[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 596 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 596

To amend the Internal Revenue Code of 1986 to provide tax incentives to 
 encourage the production and use of efficient energy sources, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 22, 2001

  Mr. Bingaman (for himself, Mr. Daschle, Mr. Akaka, Mr. Baucus, Mr. 
Breaux, Ms. Cantwell, Mr. Dorgan, Mr. Leahy, Mr. Reid, Mr. Schumer, Mr. 
 Kennedy, Mr. Rockefeller, Mrs. Murray, and Mr. Torricelli) introduced 
the following bill; which was read twice and referred to the Committee 
                               on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide tax incentives to 
 encourage the production and use of efficient energy sources, and for 
                            other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Energy Security 
and Tax Incentive Policy Act of 2001''.
    (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; amendment of 1986 Code; table of contents.
          TITLE I--ENERGY-EFFICIENT PROPERTY USED IN BUSINESS

Sec. 101. Credit for energy-efficient property used in business.
Sec. 102. Energy Efficient Commercial Building Property Deduction.
Sec. 103. Credit for energy-efficient appliances.
                  TITLE II--RESIDENTIAL ENERGY SYSTEMS

Sec. 201. Business credit for construction of new energy-efficient 
                            home.
Sec. 202. Credit for energy efficiency improvements to existing homes.
Sec. 203. Credit for residential solar, wind, and fuel cell energy 
                            property.
            TITLE III--ELECTRICITY FACILITIES AND PRODUCTION

Sec. 301. Incentive for Distributed Generation.
Sec. 302. Modifications to credit for electricity produced from 
                            renewable and waste resources.
Sec. 303. Treatment of facilities using bagasse to produce energy as 
                            solid waste disposal facilities eligible 
                            for tax-exempt financing.
Sec. 304. Depreciation of property used in the transmission of 
                            electricity.
  TITLE IV--INCENTIVES FOR EARLY COMMERCIAL APPLICATIONS OF ADVANCED 
                        CLEAN COAL TECHNOLOGIES

Sec. 401. Credit for investment in qualifying advanced clean coal 
                            technology.
Sec. 402. Credit for production from qualifying advanced clean coal 
                            technology.
Sec. 403. Risk pool for qualifying advanced clean coal technology.
                   TITLE V--HEATING FUELS AND STORAGE

Sec. 501. Full expensing of propane storage facilities.
Sec. 502. Arbitrage rules not to apply to prepayments for natural gas 
                            and other commodities.
Sec. 503. Private loan financing test not to apply to prepayments for 
                            natural gas and other commodities.
        TITLE VI--OIL AND GAS PRODUCTION AND PETROLEUM PRODUCTS

Sec. 601. Credit for production of re-refined lubricating oil.
Sec. 602. Oil and gas from marginal wells.
Sec. 603. Deduction for delay rental payments.
Sec. 604. Election to expense geological and geophysical expenditures.
Sec. 605. Gas pipelines treated as 7-year property.
Sec. 606. Crude oil and natural gas development credit.
Sec. 607. Credit for capture of coalmine methane gas.
Sec. 608. Allocation of alcohol fuels credit to patrons of a 
                            cooperative.
Sec. 609. Extension of credit for producing fuel from a nonconventional 
                            source.

          TITLE I--ENERGY-EFFICIENT PROPERTY USED IN BUSINESS

SEC. 101. CREDIT FOR CERTAIN ENERGY-EFFICIENT PROPERTY USED IN 
              BUSINESS.

    (a) In General.--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:

``SEC. 48A. ENERGY CREDIT.

    ``(a) In General.--For purposes of section 46, the energy credit 
for any taxable year is the energy percentage of the basis of each 
energy property placed in service during such taxable year.
    ``(b) Energy Percentage.--
            ``(1) In general.--The energy percentage is--
                    ``(A) except as otherwise provided in this 
                subparagraph, 10 percent,
                    ``(B) in the case of energy property described in 
                clauses (i), (iii), and (vi) of subsection (c)(1)(A), 
                20 percent,
                    ``(C) in the case of energy property described in 
                subsection (c)(1)(A)(v), 15 percent,
                    ``(D) in the case of energy property described in 
                subsection (c)(1)(A)(ii) relating to a high risk 
                geothermal well, 20 percent, and
                    ``(E) in the case of energy property described in 
                subsection (c)(1)(A)(vii), 30 percent.
            ``(2) Coordination with rehabilitation.--The energy 
        percentage shall not apply to that portion of the basis of any 
        property which is attributable to qualified rehabilitation 
        expenditures.
    ``(c) Energy Property Defined.--
            ``(1) In general.--For purposes of this subpart, the term 
        `energy property' means any property--
                    ``(A) which is--
                            ``(i) solar energy property,
                            ``(ii) geothermal energy property,
                            ``(iii) energy-efficient building property 
                        other than property described in clauses 
                        (iii)(I) and (v)(I) of subsection (d)(3)(A),
                            ``(iv) combined heat and power system 
                        property,
                            ``(v) low core loss distribution 
                        transformer property,
                            ``(vi) qualified anaerobic digester 
                        property, or
                            ``(vii) qualified wind energy systems 
                        equipment property,
                    ``(B)(i) the construction, reconstruction, or 
                erection of which is completed by the taxpayer, or
                    ``(ii) which is acquired by the taxpayer if the 
                original use of such property commences with the 
                taxpayer.
                    ``(C) which can reasonably be expected to remain in 
                operation for at least 5 years,
                    ``(D) with respect to which depreciation (or 
                amortization in lieu of depreciation) is allowable, and
                    ``(E) which meets the performance and quality 
                standards (if any) which--
                            ``(i) have been prescribed by the Secretary 
                        by regulations (after consultation with the 
                        Secretary of Energy), and
                            ``(ii) are in effect at the time of the 
                        acquisition of the property.
            ``(2) Exceptions.--
                    ``(A) Public utility property.--Such term shall not 
                include any property which is  public utility property 
(as defined in section 46(f)(5) as in effect on the day before the date 
of the enactment of the Revenue Reconciliation Act of 1990), except for 
property described in paragraph (1)(A)(iv).
                    ``(B) Certain wind equipment.--Such term shall not 
                include equipment described in paragraph (1)(A)(vii) 
                which is taken into account for purposes of section 45 
                for the taxable year.
    ``(d) Definitions Relating to Types of Energy Property.--For 
purposes of this section--
            ``(1) Solar energy property.--
                    ``(A) In general.--The term `solar energy property' 
                means equipment which uses solar energy to generate 
                electricity, to heat or cool (or provide hot water for 
                use in) a structure, or to provide solar process heat.
                    ``(B) Swimming pools, etc. used as storage 
                medium.--The term `solar energy property' shall not 
                include property with respect to which expenditures 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.
                    ``(C) Solar panels.--No solar panel or other 
                property installed as a roof (or portion thereof) shall 
                fail to be treated as solar energy property solely 
                because it constitutes a structural component of the 
                structure on which it is installed.
            ``(2) Geothermal energy property.--
                    ``(A) In general.--The term `geothermal energy 
                property' means equipment used to produce, distribute, 
                or use energy derived from a geothermal deposit (within 
                the meaning of section 613(e)(2)), but only, in the 
                case of electricity generated by geothermal power, up 
                to (but not including) the electrical transmission 
                stage.
                    ``(B) High risk geothermal well.--The term `high 
                risk geothermal well' means a geothermal deposit 
                (within the meaning of section 613(e)(2)) which 
                requires high risk drilling techniques. Such deposit 
                may not be located in a State or national park or in an 
                area in which the relevant State park authority or the 
                National Park Service determines the development of 
                such a deposit will negatively impact on a State or 
                national park.
            ``(3) Energy-efficient building property.--
                    ``(A) In general.--The term `energy-efficient 
                building property' means--
                            ``(i) a fuel cell which--
                                    ``(I) generates electricity using 
                                an electrochemical process,
                                    ``(II) has an electricity-only 
                                generation efficiency greater than 30 
                                percent, and
                                    ``(III) has a minimum generating 
                                capacity of 2 kilowatts,
                            ``(ii) an electric heat pump hot water 
                        heater which yields an energy factor of 1.7 or 
                        greater under test procedures prescribed by the 
                        Secretary of Energy,
                            ``(iii)(I) an electric heat pump which has 
                        a heating system performance factor (HSPF) of 
                        at least 8.5 but less than 9 and a cooling 
                        seasonal energy efficiency ratio (SEER) of at 
                        least 13.5 but less than 15,
                            ``(II) an electric heat pump which has a 
                        heating system performance factor (HSPF) of 9 
                        or greater and a cooling seasonal energy 
                        efficiency ratio (SEER) of 15 or greater,
                            ``(iv) a natural gas heat pump which has a 
                        coefficient of performance of not less than 
                        1.25 for heating and not less than 0.70 for 
                        cooling,
                            ``(v)(I) a central air conditioner which 
                        has a cooling seasonal energy efficiency ratio 
                        (SEER) of at least 13.5 but less than 15,
                            ``(II) a central air conditioner which has 
                        a cooling seasonal energy efficiency ratio 
                        (SEER) of 15 or greater,
                            ``(vi) an advanced natural gas water heater 
                        which--
                                    ``(I) increases steady state 
                                efficiency and reduces standby and vent 
                                losses, and
                                    ``(II) has an energy factor of at 
                                least 0.65,
                            ``(vii) an advanced natural gas furnace 
                        which achieves a 90 percent AFUE and rated for 
                        seasonal electricity use of less than 300 kWh 
                        per year, and
                            ``(viii) natural gas cooling equipment 
                        which meets all applicable standards of the 
                        American Society of Heating, Refrigerating, and 
                        Air Conditioning Engineers and which--
                                    ``(I) has a coefficient of 
                                performance of not less than .60, or
                                    ``(II) uses desiccant technology 
                                and has an efficiency rating of not 
                                less than 50 percent.
                    ``(B) Limitations.--The credit under subsection (a) 
                for the taxable year may not exceed--
                            ``(i) $500 in the case of property 
                        described in subparagraph (A) other than 
                        clauses (i), (iv), and (viii) thereof,
                            ``(ii) $500 for each kilowatt of capacity 
                        in the case of any fuel cell described in 
                        subparagraph (A)(i),
                            ``(iii) $1,000 in the case of any natural 
                        gas heat pump described in subparagraph 
                        (A)(iv), and
                            ``(iv) $150 for each ton of capacity in the 
                        case of any natural gas cooling equipment 
                        described in subparagraph (A)(viii).
            ``(4) Combined heat and power system property.--
                    ``(A) In general.--The term `combined heat and 
                power system property' means property--
                            ``(i) comprising a system for the same 
                        energy source for the simultaneous or 
                        sequential generation of electrical power, 
                        mechanical shaft power, or both, in combination 
                        with steam, heat, or other forms of useful 
                        energy,
                            ``(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 a 
                                combination thereof), and
                            ``(iv) the energy efficiency percentage of 
                        which exceeds--
                                    ``(I) 60 percent in the case of a 
                                system with an electrical capacity of 
                                less than 1 megawatt),
                                    ``(II) 65 percent in the case of a 
                                system with an electrical capacity of 
                                not less than 1 megawatt and not in 
                                excess of 50 megawatts), and
                                    ``(III) 70 percent in the case of a 
                                system with an electrical capacity in 
                                excess of 50 megawatts).
                    ``(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
                                    ``(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) Accounting rule for public utility 
                        property.--If the combined heat and power 
                        system property is public utility property (as 
                        defined in section 46(f)(5) as in effect on the 
                        day before the date of the enactment of the 
                        Revenue Reconciliation Act of 1990), the 
                        taxpayer may only claim the credit under 
                        subsection (a)(1) if, with respect to such 
                        property, the taxpayer uses a normalization 
                        method of accounting.
            ``(5) Low core loss distribution transformer property.--The 
        term `low core loss distribution transformer property' means a 
        distribution transformer which has energy savings from a highly 
        efficient core of at least 20 percent more than the average for 
        power ratings reported by studies required under section 124 of 
        the Energy Policy Act of 1992.
            ``(6) Qualified anaerobic digester property.--The term 
        `qualified anaerobic digester property' means an anaerobic 
        digester for manure or crop waste which achieves at least 65 
        percent efficiency measured in terms of the fraction of energy 
        input converted to electricity and useful thermal energy.
            ``(7) Qualified wind energy systems equipment property.--
        The term `qualified wind energy systems equipment property' 
        means wind energy systems equipment with a turbine size of not 
        more than 75 kilowatts rated capacity.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Special rule for property financed by subsidized 
        energy financing or industrial development bonds.--
                    ``(A) Reduction of basis.--For purposes of applying 
                the energy percentage to any property, if such property 
                is financed in whole or in part by--
                            ``(i) subsidized energy financing, or
                            ``(ii) the proceeds of a private activity 
                        bond (within the meaning of section 141) the 
                        interest on which is exempt from tax under 
                        section 103, the amount taken into account as 
                        the basis of such property shall not exceed the 
                        amount which (but for this subparagraph) would 
                        be so taken into account multiplied by the 
                        fraction determined under subparagraph (B).
                    ``(B) Determination of fraction.--For purposes of 
                subparagraph (A), the fraction determined under this 
                subparagraph is 1 reduced by a fraction--
                            ``(i) the numerator of which is that 
                        portion of the basis of the property which is 
                        allocable to such financing or proceeds, and
                            ``(ii) the denominator of which is the 
                        basis of the property.
                    ``(C) Subsidized energy financing.--For purposes of 
                subparagraph (A), the term `subsidized energy 
                financing' means financing provided under a Federal, 
                State, or local program a principal purpose of which is 
                to provide subsidized financing for projects designed 
to conserve or produce energy.
            ``(2) Certain progress expenditure rules made applicable.--
        Rules similar to the rules of subsections (c)(4) and (d) of 
        section 46 (as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1990) shall 
        apply for purposes of this section.
    ``(f) Application of Section.--
            ``(1) In general.--Except as provided by paragraph (2), 
        this section shall apply to property placed in service after 
        December 31, 2001, and before January 1, 2009.
            ``(2) Exceptions.--
                    ``(A) Solar energy and geothermal energy 
                property.--Paragraph (1) shall not apply to solar 
                energy property or geothermal energy property.
                    ``(B) Certain electric heat pumps and central air 
                conditioners.--In the case of property which is 
                described in subsection (d)(3)(A)(iii)(I) or 
                (d)(3)(A)(v)(I), this section shall apply to property 
                placed in service after December 31, 2001, and before 
                January 1, 2006.''.
    (b) Conforming Amendments.--
            (1) Section 48 is amended to read as follows:

``SEC. 48. REFORESTATION CREDIT.

    ``(a) In General.--For purposes of section 46, the reforestation 
credit for any taxable year is 20 percent of the portion of the 
amortizable basis of any qualified timber property which was acquired 
during such taxable year and which is taken into account under section 
194 (after the application of section 194(b)(1)).
    ``(b) Definitions.--For purposes of this subpart, the terms 
`amortizable basis' and `qualified timber property' have the respective 
meanings given to such terms by section 194.''.
            (2) Section 39(d) is amended by adding at the end the 
        following:
            ``(10) 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 determined 
        under section 48A may be carried back to a taxable year ending 
        before January 1, 2002.''.
            (3) Section 280C is amended by adding at the end the 
        following:
    ``(d) Credit for Energy Property Expenses.--
            ``(1) In general.--No deduction shall be allowed for that 
        portion of the expenses for energy property (as defined in 
        section 48A(c)) 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 48A(a).
            ``(2) Similar rule where taxpayer capitalizes rather than 
        deducts expenses.--If--
                    ``(A) the amount of the credit allowable for the 
                taxable year under section 48A (determined without 
                regard to section 38(c)), exceeds
                    ``(B) the amount allowable as a deduction for the 
                taxable year for expenses for energy property 
                (determined without regard to paragraph (1)), the 
                amount chargeable to capital account for the taxable 
                year for such expenses shall be reduced by the amount 
                of such excess.
            ``(3) Controlled groups.--Paragraph (3) of subsection (b) 
        shall apply for purposes of this subsection.''.
            (4) Section 29(b)(3)(A)(i)(III) is amended by striking 
        `section 48(a)(4)(C)' and inserting `section 48A(e)(1)(C)'.
            (5) Section 50(a)(2)(E) is amended by striking `section 
        48(a)(5)' and inserting `section 48A(e)(2)'.
            (6) Section 168(e)(3)(B) is amended--
                    (A) by striking clause (vi)(I) and inserting the 
                following:
                            ``(I) is described in paragraph (1) or (2) 
                        of section 48A(d) (or would be so described if 
                        `solar and wind' were substituted for `solar' 
                        in paragraph (1)(B)),'', and
                    (B) in the last sentence by striking ``section 
                48(a)(3)'' and inserting ``section 48A(c)(2)(A)''.
    (c) Clerical Amendment.--The table of sections for subpart E of 
part IV of subchapter A of chapter 1 is amended by striking the item 
relating to section 48 and inserting the following:

``Sec. 48. Reforestation credit.
``Sec. 48A. Energy credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2001, 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. 102. ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY DEDUCTION.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and  corporations) is amended by 
adding at the end the following:

``SEC. 199. ENERGY-EFFICIENT COMMERCIAL BUILDING PROPERTY.

    ``(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 (3)).
            ``(2) Labor costs included.--Such term includes 
        expenditures for labor costs properly allocable to the onsite 
        preparation, assembly, or original installation of the 
        property.
            ``(3) Energy expenditures excluded.--Such term does not 
        include any expenditures taken into account in determining any 
        credit allowed under section 48A.
    ``(e) Energy-Efficient Commercial Building Property.--For purposes 
of subsection (d)--
            ``(1) 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 (6).
            ``(2) 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 1998 California 
        Nonresidential ACM Manual. These procedures shall meet the 
        following requirements:
                    ``(A) 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.
                    ``(B) 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, or
                            ``(ii) 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 
                        subparagraph (C), and 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.
                    ``(C) 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.
                    ``(D) The calculational methods under this 
                paragraph need not comply fully with section 11 of such 
                Standard 90.1-1999.
                    ``(E) The calculational methods shall be fuel 
                neutral, such that the same energy efficiency features 
                shall qualify a building for the deduction under this 
                section regardless of whether the heating source is a 
                gas or oil furnace or an electric heat pump.
                    ``(F) 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 1998 
                California Nonresidential ACM 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 which 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 which exceeds 
                        typical performance.
            ``(3) Computer software.--
                    ``(A) In general.--Any calculation under this 
                subsection shall be prepared by qualified computer 
                software.
                    ``(B) Qualified computer software.--For purposes of 
                this paragraph, 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 section, 
                        and
                            ``(iii) which provides a notice form which 
                        summarizes the energy efficiency features of 
                        the building and its projected annual energy 
                        costs.
            ``(4) 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 
        section.
            ``(5) 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 (3)(B)(iii).
            ``(6) Certification.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the Secretary, in consultation with the 
                Secretary of Energy, shall establish requirements for 
                certification and compliance procedures similar to the 
                procedures under section 45F(d).
                  ``(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.
                  ``(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.
    ``(f) 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 (e)(6) on or before December 31, 2006, and
            ``(2) the construction of which is not completed on or 
        before December 31, 2008.''.
    (b) Conforming Amendments.--Section 1016(a) is amended by striking 
``and'' at the end of paragraph (26), by striking the period at the end 
of paragraph (27) and inserting ``, and'', and by inserting the 
following:
            ``(28) for amounts allowed as a deduction under section 
        199(a).''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 is amended by adding at the end the 
following:

``Sec. 199. Energy-efficient commercial building property.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 103. CREDIT FOR ENERGY-EFFICIENT APPLIANCES.

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

``SEC. 45E. 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 qualified energy-efficient 
appliances produced by the taxpayer during the calendar year ending 
with or within the taxable year.
    ``(b) Applicable Amount.--For purposes of subsection (a), the 
applicable amount determined under this subsection with respect to a 
taxpayer is the sum of--
            ``(1) in the case of an energy-efficient clothes washer 
        described in subsection (d)(2)(A) or an energy-efficient 
        refrigerator described in subsection (d)(3)(B)(i), an amount 
        equal to--
                    ``(A) $50, multiplied by
                    ``(B) the number of such washers and refrigerators 
                produced by the taxpayer during such calendar year, and
            ``(2) in the case of an energy-efficient clothes washer 
        described in subsection (d)(2)(B) or an energy-efficient 
        refrigerator described in subsection (d)(3)(B)(ii), an amount 
        equal to--
                    ``(A) $100, multiplied by
                    ``(B) the number of such washers and refrigerators 
                produced by the taxpayer during such calendar year.
    ``(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), and
                    ``(B) $30,000,000 with respect to the credit 
                determined under subsection (b)(2).
            ``(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) Qualified Energy-Efficient Appliance.--For purposes of this 
section--
            ``(1) In general.--The term `qualified energy-efficient 
        appliance' means--
                    ``(A) an energy-efficient clothes washer, or
                    ``(B) an energy-efficient refrigerator.
            ``(2) Energy-efficient clothes washer.--The term `energy-
        efficient clothes washer' means a residential clothes washer, 
        including a residential style coin operated washer, which is 
        manufactured with--
                    ``(A) a 1.26 Modified Energy Factor (referred to in 
                this paragraph as `MEF') (as determined by the 
                Secretary of Energy), or
                    ``(B) a 1.42 MEF (as determined by the Secretary of 
                Energy) (1.5 MEF for calendar years beginning after 
                2004).
            ``(3) Energy-efficient refrigerator.--The term `energy-
        efficient refrigerator' means an automatic defrost 
        refrigerator-freezer which--
                    ``(A) has an internal volume of at least 16.5 cubic 
                feet, and
                    ``(B) consumes--
                            ``(i) 10 percent less kWh per year than the 
                        energy conservation standards promulgated by 
                        the Department of Energy for such refrigerator 
                        for 2001, or
                            ``(ii) 15 percent less kWh per year than 
                        such energy conservation standards.
    ``(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 one 
        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 energy-efficient refrigerators 
        described in subsection (d)(3)(B)(i) produced in calendar years 
        beginning after 2005, and
            ``(2) with respect to all other qualified energy-efficient 
        appliances produced in calendar years beginning after 2007.''.
    (b) Limitation on Carryback.--Section 39(d) (relating to transition 
rules), as amended by section 101(b)(2), is amended by adding at the 
end the following:
            ``(11) No carryback of energy-efficient appliance credit 
        before 2002.--No portion of the unused business credit for any 
        taxable year which is attributable to the energy-efficient 
        appliance credit determined under section 45E may be carried to 
        a taxable year beginning before January 1, 2002.''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable), as amended by section 
102(b)(3), is amended by adding at the end the following:
    ``(e) Credit for Energy-Efficient Appliance Expenses.--No deduction 
shall be allowed for that portion of the expenses for qualified energy-
efficient appliances (as defined in section 45E(d)) 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 45E(a).''.
    (d) Conforming Amendment.--Section 38(b) (relating to general 
business credit) is amended by striking ``plus'' at the end of 
paragraph (12), by striking the period at the end of paragraph (13) and 
inserting ``, plus'', and by adding at the end the following:
            ``(14) the energy-efficient appliance credit determined 
        under section 45E(a).''.
    (e) 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 45D the following:

                              ``Sec. 45E. Energy-efficient appliance 
                                        credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                  TITLE II--RESIDENTIAL ENERGY SYSTEMS

SEC. 201. 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 section 103(a), 
is amended by inserting after section 45E the following:

``SEC. 45F. 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 qualified new energy-efficient 
home during construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a dwelling shall not exceed--
                            ``(i) in the case of a dwelling described 
                        in subsection (c)(3)(D)(i), $1,500, and
                            ``(ii) in the case of a dwelling described 
                        in subsection (c)(3)(D)(ii), $2,500.
                    ``(B) Prior credit amounts on same dwelling taken 
                into account.--If a credit was allowed 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 under clause (i) 
                or (ii) (as the case may be), reduced by the sum of the 
                credits allowed under subsection (a) with respect to 
                the dwelling 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 
                qualified rehabilitation expenditures (as defined in 
                section 47(c)(2)) or to the energy percentage of energy 
                property (as determined under section 48A(a)), and
                    ``(B) expenditures taken into account under either 
                section 47 or 48A(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 new energy-efficient 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) Qualified new energy-efficient home.--The term 
        `qualified new energy-efficient home' means a dwelling--
                    ``(A) located in the United States,
                    ``(B) the construction of which is substantially 
                completed after December 31, 2000,
                    ``(C) the original use of which is as a principal 
                residence (within the meaning of section 121) which 
                commences with the person who acquires such dwelling 
                from the eligible contractor, and
                    ``(D) 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--
                            ``(i) 30 percent less than the annual level 
                        of heating and cooling energy consumption of a 
                        reference dwelling constructed in accordance 
                        with the standards of chapter 4 of the 2000 
                        International Energy Conservation Code, or
                            ``(ii) 50 percent less than such annual 
                        level of heating and cooling energy 
                        consumption.
            ``(4) Construction.--The term `construction' includes 
        reconstruction and rehabilitation.
            ``(5) Acquire.--The term `acquire' includes purchase and, 
        in the case of reconstruction and rehabilitation, such term 
        includes a binding written contract for such reconstruction or 
        rehabilitation.
            ``(6) 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 of a dwelling when installed in or on such 
                dwelling, and
                    ``(B) exterior windows (including skylights) and 
                doors.
            ``(7) Manufactured home included.--The term `dwelling' 
        includes a manufactured home conforming to Federal Manufactured 
        Home Construction and Safety Standards (24 C.F.R. 3280).
    ``(d) Certification.--
            ``(1) Method.--A certification described in subsection 
        (c)(3)(D) shall be determined on the basis of 1 of the 
        following methods:
                    ``(A) A component-based method, using 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 (B).
                    ``(B) An energy performance-based method that 
                calculates projected energy usage and cost reductions 
                in the dwelling in relation to a reference dwelling--
                            ``(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.
        Computer software shall be used in support of an energy 
        performance-based method certification under subparagraph (B). 
        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 1998 
        California Residential Alternative Calculation Method Approval 
        Manual.
            ``(2) Provider.--Such certification shall be provided by--
                    ``(A) in the case of a method described in 
                paragraph (1)(A), 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 method described in 
                paragraph (1)(B), an individual recognized by an 
                organization designated by the Secretary for such 
                purposes.
            ``(3) Form.--
                    ``(A) In general.--Such certification 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 
                method described in paragraph (1)(B), accompanied by 
                written analysis documenting the proper application of 
                a permissible energy performance calculation method to 
                the specific circumstances of such dwelling.
                    ``(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 dwelling. 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 dwelling, or shall be 
                otherwise permanently displayed in a readily 
                inspectable location in the dwelling.
            ``(4) Regulations.--
                    ``(A) In general.--In prescribing regulations under 
                this subsection for energy 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 home to 
                        qualify for the credit under this section 
                        regardless of whether the 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 
                        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) 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.
    ``(f) Termination.--Subsection (a) shall apply to dwellings 
purchased during the period beginning on January 1, 2001, and ending on 
December 31, 2005.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to current year business credit), as amended by 
section 103(d), is amended by striking ``plus'' at the end of paragraph 
(13), by striking the period at the end of paragraph (14) and inserting 
``, plus'', and by adding at the end the following:
            ``(15) the new energy-efficient home credit determined 
        under section 45F.''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable), as amended by section 
103(c), is amended by adding at the end the following:
    ``(f) New Energy-Efficient Home Expenses.--No deduction shall be 
allowed for that portion of expenses for a new energy-efficient 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 45F.''.
    (d) Credit Allowed Against Regular and Minimum Tax.--
            (1) 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 new energy efficient home credit.--
                    ``(A) In general.--In the case of the new energy 
                efficient home 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 new energy 
                                efficient home credit).
                    ``(B) New energy efficient home credit.--For 
                purposes of this subsection, the term `new energy 
                efficient home credit' means the credit allowable under 
                subsection (a) by reason of section 45F.''.
            (2) Conforming amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) is amended by inserting ``or the new energy 
        efficient home credit'' after ``employment credit''.
    (e) Limitation on Carryback.--Subsection (d) of section 39, as 
amended by section 103(b), is amended by adding at the end the 
following:
            ``(12) 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 45F may be carried back to any taxable 
        year ending before January 1, 2001.''.
    (f) Deduction for Certain Unused Business Credits.--Subsection (c) 
of section 196 is amended by striking ``and'' at the end of paragraph 
(7), by striking the period at the end of paragraph (8) and inserting 
``, and'', and by adding after paragraph (8) the following:
            ``(9) the new energy-efficient home credit determined under 
        section 45F.''.
    (g) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by section 103(d), is 
amended by inserting after the item relating to section 45E the 
following:

                              ``Sec. 45F. New energy-efficient home 
                                        credit.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2000.

SEC. 202. 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) is amended by inserting 
after section 25A the following new section:

``SEC. 25B. 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 20 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 $2,000.
            ``(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 $2,000 reduced by the sum of the 
        credits allowed under subsection (a) to the taxpayer with 
        respect to the dwelling for all prior taxable years.
    ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under subpart 
A of part IV of subchapter A (other than this section), such excess 
shall be carried to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such 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 achieves 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 combinations 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.--The certification described in subsection (d) 
shall be--
            ``(1) in the case of any component described in subsection 
        (d), determined on the basis of applicable energy efficiency 
        ratings (including product labeling requirements) for affected 
        building envelope components,
            ``(2) in the case of combinations of measures described in 
        subsection (d), determined by the performance-based methods 
        described in section 45F(d),
            ``(3) provided 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, consistent with the requirements of 
        section 45F(d)(2), and
            ``(4) 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 
        shall include a permanent label affixed to the electrical 
        distribution panel as described in section 45F(d)(3)(C).
    ``(f) Definitions and Special Rules.--
            ``(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 he owns, such 
                individual shall be treated as having paid his 
                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 C.F.R. 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) Termination.--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, 
2005.''.
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 23 is amended by inserting 
        ``, section 25B, and section 1400C'' after ``other than this 
        section''.
            (2) Subparagraph (C) of section 25(e)(1) is amended by 
        striking ``section 23'' and inserting ``sections 23, 25B, and 
        1400C''.
            (3) Subsection (d) of section 1400C is amended by inserting 
        ``and section 25B'' after ``other than this section''.
            (4) Subsection (a) of section 1016, as amended by section 
        102(b), 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:
            ``(29) to the extent provided in section 25B(f), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25B.''.
            (5) 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 25A the following new item:

                              ``Sec. 25B. 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.

SEC. 203. CREDIT FOR RESIDENTIAL SOLAR, WIND, AND FUEL CELL ENERGY 
              PROPERTY.

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

``SEC. 25C. RESIDENTIAL SOLAR, WIND, AND FUEL CELL ENERGY 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,
            ``(2) 15 percent of the qualified solar water heating 
        property expenditures,
            ``(3) 30 percent of the qualified wind energy property 
        expenditures, and
            ``(4) 20 percent for the qualified fuel cell property 
        expenditures,
made by the taxpayer during the taxable year.
    ``(b) Limitations.--
            ``(1) Maximum credit.--The credit allowed under subsection 
        (a)(2) shall not exceed $2,000 for each system of solar energy 
        property.
            ``(2) Type of property.--No expenditure may be taken into 
        account under this section unless such expenditure is made by 
        the taxpayer for property installed on or in connection with a 
        dwelling unit which is located in the United States and which 
        is used as a residence.
            ``(3) 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, and
                    ``(B) in the case of a photovoltaic, wind energy, 
                or fuel cell property, such property meets appropriate 
                fire and electric code requirements.
    ``(c) 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 which uses solar energy to 
        heat water for use in a dwelling unit with respect to which a 
        majority of the energy is derived from the sun.
            ``(2) Qualified photovoltaic property expenditure.--The 
        term `qualified photovoltaic property expenditure' means an 
        expenditure for property which uses solar energy to generate 
        electricity for use in 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 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 a dwelling unit.
            ``(5) Qualified fuel cell property expenditure.--The term 
        `qualified fuel cell property expenditure' means an expenditure 
        for property which uses an electrochemical fuel cell system to 
        generate electricity for use in a dwelling unit.
            ``(6) 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), or (5) and for piping or wiring to interconnect such 
        property to the dwelling unit shall be taken into account for 
        purposes of this section.
            ``(7) Energy 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.
    ``(d) 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 such individual 
                owns, such individual shall be treated as having made 
                his 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) Joint ownership of items of solar or wind energy 
        property.--
                    ``(A) In general.--Any expenditure otherwise 
                qualifying as an expenditure described in  paragraph 
(1), (2), or (4) of subsection (c) shall not be treated as failing to 
so qualify merely because such expenditure was made with respect to 2 
or more dwelling units.
                    ``(B) Limits applied separately.--In the case of 
                any expenditure described in subparagraph (A), the 
                amount of the credit allowable under subsection (a) 
                shall (subject to paragraph (1)) be computed separately 
                with respect to the amount of the expenditure made for 
                each dwelling unit.
            ``(5) Allocation in certain cases.--If less than 80 percent 
        of the use of an item is for nonbusiness residential purposes, 
        only that portion of the expenditures for such item which is 
        properly allocable to use for nonbusiness residential purposes 
        shall be taken into account. For purposes of this paragraph, 
        use for a swimming pool shall be treated as use which is not 
        for residential purposes.
            ``(6) 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.
            ``(7) Reduction of credit for grants, tax-exempt bonds, and 
        subsidized energy financing.--The rules of section 29(b)(3) 
        shall apply for purposes of this section.
    ``(e) 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.
    ``(f) Termination.--The credit allowed under this section shall not 
apply to taxable years beginning after December 31, 2011.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016, as amended by section 
        201(b)(4), 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:
            ``(30) to the extent provided in section 25C(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25C.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1, as amended by section 201(b)(2), is 
        amended by inserting after the item relating to section 25B the 
        following:

                              ``Sec. 25C. Residential solar, wind, and 
                                        fuel cell energy property.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures made after the date of the enactment of this Act, 
in taxable years ending after such date.

            TITLE III--ELECTRICITY FACILITIES AND PRODUCTION

SEC. 301. INCENTIVE FOR DISTRIBUTED GENERATION.

    (a) Depreciation of Distributed Power Property.--
            (1) In general.--Subparagraph (C) of section 168(e)(3) 
        (relating to 7-year property) is amended by redesignating 
        clause (ii) as clause (iii) and by inserting after clause (i) 
        the following:
                            ``(ii) any distributed power property, 
                        and''.
            (2) 10-year class life.--The table contained in section 
        168(g)(3)(B) is amended by inserting after the item relating to 
        subparagraph (C)(i) the following:

``(C)(ii)......................................................   10''.
    (b) Distributed Power Property.--Section 168(i) is amended by 
adding at the end the following:
            ``(15) Distributed power property.--The term `distributed 
        power property' means property--
                    ``(A) which is used in the generation of 
                electricity for primary use--
                            ``(i) in nonresidential real or residential 
                        rental property used in the taxpayer's trade or 
                        business, or
                            ``(ii) in the taxpayer's industrial 
                        manufacturing process or plant activity, with a 
                        rated total capacity in excess of 500 
                        kilowatts,
                    ``(B) which also may produce usable thermal energy 
                or mechanical power for use in a heating or cooling 
                application, as long as at least 40 percent of the 
                total useful energy produced consists of--
                            ``(i) with respect to assets described in 
                        subparagraph (A)(i), electrical power (whether 
                        sold or used by the taxpayer), or
                            ``(ii) with respect to assets described in 
                        subparagraph (A)(ii), electrical power (whether 
                        sold or used by the taxpayer) and thermal or 
                        mechanical energy used in the taxpayer's 
                        industrial manufacturing process or plant 
                        activity,
                    ``(C) which is not used to transport primary fuel 
                to the generating facility or to distribute energy 
                within or outside of the facility, and
                    ``(D) where it is reasonably expected that not more 
                than 50 percent of the produced electricity will be 
                sold to, or used by, unrelated persons.
        For purposes of subparagraph (B), energy output is determined 
        on the basis of expected annual output levels, measured in 
        British thermal units (Btu), using standard conversion factors 
        established by the Secretary.''.
    (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.

SEC. 302. MODIFICATIONS TO CREDIT FOR ELECTRICITY PRODUCED FROM 
              RENEWABLE AND WASTE PRODUCTS.

    (a) Increase in Credit Rate.--
            (1) In general.--Section 45(a)(1) is amended by striking 
        ``1.5 cents'' and inserting ``1.8 cents''.
            (2) Conforming amendments.--
                    (A) Section 45(b)(2) is amended by striking ``1.5 
                cent'' and inserting ``1.8 cent''.
                    (B) Section 45(d)(2)(B) is amended by inserting 
                ``(calendar year 2001 in the case of the 1.8 cent 
                amount in subsection (a))'' after ``1992''.
    (b) Expansion of Qualified Resources.--
            (1) In general.--Section 45(c)(1) (relating to qualified 
        energy resources) is amended by striking ``and'' at the end of 
        subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, and'', and by adding at the 
        end the following:
                    ``(D) alternative resources.''.
            (2) Definition of alternative resources.--Section 45(c) 
        (relating to definitions) is amended--
                    (A) by redesignating paragraph (3) as paragraph 
                (5),
                    (B) by redesignating paragraph (4) as paragraph 
                (3), and
                    (C) by inserting after paragraph (3), as 
                redesignated by subparagraph (B), the following:
            ``(4) Alternative Resources.--
                    ``(A) In general.--The term `alternative resources' 
                means--
                            ``(i) solar,
                            ``(ii) biomass (other than closed loop 
                        biomass),
                            ``(iii) municipal solid waste,
                            ``(iv) incremental hydropower,
                            ``(v) geothermal,
                            ``(vi) landfill gas, and
                            ``(vii) steel cogeneration.
                    ``(B) Biomass.--The term `biomass' means any solid, 
                nonhazardous, cellulosic waste material or any organic 
                carbohydrate matter, which is segregated from other 
                waste materials, and which is derived from--
                            ``(i) any of the following forest-related 
                        resources: mill residues, precommercial 
                        thinnings, slash, and brush, but not including 
                        old-growth timber,
                            ``(ii) waste pallets, crates, dunnage, 
                        untreated wood waste from construction or 
                        manufacturing activities, and landscape or 
                        right-of-way tree trimmings, but not including 
                        unsegregated municipal solid waste or post-
                        consumer wastepaper, or
                            ``(iii) any of the following agriculture 
                        sources: orchard tree crops, vineyard, grain, 
                        legumes, sugar, and other crop by-products or 
                        residues, including any packaging and other 
                        materials which are nontoxic and biodegradable 
                        and are associated with the processing, 
                        feeding, selling, transporting, and disposal of 
                        such agricultural materials.
                    ``(C) Municipal solid waste.--The term `municipal 
                solid waste' has the same meaning given the term `solid 
                waste' under section 2(27) of the Solid Waste 
                Utilization Act (42 U.S.C. 6903).
                    ``(D) Incremental hydropower.--The term 
                `incremental hydropower' means additional generating 
                capacity achieved from--
                            ``(i) increased efficiency, or
                            ``(ii) additions of new capacity,
                at a licensed non-Federal hydroelectric project 
                originally placed in service before the date of the 
                enactment of this paragraph.
                    ``(E) Geothermal.--The term `geothermal' means 
                energy derived from a geothermal deposit (within the 
                meaning of section 613(e)(2)), but only, in the case of 
                electricity generated by geothermal power, up to (but 
                not including) the electrical transmission stage.
                    ``(F) Landfill gas.--The term `landfill gas' means 
                gas generated from the decomposition of any household 
                solid waste, commercial solid waste, and industrial 
                solid waste disposed of in a municipal solid waste 
                landfill unit (as such terms are defined in regulations 
                promulgated under subtitle D of the Solid Waste 
                Disposal Act (42 U.S.C. 6941 et seq.).
                    ``(G) Steel cogeneration.--The term `steel 
                cogeneration' means the production of electricity and 
                steam (or other form of thermal energy) from any or all 
                waste sources defined in paragraphs (2) and (3) and 
                subparagraphs (B) and (C) of this paragraph within an 
                operating facility which produces or integrates the 
                production of coke, direct reduced iron ore,  iron, or 
steel provided that the cogeneration meets any regulatory energy-
efficiency standards established by the Secretary, and only to the 
extent that such energy is produced from--
                            ``(i) gases or heat generated from the 
                        production of metallurgical coke,
                            ``(ii) gases or heat generated from the 
                        production of direct reduced iron ore or iron, 
                        from blast furnace or direct ironmaking 
                        processes, or
                            ``(iii) gases or heat generated from the 
                        manufacture of steel.''.
            (3) Qualified facility.--Section 45(c)(5) (defining 
        qualified facility), as redesignated by paragraph 2(A), is 
        amended by adding at the end the following:
                    ``(D) Alternative resources facility.--
                            ``(i) In general.--Except as provided in 
                        clauses (ii), (iii), and (iv), in the case of a 
                        facility using alternative resources to produce 
                        electricity, the term `qualified facility' 
                        means any facility of the taxpayer which is 
                        originally placed in service after the date of 
                        the enactment of this subparagraph.
                            ``(ii) Biomass facility.--In the case of a 
                        facility using biomass described in paragraph 
                        (4)(A)(ii) to produce electricity, the term 
                        `qualified facility' means any facility of the 
                        taxpayer.
                            ``(iii) Geothermal facility.--In the case 
                        of a facility using geothermal to produce 
                        electricity, the term `qualified facility' 
                        means any facility of the taxpayer which is 
                        originally placed in service after December 31, 
                        1992.
                            ``(iv) Steel cogeneration facilities.--In 
                        the case of a facility using steel cogeneration 
                        to produce electricity, the term `qualified 
                        facility' means any facility permitted to 
                        operate under the environmental requirements of 
                        the Clean Air Act Amendments of 1990 which is 
                        owned by the taxpayer and originally placed in 
                        service after the date of the enactment of this 
                        subparagraph. Such a facility may be treated as 
                        originally placed in service when such facility 
                        was last upgraded to increase efficiency or 
                        generation capability after such date.
                            ``(v) Special rules.--In the case of a 
                        qualified facility described in this 
                        subparagraph, the 10-year period referred to in 
                        subsection (a) shall be treated as beginning no 
                        earlier than the date of the enactment of this 
                        subparagraph.''.
            (4) Government-owned facility.--Section 45(d)(6) (relating 
        to credit eligibility in the case of government-owned 
        facilities using poultry waste) is amended--
                    (A) by inserting ``or alternative resources'' after 
                ``poultry waste'', and
                    (B) by inserting ``or alternative resources'' after 
                ``poultry waste'' in the heading thereof.
            (5) Qualified facilities with co-production.--Section 45(b) 
        (relating to limitations and adjustments) is amended by adding 
        at the end the following:
            ``(4) Increased credit for co-production facilities.--
                    ``(A) In general.--In the case of a qualified 
                facility described in subsection (c)(3)(D)(i)  which 
has a co-production facility or a qualified facility described in 
subparagraph (A), (B), or (C) of subsection (c)(3) which adds a co-
production facility after the date of the enactment of this paragraph, 
the amount in effect under subsection (a)(1) for an eligible taxable 
year of a taxpayer shall (after adjustment under paragraph (2) and 
before adjustment under paragraphs (1) and (3)) be increased by .25 
cents.
                    ``(B) Co-production facility.--For purposes of 
                subparagraph (A), the term `co-production facility' 
                means a facility which--
                            ``(i) enables a qualified facility to 
                        produce heat, mechanical power, chemicals, 
                        liquid fuels, or minerals from qualified energy 
                        resources in addition to electricity, and
                            ``(ii) produces such energy on a continuous 
                        basis.
                    ``(C) Eligible taxable year.--For purposes of 
                subparagraph (A), the term `eligible taxable year' 
                means any taxable year in which the amount of gross 
                receipts attributable to the co-production facility of 
                a qualified facility are at least 10 percent of the 
                amount of gross receipts attributable to electricity 
                produced by such facility.''.
            (6) Qualified facilities located within qualified indian 
        lands.--Section 45(b) (relating to limitations and 
        adjustments), as amended by paragraph (5), is amended by adding 
        at the end the following:
            ``(5) Increased credit for qualified facility located 
        within qualified indian land.--In the case of a qualified 
        facility described in subsection (c)(3)(D) which--
                    ``(A) is located within--
                            ``(i) qualified Indian lands (as defined in 
                        section 7871(c)(3)), or
                            ``(ii) lands which are held in trust by a 
                        Native Corporation (as defined in section 3(m) 
                        of the Alaska Native Claims Settlement Act (43 
                        U.S.C. 1602(m)) for Alaska Natives, and
                    ``(B) is operated with the explicit written 
                approval of the Indian tribal government or Native 
                Corporation (as so defined) having jurisdiction over 
                such lands,
        the amount in effect under subsection (a)(1) for a taxable year 
        shall (after adjustment under paragraphs (2) and (4) and before 
        adjustment under paragraphs (1) and (3)) be increased by .25 
        cents.''.
            (7) Electricity produced from certain resources co-fired in 
        coal plants.--Section 45(d) (relating to definitions and 
        special rules) is amended by adding at the end the following:
            ``(8) Special rule for electricity produced from certain 
        resources co-fired in coal plants.--In the case of electricity 
        produced from biomass (including closed loop biomass), 
        municipal solid waste, or animal waste, co-fired in a facility 
        which produces electricity from coal--
                    ``(A) subsection (a)(1) shall be applied by 
                substituting `1 cent' for `1.8 cents',
                    ``(B) such facility shall be considered a qualified 
                facility for purposes of this section, and
                    ``(C) the 10-year period referred to in subsection 
                (a) shall be treated as beginning no earlier than the 
                date of the enactment of this paragraph.''.
            (8) Conforming amendments.--
                    (A) The heading for section 45 is amended by 
                inserting ``and waste energy'' after ``renewable''.
                    (B) The item relating to section 45 in the table of 
                sections subpart D of part IV of subchapter A of 
                chapter 1 is amended by inserting ``and waste energy'' 
                after ``renewable''.
    (c) Additional Modifications of Renewable and Waste Energy Resource 
Credit.--
            (1) Credits for certain tax exempt organizations and 
        governmental units.--Section 45(d) (relating to definitions and 
        special rules), as amended by subsection (b)(7), is amended by 
        adding at the end the following:
            ``(9) Credits for certain tax exempt organizations and 
        governmental units.--
                    ``(A) Allowance of credit.--Any credit which would 
                be allowable under subsection (a) with respect to a 
                qualified facility of an entity if such entity were not 
                exempt from tax under this chapter shall be treated as 
                a credit allowable under subpart C to such entity if 
                such entity 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), or
                            ``(iii) an entity the income of which is 
                        excludable from gross income under section 115.
                    ``(B) Use of credit.--
                            ``(i) Transfer of credit.--An entity 
                        described in subparagraph (A) may assign, 
                        trade, sell, or otherwise transfer any credit 
                        allowable to such entity under subparagraph (A) 
                        to any taxpayer.
                            ``(ii) Use of credit as an offset.--
                        Notwithstanding any other provision of law, in 
                        the case of an entity described in clause (i) 
                        or (ii) of subparagraph (A), any credit 
                        allowable to such entity under subparagraph (A) 
                        may be applied by such entity, without penalty, 
                        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.).
                    ``(C) Credit not income.--Neither a transfer under 
                clause (i) or a use under clause (ii) of subparagraph 
                (B) of any credit allowable  under subparagraph (A) 
shall result in income for purposes of section 501(c)(12).
                    ``(D) Transfer proceeds treated as arising from 
                essential government function.--Any proceeds derived by 
                an entity described in subparagraph (A)(iii) from the 
                transfer of any credit under subparagraph (B)(i) shall 
                be treated as arising from an essential government 
                function.
                    ``(E) Credits not reduced by tax-exempt bonds or 
                certain other subsidies.--Subsection (b)(3) shall not 
                apply to reduce any credit allowable under subparagraph 
                (A) with respect to--
                            ``(i) proceeds described in subparagraph 
                        (A)(ii) of such subsection, or
                            ``(ii) 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.),
                used to provide financing for any qualified facility.
                    ``(F) Treatment of unrelated persons.--For purposes 
                of this paragraph, sales among and between entities 
                described in subparagraph (A) shall be treated as sales 
                between unrelated parties.''.
            (2) Coordination with other credits.--Section 45(d), as 
        amended by paragraph (1), is amended by adding at the end the 
        following:
            ``(10) Coordination with other credits.--This section shall 
        not apply to any qualified facility with respect to which a 
        credit under any other section is allowed for the taxable year 
        unless the taxpayer elects to waive the application of such 
        credit to such facility.''.
            (3) Expansion to include animal waste.--Section 45 
        (relating to electricity produced from certain renewable 
        resources), as amended by paragraphs (2) and (4) of subsection 
        (b), is amended--
                    (A) by striking ``poultry'' each place it appears 
                in subsection (c)(1)(C) and subsection (d)(6) and 
                inserting ``animal'',
                    (B) by striking ``poultry'' in the heading of 
                paragraph (6) of subsection (d) and inserting 
                ``animal'',
                    (C) by striking paragraph (3) of subsection (c) and 
                inserting the following:
            ``(3) Animal waste.--The term `animal waste' means poultry 
        manure and litter and other animal wastes, including--
                    ``(A) wood shavings, straw, rice hulls, and other 
                bedding material for the disposition of manure, and
                    ``(B) byproducts, packaging, and other materials 
                which are nontoxic and biodegradable and are associated 
                with the processing, feeding, selling, transporting, 
                and disposal of such animal wastes.'', and
                    (D) by striking subparagraph (C) of subsection 
                (c)(5) and inserting the following:
                    ``(C) Animal waste facility.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), in the case of a facility using 
                        animal waste (other than poultry) to produce 
                        electricity, the term `qualified facility' 
                        means any facility of the taxpayer which is 
                        originally placed in service after the date of 
                        the enactment of this clause.
                            ``(ii) Poultry waste.--In the case of a 
                        facility using animal waste relating to poultry 
                        to produce electricity, the term `qualified 
                        facility' means any facility of the taxpayer 
                        which is originally placed in service after 
                        December 31, 1999.''.
            (4) Treatment of qualified facilities not in compliance 
        with pollution laws.--Section 45(c)(5) (relating to qualified 
        facilities), as amended by paragraphs (2) and (3) of subsection 
        (b), is amended by adding at the end the following:
                    ``(E) Noncompliance with pollution laws.--For 
                purposes of this paragraph, a facility 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 facility during such period.''.
            (5) Permanent extension of qualified facility dates.--
        Section 45(c)(5) (relating to qualified facility), as 
        redesignated by subsection (b)(2), is amended by striking ``, 
        and before January 1, 2002'' in subparagraphs (A) and (B).
    (d) Effective Date.--The amendments made by this section shall 
apply to electricity and other energy produced after the date of the 
enactment of this Act.

SEC. 303. TREATMENT OF FACILITIES USING BAGASSE TO PRODUCE ENERGY AS 
              SOLID WASTE DISPOSAL FACILITIES ELIGIBLE FOR TAX-EXEMPT 
              FINANCING.

    (a) In General.--Section 142 (relating to exempt facility bond) is 
amended by adding at the end the following:
    ``(k) Solid Waste Disposal Facilities.--For purposes of subsection 
(a)(6), the term `solid waste disposal facilities' includes property 
located in Hawaii and used for the collection, storage, treatment, 
utilization, processing, or final disposal of bagasse in the 
manufacture of ethanol.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bonds issued after the date of the enactment of this Act.

SEC. 304. DEPRECIATION OF PROPERTY USED IN THE TRANSMISSION OF 
              ELECTRICITY.

    (a) Depreciation of Property Used in the Transmission of 
Electricity.--
            (1) In general.--Subparagraph (C) of section 168(e)(3) 
        (relating to 7-year property), as amended by section 301(a)(1), 
        is amended by striking ``and'' at the end of clause (ii), by 
        redesignating clause (iii) as clause (iv), and by inserting 
        after clause (ii) the following:
                            ``(iii) any property used in the 
                        transmission of electricity, and''.
            (2) 10-year class life.--The table contained in section 
        168(g)(3)(B), as amended by section 301(a)(2), is amended by 
        inserting after the item relating to subparagraph (C)(ii) the 
        following:

``(C)(iii).....................................................   10''.
    (b) Definition of Property Used in the Transmission of 
Electricity.--Section 168(i), as amended by section 301(b), is amended 
by adding at the end the following:
            ``(16) Property used in the transmission of electricity.--
        The term `property used in the transmission of electricity' 
        means property used in the transmission of electricity for 
        sale.''.
    (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.

  TITLE IV--INCENTIVES FOR EARLY COMMERCIAL APPLICATIONS OF ADVANCED 
                        CLEAN COAL TECHNOLOGIES

SEC. 401. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    (a) Allowance of Qualifying Advanced Clean Coal Technology Facility 
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:
            ``(4) the qualifying advanced clean coal technology 
        facility credit.''.
    (b) Amount of Qualifying Advanced Clean Coal Technology Facility 
Credit.--Subpart E of part IV of subchapter A of chapter 1 (relating to 
rules for computing investment credit), as amended by section 101(a), 
is amended by inserting after section 48A the following:

``SEC. 48B. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY FACILITY CREDIT.

    ``(a) In General.--For purposes of section 46, the qualifying 
advanced clean coal technology facility credit for any taxable year is 
an amount equal to 10 percent of the qualified investment in a 
qualifying advanced clean coal technology facility for such taxable 
year.
    ``(b) Qualifying Advanced Clean Coal Technology Facility.--
            ``(1) In general.--For purposes of subsection (a), the term 
        `qualifying advanced clean coal technology facility' means a 
        facility of the taxpayer which--
                    ``(A)(i)(I) replaces a conventional technology 
                facility of the taxpayer and the original use of which 
                commences with the taxpayer, or
                    ``(II) is a retrofitted or repowered conventional 
                technology facility, the retrofitting or repowering of 
                which is completed by the taxpayer (but only with 
                respect to that portion of the basis which is properly 
                attributable to such retrofitting or repowering), or
                    ``(ii) is acquired through purchase (as defined by 
                section 179(d)(2)),
                    ``(B) is depreciable under section 167,
                    ``(C) has a useful life of not less than 4 years,
                    ``(D) is located in the United States, and
                    ``(E) uses qualifying advanced clean coal 
                technology.
            ``(2) Special rule for sale-leasebacks.--For purposes of 
        subparagraph (A) of paragraph (1), in the case of a facility 
        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 facility was originally placed in service, for a 
                period of not less than 12 years,
        such facility shall be treated as originally placed in service 
        not earlier than the date on which such property 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) Qualifying advanced clean coal technology.--For 
        purposes of paragraph (1)--
                    ``(A) In general.--The term `qualifying advanced 
                clean coal technology' means, with respect to clean 
                coal technology--
                            ``(i) multiple applications, with a 
                        combined capacity of not more than 2,000 
                        megawatts, of advanced pulverized coal or 
                        atmospheric fluidized bed combustion 
                        technology--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2001 and 
                                2011, and
                                    ``(III) with a design net heat rate 
                                of not more than 9,500 Btu per kilowatt 
                                hour when the design coal has a heat 
                                content of more than 8,000 Btu per 
                                pound, or a design net heat rate of not 
                                more than 9,900 Btu per kilowatt hour 
                                when the design coal has a heat content 
                                of 8,000 Btu per pound or less,
                            ``(ii) multiple applications, with a 
                        combined capacity of not more than 1,000 
                        megawatts, of pressurized fluidized bed 
                        combustion technology--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2001 and 
                                2015, and
                                    ``(III) with a design net heat rate 
                                of not more than 8,400 Btu per kilowatt 
                                hour when the design coal has a heat 
                                content of more than 8,000 Btu per 
                                pound, or a design net heat rate of not 
                                more than 9,900 Btu per kilowatt hour 
                                when the design coal has a  heat 
content of 8,000 Btu per pound or less,
                            ``(iii) multiple applications, with a 
                        combined capacity of not more than 5,000 
                        megawatts, of integrated gasification combined 
                        cycle technology, with or without fuel or 
                        chemical co-production--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2001 and 
                                2015,
                                    ``(III) with a design net heat rate 
                                of not more than 8,550 Btu per kilowatt 
                                hour when the design coal has a heat 
                                content of more than 8,000 Btu per 
                                pound, or a design net heat rate of not 
                                more than 9,900 Btu per kilowatt hour 
                                when the design coal has a heat content 
                                of 8,000 Btu per pound or less, and
                                    ``(IV) with a net thermal 
                                efficiency on any fuel or chemical co-
                                production of not less than 39 percent 
                                (higher heating value), and
                            ``(iv) multiple applications, with a 
                        combined capacity of not more than 2,000 
                        megawatts of technology for the production of 
                        electricity--
                                    ``(I) installed as a new, retrofit, 
                                or repowering application,
                                    ``(II) operated between 2001 and 
                                2015, and
                                    ``(III) with a carbon emission rate 
                                which is not more than 85 percent of 
                                conventional technology.
                    ``(B) Exceptions.--Such term shall not include 
                clean coal technology projects receiving or scheduled 
                to receive funding under the Clean Coal Technology 
                Program of the Department of Energy.
                    ``(C) Clean coal technology.--The term `clean coal 
                technology' means advanced technology which uses coal 
                to produce 75 percent or more of its thermal output as 
                electricity including advanced pulverized coal or 
                atmospheric fluidized bed combustion, pressurized 
                fluidized bed combustion, integrated gasification 
                combined cycle with or without fuel or chemical co-
                production, and any other technology for the production 
                of electricity which exceeds the performance of 
                conventional technology.
                    ``(D) Conventional technology.--The term 
                `conventional technology' means--
                            ``(i) coal-fired combustion technology with 
                        a design net heat rate of not less than 9,500 
                        Btu per kilowatt hour (HHV) and a carbon 
                        equivalents emission rate of not more than 0.54 
                        pounds of carbon per kilowatt hour when the 
                        design coal has a heat content of more than 
                        8,000 Btu per pound,
                            ``(ii) coal-fired combustion technology 
                        with a design net heat rate of not less than 
                        10,500 Btu per kilowatt hour (HHV) and a carbon 
                        equivalents emission rate of not more than 0.60 
                        pounds of carbon per kilowatt hour when the 
                        design coal has a heat content of 8,000 Btu per 
                        pound or less, or
                            ``(iii) natural gas-fired combustion 
                        technology with a design net heat rate of not 
                        less than 7,500 Btu per kilowatt hour (HHV) and 
                        a carbon equivalents emission rate of not more 
                        than 0.24 pounds of carbon per kilowatt hour.
                    ``(E) Design net heat rate.--The design net heat 
                rate shall be based on the design annual heat input to 
                and the design annual net electrical output from the 
                qualifying advanced clean coal technology (determined 
                without regard to such technology's co-generation of 
                steam).
                    ``(F) Selection criteria.--Selection criteria for 
                clean coal technology facilities--
                            ``(i) shall be established by the Secretary 
                        of Energy as part of a competitive 
                        solicitation,
                            ``(ii) shall include primary criteria of 
                        minimum design net heat rate, maximum design 
                        thermal efficiency, and lowest cost to the 
                        government, and
                            ``(iii) shall include supplemental criteria 
                        as determined appropriate by the Secretary of 
                        Energy.
            ``(4) Noncompliance with pollution laws.--For purposes of 
        this subsection, a facility 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 
        facility during such period.
    ``(c) 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 facility 
placed in service by the taxpayer during such taxable year.
    ``(d) 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 (c) without regard to 
        this section) 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 facility 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 facility 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.
    ``(e) Credits for Certain Tax Exempt Organizations and Governmental 
Units.--
            ``(1) Allowance of credit.--Any credit which would be 
        allowable under subsection (a) with respect to a qualifying 
        advanced clean coal technology facility of an entity if such 
        entity were not exempt from tax under this chapter shall be 
        treated as a credit allowable under subpart C to such entity if 
        such entity is--
                    ``(A) an organization described in section 
                501(c)(12)(C) and exempt from tax under section 501(a),
                    ``(B) an organization described in section 
                1381(a)(2)(C),
                    ``(C) an entity the income of which is excludable 
                from gross income under section 115, or
                    ``(D) the Tennessee Valley Authority.
            ``(2) Use of credit.--
                    ``(A) Transfer of credit.--An entity described in 
                subparagraph (A), (B), or (C) of paragraph (1) may 
                assign, trade, sell, or otherwise transfer any credit 
                allowable to such entity under paragraph (1) to any 
                taxpayer.
                    ``(B) Use of credit as an offset.--Notwithstanding 
                any other provision of law, in the case of an entity 
                described in subparagraph (A) or (B) of paragraph (1), 
                any credit allowable to such entity under paragraph (1) 
                may be applied by such entity, without penalty, 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.).
                    ``(C) Use by tva.--
                            ``(i) In general.--Notwithstanding any 
                        other provision of law, in the case of an 
                        entity described in paragraph (1)(D), any 
                        credit allowable under paragraph (1) to such 
                        entity 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.
                            ``(ii) Treatment of credits.--The aggregate 
                        amount of credits described in paragraph (1) 
                        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.
                            ``(iii) Credit carryover.--With respect to 
                        any fiscal year, if the aggregate amount of 
                        credits described in paragraph (1) exceeds the 
                        aggregate amount of payment obligations 
                        described in clause (i), 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 subparagraph.
            ``(3) Credit not income.--Neither a transfer under 
        subparagraph (A) or a use under subparagraph (B) of paragraph 
        (2) of any credit allowable under paragraph (1) shall result in 
        income for purposes of section 501(c)(12).
            ``(4) Transfer proceeds treated as arising from essential 
        government function.--Any proceeds derived by an entity 
        described in paragraph (1)(C) from the transfer of any credit 
        under paragraph (2)(A) shall be treated as arising from an 
        essential government function.
    ``(f) 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 48A is allowed 
unless the taxpayer elects to waive the application of such credit to 
such property.
    ``(g) Termination.--This section shall not apply with respect to 
any qualified investment made more than 10 years after the effective 
date of this section.''.
    (c) Recapture.--Section 50(a) (relating to other special rules) is 
amended by adding at the end the following:
            ``(6) Special rules relating to qualifying advanced clean 
        coal technology facility.--For purposes of applying this 
        subsection in the case of any credit allowable by reason of 
        section 48B, 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 facility (as defined by section 48B(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 facility 
                disposed of, and whose denominator is the total number 
                of years over which such facility would otherwise have 
                been subject to depreciation. For purposes of the 
                preceding sentence, the year of disposition of the 
                qualifying advanced clean coal technology facility 
                property 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 facility under section 48B, except that the 
                amount of the increase in tax under subparagraph (A) of 
                this paragraph shall be substituted in lieu of 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 facility.''.
    (d) Transitional Rule.--Section 39(d) of the Internal Revenue Code 
of 1986 (relating to transitional rules), as amended by section 201(e), 
is amended by adding at the end the following:
            ``(13) No carryback of section 48b 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 facility credit determined under section 48B 
        may be carried back to a taxable year ending before January 1, 
        2002.''.
    (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:
                            ``(iv) the portion of the basis of any 
                        qualifying advanced clean coal technology 
                        facility attributable to any qualified 
                        investment (as defined by section 48B(c)).''.
            (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:
            ``(6) Nonapplication.--Paragraphs (1) and (2) shall not 
        apply to any advanced clean coal technology facility credit 
        under section 48B.''.
            (4) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1, as amended by section 101(c), is 
        amended by inserting after the item relating to section 48A the 
        following:

``Sec. 48B. Qualifying advanced clean coal technology facility 
                            credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to periods after December 31, 2001, 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. 402. CREDIT FOR PRODUCTION FROM QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    (a) Credit for Production From Qualifying Advanced Clean Coal 
Technology.--Subpart D of part IV of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to business related credits), 
as amended by section 201(a), is amended by adding at the end the 
following:

``SEC. 45G. CREDIT FOR PRODUCTION FROM QUALIFYING ADVANCED CLEAN COAL 
              TECHNOLOGY.

    ``(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 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 facility during the 
        10-year period beginning on the date the facility was 
        originally placed in service.
    ``(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 facility shall be determined as follows:
            ``(1) Where the design coal has a heat content of more than 
        8,000 Btu per pound:
                    ``(A) In the case of a facility originally placed 
                in service before 2008, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 8,400.........         $.0050                $.0030
More than 8,400 but not more         $.0010                $.0010
 than 8,550.
More than 8,550 but not more         $.0005                $.0005.
 than 8,750.
------------------------------------------------------------------------

                    ``(B) In the case of a facility originally placed 
                in service after 2007 and before 2012, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 7,770.........         $.0090                $.0075
More than 7,770 but not more         $.0070                $.0050
 than 8,125.
More than 8,125 but not more         $.0060                $.0040.
 than 8,350.
------------------------------------------------------------------------

                    ``(C) In the case of a facility originally placed 
                in service after 2011 and before 2015, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 7,380.........         $.0120                $.0090
More than 7,380 but not more         $.0095                $.0070.
 than 7,720.
------------------------------------------------------------------------

            ``(2) Where the design coal has a heat content of not more 
        than 8,000 Btu per pound:
                    ``(A) In the case of a facility originally placed 
                in service before 2008, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 8,500.........         $.0050                $.0030
More than 8,500 but not more         $.0010                $.0010
 than 8,650.
More than 8,650 but not more         $.0005                $.0005.
 than 8,750.
------------------------------------------------------------------------

                    ``(B) In the case of a facility originally placed 
                in service after 2007 and before 2012, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 8,000.........         $.0090                $.0075
More than 8,000 but not more         $.0070                $.0050
 than 8,250.
More than 8,250 but not more         $.0060                $.0040.
 than 8,400.
------------------------------------------------------------------------

                    ``(C) In the case of a facility originally placed 
                in service after 2011 and before 2015, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 heat rate, Btu/kWh (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not more than 7,800.........         $.0120                $.0090
More than 7,800 but not more         $.0095                $.0070.
 than 7,950.
------------------------------------------------------------------------

            ``(3) Where the clean coal technology facility is producing 
        fuel or chemicals:
                    ``(A) In the case of a facility originally placed 
                in service before 2008, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 thermal efficiency (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not less than 40.6 percent..         $.0050                $.0030
Less than 40.6 but not less          $.0010                $.0010
 than 40 percent.
Less than 40 but not less            $.0005                $.0005.
 than 39 percent.
------------------------------------------------------------------------

                    ``(B) In the case of a facility originally placed 
                in service after 2007 and before 2012, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 thermal efficiency (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not less than 43.9 percent..         $.0090                $.0075
Less than 43.9 but not less          $.0070                $.0050
 than 42 percent.
Less than 42 but not less            $.0060                $.0040.
 than 40.9 percent.
------------------------------------------------------------------------

                    ``(C) In the case of a facility originally placed 
                in service after 2011 and before 2015, if--
      

------------------------------------------------------------------------
                                       The applicable amount is:
  ``The facility design net  -------------------------------------------
 thermal efficiency (HHV) is   For 1st 5 years of     For 2d 5 years of
          equal to:               such service          such service
------------------------------------------------------------------------
Not less than 44.2 percent..         $.0120                $.0090
Less than 44.2 but not less          $.0095                $.0070.
 than 43.6 percent.
------------------------------------------------------------------------

    ``(c) Inflation Adjustment Factor.--For calendar years after 2001, 
each amount in paragraphs (1), (2), and (3) 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 48B shall have the meaning given such term 
        in section 48B.
            ``(2) Applicable rules.--The rules of paragraphs (3), (4), 
        and (5) of section 45(d) and section 48B(e) shall apply.
            ``(3) Inflation adjustment factor.--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 
        2000.
            ``(4) 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.''.
    (b) Credit Treated as Business Credit.--Section 38(b), as amended 
by section 201(b), 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:
            ``(16) the qualifying advanced clean coal technology 
        production credit determined under section 45G(a).''.
    (c) Transitional Rule.--Section 39(d) (relating to transitional 
rules), as amended by section 401(d), is amended by adding at the end 
the following:
            ``(14) No carryback of section 45g 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 45G 
        may be carried back to a taxable year ending before the date of 
        the enactment of section 45G.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by section 201(g), is 
amended by adding at the end the following:

``Sec. 45G. Credit for production from qualifying advanced clean coal 
                            technology.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to production after the date of the enactment of this Act.

SEC. 403. RISK POOL FOR QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY.

    (a) Establishment.--The Secretary of the Treasury shall establish a 
financial risk pool which shall be available to any United States owner 
of a qualifying advanced clean coal technology which has qualified for 
an advanced clean coal technology production credit (as defined in 
section 45G of the Internal Revenue Code of 1986, as added by section 
402) to offset for the first 3 years of the operation of such 
technology the costs (not to exceed 5 percent of the total cost of 
installation) for modifications resulting from the technology's failure 
to achieve its design performance.
    (b) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as are necessary to carry out the purposes of 
this section.

                  TITLE V--HEATING FUELS AND STORAGE.

SEC. 501. FULL EXPENSING OF HOME HEATING OIL AND PROPANE STORAGE 
              FACILITIES.

    (a) In General.--Section 179(b) (relating to limitations) is 
amended by adding at the end the following:
            ``(5) Full expensing of home heating oil and propane 
        storage facilities.--Paragraphs (1) and (2) shall not apply to 
        section 179 property which is any storage facility (not 
        including a building or its structural components) used in 
        connection with the distribution of home heating oil or 
        liquefied petroleum gas.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service on or after the date of the enactment of 
this Act.

SEC. 502. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS 
              AND OTHER COMMODITIES.

    (a) In General.--Subsection (b) of section 148 (defining higher 
yielding investments) is amended by adding at the end the following:
            ``(4) Investment property not to include certain 
        prepayments to ensure commodity supply.--The term `investment 
        property' shall not include a prepayment entered into for the 
        purpose of obtaining a supply of a commodity reasonably 
        expected to be used in a business of one or more utilities each 
        of which is owned and operated by a State or local government, 
        any political subdivision or instrumentality thereof, or any 
        governmental unit acting for or on behalf of such a utility.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 503. PRIVATE LOAN FINANCING TEST NOT TO APPLY TO PREPAYMENTS FOR 
              NATURAL GAS AND OTHER COMMODITIES.

    (a) In General.--Section 141(c)(2) (providing exceptions to the 
private loan financing test) is amended by striking ``or'' at the end 
of subparagraph (A), by striking the period at the end of subparagraph 
(B) and inserting ``, or'', and by adding at the end the following:
                    ``(C) arises from a transaction described in 
                section 148(b)(4).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act.

                    TITLE VI--OIL AND GAS PRODUCTION

SEC. 601.  CREDIT FOR PRODUCTION OF RE-REFINED LUBRICATING OIL.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 402(a), 
is amended by adding at the end the following:

``SEC. 45H. CREDIT FOR PRODUCING RE-REFINED LUBRICATING OIL.

    ``(a) General Rule.--For purposes of section 38, the re-refined 
lubricating oil production credit of any taxpayer for any taxable year 
is equal to $4.05 per barrel of qualified re-refined lubricating oil 
production which is attributable to the taxpayer (within the meaning of 
section 29(d)(3)).
    ``(b) Qualified Re-Refined Lubricating Oil Production.--For 
purposes of this section--
            ``(1) In general.--The term `qualified re-refined 
        lubricating oil production' means a base oil manufactured from 
        at least 95 percent used oil and not more than 2 percent of 
        previously unused oil by a re-refining process at a qualified 
        facility which effectively removes physical and chemical 
        impurities and spent and unspent additives to the extent that 
        such base oil meets industry standards for engine oil as 
        defined by the American Petroleum Institute document API 1509 
        as in effect on the date of the enactment of this section.
            ``(2) Limitation on amount of production which may 
        qualify.--Re-refined lubricating oil produced during any 
        taxable year shall not be treated as qualified re-refined 
        lubricating oil production but only to the extent average daily 
        production during the taxable year exceeds 7,000 barrels.
            ``(3) Barrel.--The term `barrel' has the meaning given such 
        term by section 613A(e)(4).
            ``(4) Noncompliance with pollution laws.--For purposes of 
        paragraph (1), a facility 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 facility during such period.
    ``(c) Inflation Adjustment.--In the case of any taxable year 
beginning in a calendar year after 2001, the dollar amount contained in 
subsection (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 29(d)(2)(B) by substituting `2000' for 
`1979').''.
    (b) Credit Treated as Business Credit.--Section 38(b) (relating to 
current year business credit), as amended by section 402(b), 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:
            ``(17) the re-refined lubricating oil production credit 
        determined under section 45H(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by section 402(d), is 
amended by adding at the end the following:

``Sec. 45H.  Credit for producing re-refined lubricating oil.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to production after the date of the enactment of this Act.

SEC. 602. 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 section 601(a), is 
amended by adding at the end the following:

``SEC. 45I.  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 $14 ($1.56 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 2001, 
                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 `2000' 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 or 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 section 601(b), 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:
            ``(18) the marginal oil and gas well production credit 
        determined under section 45I(a).''.
    (c) Credit Allowed Against Regular and Minimum Tax.--
            (1) In general.--Subsection (c) of section 38 (relating to 
        limitation based on amount of tax), as amended by section 
        201(d)(1), is amended by redesignating paragraph (4) as 
        paragraph (5) and by inserting after paragraph (3) the 
        following:
            ``(4) Special rules for marginal oil and gas well 
        production credit.--
                    ``(A) In general.--In the case of the marginal oil 
                and gas well production 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 marginal 
                                oil and gas well production credit).
                    ``(B) Marginal oil and gas well production 
                credit.--For purposes of this subsection, the term 
                `marginal oil and gas well production credit' means the 
                credit allowable under subsection (a) by reason of 
                section 45I(a).''.
            (2) Conforming amendments.--Subclause (II) of section 
        38(c)(2)(A)(ii), as amended by section 201(d)(2), and subclause 
        (II) of section 38(c)(3)(A)(ii), as added by section 201(d)(1), 
        are each amended by inserting ``or the marginal oil and gas 
        well production credit'' after ``home credit''.
    (d) Carryback.--Subsection (a) of section 39 (relating to carryback 
and carryforward of unused credits generally) is amended by adding at 
the end the following:
            ``(3) 10-year carryback for marginal oil and gas well 
        production credit.--In the case of the marginal oil and gas 
        well production credit--
                    ``(A) this section shall be applied separately from 
                the business credit (other than the marginal oil and 
                gas well production credit),
                    ``(B) paragraph (1) shall be applied by 
                substituting `10 taxable years' for `1 taxable years' 
                in subparagraph (A) thereof, and
                    ``(C) paragraph (2) shall be applied--
                            ``(i) by substituting `31 taxable years' 
                        for `21 taxable years' in subparagraph (A) 
                        thereof, and
                            ``(ii) by substituting `30 taxable years' 
                        for `20 taxable years' in subparagraph (A) 
                        thereof.''.
    (e) Coordination With Section 29.--Section 29(a) is amended by 
striking ``There'' and inserting ``At the election of the taxpayer, 
there''.
    (f) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter I, as amended by section 601(c), is 
amended by adding at the end the following:

``Sec. 45I. Credit for producing oil and gas from marginal wells.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to production in taxable years beginning after December 31, 2001.

SEC. 603. DEDUCTION FOR DELAY RENTAL PAYMENTS.

    (a) In General.--Section 263 (relating to capital expenditures) is 
amended by adding at the end the following:
    ``(j) Delay Rental Payments for Domestic Oil and Gas Wells.--
            ``(1) In general.--Notwithstanding subsection (a), a 
        taxpayer may elect to treat delay rental payments incurred in 
        connection with the development of oil or gas within the United 
        States (as defined in section 638) as payments which are not 
        chargeable to capital account. Any payments so treated shall be 
        allowed as a deduction in the taxable year in which paid or 
        incurred.
            ``(2) Delay rental payments.--For purposes of paragraph 
        (1), 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) Conforming Amendment.--Section 263A(c)(3) is amended by 
inserting ``263(j),'' after `263(i),'.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 604. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 263 (relating to capital expenditures), as 
amended by section 603(a), is amended by adding at the end the 
following:
    ``(k) Geological and Geophysical Expenditures for Domestic Oil and 
Gas Wells.--Notwithstanding subsection (a), a taxpayer may elect to 
treat 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) as expenses which are not chargeable 
to capital account. Any expenses so treated shall be allowed as a 
deduction in the taxable year in which paid or incurred.''.
    (b) Conforming Amendment.--Section 263A(c)(3), as amended by 
section 603(b), is amended by inserting ``263(k),'' after ``263(j),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 605. GAS PIPELINES TREATED AS 7-YEAR PROPERTY.

    (a) In General.--Subparagraph (C) of section 168(e)(3) (relating to 
classification of certain property), as amended by section 304(a)(1), 
is amended by striking ``and'' at the end of clause (iii), by 
redesignating clause (iv) as clause (v), and by inserting after clause 
(iii) the following:
                            ``(iv) any gas pipeline, and''.
    (b) Gas Pipeline.--Subsection (i) of section 168, as amended by 
section 304(b), is amended by adding at the end the following:
            ``(17) Gas pipeline.--The term `gas pipeline' means the 
        pipe, storage facilities, equipment, distribution 
        infrastructure, and appurtenances used to deliver natural 
        gas.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to property placed in service on or after the date of the 
        enactment of this Act.
            (2) Accounting rule for public utility property.--If any 
        gas pipeline is public utility property (as defined in section 
        46(f)(5) 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), the amendments made by this 
        section shall only apply to such property if, with respect to 
        such property, the taxpayer uses a normalization method of 
        accounting.

SEC. 606. CRUDE OIL AND NATURAL GAS DEVELOPMENT CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 602(a), 
is amended by adding at the end the following:

``SEC. 45J. CRUDE OIL AND NATURAL GAS DEVELOPMENT CREDIT.

    ``(a) In General.--For purposes of section 38, the crude oil and 
natural gas development credit determined under this section for any 
taxable year shall be an amount equal to the taxpayer's qualified 
investment for the taxable year.
    ``(b) Reduction as Oil and Gas Prices Increase.--
            ``(1) In general.--The amount which would (but for this 
        subsection) be taken into account under subsection (a) for the 
        taxable year shall be reduced (but not below zero) by an amount 
        which bears the same ratio to such amount (determined without 
        regard to this subsection) as--
                    ``(A) the excess (if any) of the applicable 
                reference price over $11, bears to
                    ``(B) $3.
                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.
            ``(2) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2001, each of the 
        dollar amounts contained in paragraph (1) 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 `2000' for `1990').
            ``(3) Reference price.--For purposes of this subsection, 
        the term `reference price' means, with respect to any calendar 
        year, the reference price determined under section 29(d)(2)(C).
    ``(c) Qualified Investment.--For purposes of this section, the term 
`qualified investment' means amounts paid or incurred--
            ``(1) for the purpose of drilling and equipping crude oil 
        and natural gas wells (including pollution control equipment 
        used in connection with such wells), or
            ``(2) for the purpose of performing secondary or tertiary 
        recovery techniques,
on properties located within the United States (as defined in section 
638), but only to the extent that the expenditure is not taken into 
account for purposes of a credit under any other section.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Aggregation of qualified investment expenses.--
                    ``(A) Controlled groups; common control.--In 
                determining the amount of the credit under this 
                section, all members of the same controlled group of 
                corporations (within the meaning of section 52(a)) and 
                all persons under common control (within the meaning of 
                section 52(b)) shall be treated as a single taxpayer 
                for purposes of this section.
                    ``(B) Apportionment of credit.--The credit (if any) 
                allowable by this section to members of any group (or 
                to any person) described in subparagraph (A) shall be 
                such member's or person's proportionate share of the 
                qualified investment expenses giving rise to the credit 
                determined under regulations prescribed by the 
                Secretary.
            ``(2) Partnerships, s corporations, estates and trusts.--
                    ``(A) Partnerships and s corporations.--In the case 
                of a partnership, the credit shall be allocated among 
                partners under regulations prescribed by the Secretary. 
                A similar rule shall apply in the case of an S 
                corporation and its shareholders.
                    ``(B) 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.
            ``(3) Adjustments for certain acquisitions and 
        dispositions.--Under regulations prescribed by the Secretary, 
        rules similar to the rules contained in section 41(f)(3) shall 
        apply with respect to the acquisition or disposition of a 
        taxpayer.
            ``(4) Short taxable years.--In the case of any short 
        taxable year, qualified investment expenses shall be annualized 
        in such circumstances and under such methods as the Secretary 
may prescribe by regulation.
            ``(5) Denial of double benefit.--
                    ``(A) Disallowance of deduction.--Any deduction 
                allowable under this chapter for any costs 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 costs.
                    ``(B) Basis adjustments.--For purposes of this 
                subtitle, if a credit is determined 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 expenditures 
                shall be reduced by the amount of the credit so 
                allowed.''.
    (b) Credit Treated as Business Credit.--Section 38(b), as amended 
by section 602(b), 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:
            ``(19) the crude oil and natural gas development credit 
        determined under section 45J(a).''.
    (c) Transitional Rule.--Section 39(d) (relating to transitional 
rules), as amended by section 402(c), is amended by adding at the end 
the following:
            ``(15) 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 crude oil and natural gas 
        development credit determined under section 48J may be carried 
        back to a taxable year ending before January 1, 2002.''.
    (d) Credit Allowed Against Regular and Minimum Tax.--
            (1) In general.--Subsection (c) of section 38 (relating to 
        limitation based on amount of tax), as amended by section 
        602(c)(1), is amended by redesignating paragraph (5) as 
        paragraph (6) and by inserting after paragraph (4) the 
        following:
            ``(5) Special rules for crude oil and natural gas 
        development credit.--
                    ``(A) In general.--In the case of the crude oil and 
                natural gas development 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 crude oil 
                                and natural gas development credit).
                    ``(B) Crude oil and natural gas development 
                credit.--For purposes of this subsection, the term 
                `crude oil and natural gas development credit' means 
                the credit allowable under subsection (a) by reason of 
                section 45J(a).''.
            (2) Conforming amendments.--Subclause (II) of section 
        38(c)(2)(A)(ii) and subclause (II) of section 38(c)(3)(A)(ii), 
        as amended by section 602(c)(2), and subclause (II) of section 
        38(c)(4)(A)(ii), as added by section 602(c)(1), are each 
        amended by inserting ``or the crude oil and natural gas 
        development credit'' after ``well production credit''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by section 602(f), is 
amended by adding at the end the following:

                              ``Sec. 45J. Crude oil and natural gas 
                                        development credit.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred in taxable years beginning after 
December 31, 2001.

SEC. 607. CREDIT FOR CAPTURE OF COALMINE METHANE GAS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 606(a), 
is amended by adding at the end the following:

``SEC. 45K. CAPTURE OF COALMINE METHANE GAS.

    ``(a) In General.--For purposes of section 38, the coalmine methane 
gas capture credit of any taxpayer for any taxable year is $1.21 for 
1,000,000 Btu of coalmine methane gas captured by the taxpayer and 
utilized as a fuel source or sold by or on behalf of the taxpayer to an 
unrelated person during such taxable year (within the meaning of 
section 45).
    ``(b) Coalmine Methane Gas.--For purposes of this section, the term 
`coalmine methane gas' means any methane gas which is being liberated, 
or would be liberated, during qualified coal mining operations or as a 
result of past qualified coal mining operations, or which is extracted 
up to 10 years in advance of qualified coal mining operations as part 
of 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 
subsections (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.
    ``(e) Application of Rules.--For purposes of this section, rules 
similar to 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 section 606(b), 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:
            ``(20) the coalmine methane gas capture credit determined 
        under section 45K(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by section 606(c), is 
amended by adding at the end the following:

``Sec. 45K.  Capture of coalmine methane gas.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to the capture of coalmine methane gas after the date of the 
enactment of this Act.

SEC. 608.  ALLOCATION OF ALCOHOL FUELS CREDIT TO PATRONS OF A 
              COOPERATIVE.

    (a) In General.--Section 40(d) (relating to alcohol used as fuel) 
is amended by adding at the end the following:
            ``(6) Allocation of small ethanol producer credit to 
        patrons of cooperative.--
                    ``(A) 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 made on a timely filed return (including 
                extensions) for such year, 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. Such an election, once 
                made, shall be irrevocable for such taxable year.
                    ``(B) Treatment of organizations and patrons.--The 
                amount of the credit apportioned to patrons pursuant to 
                subparagraph (A)--
                            ``(i) shall not be included in the amount 
                        determined under subsection (a) for the taxable 
                        year of the organization, and
                            ``(ii) shall be included in the amount 
                        determined under subsection (a) for the taxable 
                        year of each patron in which the patronage 
                        dividend for the taxable year referred to in 
                        subparagraph (A) is includible in gross income.
                    ``(C) Special rule for decreasing credit 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 cooperative organization's 
                return for such year, an amount equal to the excess of 
                such reduction over the amount not apportioned to the 
                patrons under subparagraph (A) for the taxable year 
                shall be treated as an increase in tax imposed by this 
                chapter on the organization. Any 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 of this part.''.
    (b) Technical Amendment.--Section 1388 (relating to definitions and 
special rules for cooperative organizations) is amended by adding at 
the end the following:
    ``(k) Cross Reference.--For provisions relating to the 
apportionment of the alcohol fuels credit between cooperative 
organizations and their patrons, see section 40(d)(6).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 609. EXTENSION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL 
              SOURCE.

    (a) Inclusion of Alaska Natural Gas.--Section 29(c)(1) (defining 
qualified fuels) is amended by striking ``and'' at the end of 
subparagraph (B)(ii), by striking the period at the end of subparagraph 
(C) and inserting ``, and'', and by adding at the end the following:
                    ``(D) Alaska natural gas.''.
    (b) Definition.--Section 29(c) is amended by adding at the end the 
following:
            ``(4) Alaska natural gas.--The term `Alaska natural gas' 
        means gas produced in compliance with the applicable State and 
        Federal pollution prevention, control, and permit requirements 
        from the area generally known as the North Slope of Alaska 
        (including the continental shelf thereof within the meaning of 
        section 638(1)), determined without regard to the area of the 
        Alaska National Wildlife Refuge (including the continental 
        shelf thereof within the meaning of section 638(1)).''.
    (c) Amount of Credit.--
            (1) In general.--Section 29(a)(1) (relating to allowance of 
        credit) is amended by inserting ``($1.45 in the case of a 
        qualified fuel described in subsection (c)(1)(D))'' after 
        ``$3''.
            (2) Conforming amendments.--
                    (A) Section 29(b)(2) is amended by striking ``The 
                $3 amount'' and inserting ``The $3 and $1.45 amounts''.
                    (B) Section 29(d)(2)(B) is amended by inserting 
                ``(calendar year 2001 in the case of the $1.45 amount 
                in subsection (a)(1))'' after ``1979''.
    (d) Extension of Credit.--Section 29(g) (relating to extension for 
certain facilities) is amended by adding at the end the following:
            ``(3) Special rule for alaska natural gas wells.--In the 
        case of a well for producing qualified fuel described in 
        subsection (c)(1)(D)--
                    ``(A) for purposes of subsection (f)(1)(A), such 
                well shall be treated as being placed in service before 
                January 1, 1993, if such well is placed in service 
                before January 1, 2009, and
                    ``(B) subsection (f)(2) shall be applied with 
                respect to such well by substituting `after December 
                31, 2001, and before January 1, 2009' for `before 
                January 1, 2003'.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2001.
                                 <all>