[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3325 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 3325

               To promote coal-to-liquid fuel activities.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 26, 2006

  Mr. Bunning (for himself, Mr. Obama, Mr. Lugar, Mr. Burns, and Mr. 
Pryor) introduced the following bill; which was read twice and referred 
                      to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
               To promote coal-to-liquid fuel activities.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Coal-to-Liquid Fuel Promotion Act of 
2006''.

SEC. 2. DEFINITIONS.

    In this Act:
            (1) Coal-to-liquid.--The term ``coal-to-liquid'' means--
                    (A) with respect to a process or technology, the 
                use of the coal resources of the United States, using 
                the class of chemical reactions known as Fischer-
                Tropsch, to produce synthetic fuel suitable for 
                transportation; and
                    (B) with respect to a facility, the portion of a 
                facility related to the Fischer-Tropsch process, 
                Fischer-Tropsch finished fuel production, or the 
                capture, transportation, or sequestration of byproducts 
                of the use of coal at the Fischer-Tropsch facility, 
                including carbon emissions.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Energy.

SEC. 3. COAL-TO-LIQUID FUEL LOAN GUARANTEE PROGRAM.

    (a) Eligible Projects.--Section 1703(b) of the Energy Policy Act of 
2005 (42 U.S.C. 16513(b)) is amended by adding at the end the 
following:
            ``(11) Large-scale coal-to-liquid facilities (as defined in 
        section 2 of the Coal-to-Liquid Fuel Promotion Act of 2006), 
        that use coal resources of the United States to produce not 
        less than 10,000 barrels a day of liquid transportation 
        fuel.''.
    (b) Authorization of Appropriations.--Section 1704 of the Energy 
Policy Act of 2005 (42 U.S.C. 16514) is amended by adding at the end 
the following:
    ``(c) Coal-to-Liquid Projects.--
            ``(1) In general.--There are authorized to be appropriated 
        such sums as are necessary to provide the cost of guarantees 
        for projects involving large-scale coal-to-liquid facilities 
        under section 1703(b)(11).
            ``(2) Limitations.--
                    ``(A) In general.--No loan guarantees shall be 
                provided under this title for projects described in 
                paragraph (1) after (as determined by the Secretary)--
                            ``(i) the tenth such loan guarantee is 
                        issued under this title; or
                            ``(ii) production capacity covered by such 
                        loan guarantees reaches 100,000 barrels per day 
                        of coal-to-liquid fuel.
                    ``(B) Individual projects.--
                            ``(i) In general.--A loan guarantee may be 
                        provided under this title for any large-scale 
                        coal-to-liquid facility described in paragraph 
                        (1) that produces no more than 20,000 barrels 
                        of coal-to-liquid fuel per day.
                            ``(ii) Non-federal funding requirement.--To 
                        be eligible for a loan guarantee under this 
                        title, a large-scale coal-to-liquid facility 
                        described in paragraph (1) that produces more 
                        than 20,000 barrels of coal-to-liquid fuel per 
                        day shall be required to provide non-Federal 
                        funding for the proportional cost of the loan 
                        guarantee for production that exceeds 20,000 
                        barrels of coal-to-liquid fuel per day.''.

SEC. 4. COAL-TO-LIQUID FACILITIES LOAN PROGRAM.

    (a) Definition of Eligible Recipient.--In this section, the term 
``eligible recipient'' means an individual, organization, or other 
entity that owns, operates, or plans to construct a coal-to-liquid 
facility that will produce at least 10,000 barrels per day of coal-to-
liquid fuel.
    (b) Establishment.--The Secretary shall establish a program under 
which the Secretary shall provide loans, in a total amount not to 
exceed $20,000,000, for use by eligible recipients to pay the Federal 
share of the cost of obtaining any services necessary for the planning, 
permitting, and construction of a coal-to-liquid facility.
    (c) Application.--To be eligible to receive a loan under subsection 
(b), an owner or operator of a coal-to-liquid facility shall submit to 
the Secretary an application at such time, in such manner, and 
containing such information as the Secretary may require.
    (d) Non-Federal Match.--To be eligible to receive a loan under this 
section, an eligible recipient shall use non-Federal funds to provide a 
dollar-for-dollar match of the amount of the loan.
    (e) Repayment of Loan.--
            (1) In general.--To be eligible to receive a loan under 
        this section, an eligible recipient shall agree to repay the 
        original amount of the loan to the Secretary not later than 5 
        years after the date of the receipt of the loan.
            (2) Source of funds.--Repayment of a loan under paragraph 
        (1) may be made from any financing or assistance received for 
        the construction of a coal-to-liquid facility described in 
        subsection (a), including a loan guarantee provided under 
        section 1703(b)(11) of the Energy Policy Act of 2005 (42 U.S.C. 
        16513(b)(11)).
    (f) Authorization of Appropriations.--There is authorized to be 
appropriated to carry out this section $200,000,000, to remain 
available until expended.

SEC. 5. LOCATION OF COAL-TO-LIQUID MANUFACTURING FACILITIES.

    The Secretary, in coordination with the head of any affected 
agency, shall promulgate such regulations as the Secretary determines 
to be necessary to support the development on Federal land (including 
land of the Department of Energy, military bases, and military 
installations closed or realigned under the defense base closure and 
realignment) of coal-to-liquid manufacturing facilities and associated 
infrastructure, including the capture, transportation, or sequestration 
of carbon dioxide.

SEC. 6. CREDIT FOR INVESTMENT IN COAL-TO-LIQUID FUELS PROJECTS.

    (a) In General.--Section 46 of the Internal Revenue Code of 1986 
(relating to amount of credit) is amended by striking ``and'' at the 
end of paragraph (3), by striking the period at the end of paragraph 
(4) and inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(5) the qualifying coal-to-liquid fuels project 
        credit.''.
    (b) Amount of Credit.--Subpart E of part IV of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986 (relating to rules for 
computing investment credit) is amended by inserting after section 48B 
the following new section:

``SEC. 48C. QUALIFYING COAL-TO-LIQUID FUELS PROJECT CREDIT.

    ``(a) In General.--For purposes of section 46, the qualifying coal-
to-liquid fuels project credit for any taxable year is an amount equal 
to 20 percent of the qualified investment for such taxable year.
    ``(b) Qualified Investment.--
            ``(1) In general.--For purposes of subsection (a), the 
        qualified investment for any taxable year is the basis of 
        property placed in service by the taxpayer during such taxable 
        year which is part of a qualifying coal-to-liquid fuels 
        project--
                    ``(A)(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, and
                    ``(B) with respect to which depreciation (or 
                amortization in lieu of depreciation) is allowable.
            ``(2) Applicable rules.--For purposes of this section, 
        rules similar to the rules of subsection (a)(4) and (b) of 
        section 48 shall apply.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualifying coal-to-liquid fuels project.--The term 
        `qualifying coal-to-liquid fuels project' means any domestic 
        project which--
                    ``(A) employs the Fischer-Tropsch process to 
                produce at least 10,000 barrels per day of 
                transportation grade liquid fuels from coal (including 
                any property which allows for the capture, 
                transportation, or sequestration of by-products 
                resulting from such process, including carbon 
                emissions), and
                    ``(B) any portion of the qualified investment in 
                which is certified under the qualifying coal-to-liquid 
                program as eligible for credit under this section in an 
                amount (not to exceed $200,000,000) determined by the 
                Secretary.
            ``(2) Coal.--The term `coal' means any carbonized or 
        semicarbonized matter, including peat.
    ``(d) Qualifying Coal-to-Liquid Fuels Project Program.--
            ``(1) In general.--The Secretary, in consultation with the 
        Secretary of Energy, shall establish a qualifying coal-to-
        liquid fuels project program to consider and award 
        certifications for qualified investment eligible for credits 
        under this section to 10 qualifying coal-to-liquid fuels 
        project sponsors under this section. The total qualified 
        investment which may be awarded eligibility for credit under 
        the program shall not exceed $2,000,000,000.
            ``(2) Period of issuance.--A certificate of eligibility 
        under paragraph (1) may be issued only during the 10-fiscal 
        year period beginning on October 1, 2006.
            ``(3) Selection criteria.--The Secretary shall not make a 
        competitive certification award for qualified investment for 
        credit eligibility under this section unless the recipient has 
        documented to the satisfaction of the Secretary that--
                    ``(A) the award recipient is financially viable 
                without the receipt of additional Federal funding 
                associated with the proposed project,
                    ``(B) the recipient will provide sufficient 
                information to the Secretary for the Secretary to 
                ensure that the qualified investment is spent 
                efficiently and effectively,
                    ``(C) a market exists for the products of the 
                proposed project as evidenced by contracts or written 
                statements of intent from potential customers,
                    ``(D) the fuels identified with respect to the 
                gasification technology for such project will comprise 
                at least 90 percent of the fuels required by the 
                project for the production of transportation grade 
                liquid fuels,
                    ``(E) the award recipient's project team is 
                competent in the construction and operation of the 
                Fischer-Tropsch process, with preference given to those 
                recipients with experience which demonstrates 
                successful and reliable operations of such process, and
                    ``(F) the award recipient has met other criteria 
                established and published by the Secretary.
    ``(e) Denial of Double Benefit.--No deduction or other credit shall 
be allowed with respect to the basis of any property taken into account 
in determining the credit allowed under this section.''.
    (c) Conforming Amendments.--
            (1) Section 49(a)(1)(C) of the Internal Revenue Code of 
        1986 is amended by striking ``and'' at the end of clause (iii), 
        by striking the period at the end of clause (iv) and inserting 
        ``, and'', and by adding after clause (iv) the following new 
        clause:
                            ``(v) the basis of any property which is 
                        part of a qualifying coal-to-liquid fuels 
                        project under section 48C.''.
            (2) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 48B the following new item:

``48C. Qualifying coal-to-liquid fuels project credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to periods after the date of the enactment of this Act, under 
rules similar to the rules of section 48(m) of the Internal Revenue 
Code of 1986 (as in effect on the day before the date of the enactment 
of the Revenue Reconciliation Act of 1990).

SEC. 7. TEMPORARY EXPENSING FOR EQUIPMENT USED IN COAL-TO-LIQUID FUELS 
              PROCESS.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
179D the following new section:

``SEC. 179E. ELECTION TO EXPENSE CERTAIN COAL-TO-LIQUID FUELS 
              FACILITIES.

    ``(a) Treatment as Expenses.--A taxpayer may elect to treat the 
cost of any qualified coal-to-liquid fuels process property as an 
expense which is not chargeable to capital account. Any cost so treated 
shall be allowed as a deduction for the taxable year in which the 
expense is incurred.
    ``(b) Election.--
            ``(1) In general.--An election under this section for any 
        taxable year shall be made on the taxpayer's return of the tax 
        imposed by this chapter for the taxable year. Such election 
        shall be made in such manner as the Secretary may by 
        regulations prescribe.
            ``(2) Election irrevocable.--Any election made under this 
        section may not be revoked except with the consent of the 
        Secretary.
    ``(c) Qualified Coal-to-Liquid Fuels Process Property.--The term 
`qualified coal-to-liquid fuels process property' means any property 
located in the United States--
            ``(1) which employs the Fischer-Tropsch process to produce 
        transportation grade liquid fuels from coal (including any 
        property which allows for the capture, transportation, or 
        sequestration of by-products resulting from such process, 
        including carbon emissions),
            ``(2) the original use of which commences with the 
        taxpayer,
            ``(3) the construction of which--
                    ``(A) except as provided in subparagraph (B), is 
                subject to a binding construction contract entered into 
                after the date of the enactment of this section and 
                before January 1, 2011, but only if there was no 
                written binding construction contract entered into on 
                or before such date of enactment, or
                    ``(B) in the case of self-constructed property, 
                began after the date of the enactment of this section 
                and before January 1, 2011, and
            ``(4) which is placed in service by the taxpayer after the 
        date of the enactment of this section and before January 1, 
        2016.
    ``(d) Election to Allocate Deduction to Cooperative Owner.--If--
            ``(1) a taxpayer to which subsection (a) applies is an 
        organization to which part I of subchapter T applies, and
            ``(2) one or more persons directly holding an ownership 
        interest in the taxpayer are organizations to which part I of 
        subchapter T apply,
the taxpayer may elect to allocate all or a portion of the deduction 
allowable under subsection (a) to such persons. Such allocation shall 
be equal to the person's ratable share of the total amount allocated, 
determined on the basis of the person's ownership interest in the 
taxpayer. The taxable income of the taxpayer shall not be reduced under 
section 1382 by reason of any amount to which the preceding sentence 
applies.
    ``(e) Basis Reduction.--
            ``(1) In general.--For purposes of this title, if a 
        deduction is allowed under this section with respect to any 
        qualified coal-to-liquid fuels process property, the basis of 
        such property shall be reduced by the amount of the deduction 
        so allowed.
            ``(2) Ordinary income recapture.--For purposes of section 
        1245, the amount of the deduction allowable under subsection 
        (a) with respect to any property which is of a character 
        subject to the allowance for depreciation shall be treated as a 
        deduction allowed for depreciation under section 167.
    ``(f) Application With Other Deductions and Credits.--
            ``(1) Other deductions.--No deduction shall be allowed 
        under any other provision of this chapter with respect to any 
        expenditure with respect to which a deduction is allowed under 
        subsection (a) to the taxpayer.
            ``(2) Credits.--No credit shall be allowed under section 38 
        with respect to any amount for which a deduction is allowed 
        under subsection (a).
    ``(g) Reporting.--No deduction shall be allowed under subsection 
(a) to any taxpayer for any taxable year unless such taxpayer files 
with the Secretary a report containing such information with respect to 
the operation of the property of the taxpayer as the Secretary shall 
require.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) of the Internal Revenue Code of 1986 is 
        amended by striking ``and'' at the end of paragraph (36), by 
        striking the period at the end of paragraph (37) and inserting 
        ``, and'', and by adding at the end the following new 
        paragraph:
            ``(38) to the extent provided in section 179E(e)(1).''.
            (2) Section 1245(a) of such Code is amended by inserting 
        ``179E,'' after ``179D,'' both places it appears in paragraphs 
        (2)(C) and (3)(C).
            (3) Section 263(a)(1) of such Code is amended by striking 
        ``or'' at the end of subparagraph (J), by striking the period 
        at the end of subparagraph (K) and inserting ``, or'', and by 
        inserting after subparagraph (K) the following new 
        subparagraph:
                    ``(L) expenditures for which a deduction is allowed 
                under section 179E.''.
            (4) Section 312(k)(3)(B) of such Code is amended by 
        striking ``or 179D'' each place it appears in the heading and 
        text and inserting ``179D, or 179E''.
            (5) The table of sections for part VI of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 179D the following new item:

``Sec. 179E. Election to expense certain coal-to-liquid fuels 
                            facilities.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to properties placed in service after the date of the enactment 
of this Act.

SEC. 8. EXTENSION OF ALTERNATIVE FUEL CREDIT FOR FUEL DERIVED FROM COAL 
              THROUGH THE FISCHER-TROPSCH PROCESS.

    (a) Alternative Fuel Credit.--Paragraph (4) of section 6426(d) of 
the Internal Revenue Code of 1986 is amended to read as follows:
            ``(4) Termination.--This subsection shall not apply to--
                    ``(A) any sale or use involving liquid fuel derived 
                from coal (including peat) through the Fischer-Tropsch 
                process for any period after September 30, 2020,
                    ``(B) any sale or use involving liquified hydrogen 
                for any period after September 30, 2014, and
                    ``(C) any other sale or use for any period after 
                September 30, 2009.''.
    (b) Payments.--
            (1) In general.--Paragraph (5) of section 6427(e) of the 
        Internal Revenue Code of 1986 is amended by striking ``and'' 
        and the end of subparagraph (C), by striking the period at the 
        end of subparagraph (D) and inserting ``, and'', and by adding 
        at the end the following new subparagraph:
                    ``(E) any alternative fuel or alternative fuel 
                mixture (as so defined) involving liquid fuel derived 
                from coal (including peat) through the Fischer-Tropsch 
                process sold or used after September 30, 2020.''.
            (2) Conforming amendment.--Section 6427(e)(5)(C) of such 
        Code is amended by striking ``subparagraph (D)'' and inserting 
        ``subparagraphs (D) and (E)''.

SEC. 9. STRATEGIC PETROLEUM RESERVE.

    (a) Development, Operation, and Maintenance of Reserve.--Section 
159 of the Energy Policy and Conservation Act (42 U.S.C. 6239) is 
amended--
            (1) by redesignating subsections (f), (g), (j), (k), and 
        (l) as subsections (a), (b), (e), (f), and (g), respectively; 
        and
            (2) by inserting after subsection (b) (as redesignated by 
        paragraph (1)) the following:
    ``(c) Study of Maintaining Coal-to-Liquid Products in Reserve.--Not 
later than 1 year after the date of enactment of the Coal-to-Liquid 
Fuel Promotion Act of 2006, the Secretary and the Secretary of Defense 
shall--
            ``(1) conduct a study of the feasibility and suitability of 
        maintaining coal-to-liquid products in the Reserve; and
            ``(2) submit to the Committee on Energy and Natural 
        Resources and the Committee on Armed Services of the Senate and 
        the Committee on Energy and Commerce and the Committee on Armed 
        Services of the House of Representatives a report describing 
        the results of the study.
    ``(d) Construction of Storage Facilities.--As soon as practicable 
after the date of enactment of the Coal-to-Liquid Fuel Promotion Act of 
2006, the Secretary may construct 1 or more storage facilities--
            ``(1) in the vicinity of pipeline infrastructure and at 
        least 1 military base; but
            ``(2) outside the boundaries of any State on the coast of 
        the Gulf of Mexico.''.
    (b) Petroleum Products for Storage in Reserve.--Section 160 of the 
Energy Policy and Conservation Act (42 U.S.C. 6240) is amended--
            (1) in subsection (a)--
                    (A) in paragraph (1), by inserting a semicolon at 
                the end;
                    (B) in paragraph (2), by striking ``and'' at the 
                end;
                    (C) in paragraph (3), by striking the period at the 
                end and inserting ``; and''; and
                    (D) by adding at the end the following:
            ``(4) coal-to-liquid products (as defined in section 2 of 
        the Coal-to-Liquid Fuel Promotion Act of 2006), as the 
        Secretary determines to be appropriate, in a quantity not to 
        exceed 20 percent of the total quantity of petroleum products 
        in the Reserve.'';
            (2) in subsection (b), by redesignating paragraphs (3) 
        through (5) as paragraphs (2) through (4), respectively; and
            (3) by redesignating subsections (f) and (h) as subsections 
        (d) and (e), respectively.
    (c) Conforming Amendments.--Section 167 of the Energy Policy and 
Conservation Act (42 U.S.C. 6247) is amended--
            (1) in subsection (b)--
                    (A) by redesignating paragraphs (2) and (3) as 
                paragraphs (1) and (2), respectively; and
                    (B) in paragraph (2) (as redesignated by 
                subparagraph (A)), by striking ``section 160(f)'' and 
                inserting ``section 160(e)''; and
            (2) in subsection (d), in the matter preceding paragraph 
        (1), by striking ``section 160(f)'' and inserting ``section 
        160(e)''.

SEC. 10. AUTHORIZATION TO CONDUCT RESEARCH, DEVELOPMENT, TESTING, AND 
              EVALUATION OF ASSURED DOMESTIC FUELS.

    Of the amount authorized to be appropriated for the Air Force for 
research, development, testing, and evaluation, $10,000,000 may be made 
available for the Air Force Research Laboratory to continue support 
efforts to test, qualify, and procure synthetic fuels developed from 
coal for aviation jet use.

SEC. 11. PROCUREMENT OF UNCONVENTIONAL FUELS BY THE DEPARTMENT OF 
              DEFENSE.

    Section 2398a of title 10, United States Code, is amended--
            (1) in subsection (b)--
                    (A) by striking ``The Secretary'' and inserting the 
                following:
            ``(1) In general.--The Secretary''; and
                    (B) by adding at the end the following:
            ``(2) Coal-to-liquid production facilities.--
                    ``(A) In general.--The Secretary of Defense may 
                enter into contracts or other agreements with private 
                companies or other entities to develop and operate 
                coal-to-liquid facilities (as defined in section 2 of 
                the Coal-to-Liquid Fuel Promotion Act of 2006) on or 
                near military installations.
                    ``(B) Considerations.--In entering into contracts 
                and other agreements under subparagraph (A), the 
                Secretary shall consider land availability, testing 
                opportunities, and proximity to raw materials.'';
            (2) in subsection (d), by striking ``1 or more years'' and 
        inserting ``up to 25 years''; and
            (3) by adding at the end the following:
    ``(f) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to carry out this section.''.
                                 <all>