking the 
        period at the end of paragraph (32) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(33) to the extent provided in section 179C(e)(1).''.
            (4) Section 1245(a), as amended by this Act, is amended by 
        inserting ``179C,'' after ``179B,'' both places it appears in 
        paragraphs (2)(C) and (3)(C).
            (5) The table of contents for subpart B of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 179B the 
        following new item:

                              ``Sec. 179C. Deduction for qualified new 
                                        or retrofitted energy 
                                        management devices.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to qualified energy management devices placed in service after 
the date of the enactment of this Act, in taxable years ending after 
such date.

SEC. 307. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF 
              QUALIFIED ENERGY MANAGEMENT DEVICES.

    (a) In General.--Subparagraph (A) of section 168(e)(3) (relating to 
classification of property) is amended by striking ``and'' at the end 
of clause (ii), by striking the period at the end of clause (iii) and 
inserting ``, and'', and by adding at the end the following new clause:
                            ``(iv) any qualified energy management 
                        device.''.
    (b) Definition of Qualified Energy Management Device.--Section 
168(i) (relating to definitions and special rules) is amended by 
inserting at the end the following new paragraph:
            ``(15) Qualified energy management device.--The term 
        `qualified energy management device' means any qualified energy 
        management device as defined in section 179C(c) which is placed 
        in service by a taxpayer who is a supplier of electric energy 
        or natural gas or a provider of electric energy or natural gas 
        services.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 308. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

    (a) In General.--Subparagraph (A) of section 48(a)(3) (defining 
energy property), as amended by this Act, is amended by striking ``or'' 
at the end of clause (ii), by adding ``or'' at the end of clause (iii), 
and by inserting after clause (iii) the following new clause:
                            ``(iv) combined heat and power system 
                        property,''.
    (b) Combined Heat and Power System Property.--Subsection (a) of 
section 48, as amended by this Act, is amended by redesignating 
paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by 
inserting after paragraph (4) the following new paragraph:
            ``(5) Combined heat and power system property.--For 
        purposes of this subsection--
                    ``(A) Combined heat and power system property.--The 
                term `combined heat and power system property' means 
                property comprising a system--
                            ``(i) which uses the same energy source for 
                        the simultaneous or sequential generation of 
                        electrical power, mechanical shaft power, or 
                        both, in combination with the generation of 
                        steam or other forms of useful thermal energy 
                        (including heating and cooling applications),
                            ``(ii) which has an electrical capacity of 
                        more than 50 kilowatts or a mechanical energy 
                        capacity of more than 67 horsepower or an 
                        equivalent combination of electrical and 
                        mechanical energy capacities,
                            ``(iii) which produces--
                                    ``(I) at least 20 percent of its 
                                total useful energy in the form of 
                                thermal energy, and
                                    ``(II) at least 20 percent of its 
                                total useful energy in the form of 
                                electrical or mechanical power (or 
                                combination thereof),
                            ``(iv) the energy efficiency percentage of 
                        which exceeds 60 percent (70 percent in the 
                        case of a system with an electrical capacity in 
                        excess of 50 megawatts or a mechanical energy 
                        capacity in excess of 67,000 horsepower, or an 
                        equivalent combination of electrical and 
                        mechanical energy capacities), and
                            ``(v) which is placed in service after 
                        December 31, 2002, and before January 1, 2007.
                    ``(B) Special rules.--
                            ``(i) Energy efficiency percentage.--For 
                        purposes of subparagraph (A)(iv), the energy 
                        efficiency percentage of a system is the 
                        fraction--
                                    ``(I) the numerator of which is the 
                                total useful electrical, thermal, and 
                                mechanical power produced by the system 
                                at normal operating rates, and expected 
                                to be consumed in its normal 
                                application, and
                                    ``(II) the denominator of which is 
                                the lower heating value of the primary 
                                fuel source for the system.
                            ``(ii) Determinations made on btu basis.--
                        The energy efficiency percentage and the 
                        percentages under subparagraph (A)(iii) shall 
                        be determined on a Btu basis.
                            ``(iii) Input and output property not 
                        included.--The term `combined heat and power 
                        system property' does not include property used 
                        to transport the energy source to the facility 
                        or to distribute energy produced by the 
                        facility.
                            ``(iv) Public utility property.--
                                    ``(I) Accounting rule for public 
                                utility property.--If the combined heat 
                                and power system property is public 
                                utility property (as defined in section 
                                168(i)(10)), the taxpayer may only 
                                claim the credit under the subsection 
                                if, with respect to such property, the 
                                taxpayer uses a normalization method of 
                                accounting.
                                    ``(II) Certain exception not to 
                                apply.--The matter following paragraph 
                                (3)(D) shall not apply to combined heat 
                                and power system property.
                    ``(C) Extension of depreciation recovery period.--
                If a taxpayer is allowed credit under this section for 
                combined heat and power system property and such 
                property would (but for this subparagraph) have a class 
                life of 15 years or less under section 168, such 
                property shall be treated as having a 22-year class 
                life for purposes of section 168.''.
    (c) No Carryback of Energy Credit Before Effective Date.--
Subsection (d) of section 39, as amended by this Act, is amended by 
adding at the end the following new paragraph:
            ``(15) No carryback of energy credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the energy credit with respect to 
        property described in section 48(a)(5) may be carried back to a 
        taxable year ending before January 1, 2003.''.
    (d) Conforming Amendments.--
                    (A) Section 25C(e)(6), as added by this Act, is 
                amended by striking ``section 48(a)(5)(C)'' and 
                inserting ``section 48(a)(6)(C)''.
                    (B) Section 29(b)(3)(A)(i)(III), as amended by this 
                Act, is amended by striking ``section 48(a)(5)(C)'' and 
                inserting ``section 48(a)(6)(C)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2002, in taxable 
years ending after such date.

SEC. 309. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits), as amended by this Act, 
is amended by inserting after section 25C the following new section:

``SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to 10 percent of the amount paid 
or incurred by the taxpayer for qualified energy efficiency 
improvements installed during such taxable year.
    ``(b) Limitations.--
            ``(1) Maximum credit.--The credit allowed by this section 
        with respect to a dwelling shall not exceed $300.
            ``(2) Prior credit amounts for taxpayer on same dwelling 
        taken into account.--If a credit was allowed to the taxpayer 
        under subsection (a) with respect to a dwelling in 1 or more 
        prior taxable years, the amount of the credit otherwise 
        allowable for the taxable year with respect to that dwelling 
        shall not exceed the amount of $300 reduced by the sum of the 
        credits allowed under subsection (a) to the taxpayer with 
        respect to the dwelling for all prior taxable years.
            ``(3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 23) and 
                section 27 for the taxable year.
    ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by subsection (b)(3) for 
any taxable year, such excess shall be carried to the succeeding 
taxable year and added to the credit allowable under subsection (a) for 
such succeeding taxable year.
    ``(d) Qualified Energy Efficiency Improvements.--For purposes of 
this section, the term `qualified energy efficiency improvements' means 
any energy efficient building envelope component which is certified to 
meet or exceed the prescriptive criteria for such component in the 2000 
International Energy Conservation Code, or any combination of energy 
efficiency measures which are certified as achieving at least a 30 
percent reduction in heating and cooling energy usage for the dwelling 
(as measured in terms of energy cost to the taxpayer), if--
            ``(1) such component or combination of measures is 
        installed in or on a dwelling--
                    ``(A) located in the United States, and
                    ``(B) owned and used by the taxpayer as the 
                taxpayer's principal residence (within the meaning of 
                section 121),
            ``(2) the original use of such component or combination of 
        measures commences with the taxpayer, and
            ``(3) such component or combination of measures reasonably 
        can be expected to remain in use for at least 5 years.
    ``(e) Certification.--
            ``(1) Methods of certification.--
                    ``(A) Component-based method.--The certification 
                described in subsection (d) for any component described 
                in such subsection shall be determined on the basis of 
                applicable energy efficiency ratings (including product 
                labeling requirements) for affected building envelope 
                components.
                    ``(B) Performance-based method.--
                            ``(i) In general.--The certification 
                        described in subsection (d) for any combination 
                        of measures described in such subsection shall 
                        be--
                                    ``(I) determined by comparing the 
                                projected heating and cooling energy 
                                usage for the dwelling to such usage 
                                for such dwelling in its original 
                                condition, and
                                    ``(II) accompanied by a written 
                                analysis documenting the proper 
                                application of a permissible energy 
                                performance calculation method to the 
                                specific circumstances of such 
                                dwelling.
                            ``(ii) Computer software.--Computer 
                        software shall be used in support of a 
                        performance-based method certification under 
                        clause (i). Such software shall meet procedures 
                        and methods for calculating energy and cost 
                        savings in regulations promulgated by the 
                        Secretary of Energy. Such regulations on the 
                        specifications for software and verification 
                        protocols shall be based on the 2001 California 
                        Residential Alternative Calculation Method 
                        Approval Manual.
            ``(2) Provider.--A certification described in subsection 
        (d) shall be provided by--
                    ``(A) in the case of the method described in 
                paragraph (1)(A), by a third party, such as a local 
                building regulatory authority, a utility, a 
                manufactured home production inspection primary 
                inspection agency (IPIA), or a home energy rating 
                organization, or
                    ``(B) in the case of the method described in 
                paragraph (1)(B), an individual recognized by an 
                organization designated by the Secretary for such 
                purposes.
            ``(3) Form.--A certification described in subsection (d) 
        shall be made in writing on forms which specify in readily 
        inspectable fashion the energy efficient components and other 
        measures and their respective efficiency ratings, and which 
        include a permanent label affixed to the electrical 
        distribution panel of the dwelling.
            ``(4) Regulations.--
                    ``(A) In general.--In prescribing regulations under 
                this subsection for certification methods described in 
                paragraph (1)(B), the Secretary, after examining the 
                requirements for energy consultants and home energy 
                ratings providers specified by the Mortgage Industry 
                National Accreditation Procedures for Home Energy 
                Rating Systems, shall prescribe procedures for 
                calculating annual energy usage and cost reductions for 
                heating and cooling and for the reporting of the 
                results. Such regulations shall--
                            ``(i) provide that any calculation 
                        procedures be fuel neutral such that the same 
                        energy efficiency measures allow a dwelling to 
                        be eligible for the credit under this section 
                        regardless of whether such dwelling uses a gas 
                        or oil furnace or boiler or an electric heat 
                        pump, and
                            ``(ii) require that any computer software 
                        allow for the printing of the Federal tax forms 
                        necessary for the credit under this section and 
                        for the printing of forms for disclosure to the 
                        owner of the dwelling.
                    ``(B) Providers.--For purposes of paragraph (2)(B), 
                the Secretary shall establish requirements for the 
                designation of individuals based on the requirements 
                for energy consultants and home energy raters specified 
                by the Mortgage Industry National Accreditation 
                Procedures for Home Energy Rating Systems.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Dollar amounts in case of joint occupancy.--In the 
        case of any dwelling unit which is jointly occupied and used 
        during any calendar year as a residence by 2 or more 
        individuals the following shall apply:
                    ``(A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures for the 
                qualified energy efficiency improvements made during 
                such calendar year by any of such individuals with 
                respect to such dwelling unit shall be determined by 
                treating all of such individuals as 1 taxpayer whose 
                taxable year is such calendar year.
                    ``(B) There shall be allowable, with respect to 
                such expenditures to each of such individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount determined under subparagraph (A) 
                as the amount of such expenditures made by such 
                individual during such calendar year bears to the 
                aggregate of such expenditures made by all of such 
                individuals during such calendar year.
            ``(2) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having paid his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of the cost of qualified energy efficiency 
        improvements made by such corporation.
            ``(3) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which the individual 
                owns, such individual shall be treated as having paid 
                the individual's proportionate share of the cost of 
                qualified energy efficiency improvements made by such 
                association.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
            ``(4) Building envelope component.--The term `building 
        envelope component' means--
                    ``(A) insulation material or system which is 
                specifically and primarily designed to reduce the heat 
                loss or gain or a dwelling when installed in or on such 
                dwelling, and
                    ``(B) exterior windows (including skylights) and 
                doors.
            ``(5) Manufactured homes included.--For purposes of this 
        section, the term `dwelling' includes a manufactured home which 
        conforms to Federal Manufactured Home Construction and Safety 
Standards (24 CFR 3280).
    ``(g) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section for any expenditure with respect to any 
property, the increase in the basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed.
    ``(h) Application of Section.--Subsection (a) shall apply to 
qualified energy efficiency improvements installed during the period 
beginning on the date of the enactment of this section and ending on 
December 31, 2006.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016, as amended by this Act, 
        is amended by striking ``and'' at the end of paragraph (32), by 
        striking the period at the end of paragraph (33) and inserting 
        ``; and'', and by adding at the end the following new 
        paragraph:
            ``(34) to the extent provided in section 25D(f), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25D.''.
            (2) Section 24(b)(3)(B), as amended by this Act, is amended 
        by striking ``and 25C'' and inserting ``25C, and 25D''.
            (3) Section 25(e)(1)(C), as amended by this Act, is amended 
        by inserting ``25D,'' after ``25C,''.
            (4) Section 25B(g)(2), as amended by this Act, is amended 
        by striking ``23 and 25C'' and inserting ``23, 25C, and 25D''.
            (5) Section 26(a)(1), as amended by this Act, is amended by 
        striking ``and 25C'' and inserting ``25C, and 25D''.
            (6) Section 904(h), as amended by this Act, is amended by 
        striking ``and 25C'' and inserting ``25C, and 25D''.
            (7) Section 1400C(d), as amended by this Act, is amended by 
        striking ``and 25C'' and inserting ``25C, and 25D''.
            (8) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 25C the 
        following new item:

                              ``Sec. 25D. Energy efficiency 
                                        improvements to existing 
                                        homes.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on or after the date of the enactment of 
this Act.

                    TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements 
        in Existing Coal-Based Electricity Generation Facilities

SEC. 401. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY 
              UNIT.

    (a) Credit for Production From a Qualifying Clean Coal Technology 
Unit.--Subpart D of part IV of subchapter A of chapter 1 (relating to 
business related credits), as amended by this Act, is amended by adding 
at the end the following new section:

``SEC. 45I. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL 
              TECHNOLOGY UNIT.

    ``(a) General Rule.--For purposes of section 38, the qualifying 
clean coal technology production credit of any taxpayer for any taxable 
year is equal to the product of--
            ``(1) the applicable amount of clean coal technology 
        production credit, multiplied by
            ``(2) the applicable percentage of the kilowatt hours of 
        electricity produced by the taxpayer during such taxable year 
        at a qualifying clean coal technology unit, but only if such 
        production occurs during the 10-year period beginning on the 
        date the unit was returned to service after becoming a 
        qualifying clean coal technology unit.
    ``(b) Applicable Amount.--
            ``(1) In general.--For purposes of this section, the 
        applicable amount of clean coal technology production credit is 
        equal to $0.0034.
            ``(2) Inflation adjustment.--For calendar years after 2003, 
        the applicable amount of clean coal technology production 
        credit shall be adjusted by multiplying such amount by the 
        inflation adjustment factor for the calendar year in which the 
        amount is applied. If any amount as increased under the 
        preceding sentence is not a multiple of 0.01 cent, such amount 
        shall be rounded to the nearest multiple of 0.01 cent.
    ``(c) Applicable Percentage.--For purposes of this section, with 
respect to any qualifying clean coal technology unit, the applicable 
percentage is the percentage equal to the ratio which the portion of 
the national megawatt capacity limitation allocated to the taxpayer 
with respect to such unit under subsection (e) bears to the total 
megawatt capacity of such unit.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualifying clean coal technology unit.--The term 
        `qualifying clean coal technology unit' means a clean coal 
        technology unit of the taxpayer which--
                    ``(A) on the date of the enactment of this section 
                was a coal-based electricity generating steam 
                generator-turbine unit which was not a clean coal 
                technology unit,
                    ``(B) has a nameplate capacity rating of not more 
                than 300,000 kilowatts,
                    ``(C) becomes a clean coal technology unit as the 
                result of the retrofitting, repowering, or replacement 
                of the unit with clean coal technology during the 10-
                year period beginning on the date of the enactment of 
                this section,
                    ``(D) is not receiving nor is scheduled to receive 
                funding under the Clean Coal Technology Program, the 
                Power Plant Improvement Initiative, or the Clean Coal 
                Power Initiative administered by the Secretary of 
                Energy, and
                    ``(E) receives an allocation of a portion of the 
                national megawatt capacity limitation under subsection 
                (e).
            ``(2) Clean coal technology unit.--The term `clean coal 
        technology unit' means a unit which--
                    ``(A) uses clean coal technology, including 
                advanced pulverized coal or atmospheric fluidized bed 
                combustion, pressurized fluidized bed combustion, 
                integrated gasification combined cycle, or any other 
                technology for the production of electricity,
                    ``(B) uses coal to produce 75 percent or more of 
                its thermal output as electricity,
                    ``(C) has a design net heat rate of at least 500 
                less than that of such unit as described in paragraph 
                (1)(A),
                    ``(D) has a maximum design net heat rate of not 
                more than 9,500, and
                    ``(E) meets the pollution control requirements of 
                paragraph (3).
            ``(3) Pollution control requirements.--
                    ``(A) In general.--A unit meets the requirements of 
                this paragraph if--
                            ``(i) its emissions of sulfur dioxide, 
                        nitrogen oxide, or particulates meet the lower 
                        of the emission levels for each such emission 
                        specified in--
                                    ``(I) subparagraph (B), or
                                    ``(II) the new source performance 
                                standards of the Clean Air Act (42 
                                U.S.C. 7411) which are in effect for 
                                the category of source at the time of 
                                the retrofitting, repowering, or 
                                replacement of the unit, and
                            ``(ii) its emissions do not exceed any 
                        relevant emission level specified by regulation 
                        pursuant to the hazardous air pollutant 
                        requirements of the Clean Air Act (42 U.S.C. 
                        7412) in effect at the time of the 
                        retrofitting, repowering, or replacement.
                    ``(B) Specific levels.--The levels specified in 
                this subparagraph are--
                            ``(i) in the case of sulfur dioxide 
                        emissions, 50 percent of the sulfur dioxide 
                        emission levels specified in the new source 
                        performance standards of the Clean Air Act (42 
                        U.S.C. 7411) in effect on the date of the 
                        enactment of this section for the category of 
                        source,
                            ``(ii) in the case of nitrogen oxide 
                        emissions--
                                    ``(I) 0.1 pound per million Btu of 
                                heat input if the unit is not a 
                                cyclone-fired boiler, and
                                    ``(II) if the unit is a cyclone-
                                fired boiler, 15 percent of the 
                                uncontrolled nitrogen oxide emissions 
                                from such boilers, and
                            ``(iii) in the case of particulate 
                        emissions, 0.02 pound per million Btu of heat 
                        input.
            ``(4) Design net heat rate.--The design net heat rate with 
        respect to any unit, measured in Btu per kilowatt hour (HHV)--
                    ``(A) shall be based on the design annual heat 
                input to and the design annual net electrical output 
                from such unit (determined without regard to such 
                unit's co-generation of steam),
                    ``(B) shall be adjusted for the heat content of the 
                design coal to be used by the unit if it is less than 
                12,000 Btu per pound according to the following 
                formula:
        Design net heat rate = Unit net heat rate X [l- {((12,000-
        design coal heat content, Btu per pound)/1,000) X 0.013}], and
                    ``(C) shall be corrected for the site reference 
                conditions of--
            ``(i) elevation above sea level of 500 feet,
            ``(ii) air pressure of 14.4 pounds per square inch absolute 
        (psia),
            ``(iii) temperature, dry bulb of 63 deg.F,
            ``(iv) temperature, wet bulb of 54 deg.F, and
            ``(v) relative humidity of 55 percent.
            ``(5) HHV.--The term `HHV' means higher heating value.
            ``(6) Application of certain rules.--The rules of 
        paragraphs (3), (4), and (5) of section 45(d) shall apply.
            ``(7) Inflation adjustment factor.--
                    ``(A) In general.--The term `inflation adjustment 
                factor' means, with respect to a calendar year, a 
                fraction the numerator of which is the GDP implicit 
                price deflator for the preceding calendar year and the 
                denominator of which is the GDP implicit price deflator 
                for the calendar year 2002.
                    ``(B) GDP implicit price deflator.--The term `GDP 
                implicit price deflator' means the most recent revision 
                of the implicit price deflator for the gross domestic 
                product as computed by the Department of Commerce 
                before March 15 of the calendar year.
            ``(8) Noncompliance with pollution laws.--For purposes of 
        this section, a unit which is not in compliance with the 
        applicable State and Federal pollution prevention, control, and 
        permit requirements for any period of time shall not be 
        considered to be a qualifying clean coal technology unit during 
        such period.
    ``(e) National Limitation on the Aggregate Capacity of Qualifying 
Clean Coal Technology Units.--
            ``(1) In general.--For purposes of subsection (d)(1)(E), 
        the national megawatt capacity limitation for qualifying clean 
        coal technology units is 4,000 megawatts.
            ``(2) Allocation of limitation.--The Secretary shall 
        allocate the national megawatt capacity limitation for 
        qualifying clean coal technology units in such manner as the 
        Secretary may prescribe under the regulations under paragraph 
        (3).
            ``(3) Regulations.--Not later than 6 months after the date 
        of the enactment of this section, the Secretary shall prescribe 
        such regulations as may be necessary or appropriate--
                    ``(A) to carry out the purposes of this subsection,
                    ``(B) to limit the capacity of any qualifying clean 
                coal technology unit to which this section applies so 
                that the combined megawatt capacity allocated to all 
                such units under this subsection when all such units 
                are placed in service during the 10-year period 
                described in subsection (d)(1)(C), does not exceed 
                4,000 megawatts,
                    ``(C) to provide a certification process under 
                which the Secretary, in consultation with the Secretary 
                of Energy, shall approve and allocate the national 
                megawatt capacity limitation--
                            ``(i) to encourage that units with the 
                        highest thermal efficiencies, when adjusted for 
                        the heat content of the design coal and site 
                        reference conditions described in subsection 
                        (d)(4)(C), and environmental performance be 
                        placed in service as soon as possible,
                            ``(ii) to allocate capacity to taxpayers 
                        that have a definite and credible plan for 
                        placing into commercial operation a qualifying 
                        clean coal technology unit, including--
                                    ``(I) a site,
                                    ``(II) contractual commitments for 
                                procurement and construction or, in the 
                                case of regulated utilities, the 
                                agreement of the State utility 
                                commission,
                                    ``(III) filings for all necessary 
                                preconstruction approvals,
                                    ``(IV) a demonstrated record of 
                                having successfully completed 
                                comparable projects on a timely basis, 
                                and
                                    ``(V) such other factors that the 
                                Secretary determines are appropriate,
                    ``(D) to allocate the national megawatt capacity 
                limitation to a portion of the capacity of a qualifying 
                clean coal technology unit if the Secretary determines 
                that such an allocation would maximize the amount of 
                efficient production encouraged with the available tax 
                credits,
                    ``(E) to set progress requirements and conditional 
                approvals so that capacity allocations for clean coal 
                technology units that become unlikely to meet the 
                necessary conditions for qualifying can be reallocated 
by the Secretary to other clean coal technology units, and
                    ``(F) to provide taxpayers with opportunities to 
                correct administrative errors and omissions with 
                respect to allocations and record keeping within a 
                reasonable period after discovery, taking into account 
                the availability of regulations and other 
                administrative guidance from the Secretary.''.
    (b) Credit Treated as Business Credit.--Section 38(b), as amended 
by this Act, is amended by striking ``plus'' at the end of paragraph 
(18), by striking the period at the end of paragraph (19) and inserting 
``, plus'', and by adding at the end the following new paragraph:
            ``(20) the qualifying clean coal technology production 
        credit determined under section 45I(a).''.
    (c) Transitional Rule.--Section 39(d) (relating to transitional 
rules), as amended by this Act, is amended by adding at the end the 
following new paragraph:
            ``(16) No carryback of section 45i credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the qualifying clean coal 
        technology production credit determined under section 45I may 
        be carried back to a taxable year ending on or before the date 
        of the enactment of section 45I.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

``Sec. 45I. Credit for production from a qualifying clean coal 
                            technology unit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to production after the date of the enactment of this Act, in 
taxable years ending after such date.

 Subtitle B--Incentives for Early Commercial Applications of Advanced 
                        Clean Coal Technologies

SEC. 411. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    (a) Allowance of Qualifying Advanced Clean Coal Technology Unit 
Credit.--Section 46 (relating to amount of credit) is amended by 
striking ``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``, and'', and by adding at the 
end the following new paragraph:
            ``(4) the qualifying advanced clean coal technology unit 
        credit.''.
    (b) Amount of Qualifying Advanced Clean Coal Technology Unit 
Credit.--Subpart E of part IV of subchapter A of chapter 1 (relating to 
rules for computing investment credit) is amended by inserting after 
section 48 the following new section:

``SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT.

    ``(a) In General.--For purposes of section 46, the qualifying 
advanced clean coal technology unit credit for any taxable year is an 
amount equal to 10 percent of the applicable percentage of the 
qualified investment in a qualifying advanced clean coal technology 
unit for such taxable year.
    ``(b) Qualifying Advanced Clean Coal Technology Unit.--
            ``(1) In general.--For purposes of subsection (a), the term 
        `qualifying advanced clean coal technology unit' means an 
        advanced clean coal technology unit of the taxpayer--
                    ``(A)(i)(I) in the case of a unit first placed in 
                service after the date of the enactment of this 
                section, the original use of which commences with the 
                taxpayer, or
                    ``(II) in the case of the retrofitting or 
                repowering of a unit first placed in service before 
                such date of enactment, the retrofitting or repowering 
                of which is completed by the taxpayer after such date, 
                or
                    ``(ii) which is acquired through purchase (as 
                defined by section 179(d)(2)),
                    ``(B) which is depreciable under section 167,
                    ``(C) which has a useful life of not less than 4 
                years,
                    ``(D) which is located in the United States,
                    ``(E) which is not receiving nor is scheduled to 
                receive funding under the Clean Coal Technology 
                Program, the Power Plant Improvement Initiative, or the 
                Clean Coal Power Initiative administered by the 
                Secretary of Energy,
                    ``(F) which is not a qualifying clean coal 
                technology unit, and
                    ``(G) which receives an allocation of a portion of 
                the national megawatt capacity limitation under 
                subsection (f).
            ``(2) Special rule for sale-leasebacks.--For purposes of 
        subparagraph (A) of paragraph (1), in the case of a unit 
        which--
                    ``(A) is originally placed in service by a person, 
                and
                    ``(B) is sold and leased back by such person, or is 
                leased to such person, within 3 months after the date 
                such unit was originally placed in service, for a 
                period of not less than 12 years,
        such unit shall be treated as originally placed in service not 
        earlier than the date on which such unit is used under the 
        leaseback (or lease) referred to in subparagraph (B). The 
        preceding sentence shall not apply to any property if the 
        lessee and lessor of such property make an election under this 
        sentence. Such an election, once made, may be revoked only with 
        the consent of the Secretary.
            ``(3) Noncompliance with pollution laws.--For purposes of 
        this subsection, a unit which is not in compliance with the 
        applicable State and Federal pollution prevention, control, and 
        permit requirements for any period of time shall not be 
        considered to be a qualifying advanced clean coal technology 
        unit during such period.
    ``(c) Applicable Percentage.--For purposes of this section, with 
respect to any qualifying advanced clean coal technology unit, the 
applicable percentage is the percentage equal to the ratio which the 
portion of the national megawatt capacity limitation allocated to the 
taxpayer with respect to such unit under subsection (f) bears to the 
total megawatt capacity of such unit.
    ``(d) Advanced Clean Coal Technology Unit.--For purposes of this 
section--
            ``(1) In general.--The term `advanced clean coal technology 
        unit' means a new, retrofit, or repowering unit of the taxpayer 
        which--
                    ``(A) is--
                            ``(i) an eligible advanced pulverized coal 
                        or atmospheric fluidized bed combustion 
                        technology unit,
                            ``(ii) an eligible pressurized fluidized 
                        bed combustion technology unit,
                            ``(iii) an eligible integrated gasification 
                        combined cycle technology unit, or
                            ``(iv) an eligible other technology unit, 
                        and
                    ``(B) meets the carbon emission rate requirements 
                of paragraph (6).
            ``(2) Eligible advanced pulverized coal or atmospheric 
        fluidized bed combustion technology unit.--The term `eligible 
        advanced pulverized coal or atmospheric fluidized bed 
        combustion technology unit' means a clean coal technology unit 
        using advanced pulverized coal or atmospheric fluidized bed 
        combustion technology which--
                    ``(A) is placed in service after the date of the 
                enactment of this section and before January 1, 2013, 
                and
                    ``(B) has a design net heat rate of not more than 
                8,350 (8,750 in the case of units placed in service 
                before 2009).
            ``(3) Eligible pressurized fluidized bed combustion 
        technology unit.--The term `eligible pressurized fluidized bed 
        combustion technology unit' means a clean coal technology unit 
        using pressurized fluidized bed combustion technology which--
                    ``(A) is placed in service after the date of the 
                enactment of this section and before January 1, 2017, 
                and
                    ``(B) has a design net heat rate of not more than 
                7,720 (8,750 in the case of units placed in service 
                before 2009, and 8,350 in the case of units placed in 
                service after 2008 and before 2013).
            ``(4) Eligible integrated gasification combined cycle 
        technology unit.--The term `eligible integrated gasification 
        combined cycle technology unit' means a clean coal technology 
        unit using integrated gasification combined cycle technology, 
        with or without fuel or chemical co-production, which--
                    ``(A) is placed in service after the date of the 
                enactment of this section and before January 1, 2017,
                    ``(B) has a design net heat rate of not more than 
                7,720 (8,750 in the case of units placed in service 
                before 2009, and 8,350 in the case of units placed in 
                service after 2008 and before 2013), and
                    ``(C) has a net thermal efficiency (HHV) using coal 
                with fuel or chemical co-production of not less than 
                43.9 percent (39 percent in the case of units placed in 
                service before 2009, and 40.9 percent in the case of 
                units placed in service after 2008 and before 2013).
            ``(5) Eligible other technology unit.--The term `eligible 
        other technology unit' means a clean coal technology unit using 
        any other technology for the production of electricity which is 
        placed in service after the date of the enactment of this 
        section and before January 1, 2017.
            ``(6) Carbon emission rate requirements.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a unit meets the requirements of this 
                paragraph if--
                            ``(i) in the case of a unit using design 
                        coal with a heat content of not more than 9,000 
                        Btu per pound, the carbon emission rate is less 
                        than 0.60 pound of carbon per kilowatt hour, 
                        and
                            ``(ii) in the case of a unit using design 
                        coal with a heat content of more than 9,000 Btu 
                        per pound, the carbon emission rate is less 
                        than 0.54 pound of carbon per kilowatt hour.
                    ``(B) Eligible other technology unit.--In the case 
                of an eligible other technology unit, subparagraph (A) 
                shall be applied by substituting `0.51' and `0.459' for 
                `0.60' and `0.54', respectively.
    ``(e) General Definitions.--Any term used in this section which is 
also used in section 45I shall have the meaning given such term in 
section 45I.
    ``(f) National Limitation on the Aggregate Capacity of Advanced 
Clean Coal Technology Units.--
            ``(1) In general.--For purposes of subsection (b)(1)(G), 
        the national megawatt capacity limitation is--
                    ``(A) for qualifying advanced clean coal technology 
                units using advanced pulverized coal or atmospheric 
                fluidized bed combustion technology, not more than 
                1,000 megawatts (not more than 500 megawatts in the 
                case of units placed in service before 2009),
                    ``(B) for such units using pressurized fluidized 
                bed combustion technology, not more than 500 megawatts 
                (not more than 250 megawatts in the case of units 
                placed in service before 2009),
                    ``(C) for such units using integrated gasification 
                combined cycle technology, with or without fuel or 
                chemical co-production, not more than 2,000 megawatts 
                (not more than 1,000 megawatts in the case of units 
                placed in service before 2009 and not more than 1,500 
                megawatts in the case of units placed in service after 
                2008 and before 2013), and
                    ``(D) for such units using other technology for the 
                production of electricity, not more than 500 megawatts 
                (not more than 250 megawatts in the case of units 
placed in service before 2009).
            ``(2) Allocation of limitation.--The Secretary shall 
        allocate the national megawatt capacity limitation for 
        qualifying advanced clean coal technology units in such manner 
        as the Secretary may prescribe under the regulations under 
        paragraph (3).
            ``(3) Regulations.--Not later than 6 months after the date 
        of the enactment of this section, the Secretary shall prescribe 
        such regulations as may be necessary or appropriate--
                    ``(A) to carry out the purposes of this subsection 
                and section 45J,
                    ``(B) to limit the capacity of any qualifying 
                advanced clean coal technology unit to which this 
                section applies so that the combined megawatt capacity 
                of all such units to which this section applies does 
                not exceed 4,000 megawatts,
                    ``(C) to provide a certification process described 
                in section 45I(e)(3)(C),
                    ``(D) to carry out the purposes described in 
                subparagraphs (D), (E), and (F) of section 45I(e)(3), 
                and
                    ``(E) to reallocate capacity which is not allocated 
                to any technology described in subparagraphs (A) 
                through (D) of paragraph (1) because an insufficient 
                number of qualifying units request an allocation for 
                such technology, to another technology described in 
                such subparagraphs in order to maximize the amount of 
                energy efficient production encouraged with the 
                available tax credits.
            ``(4) Selection criteria.--For purposes of paragraph 
        (3)(C), the selection criteria for allocating the national 
        megawatt capacity limitation to qualifying advanced clean coal 
        technology units--
                    ``(A) shall be established by the Secretary of 
                Energy as part of a competitive solicitation,
                    ``(B) shall include primary criteria of minimum 
                design net heat rate, maximum design thermal 
                efficiency, environmental performance, and lowest cost 
                to the Government, and
                    ``(C) shall include supplemental criteria as 
                determined appropriate by the Secretary of Energy.
    ``(g) Qualified Investment.--For purposes of subsection (a), the 
term `qualified investment' means, with respect to any taxable year, 
the basis of a qualifying advanced clean coal technology unit placed in 
service by the taxpayer during such taxable year (in the case of a unit 
described in subsection (b)(1)(A)(i)(II), only that portion of the 
basis of such unit which is properly attributable to the retrofitting 
or repowering of such unit).
    ``(h) Qualified Progress Expenditures.--
            ``(1) Increase in qualified investment.--In the case of a 
        taxpayer who has made an election under paragraph (5), the 
        amount of the qualified investment of such taxpayer for the 
        taxable year (determined under subsection (g) without regard to 
        this subsection) shall be increased by an amount equal to the 
        aggregate of each qualified progress expenditure for the 
        taxable year with respect to progress expenditure property.
            ``(2) Progress expenditure property defined.--For purposes 
        of this subsection, the term `progress expenditure property' 
        means any property being constructed by or for the taxpayer and 
        which it is reasonable to believe will qualify as a qualifying 
        advanced clean coal technology unit which is being constructed 
        by or for the taxpayer when it is placed in service.
            ``(3) Qualified progress expenditures defined.--For 
        purposes of this subsection--
                    ``(A) Self-constructed property.--In the case of 
                any self-constructed property, the term `qualified 
                progress expenditures' means the amount which, for 
                purposes of this subpart, is properly chargeable 
                (during such taxable year) to capital account with 
                respect to such property.
                    ``(B) Nonself-constructed property.--In the case of 
                nonself-constructed property, the term `qualified 
                progress expenditures' means the amount paid during the 
                taxable year to another person for the construction of 
                such property.
            ``(4) Other definitions.--For purposes of this subsection--
                    ``(A) Self-constructed property.--The term `self-
                constructed property' means property for which it is 
                reasonable to believe that more than half of the 
                construction expenditures will be made directly by the 
                taxpayer.
                    ``(B) Nonself-constructed property.--The term 
                `nonself-constructed property' means property which is 
                not self-constructed property.
                    ``(C) Construction, etc.--The term `construction' 
                includes reconstruction and erection, and the term 
                `constructed' includes reconstructed and erected.
                    ``(D) Only construction of qualifying advanced 
                clean coal technology unit to be taken into account.--
                Construction shall be taken into account only if, for 
                purposes of this subpart, expenditures therefor are 
                properly chargeable to capital account with respect to 
                the property.
            ``(5) Election.--An election under this subsection may be 
        made at such time and in such manner as the Secretary may by 
        regulations prescribe. Such an election shall apply to the 
        taxable year for which made and to all subsequent taxable 
        years. Such an election, once made, may not be revoked except 
        with the consent of the Secretary.
    ``(i) Coordination With Other Credits.--This section shall not 
apply to any property with respect to which the rehabilitation credit 
under section 47 or the energy credit under section 48 is allowed 
unless the taxpayer elects to waive the application of such credit to 
such property.''.
    (c) Recapture.--Section 50(a) (relating to other special rules) is 
amended by adding at the end the following new paragraph:
            ``(6) Special rules relating to qualifying advanced clean 
        coal technology unit.--For purposes of applying this subsection 
        in the case of any credit allowable by reason of section 48A, 
        the following shall apply:
                    ``(A) General rule.--In lieu of the amount of the 
                increase in tax under paragraph (1), the increase in 
                tax shall be an amount equal to the investment tax 
                credit allowed under section 38 for all prior taxable 
                years with respect to a qualifying advanced clean coal 
                technology unit (as defined by section 48A(b)(1)) 
                multiplied by a fraction whose numerator is the number 
                of years remaining to fully depreciate under this title 
                the qualifying advanced clean coal technology unit 
                disposed of, and whose denominator is the total number 
                of years over which such unit would otherwise have been 
                subject to depreciation. For purposes of the preceding 
                sentence, the year of disposition of the qualifying 
                advanced clean coal technology unit shall be treated as 
                a year of remaining depreciation.
                    ``(B) Property ceases to qualify for progress 
                expenditures.--Rules similar to the rules of paragraph 
(2) shall apply in the case of qualified progress expenditures for a 
qualifying advanced clean coal technology unit under section 48A, 
except that the amount of the increase in tax under subparagraph (A) of 
this paragraph shall be substituted for the amount described in such 
paragraph (2).
                    ``(C) Application of paragraph.--This paragraph 
                shall be applied separately with respect to the credit 
                allowed under section 38 regarding a qualifying 
                advanced clean coal technology unit.''.
    (d) Transitional Rule.--Section 39(d) (relating to transitional 
rules), as amended by this Act, is amended by adding at the end the 
following new paragraph:
            ``(17) No carryback of section 48a credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the qualifying advanced clean 
        coal technology unit credit determined under section 48A may be 
        carried back to a taxable year ending on or before the date of 
        the enactment of section 48A.''.
    (e) Technical Amendments.--
            (1) Section 49(a)(1)(C) is amended by striking ``and'' at 
        the end of clause (ii), by striking the period at the end of 
        clause (iii) and inserting ``, and'', and by adding at the end 
        the following new clause:
                            ``(iv) the portion of the basis of any 
                        qualifying advanced clean coal technology unit 
                        attributable to any qualified investment (as 
                        defined by section 48A(g)).''.
            (2) Section 50(a)(4) is amended by striking ``and (2)'' and 
        inserting ``(2), and (6)''.
            (3) Section 50(c) is amended by adding at the end the 
        following new paragraph:
            ``(6) Nonapplication.--Paragraphs (1) and (2) shall not 
        apply to any qualifying advanced clean coal technology unit 
        credit under section 48A.''.
            (4) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 48 the following new item:

``Sec. 48A. Qualifying advanced clean coal technology unit credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to periods after the date of the enactment of this Act, under 
rules similar to the rules of section 48(m) of the Internal Revenue 
Code of 1986 (as in effect on the day before the date of the enactment 
of the Revenue Reconciliation Act of 1990).

SEC. 412. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY UNIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45J. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY UNIT.

    ``(a) General Rule.--For purposes of section 38, the qualifying 
advanced clean coal technology production credit of any taxpayer for 
any taxable year is equal to--
            ``(1) the applicable amount of advanced clean coal 
        technology production credit, multiplied by
            ``(2) the applicable percentage (as determined under 
        section 48A(c)) of the sum of--
                    ``(A) the kilowatt hours of electricity, plus
                    ``(B) each 3,413 Btu of fuels or chemicals,
        produced by the taxpayer during such taxable year at a 
        qualifying advanced clean coal technology unit during the 10-
        year period beginning on the date the unit was originally 
        placed in service (or returned to service after becoming a 
        qualifying advanced clean coal technology unit).
    ``(b) Applicable Amount.--For purposes of this section, the 
applicable amount of advanced clean coal technology production credit 
with respect to production from a qualifying advanced clean coal 
technology unit shall be determined as follows:
            ``(1) Where the qualifying advanced clean coal technology 
        unit is producing electricity only:
                    ``(A) In the case of a unit originally placed in 
                service before 2009, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
 ``The design net heat rate  -------------------------------------------
             is:               For 1st 5 years of     For 2d 5 years of
                                  such service          such service
------------------------------------------------------------------------
Not more than 8,400.........         $.0060                $.0038
More than 8,400 but not more         $.0025                $.0010
 than 8,550.
More than 8,550 but less             $.0010                $.0010.
 than 8,750.
------------------------------------------------------------------------

                    ``(B) In the case of a unit originally placed in 
                service after 2008 and before 2013, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
 ``The design net heat rate  -------------------------------------------
             is:               For 1st 5 years of     For 2d 5 years of
                                  such service          such service
------------------------------------------------------------------------
Not more than 7,770.........         $.0105                $.0090
More than 7,770 but not more         $.0085                $.0068
 than 8,125.
More than 8,125 but less             $.0075                $.0055.
 than 8,350.
------------------------------------------------------------------------

                    ``(C) In the case of a unit originally placed in 
                service after 2012 and before 2017, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
 ``The design net heat rate  -------------------------------------------
             is:               For 1st 5 years of     For 2d 5 years of
                                  such service          such service
------------------------------------------------------------------------
Not more than 7,380.........         $.0140                $.0115
More than 7,380 but not more         $.0120                $.0090.
 than 7,720.
------------------------------------------------------------------------

            ``(2) Where the qualifying advanced clean coal technology 
        unit is producing fuel or chemicals:
                    ``(A) In the case of a unit originally placed in 
                service before 2009, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
    ``The unit design net    -------------------------------------------
thermal efficiency (HHV) is:   For 1st 5 years of     For 2d 5 years of
                                  such service          such service
------------------------------------------------------------------------
Not less than 40.6 percent..         $.0060                $.0038
Less than 40.6 but not less          $.0025                $.0010
 than 40 percent.
Less than 40 but not less            $.0010                $.0010.
 than 39 percent.
------------------------------------------------------------------------

                    ``(B) In the case of a unit originally placed in 
                service after 2008 and before 2013, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
    ``The unit design net    -------------------------------------------
thermal efficiency (HHV) is:   For 1st 5 years of     For 2d 5 years of
                                  such service          such service
------------------------------------------------------------------------
Not less than 43.6 percent..         $.0105                $.0090
Less than 43.6 but not less          $.0085                $.0068
 than 42 percent.
Less than 42 but not less            $.0075                $.0055.
 than 40.9 percent.
------------------------------------------------------------------------

                    ``(C) In the case of a unit originally placed in 
                service after 2012 and before 2017, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
    ``The unit design net    -------------------------------------------
thermal efficiency (HHV) is:   For 1st 5 years of     For 2d 5 years of
                                  such service          such service
------------------------------------------------------------------------
Not less than 44.2 percent..         $.0140                $.0115
Less than 44.2 but not less          $.0120                $.0090.
 than 43.9 percent.
------------------------------------------------------------------------

    ``(c) Inflation Adjustment.--For calendar years after 2003, each 
amount in paragraphs (1) and (2) of subsection (b) shall be adjusted by 
multiplying such amount by the inflation adjustment factor for the 
calendar year in which the amount is applied. If any amount as 
increased under the preceding sentence is not a multiple of 0.01 cent, 
such amount shall be rounded to the nearest multiple of 0.01 cent.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) In general.--Any term used in this section which is 
        also used in section 45I or 48A shall have the meaning given 
        such term in such section.
            ``(2) Applicable rules.--The rules of paragraphs (3), (4), 
        and (5) of section 45(d) shall apply.''.
    (b) Credit Treated as Business Credit.--Section 38(b), as amended 
by this Act, is amended by striking ``plus'' at the end of paragraph 
(19), by striking the period at the end of paragraph (20) and inserting 
``, plus'', and by adding at the end the following new paragraph:
            ``(21) the qualifying advanced clean coal technology 
        production credit determined under section 45J(a).''.
    (c) Transitional Rule.--Section 39(d) (relating to transitional 
rules), as amended by this Act, is amended by adding at the end the 
following new paragraph:
            ``(18) No carryback of section 45j credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the qualifying advanced clean 
        coal technology production credit determined under section 45J 
        may be carried back to a taxable year ending on or before the 
        date of the enactment of section 45J.''.
    (d) Denial of Double Benefit.--Section 29(d) (relating to other 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
            ``(9) Denial of double benefit.--This section shall not 
        apply with respect to any qualified fuel the production of 
        which may be taken into account for purposes of determining the 
        credit under section 45J.''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

``Sec. 45J. Credit for production from a qualifying advanced clean coal 
                            technology unit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to production after the date of the enactment of this Act, in 
taxable years ending after such date.

     Subtitle C--Treatment of Persons Not Able To Use Entire Credit

SEC. 421. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

    (a) In General.--Section 45I, as added by this Act, is amended by 
adding at the end the following new subsection:
    ``(f) Treatment of Person Not Able To Use Entire Credit.--
            ``(1) Allowance of credits.--
                    ``(A) In general.--Any credit allowable under this 
                section, section 45J, or section 48A with respect to a 
                facility owned by a person described in subparagraph 
                (B) may be transferred or used as provided in this 
                subsection, and the determination as to whether the 
                credit is allowable shall be made without regard to the 
                tax-exempt status of the person.
                    ``(B) Persons described.--A person is described in 
                this subparagraph if the person is--
                            ``(i) an organization described in section 
                        501(c)(12)(C) and exempt from tax under section 
                        501(a),
                            ``(ii) an organization described in section 
                        1381(a)(2)(C),
                            ``(iii) a public utility (as defined in 
                        section 136(c)(2)(B)),
                            ``(iv) any State or political subdivision 
                        thereof, the District of Columbia, or any 
                        agency or instrumentality of any of the 
                        foregoing,
                            ``(v) any Indian tribal government (within 
                        the meaning of section 7871) or any agency or 
                        instrumentality thereof, or
                            ``(vi) the Tennessee Valley Authority.
            ``(2) Transfer of credit.--
                    ``(A) In general.--A person described in clause 
                (i), (ii), (iii), (iv), or (v) of paragraph (1)(B) may 
                transfer any credit to which paragraph (1)(A) applies 
                through an assignment to any other person not described 
                in paragraph (1)(B). Such transfer may be revoked only 
                with the consent of the Secretary.
                    ``(B) Regulations.--The Secretary shall prescribe 
                such regulations as necessary to insure that any credit 
                described in subparagraph (A) is claimed once and not 
                reassigned by such other person.
                    ``(C) Transfer proceeds treated as arising from 
                essential government function.--Any proceeds derived by 
                a person described in clause (iii), (iv), or (v) of 
                paragraph (1)(B) from the transfer of any credit under 
                subparagraph (A) shall be treated as arising from the 
                exercise of an essential government function.
            ``(3) Use of credit as an offset.--Notwithstanding any 
        other provision of law, in the case of a person described in 
        clause (i), (ii), or (v) of paragraph (1)(B), any credit to 
        which paragraph (1)(A) applies may be applied by such person, 
        to the extent provided by the Secretary of Agriculture, as a 
        prepayment of any loan, debt, or other obligation the entity 
        has incurred under subchapter I of chapter 31 of title 7 of the 
        Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), as in 
        effect on the date of the enactment of this section.
            ``(4) Use by tva.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, in the case of a person described in 
                paragraph (1)(B)(vi), any credit to which paragraph 
                (1)(A) applies may be applied as a credit against the 
                payments required to be made in any fiscal year under 
                section 15d(e) of the Tennessee Valley Authority Act of 
                1933 (16 U.S.C. 831n-4(e)) as an annual return on the 
                appropriations investment and an annual repayment sum.
                    ``(B) Treatment of credits.--The aggregate amount 
                of credits described in paragraph (1)(A) with respect 
                to such person shall be treated in the same manner and 
                to the same extent as if such credits were a payment in 
                cash and shall be applied first against the annual 
                return on the appropriations investment.
                    ``(C) Credit carryover.--With respect to any fiscal 
                year, if the aggregate amount of credits described in 
                paragraph (1)(A) with respect to such person exceeds 
                the aggregate amount of payment obligations described 
                in subparagraph (A), the excess amount shall remain 
                available for application as credits against the 
                amounts of such payment obligations in succeeding 
                fiscal years in the same manner as described in this 
                paragraph.
            ``(5) Credit not income.--Any transfer under paragraph (2) 
        or use under paragraph (3) of any credit to which paragraph 
        (1)(A) applies shall not be treated as income for purposes of 
section 501(c)(12).
            ``(6) Treatment of unrelated persons.--For purposes of this 
        subsection, sales among and between persons described in 
        clauses (i), (ii), (iii), (iv), and (v) of paragraph (1)(A) 
        shall be treated as sales between unrelated parties.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to production after the date of the enactment of this Act, in taxable 
years ending after such date.

                    TITLE V--OIL AND GAS PROVISIONS

SEC. 501. OIL AND GAS FROM MARGINAL WELLS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business credits), as amended by this Act, is amended by 
adding at the end the following new section:

``SEC. 45K. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

    ``(a) General Rule.--For purposes of section 38, the marginal well 
production credit for any taxable year is an amount equal to the 
product of--
            ``(1) the credit amount, and
            ``(2) the qualified credit oil production and the qualified 
        natural gas production which is attributable to the taxpayer.
    ``(b) Credit Amount.--For purposes of this section--
            ``(1) In general.--The credit amount is--
                    ``(A) $3 per barrel of qualified crude oil 
                production, and
                    ``(B) 50 cents per 1,000 cubic feet of qualified 
                natural gas production.
            ``(2) Reduction as oil and gas prices increase.--
                    ``(A) In general.--The $3 and 50 cents amounts 
                under paragraph (1) shall each be reduced (but not 
                below zero) by an amount which bears the same ratio to 
                such amount (determined without regard to this 
                paragraph) as--
                            ``(i) the excess (if any) of the applicable 
                        reference price over $15 ($1.67 for qualified 
                        natural gas production), bears to
                            ``(ii) $3 ($0.33 for qualified natural gas 
                        production).
                The applicable reference price for a taxable year is 
                the reference price of the calendar year preceding the 
                calendar year in which the taxable year begins.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2002, 
                each of the dollar amounts contained in subparagraph 
                (A) shall be increased to an amount equal to such 
                dollar amount multiplied by the inflation adjustment 
                factor for such calendar year (determined under section 
                43(b)(3)(B) by substituting `2001' for `1990').
                    ``(C) Reference price.--For purposes of this 
                paragraph, the term `reference price' means, with 
                respect to any calendar year--
                            ``(i) in the case of qualified crude oil 
                        production, the reference price determined 
                        under section 29(d)(2)(C), and
                            ``(ii) in the case of qualified natural gas 
                        production, the Secretary's estimate of the 
                        annual average wellhead price per 1,000 cubic 
                        feet for all domestic natural gas.
    ``(c) Qualified Crude Oil and Natural Gas Production.--For purposes 
of this section--
            ``(1) In general.--The terms `qualified crude oil 
        production' and `qualified natural gas production' mean 
        domestic crude oil or natural gas which is produced from a 
        qualified marginal well.
            ``(2) Limitation on amount of production which may 
        qualify.--
                    ``(A) In general.--Crude oil or natural gas 
                produced during any taxable year from any well shall 
                not be treated as qualified crude oil production or 
                qualified natural gas production to the extent 
                production from the well during the taxable year 
                exceeds 1,095 barrels or barrel equivalents.
                    ``(B) Proportionate reductions.--
                            ``(i) Short taxable years.--In the case of 
                        a short taxable year, the limitations under 
                        this paragraph shall be proportionately reduced 
                        to reflect the ratio which the number of days 
                        in such taxable year bears to 365.
                            ``(ii) Wells not in production entire 
                        year.--In the case of a well which is not 
                        capable of production during each day of a 
                        taxable year, the limitations under this 
                        paragraph applicable to the well shall be 
                        proportionately reduced to reflect the ratio 
                        which the number of days of production bears to 
                        the total number of days in the taxable year.
            ``(3) Definitions.--
                    ``(A) Qualified marginal well.--The term `qualified 
                marginal well' means a domestic well--
                            ``(i) the production from which during the 
                        taxable year is treated as marginal production 
                        under section 613A(c)(6), or
                            ``(ii) which, during the taxable year--
                                    ``(I) has average daily production 
                                of not more than 25 barrel equivalents, 
                                and
                                    ``(II) produces water at a rate not 
                                less than 95 percent of total well 
                                effluent.
                    ``(B) Crude oil, etc.--The terms `crude oil', 
                `natural gas', `domestic', and `barrel' have the 
                meanings given such terms by section 613A(e).
                    ``(C) Barrel equivalent.--The term `barrel 
                equivalent' means, with respect to natural gas, a 
                conversation ratio of 6,000 cubic feet of natural gas 
                to 1 barrel of crude oil.
    ``(d) Other Rules.--
            ``(1) Production attributable to the taxpayer.--In the case 
        of a qualified marginal well in which there is more than one 
        owner of operating interests in the well and the crude oil or 
        natural gas production exceeds the limitation under subsection 
        (c)(2), qualifying crude oil production or qualifying natural 
        gas production attributable to the taxpayer shall be determined 
        on the basis of the ratio which taxpayer's revenue interest in 
        the production bears to the aggregate of the revenue interests 
        of all operating interest owners in the production.
            ``(2) Operating interest required.--Any credit under this 
        section may be claimed only on production which is attributable 
        to the holder of an operating interest.
            ``(3) Production from nonconventional sources excluded.--In 
        the case of production from a qualified marginal well which is 
        eligible for the credit allowed under section 29 for the 
        taxable year, no credit shall be allowable under this section 
        unless the taxpayer elects not to claim the credit under 
        section 29 with respect to the well.
            ``(4) Noncompliance with pollution laws.--For purposes of 
        subsection (c)(3)(A), a marginal well which is not in 
        compliance with the applicable State and Federal pollution 
        prevention, control, and permit requirements for any period of 
        time shall not be considered to be a qualified marginal well 
        during such period.''.
    (b) Credit Treated as Business Credit.--Section 38(b), as amended 
by this Act, is amended by striking ``plus'' at the end of paragraph 
(20), by striking the period at the end of paragraph (21) and inserting 
``, plus'', and by adding at the end the following new paragraph:
            ``(22) the marginal oil and gas well production credit 
        determined under section 45K(a).''.
    (c) No Carryback of Marginal Oil and Gas Well Production Credit 
Before Effective Date.--Subsection (d) of section 39, as amended by 
this Act, is amended by adding at the end the following new paragraph:
            ``(19) No carryback of marginal oil and gas well production 
        credit before effective date.--No portion of the unused 
        business credit for any taxable year which is attributable to 
        the marginal oil and gas well production credit determined 
        under section 45K may be carried back to a taxable year ending 
        on or before the date of the enactment of section 45K.''.
    (d) Coordination With Section 29.--Section 29(a) is amended by 
striking ``There'' and inserting ``At the election of the taxpayer, 
there''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

                              ``Sec. 45K. Credit for producing oil and 
                                        gas from marginal wells.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to production in taxable years beginning after the date of the 
enactment of this Act.

SEC. 502. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.

    (a) In General.--Subparagraph (C) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (i), by redesignating clause (ii) as clause (iii), 
and by inserting after clause (i) the following new clause:
                            ``(ii) any natural gas gathering line, 
                        and''.
    (b) Natural Gas Gathering Line.--Subsection (i) of section 168, as 
amended by this Act, is amended by adding at the end the following new 
paragraph:
            ``(16) Natural gas gathering line.--The term `natural gas 
        gathering line' means--
                    ``(A) the pipe, equipment, and appurtenances 
                determined to be a gathering line by the Federal Energy 
                Regulatory Commission, or
                    ``(B) the pipe, equipment, and appurtenances used 
                to deliver natural gas from the wellhead or a 
                commonpoint to the point at which such gas first 
                reaches--
                            ``(i) a gas processing plant,
                            ``(ii) an interconnection with a 
                        transmission pipeline certificated by the 
                        Federal Energy Regulatory Commission as an 
                        interstate transmission pipeline,
                            ``(iii) an interconnection with an 
                        intrastate transmission pipeline, or
                            ``(iv) a direct interconnection with a 
                        local distribution company, a gas storage 
                        facility, or an industrial consumer.''.
    (c) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by inserting after the item relating to 
subparagraph (C)(i) the following new item:

``(C)(ii)......................................................   10''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 503. REPEAL OF REQUIREMENT OF CERTAIN APPROVED TERMINALS TO OFFER 
              DYED DIESEL FUEL AND KEROSENE FOR NONTAXABLE PURPOSES.

    (a) In General.--Section 4101 (relating to certain approved 
terminals of registered persons required to offer dyed diesel fuel and 
kerosene for nontaxable purposes) is amended by striking subsection 
(e).
    (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 2002.

SEC. 504. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH 
              ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations), as amended by 
this Act, is amended by inserting after section 179C the following new 
section:

``SEC. 179D. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH 
              ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    ``(a) Treatment as Expense.--
            ``(1) In general.--A small business refiner may elect to 
        treat any qualified capital costs as an expense which is not 
        chargeable to capital account. Any qualified cost which is so 
        treated shall be allowed as a deduction for the taxable year in 
        which the cost is paid or incurred.
            ``(2) Limitation.--
                    ``(A) In general.--The aggregate costs which may be 
                taken into account under this subsection for any 
                taxable year may not exceed the applicable percentage 
                of the qualified capital costs paid or incurred for the 
                taxable year.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the applicable percentage is 75 
                        percent.
                            ``(ii) Reduced percentage.--In the case of 
                        a small business refiner with average daily 
                        refinery runs for the period described in 
                        subsection (b)(2) in excess of 155,000 barrels, 
                        the percentage described in clause (i) shall be 
                        reduced (not below zero) by the product of such 
                        percentage (before the application of this 
                        clause) and the ratio of such excess to 50,000 
                        barrels.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified capital costs.--The term `qualified capital 
        costs' means any costs which--
                    ``(A) are otherwise chargeable to capital account, 
                and
                    ``(B) are paid or incurred for the purpose of 
                complying with the Highway Diesel Fuel Sulfur Control 
                Requirement of the Environmental Protection Agency, as 
                in effect on the date of the enactment of this section, 
                with respect to a facility placed in service by the 
                taxpayer before such date.
            ``(2) Small business refiner.--The term `small business 
        refiner' means, with respect to any taxable year, a refiner of 
        crude oil, which, within the refinery operations of the 
        business, employs not more than 1,500 employees on any day 
        during such taxable year and whose average daily refinery run 
        for the 1-year period ending on the date of the enactment of 
        this section did not exceed 205,000 barrels.
    ``(c) Coordination With Other Provisions.--Section 280B shall not 
apply to amounts which are treated as expenses under this section.
    ``(d) Basis Reduction.--For purposes of this title, the basis of 
any property shall be reduced by the portion of the cost of such 
property taken into account under subsection (a).
    ``(e) Controlled Groups.--For purposes of this section, all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as a single employer.''.
    (b) Conforming Amendments.--
            (1) Section 263(a)(1), as amended by this Act, is amended 
        by striking ``or'' at the end of subparagraph (I), by striking 
        the period at the end of subparagraph (J) and inserting ``, 
        or'', and by inserting after subparagraph (J) the following new 
        subparagraph:
                    ``(K) expenditures for which a deduction is allowed 
                under section 179D.''.
            (2) Section 263A(c)(3) is amended by inserting ``179C,'' 
        after ``section''.
            (3) Section 312(k)(3)(B), as amended by this Act, is 
        amended by striking ``or 179C'' each place it appears in the 
        heading and text and inserting ``, 179C, or 179D''.
            (4) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (33), by striking the 
        period at the end of paragraph (34) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(35) to the extent provided in section 179D(d).''.
            (5) Section 1245(a), as amended by this Act, is amended by 
        inserting ``179D,'' after ``179C,'' both places it appears in 
        paragraphs (2)(C) and (3)(C).
            (6) The table of sections for part VI of subchapter B of 
        chapter 1, as amended by this Act, is amended by inserting 
        after section 179C the following new item:

``Sec. 179D. Deduction for capital costs incurred in complying with 
                            Environmental Protection Agency sulfur 
                            regulations.''.
    (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, in taxable years ending after such date.

SEC. 505. ENVIRONMENTAL TAX CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits), as amended by this Act, is 
amended by adding at the end the following new section:

``SEC. 45L. ENVIRONMENTAL TAX CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
environmental tax credit determined under this section with respect to 
any small business refiner for any taxable year is an amount equal to 5 
cents for every gallon of 15 parts per million or less sulfur diesel 
produced at a facility by such small business refiner during such 
taxable year.
    ``(b) Maximum Credit.--
            ``(1) In general.--For any small business refiner, the 
        aggregate amount determined under subsection (a) for any 
        taxable year with respect to any facility shall not exceed the 
        applicable percentage of the qualified capital costs paid or 
        incurred by such small business refiner with respect to such 
        facility during the applicable period, reduced by the credit 
        allowed under subsection (a) for any preceding year.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the applicable percentage is 25 
                percent.
                    ``(B) Reduced percentage.--The percentage described 
                in subparagraph (A) shall be reduced in the same manner 
                as under section 179D(a)(2)(B)(ii).
    ``(c) Definitions.--For purposes of this section--
            ``(1) In general.--The terms `small business refiner' and 
        `qualified capital costs' have the same meaning as given in 
        section 179D.
            ``(2) Applicable period.--The term `applicable period' 
        means, with respect to any facility, the period beginning on 
        the day after the date which is 1 year after the date of the 
        enactment of this section and ending with the date which is 1 
        year after the date on which the taxpayer must comply with the 
        applicable EPA regulations with respect to such facility.
            ``(3) Applicable epa regulations.--The term `applicable EPA 
        regulations' means the Highway Diesel Fuel Sulfur Control 
        Requirements of the Environmental Protection Agency, as in 
        effect on the date of the enactment of this section.
    ``(d) Certification.--
            ``(1) Required.--Not later than the date which is 30 months 
        after the first day of the first taxable year in which the 
        environmental tax credit is allowed with respect to qualified 
        capital costs paid or incurred with respect to a facility, the 
        small business refiner shall obtain a certification from the 
        Secretary, in consultation with the Administrator of the 
        Environmental Protection Agency, that the taxpayer's qualified 
        capital costs with respect to such facility will result in 
        compliance with the applicable EPA regulations.
            ``(2) Contents of application.--An application for 
        certification shall include relevant information regarding unit 
        capacities and operating characteristics sufficient for the 
        Secretary, in consultation with the Administrator of the 
        Environmental Protection Agency, to determine that such 
        qualified capital costs are necessary for compliance with the 
        applicable EPA regulations.
            ``(3) Review period.--Any application shall be reviewed and 
        notice of certification, if applicable, shall be made within 60 
        days of receipt of such application. In the event the Secretary 
        does not notify the taxpayer of the results of such 
        certification within such period, the taxpayer may presume the 
        certification to be issued until so notified.
            ``(4) Statute of limitations.--With respect to the credit 
        allowed under this section--
                    ``(A) the statutory period for the assessment of 
                any deficiency attributable to such credit shall not 
                expire before the end of the 3-year period ending on 
                the date that the review period described in paragraph 
                (3) ends, and
                    ``(B) such deficiency may be assessed before the 
                expiration of such 3-year period notwithstanding the 
                provisions of any other law or rule of law which would 
                otherwise prevent such assessment.
    ``(e) Controlled Groups.--For purposes of this section, all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as a single employer.
    ``(f) Cooperative Organizations.--
            ``(1) Apportionment of credit.--In the case of a 
        cooperative organization described in section 1381(a), any 
        portion of the credit determined under subsection (a) of this 
        section, for the taxable year may, at the election of the 
        organization, be apportioned among patrons eligible to share in 
        patronage dividends on the basis of the quantity or value of 
        business done with or for such patrons for the taxable year. 
        Such an election shall be irrevocable for such taxable year.
            ``(2) Treatment of organizations and patrons.--
                    ``(A) Organizations.--The amount of the credit not 
                apportioned to patrons pursuant to paragraph (1) shall 
                be included in the amount determined under subsection 
(a) for the taxable year of the organization.
                    ``(B) Patrons.--The amount of the credit 
                apportioned to patrons pursuant to paragraph (1) shall 
                be included in the amount determined under subsection 
                (a) for the first taxable year of each patron ending on 
                or after the last day of the payment period (as defined 
                in section 1382(d)) for the taxable year of the 
                organization or, if earlier, for the taxable year of 
                each patron ending on or after the date on which the 
                patron receives notice from the cooperative of the 
                apportionment.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to general business credit), as amended by this 
Act, is amended by striking ``plus'' at the end of paragraph (21), by 
striking the period at the end of paragraph (22) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(23) in the case of a small business refiner, the 
        environmental tax credit determined under section 45L(a).''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable), as amended by this Act, is 
amended by adding after subsection (d) the following new subsection:
    ``(e) Environmental Tax Credit.--No deduction shall be allowed for 
that portion of the expenses otherwise allowable as a deduction for the 
taxable year which is equal to the amount of the credit determined for 
the taxable year under section 45L(a).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

                              ``Sec. 45L. Environmental tax credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenses paid or incurred after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 506. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
              DEDUCTION.

    (a) In General.--Paragraph (4) of section 613A(d) (relating to 
certain refiners excluded) is amended to read as follows:
            ``(4) Certain refiners excluded.--If the taxpayer or 1 or 
        more related persons engages in the refining of crude oil, 
        subsection (c) shall not apply to the taxpayer for a taxable 
        year if the average daily refinery runs of the taxpayer and 
        such persons for the taxable year exceed 60,000 barrels. For 
        purposes of this paragraph, the average daily refinery runs for 
        any taxable year shall be determined by dividing the aggregate 
        refinery runs for the taxable year by the number of days in the 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 507. MARGINAL PRODUCTION INCOME LIMIT EXTENSION.

    (a) In General.--Section 613A(c)(6)(H) (relating to temporary 
suspension of taxable income limit with respect to marginal production) 
is amended by striking ``2002'' and inserting ``2007''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on and after January 1, 2002.

SEC. 508. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Part VI of subchapter B of chapter 1, as amended 
by this Act, is amended by adding at the end the following new section:

``SEC. 199. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES FOR 
              DOMESTIC OIL AND GAS WELLS.

    ``A taxpayer shall be entitled to an amortization deduction with 
respect to any geological and geophysical expenses incurred in 
connection with the exploration for, or development of, oil or gas 
within the United States (as defined in section 638) based on a period 
of 24 months beginning with the month in which such expenses were 
incurred.''.
    (b) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1, as amended by this Act, is amended by adding 
at the end the following new item:

``Sec. 199. Amortization of geological and geophysical expenditures for 
                            domestic oil and gas wells.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2002.

SEC. 509. AMORTIZATION OF DELAY RENTAL PAYMENTS.

    (a) In General.--Part VI of subchapter B of chapter 1, as amended 
by this Act, is amended by adding at the end the following new section:

``SEC. 199A. AMORTIZATION OF DELAY RENTAL PAYMENTS FOR DOMESTIC OIL AND 
              GAS WELLS.

    ``(a) In General.--A taxpayer shall be entitled to an amortization 
deduction with respect to any delay rental payments incurred in 
connection with the development of oil or gas within the United States 
(as defined in section 638) based on a period of 24 months beginning 
with the month in which such payments were incurred.''.
    ``(b) Delay Rental Payments.--For purposes of this section, the 
term `delay rental payment' means an amount paid for the privilege of 
deferring development of an oil or gas well under an oil or gas 
lease.''.
    (b) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1, as amended by this Act, is amended by adding 
at the end the following new item:

``Sec. 199A. Amortization of delay rental payments for domestic oil and 
                            gas wells.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2002.

SEC. 510. STUDY OF COAL BED METHANE.

    (a) In General.--The Secretary of the Treasury shall study the 
effect of section 29 of the Internal Revenue Code of 1986 on the 
production of coal bed methane. Such study shall be made in conjunction 
with the study to be undertaken by the Secretary of the Interior on the 
effects of coal bed methane production on surface and water resources, 
as provided in section 607 of the Energy Policy Act of 2002.
    (b) Contents of Study.--The study under subsection (a) shall 
estimate the total amount of credits under section 29 of the Internal 
Revenue Code of 1986 claimed annually and in the aggregate which are 
related to the production of coal bed methane since the date of the 
enactment of such section 29. Such study shall report the annual value 
of such credits allowable for coal bed methane compared to the average 
annual wellhead price of natural gas (per thousand cubic feet of 
natural gas). Such study shall also estimate the incremental increase 
in production of coal bed methane that has resulted from the enactment 
of such section 29, and the cost to the Federal Government, in terms of 
the net tax benefits claimed, per thousand cubic feet of incremental 
coal bed methane produced annually and in the aggregate since such 
enactment.

SEC. 511. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM 
              A NONCONVENTIONAL SOURCE.

    (a) In General.--Section 29 is amended by adding at the end the 
following new subsection:
    ``(h) Extension for Other Facilities.--
            ``(1) Oil and gas.--In the case of a well or facility for 
        producing qualified fuels described in subparagraph (A) or (B) 
        of subsection (c)(1) which was drilled or placed in service 
        after the date of the enactment of this subsection and before 
        January 1, 2005, notwithstanding subsection (f), this section 
        shall apply with respect to such fuels produced at such well or 
        facility not later than the close of the 3-year period 
        beginning on the date that such well is drilled or such 
        facility is placed in service.
            ``(2) Facilities producing refined coal.--
                    ``(A) In general.--In the case of a facility 
                described in subparagraph (C) for producing refined 
                coal which was placed in service after the date of the 
                enactment of this subsection and before January 1, 
                2007, this section shall apply with respect to fuel 
                produced at such facility not later than the close of 
                the 5-year period beginning on the date such facility 
                is placed in service.
                    ``(B) Refined coal.--For purposes of this 
                paragraph, the term `refined coal' means a fuel which 
                is a liquid, gaseous, or solid synthetic fuel produced 
                from coal (including lignite) or high carbon fly ash, 
                including such fuel used as a feedstock.
                    ``(C) Covered facilities.--
                            ``(i) In general.--A facility is described 
                        in this subparagraph if such facility produces 
                        refined coal using a technology that results 
                        in--
                                    ``(I) a qualified emission 
                                reduction, and
                                    ``(II) a qualified enhanced value.
                            ``(ii) Qualified emission reduction.--For 
                        purposes of this subparagraph, the term 
                        `qualified emission reduction' means a 
                        reduction of at least 20 percent of the 
                        emissions of sulfur dioxide and nitrogen oxide 
                        released when burning the refined coal 
                        (excluding any dilution caused by materials 
                        combined or added during the production 
                        process), as compared to the emissions released 
                        when burning the feedstock coal or comparable 
                        coal predominantly available in the marketplace 
                        as of January 1, 2002.
                            ``(iii) Qualified enhanced value.--For 
                        purposes of this subparagraph, the term 
                        `qualified enhanced value' means an increase of 
                        at least 50 percent in the market value of the 
                        refined coal (excluding any increase caused by 
                        materials combined or added during the 
                        production process), as compared to the value 
                        of the feedstock coal or comparable coal 
                        predominantly available in the marketplace as 
                        of January 1, 2002.
                            ``(iv) Qualifying advanced clean coal 
                        technology facilities excluded.--A facility 
                        described in this subparagraph shall not 
                        include a qualifying advanced clean coal 
                        technology facility (as defined in section 
                        48A(b)).
            ``(3) Wells producing viscous oil.--
                    ``(A) In general.--In the case of a well for 
                producing viscous oil which was placed in service after 
                the date of the enactment of this subsection and before 
                January 1, 2005, this section shall apply with respect 
                to fuel produced at such well not later than the close 
                of the 3-year period beginning on the date such well is 
                placed in service.
                    ``(B) Viscous oil.--The term ``viscous oil' means 
                heavy oil, as defined in section 613A(c)(6), except 
                that--
                            ``(i) `22 degrees' shall be substituted for 
                        `20 degrees' in applying subparagraph (F) 
                        thereof, and
                            ``(ii) in all cases, the oil gravity shall 
                        be measured from the initial well-head samples, 
                        drill cuttings, or down hole samples.
                    ``(C) Waiver of unrelated person requirement.--In 
                the case of viscous oil, the requirement under 
                subsection (a)(1)(B)(i) of a sale to an unrelated 
                person shall not apply to any sale to the extent that 
                the viscous oil is not consumed in the immediate 
                vicinity of the wellhead.
            ``(4) Coalmine methane gas.--
                    ``(A) In general.--This section shall apply to 
                coalmine methane gas--
                            ``(i) captured or extracted by the taxpayer 
                        after the date of the enactment of this 
                        subsection and before January 1, 2005, and
                            ``(ii) utilized as a fuel source or sold by 
                        or on behalf of the taxpayer to an unrelated 
                        person after the date of the enactment of this 
                        subsection and before January 1, 2005.
                    ``(B) Coalmine methane gas.--For purposes of this 
                paragraph, the term `coalmine methane gas' means any 
                methane gas which is--
                            ``(i) liberated during qualified coal 
                        mining operations, or
                            ``(ii) extracted up to 5 years in advance 
                        of qualified coal mining operations as part of 
                        a specific plan to mine a coal deposit.
                    ``(C) Special rule for advanced extraction.--In the 
                case of coalmine methane gas which is captured in 
                advance of qualified coal mining operations, the credit 
                under subsection (a) shall be allowed only after the 
                date the coal extraction occurs in the immediate area 
                where the coalmine methane gas was removed.
                    ``(D) Noncompliance with pollution laws.--For 
                purposes of subparagraphs (B) and (C), coal mining 
                operations which are not in compliance with the 
                applicable State and Federal pollution prevention, 
                control, and permit requirements for any period of time 
                shall not be considered to be qualified coal mining 
                operations during such period.
            ``(5) Credit amount.--In the case of fuels sold from 
        facilities described in this subsection, the dollar amount 
        applicable under subsection (a)(1) shall be $3 (without regard 
        to subsection (b)(2)).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to fuel sold after the date of the enactment of this Act.

SEC. 512. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.

    (a) In General.--Subparagraph (E) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (ii), by striking the period at the end of clause 
(iii) and by inserting ``, and'', and by adding at the end the 
following new clause:
                            ``(iv) any natural gas distribution 
                        line.''.
    (b) Alternative System.--The table contained in section 
168(g)(3)(B), as amended by this Act, is amended by adding after the 
item relating to subparagraph (E)(iii) the following new item:

``(E)(iv)......................................................   20''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

          TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

SEC. 601. ONGOING STUDY AND REPORTS REGARDING TAX ISSUES RESULTING FROM 
              FUTURE RESTRUCTURING DECISIONS.

    (a) Ongoing Study.--The Secretary of the Treasury, after 
consultation with the Federal Energy Regulatory Commission, shall 
undertake an ongoing study of Federal tax issues resulting from non-tax 
decisions on the restructuring of the electric industry. In particular, 
the study shall focus on the effect on tax-exempt bonding authority of 
public power entities and on corporate restructuring which results from 
the restructuring of the electric industry.
    (b) Regulatory Relief.--In connection with the study described in 
subsection (a), the Secretary of the Treasury should exercise the 
Secretary's authority, as appropriate, to modify or suspend regulations 
that may impede an electric utility company's ability to reorganize its 
capital stock structure to respond to a competitive marketplace.
    (c) Reports.--The Secretary of the Treasury shall report to the 
Committee on Finance of the Senate and the Committee on Ways and Means 
of the House of Representatives not later than December 31, 2002, 
regarding Federal tax issues identified under the study described in 
subsection (a), and at least annually thereafter, regarding such issues 
identified since the preceding report. Such reports shall also include 
such legislative recommendations regarding changes to the private 
business use rules under subpart A of part IV of subchapter B of 
chapter 1 of the Internal Revenue Code of 1986 as the Secretary of the 
Treasury deems necessary. The reports shall continue until such time as 
the Federal Energy Regulatory Commission has completed the 
restructuring of the electric industry.

SEC. 602. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING 
              COSTS.

    (a) Repeal of Limitation on Deposits Into Fund Based on Cost of 
Service; Contributions After Funding Period.--Subsection (b) of section 
468A is amended to read as follows:
    ``(b) Limitation on Amounts Paid Into Fund.--The amount which a 
taxpayer may pay into the Fund for any taxable year shall not exceed 
the ruling amount applicable to such taxable year.''.
    (b) Clarification of Treatment of Fund Transfers.--Subsection (e) 
of section 468A is amended by adding at the end the following new 
paragraph:
            ``(8) Treatment of fund transfers.--If, in connection with 
        the transfer of the taxpayer's interest in a nuclear 
        powerplant, the taxpayer transfers the Fund with respect to 
        such powerplant to the transferee of such interest and the 
        transferee elects to continue the application of this section 
        to such Fund--
                    ``(A) the transfer of such Fund shall not cause 
                such Fund to be disqualified from the application of 
                this section, and
                    ``(B) no amount shall be treated as distributed 
                from such Fund, or be includible in gross income, by 
                reason of such transfer.''.
    (c) Deduction for Nuclear Decommissioning Costs When Paid.--
Paragraph (2) of section 468A(c) is amended to read as follows:
            ``(2) Deduction of nuclear decommissioning costs.--In 
        addition to any deduction under subsection (a), nuclear 
        decommissioning costs paid or incurred by the taxpayer during 
        any taxable year shall constitute ordinary and necessary 
        expenses in carrying on a trade or business under section 
        162.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 603. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

    (a) Income From Open Access and Nuclear Decommissioning 
Transactions.--
            (1) In general.--Subparagraph (C) of section 501(c)(12) is 
        amended by striking ``or'' at the end of clause (i), by 
        striking clause (ii), and by adding at the end the following 
        new clauses:
                            ``(ii) from any open access transaction 
                        (other than income received or accrued directly 
                        or indirectly from a member),
                            ``(iii) from any nuclear decommissioning 
                        transaction,
                            ``(iv) from any asset exchange or 
                        conversion transaction, or
                            ``(v) from the prepayment of any loan, 
                        debt, or obligation made, insured, or 
                        guaranteed under the Rural Electrification Act 
                        of 1936.''.
            (2) Definitions and special rules.--Paragraph (12) of 
        section 501(c) is amended by adding at the end the following 
        new subparagraphs:
                    ``(E) For purposes of subparagraph (C)(ii)--
                            ``(i) The term `open access transaction' 
                        means any transaction meeting the open access 
                        requirements of any of the following subclauses 
                        with respect to a mutual or cooperative 
                        electric company:
                                    ``(I) The provision or sale of 
                                transmission service or ancillary 
                                services meets the open access 
                                requirements of this subclause only if 
                                such services are provided on a 
                                nondiscriminatory open access basis 
                                pursuant to an open access transmission 
                                tariff filed with and approved by FERC, 
                                including an acceptable reciprocity 
                                tariff, or under a regional 
                                transmission organization agreement 
                                approved by FERC.
                                    ``(II) The provision or sale of 
                                electric energy distribution services 
                                or ancillary services meets the open 
                                access requirements of this subclause 
                                only if such services are provided on a 
                                nondiscriminatory open access basis to 
                                end-users served by distribution 
                                facilities owned by the mutual or 
                                cooperative electric company (or its 
                                members).
                                    ``(III) The delivery or sale of 
                                electric energy generated by a 
                                generation facility meets the open 
                                access requirements of this subclause 
                                only if such facility is directly 
                                connected to distribution facilities 
                                owned by the mutual or cooperative 
                                electric company (or its members) which 
                                owns the generation facility, and such 
                                distribution facilities meet the open 
                                access requirements of subclause (II).
                            ``(ii) Clause (i)(I) shall apply in the 
                        case of a voluntarily filed tariff only if the 
                        mutual or cooperative electric company files a 
                        report with FERC within 90 days after the date 
                        of the enactment of this subparagraph relating 
                        to whether or not such company will join a 
regional transmission organization.
                            ``(iii) A mutual or cooperative electric 
                        company shall be treated as meeting the open 
                        access requirements of clause (i)(I) if a 
                        regional transmission organization controls the 
                        transmission facilities.
                            ``(iv) References to FERC in this 
                        subparagraph shall be treated as including 
                        references to the Public Utility Commission of 
                        Texas with respect to any ERCOT utility (as 
                        defined in section 212(k)(2)(B) of the Federal 
                        Power Act (16 U.S.C. 824k(k)(2)(B))) or 
                        references to the Rural Utilities Service with 
                        respect to any other facility not subject to 
                        FERC jurisdiction.
                            ``(v) For purposes of this subparagraph--
                                    ``(I) The term `transmission 
                                facility' means an electric output 
                                facility (other than a generation 
                                facility) that operates at an electric 
                                voltage of 69 kV or greater. To the 
                                extent provided in regulations, such 
                                term includes any output facility that 
                                FERC determines is a transmission 
                                facility under standards applied by 
                                FERC under the Federal Power Act (as in 
                                effect on the date of the enactment of 
                                the Energy Tax Incentives Act of 2002).
                                    ``(II) The term `regional 
                                transmission organization' includes an 
                                independent system operator.
                                    ``(III) The term `FERC' means the 
                                Federal Energy Regulatory Commission.
                    ``(F) The term `nuclear decommissioning 
                transaction' means--
                            ``(i) any transfer into a trust, fund, or 
                        instrument established to pay any nuclear 
                        decommissioning costs if the transfer is in 
                        connection with the transfer of the mutual or 
                        cooperative electric company's interest in a 
                        nuclear powerplant or nuclear powerplant unit,
                            ``(ii) any distribution from any trust, 
                        fund, or instrument established to pay any 
                        nuclear decommissioning costs, or
                            ``(iii) any earnings from any trust, fund, 
                        or instrument established to pay any nuclear 
                        decommissioning costs.
                    ``(G) The term `asset exchange or conversion 
                transaction' means any voluntary exchange or 
                involuntary conversion of any property related to 
                generating, transmitting, distributing, or selling 
                electric energy by a mutual or cooperative electric 
                company, the gain from which qualifies for deferred 
                recognition under section 1031 or 1033, but only if the 
                replacement property acquired by such company pursuant 
                to such section constitutes property which is used, or 
                to be used, for--
                            ``(i) generating, transmitting, 
                        distributing, or selling electric energy, or
                            ``(ii) producing, transmitting, 
                        distributing, or selling natural gas.''.
    (b) Treatment of Income From Load Loss Transactions.--Paragraph 
(12) of section 501(c), as amended by subsection (a)(2), is amended by 
adding after subparagraph (G) the following new subparagraph:
                    ``(H)(i) In the case of a mutual or cooperative 
                electric company described in this paragraph or an 
                organization described in section 1381(a)(2)(C), income 
                received or accrued from a load loss transaction shall 
                be treated as an amount collected from members for the 
                sole purpose of meeting losses and expenses.
                    ``(ii) For purposes of clause (i), the term `load 
                loss transaction' means any wholesale or retail sale of 
                electric energy (other than to members) to the extent 
                that the aggregate sales during the recovery period 
                does not exceed the load loss mitigation sales limit 
                for such period.
                    ``(iii) For purposes of clause (ii), the load loss 
                mitigation sales limit for the recovery period is the 
                sum of the annual load losses for each year of such 
                period.
                    ``(iv) For purposes of clause (iii), a mutual or 
                cooperative electric company's annual load loss for 
                each year of the recovery period is the amount (if any) 
                by which--
                            ``(I) the megawatt hours of electric energy 
                        sold during such year to members of such 
                        electric company are less than
                            ``(II) the megawatt hours of electric 
                        energy sold during the base year to such 
                        members.
                    ``(v) For purposes of clause (iv)(II), the term 
                `base year' means--
                            ``(I) the calendar year preceding the 
                        start-up year, or
                            ``(II) at the election of the electric 
                        company, the second or third calendar years 
                        preceding the start-up year.
                    ``(vi) For purposes of this subparagraph, the 
                recovery period is the 7-year period beginning with the 
                start-up year.
                    ``(vii) For purposes of this subparagraph, the 
                start-up year is the calendar year which includes the 
                date of the enactment of this subparagraph or, if 
                later, at the election of the mutual or cooperative 
                electric company--
                            ``(I) the first year that such electric 
                        company offers nondiscriminatory open access, 
                        or
                            ``(II) the first year in which at least 10 
                        percent of such electric company's sales are 
                        not to members of such electric company.
                    ``(viii) A company shall not fail to be treated as 
                a mutual or cooperative company for purposes of this 
                paragraph or as a corporation operating on a 
                cooperative basis for purposes of section 1381(a)(2)(C) 
                by reason of the treatment under clause (i).
                    ``(ix) In the case of a mutual or cooperative 
                electric company, income from any open access 
                transaction received, or accrued, indirectly from a 
                member shall be treated as an amount collected from 
                members for the sole purpose of meeting losses and 
                expenses.''.
    (c) Exception From Unrelated Business Taxable Income.--Subsection 
(b) of section 512 (relating to modifications) is amended by adding at 
the end the following new paragraph:
            ``(18) Treatment of mutual or cooperative electric 
        companies.--In the case of a mutual or cooperative electric 
        company described in section 501(c)(12), there shall be 
        excluded income which is treated as member income under 
        subparagraph (H) thereof.''.
    (d) Cross Reference.--Section 1381 is amended by adding at the end 
the following new subsection:
    ``(c) Cross Reference.--

                                ``For treatment of income from load 
loss transactions of organizations described in subsection (a)(2)(C), 
see section 501(c)(12)(H).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

                    TITLE VII--ADDITIONAL PROVISIONS

SEC. 701. EXTENSION OF ACCELERATED DEPRECIATION AND WAGE CREDIT 
              BENEFITS ON INDIAN RESERVATIONS.

    (a) Special Recovery Period for Property on Indian Reservations.--
Section 168(j)(8) (relating to termination) is amended by striking 
``2003'' and inserting ``2005''.
    (b) Indian Employment Credit.--Section 45A(f) (relating to 
termination) is amended by striking ``2003'' and inserting ``2005''.

SEC. 702. STUDY OF EFFECTIVENESS OF CERTAIN PROVISIONS BY GAO.

    (a) Study.--The Comptroller General of the United States shall 
undertake an ongoing analysis of--
            (1) the effectiveness of the alternative motor vehicles and 
        fuel incentives provisions under title II and the conservation 
        and energy efficiency provisions under title III, and
            (2) the recipients of the tax benefits contained in such 
        provisions, including an identification of such recipients by 
        income and other appropriate measurements.
Such analysis shall quantify the effectiveness of such provisions by 
examining and comparing the Federal Government's forgone revenue to the 
aggregate amount of energy actually conserved and tangible 
environmental benefits gained as a result of such provisions.
    (b) Reports.--The Comptroller General of the United States shall 
report the analysis required under subsection (a) to Congress not later 
than December 31, 2002, and annually thereafter.




                                                       Calendar No. 320

107th CONGRESS

  2d Session

                                S. 1979

                          [Report No. 107-140]

_______________________________________________________________________

                                 A BILL

                   To provide energy tax incentives.

_______________________________________________________________________

                             March 1, 2002

                 Read twice and placed on the calendar