[Congressional Record Volume 152, Number 125 (Friday, September 29, 2006)]
[Senate]
[Pages S10684-S10688]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LUGAR:
  S. 4000. A bill to amend the Internal Revenue Code of 1986 to modify 
the alcohol credit and the alternative fuel credit, to amend the Clean 
Air Act to promote the installation of fuel pumps for E-85 fuel, to 
amend title 49 of the United States Code to require the manufacture of 
dual fueled automobiles, and for other purposes; to the Committee on 
Finance.
  Mr. LUGAR. Mr. President, I rise to introduce the National Fuels 
Initiative of 2006. This act presents to this Congress a plan to bring 
meaningful reductions in the amount of oil we consume in the United 
States and reduce our dependency on oil imports. Dependence on imported 
oil has put the United States in a position that no great power should 
tolerate. Our economic health is subject to forces far beyond our 
control, including the decisions of hostile countries. We maintain a 
massive military presence overseas, partly to preserve our oil 
lifeline. We have lost leverage on the international stage and are 
daily exacerbating the problem by participating in an enormous wealth 
transfer to authoritarian nations that happen to possess the commodity 
that our economy can least do without. The hundreds of billions of 
dollars we spend on oil imports each year weakens our economy, enriches 
hostile regimes, and is used by some to support terrorism.
  In the absence of revolutionary changes in energy policy, we are 
risking multiple disasters for our country that will constrain living 
standards, undermine our foreign policy goals, and leave us highly 
vulnerable to the machinations of rogue states. There are at least six 
threats posed by oil dependence. First oil is vulnerable to supply 
disruption as a result of natural disasters, wars, and terrorist 
attacks. Price shocks resulting from a major supply loss can put the 
U.S. economy into recession. Second, global oil reserves are becoming 
more limited as easy supply is depleted, global demand rapidly 
increases, and governments exert more control over reserves. This makes 
oil more expensive in the short term, and creates the prospect that 
supplies may not be accessible in the future. Third, some oil-rich 
nations are using energy as an overt weapon. Adversarial regimes from 
Venezuela, to Iran, to Russia are using energy supplies as leverage 
against their neighbors. Fourth, hundreds of billions of dollars in oil 
export revenues flowing to authoritarian regimes increase corruption 
and hurt democratic reform. Some oil-rich nations are using this money 
to invest in terrorism, instability, or demagogic appeals to populism. 
Fifth, the threat of global climate change has been made worse by 
inefficient and unclean use of non-renewable energy like oil. This 
could bring about drought, famine, disease, and mass migration. And 
finally, dependence on oil increases instability and undermines 
development in much of the developing world. Rising energy costs can 
undermine our foreign assistance and hurt stability, development, 
disease eradication, and efforts to combat the root causes of 
terrorism.
  The new geo-political reality emerging from the global energy 
situation and United States dependence on oil imports demand that we 
dramatically decrease the amount of oil we consume. In March 2006, I 
delivered an address at the Brookings Institution in which I described 
``a shifting balance of realism'' from those who believe in the 
immutability of oil's domination of our economy and a laissez faire 
approach to energy policy to those who recognize that our Nation has no 
choice but to seek a major reorientation in the way we get our energy. 
Marginally reducing our reliance on imported oil over the course of the 
next few decades via the slow progress of market forces will be 
welcome, but by the time a sustained energy crisis fully motivates 
market forces, we are likely to be well past the point where we can 
save ourselves from extensive suffering. We must respond to our energy 
vulnerability as a crisis. This is the very essence of a problem 
requiring Congressional action.
  The heart of America's geostrategic problem is reliance on imported 
oil in a market that is dominated by volatile and hostile governments. 
We can start to break petroleum's grip right now. The key is to replace 
oil used in transportation with renewable fuels and to improve the fuel 
efficiency of our cars and trucks.
  I outlined the 5 central components of this energy plan at the 
Richard G. Lugar--Purdue University Summit on Energy Security on August 
29th, 2006. First, this bill sets a goal for the United States to 
expand production of renewable fuels to at least 100 billion gallons a 
year by 2025. Some of this added production will come from current 
corn-based ethanol and biodiesel, but a great majority will be from 
emerging cellulosic technology allowing ethanol from diverse sources of 
renewable biomass. Second, virtually all new cars sold in America 
should be flex-fuel capable. These vehicles give Americans the choice 
to use E-85, a blend of 85 percent ethanol and 15 percent gasoline, or 
regular gasoline. This bill would require that virtually all vehicles 
would be manufactured as flexible fuel vehicles within ten years. This 
provision was also part of the Biomass Security Act of 2006 which I 
joined Senator Harkin in introducing earlier this year. Third, roughly 
25 percent of our nation's fueling stations should offer E-85 within 
the next ten years. This provision was also part of the Biomass 
Security Act of 2006. This will give consumers choice and help spur 
investment in renewable fuel production. Fourth, the bill would enact 
increased mileage standards that set a target of steadily improving 
fuel economy every year, as well as encourage research into new 
advanced technology vehicles such as hybrids and coal-based 
transportation fuels. I joined Senator Obama in introducing this 
provision earlier this year as the Fuel Economy Reform Act of 2006. 
Finally, the bill would establish a revolutionary variable alternative 
fuel tax credit to support growth of alternative fuel production. While 
this novel portion of the bill should be further debated and improved, 
its aim is to increase investment in cellulosic ethanol, coals to 
liquid, and other non-petroleum based fuels by reducing risks posed by 
oil price manipulation of foreign regimes.
  We must move now to address our energy vulnerability because 
sufficient investment cannot happen overnight, and it will take years 
to build supporting infrastructure and to change behavior. Americans 
need to know exactly what the plan is and how we will achieve it. We 
not only must understand how to bring alternatives to the market, we 
must establish what degree of change would improve our national 
security situation, then tailor national policy to achieve that goal. 
The energy plan presented in this bill is a package of proposals that 
would dramatically improve America's security posture. The plan would 
achieve the replacement of 6.5 million barrels of oil per day by 
volume--the rough equivalent of one third of the oil used in America 
and one half of our oil imports. It would provide more jobs for 
Americans instead of sending a deluge of money to hostile countries, 
support our farmers instead of foreign terrorists, and promote green 
fuels over fossil fuels.
  I ask unanimous consent that the full text of this bill be printed in 
the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 4000

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``National 
     Fuels Initiative''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Declaration of United States policy on the development and use 
              of renewable alternative fuels.
Sec. 4. Modification to alcohol credit and alternative fuel credit.

[[Page S10685]]

Sec. 5. Installation of E-85 fuel pumps by major oil companies at owned 
              stations and branded stations.
Sec. 6. Requirement to manufacture dual fueled automobiles.
Sec. 7. Definition of automobile.
Sec. 8. Average fuel economy standards.
Sec. 9. Credit trading and compliance.
Sec. 10. Consumer tax credit.
Sec. 11. Advanced technology motor vehicles manufacturing credit.

     SEC. 2. FINDINGS.

       Congress makes the following findings:
       (1) The national security and economic prosperity of the 
     United States is threatened by our oil dependence, and the 
     reliance of the United States on oil imports impinges on our 
     foreign policy. Adversarial regimes rich in oil and natural 
     gas are using their energy supplies as leverage against 
     import-dependent countries and are using increased revenues 
     from oil and gas exports to gain international influence, 
     fund anti-American appeals, entrench authoritarianism, and 
     support terrorism.
       (2) Global competition for oil reserves is increasing as 
     supply is depleted, demand increases, and foreign governments 
     attempt to exert more control over reserves. Supplies of oil 
     are vulnerable to disruption resulting from war, political 
     manipulation, natural disasters, and terrorist attacks. A 
     major loss in oil supply could result in a price shock 
     extremely damaging to the economy of the United States and 
     our way of life, and competition over scarce resources could 
     create conflict.
       (3) Inefficient and unclean use of oil damages the 
     environment and worsens the threat of global climate change.

     SEC. 3. DECLARATION OF UNITED STATES POLICY ON THE 
                   DEVELOPMENT AND USE OF RENEWABLE ALTERNATIVE 
                   FUELS.

       Congress declares that:
       (1) It is the policy of the United States to reduce 
     dependence on imported oil through increased efficiency and 
     diversification of fuel sources through dramatically expanded 
     use of clean alternative fuels. Such a reduction will 
     increase the foreign policy flexibility of the United States, 
     make the United States less vulnerable to oil supply 
     disruption, and promote economic growth. The United States 
     will continue to promote research and development of a range 
     of alternatives fuels, and it will implement policies to 
     accelerate the deployment and commercialization of existing 
     efficiency and alternative fuels technologies.
       (2) It is the policy goal of the United States to produce 
     and utilize the equivalent of at least 100,000,000,000 
     gallons of renewable fuel per year by 2025. This amount of 
     renewable fuel, along with innovation in fuel efficiency, 
     will substantially reduce the need for oil imports in the 
     United States.
       (3) It is the policy of the United States to promote the 
     development of a global biofuels market through partnerships 
     with other nations and to reduce trade barriers for renewable 
     fuels.

     SEC. 4. MODIFICATION TO ALCOHOL CREDIT AND ALTERNATIVE FUEL 
                   CREDIT.

       (a) Income Tax Credit for Alcohol.--
       (1) Rate based on price of oil.--Section 40 of the Internal 
     Revenue Code of 1986 (relating to alcohol used as fuel) is 
     amended by striking ``60 cents'' each place it appears and 
     inserting ``the applicable amount''.
       (2) Applicable amount.--Subsection (h) of section 40 of 
     such Code is amended to read as follows:
       ``(h) Applicable Amount.--
       ``(1) In general.--For purposes of this section, the term 
     `applicable amount' means, with respect to any quarter--
       ``(A) $.05 for each $1 (or any fraction thereof) by which 
     $45 exceeds--
       ``(i) in the case of the alcohol mixture credit, the 
     average price of a barrel of oil for the quarter during which 
     the qualified mixture in which the alcohol was used is sold 
     or used, and
       ``(ii) in the case of the alcohol credit, the average price 
     of a barrel of oil for the quarter during which the alcohol 
     was sold or used, and
       ``(B) $0 for any quarter in which the price of a barrel of 
     oil is greater than $45.
       ``(2) Determination of average price.--The average price of 
     a barrel of oil shall be determined under regulations 
     prescribed by the Secretary.
       ``(3) Barrel.--For purposes of this subsection, the term 
     `barrel' means 42 United States gallons.''.
       (3) Elimination of small ethanol producer credit.--
       (A) Section 40(a) of such Code is amended--
       (i) by striking ``, plus'' at the end of paragraph (2) and 
     inserting a period, and
       (ii) by striking paragraph (3).
       (B) Section 40(b) of such Code is amended by striking 
     paragraph (4) and by redesignating paragraph (5) as paragraph 
     (4).
       (C)(i) Section 40(d)(3) of such Code is amended by striking 
     subparagraph (C) and redesignating subparagraph (D) as 
     subparagraph (C).
       (ii) Section 40(d)(3)(C) of such Code, as redesignated by 
     clause (i), is amended by striking ``subparagraph (A), (B), 
     or (C)'' and inserting ``subparagraph (A) or (C)''.
       (D) Section 40 of such Code is amended by striking 
     subsection (g) and by redesignating subsection (h), as 
     amended by paragraph (2), as subsection (g).
       (4) Extension of credit.--Paragraph (1) of section 40(e) of 
     such Code is amended--
       (A) in subparagraph (A), by striking ``2010'' and inserting 
     ``2020'', and
       (B) in subparagraph (B), by striking ``2011'' and inserting 
     ``2021''.
       (5) Conforming amendment.--Section 40(b) of such Code, as 
     amended by subsection (a), is amended by striking paragraph 
     (3) and by redesignating paragraph (4) as paragraph (3).
       (b) Modifications to Excise Tax Credit and Payments for 
     Alcohol.--
       (1) In general.--Paragraph (2) of section 6426(b) of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(2) Applicable amount.--For purposes of this subsection, 
     the applicable amount shall be the amount determined under 
     section 40(g).''.
       (2) Extension.--
       (A) Alcohol fuel mixture credit.--Paragraph (5) of section 
     6426(b) of such Code is amended by striking ``2010'' and 
     inserting ``2020''.
       (B) Payments.--Subparagraph (A) of section 6427(e)(5) of 
     such Code is amended by striking ``2010'' and inserting 
     ``2020''.
       (c) Modifications to Excise Tax and Payments for 
     Alternative Fuel.--
       (1) Alternative fuel credit.--
       (A) Rate.--
       (i) In general.--Paragraph (1) of section 6426(d) of the 
     Internal Revenue Code of 1986 is amended by striking ``50 
     cents'' and inserting ``the applicable amount''.
       (ii) Applicable amount.--Subsection (d) of section 6426 of 
     such Code is amended by redesignating paragraphs (2), (3), 
     and (4) as paragraphs (3), (4), and (5), respectively, and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Applicable amount.--For purposes of this subsection, 
     the applicable amount shall be the amount determined under 
     section 40(g).''.
       (B) Extension.--Paragraph (5) of section 6426(d) of such 
     Code, as redesignated by paragraph (1), is amended by 
     striking ``2009 (September 30, 2014, in the case of any sale 
     or use involving liquified hydrogen)'' and inserting 
     ``2020''.
       (2) Alternative fuel mixture credit.--
       (A) Rate.--
       (i) In general.--Paragraph (1) of section 6426(e) of the 
     Internal Revenue Code of 1986 is amended by striking ``50 
     cents'' and inserting ``the applicable amount''.
       (ii) Applicable amount.--Subsection (e) of section 6426 of 
     such Code is amended by redesignating paragraphs (2) and (3) 
     as paragraphs (3) and (4), respectively, and by inserting 
     after paragraph (1) the following new paragraph:
       ``(2) Applicable amount.--For purposes of this subsection, 
     the applicable amount shall be the amount determined under 
     section 40(g).''.
       (B) Extension.--Paragraph (4) of section 6426(e) of such 
     Code, as redesignated by paragraph (1), is amended by 
     striking ``2009 (September 30, 2014, in the case of any sal 
     or use involving liquified hydrogen)'' and inserting 
     ``2020''.
       (3) Payments.--Paragraph (5) of section 6427(e) is amended 
     by inserting ``and'' at the end of subparagraph (B), by 
     striking subparagraphs (C) and (D), and by inserting after 
     subparagraph (B) the following:
       ``(C) any alternative fuel or alternative fuel mixture (as 
     defined in subsection (d)(3) or (e)(3) of section 6426) sold 
     or used after September 30, 2020.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to fuel used or sold in quarters beginning after 
     the date of the enactment of this Act.

     SEC. 5. INSTALLATION OF E-85 FUEL PUMPS BY MAJOR OIL 
                   COMPANIES AT OWNED STATIONS AND BRANDED 
                   STATIONS.

       Section 211(o) of the Clean Air Act (42 U.S.C. 7545(o)) is 
     amended by adding at the end the following:
       ``(11) Installation of e-85 fuel pumps by major oil 
     companies at owned stations and branded stations.--
       ``(A) Definitions.--In this paragraph:
       ``(i) E-85 fuel.--The term `E-85 fuel' means a blend of 
     gasoline approximately 85 percent of the content of which is 
     derived from ethanol produced in the United States.
       ``(ii) Major oil company.--The term `major oil company' 
     means any person that, individually or together with any 
     other person with respect to which the person has an 
     affiliate relationship or significant ownership interest, has 
     not less than 4,500 retail station outlets according to the 
     latest publication of the Petroleum News Annual Factbook.
       ``(iii) Secretary.--The term `Secretary' means the 
     Secretary of Energy, acting in consultation with the 
     Administrator of the Environmental Protection Agency and the 
     Secretary of Agriculture.
       ``(B) Regulations.--The Secretary shall promulgate 
     regulations to ensure that each major oil company that sells 
     or introduces gasoline into commerce in the United States 
     through wholly-owned stations or branded stations installs or 
     otherwise makes available 1 or more pumps that dispense E-85 
     fuel (including any other equipment necessary, such as 
     including tanks, to ensure that the pumps function properly) 
     at not less than the applicable percentage of the wholly-
     owned stations and the branded stations of the major oil 
     company specified in subparagraph (C).
       ``(C) Applicable percentage.--For the purpose of 
     subparagraph (B), the applicable percentage of the wholly-
     owned stations and the branded stations shall be determined 
     in accordance with the following table:


[[Page S10686]]


  ``Applicable percentage of wholly-owned stations and branded stations
Calendar year:                                              (percent): 
  2008...........................................................5 ....

  2009..........................................................10 ....

  2010..........................................................15 ....

  2011..........................................................20 ....

  2012..........................................................25 ....

  2013..........................................................30 ....

  2014..........................................................35 ....

  2015..........................................................40 ....

  2016..........................................................45 ....

  2017 and each calendar year thereafter...............................

                                                                50.

       ``(D) Geographic distribution.--
       ``(i) In general.--Subject to clause (ii), in promulgating 
     regulations under subparagraph (B), the Secretary shall 
     ensure that each major oil company described in subparagraph 
     (B) installs or otherwise makes available 1 or more pumps 
     that dispense E-85 fuel at not less than a minimum percentage 
     (specified in the regulations) of the wholly-owned stations 
     and the branded stations of the major oil company in each 
     State.
       ``(ii) Requirement.--In specifying the minimum percentage 
     under clause (i), the Secretary shall ensure that each major 
     oil company installs or otherwise makes available 1 or more 
     pumps described in that clause in each State in which the 
     major oil company operates.
       ``(E) Financial responsibility.--In promulgating 
     regulations under subparagraph (B), the Secretary shall 
     ensure that each major oil company described in that 
     subparagraph assumes full financial responsibility for the 
     costs of installing or otherwise making available the pumps 
     described in that subparagraph and any other equipment 
     necessary (including tanks) to ensure that the pumps function 
     properly.
       ``(F) Production credits for exceeding e-85 fuel pumps 
     installation requirement.--
       ``(i) Earning and period for applying credits.--If the 
     percentage of the wholly-owned stations and the branded 
     stations of a major oil company at which the major oil 
     company installs E-85 fuel pumps in a particular calendar 
     year exceeds the percentage required under subparagraph (C), 
     the major oil company earns credits under this paragraph, 
     which may be applied to any of the 3 consecutive calendar 
     years immediately after the calendar year for which the 
     credits are earned.
       ``(ii) Trading credits.--Subject to clause (iii), a major 
     oil company that has earned credits under clause (i) may sell 
     credits to another major oil company to enable the purchaser 
     to meet the requirement under subparagraph (C).
       ``(iii) Exception.--A major oil company may not use credits 
     purchased under clause (ii) to fulfill the geographic 
     distribution requirement in subparagraph (D).''.

     SEC. 6. REQUIREMENT TO MANUFACTURE DUAL FUELED AUTOMOBILES.

       (a) Requirement.--
       (1) In general.--Chapter 329 of title 49, United States 
     Code, is amended by inserting after section 32902 the 
     following:

     ``Sec. 32902A. Requirement to manufacture dual fueled 
       automobiles

       ``(a) Requirement.--Each manufacturer of new automobiles 
     that are capable of operating on gasoline or diesel fuel 
     shall ensure that the percentage of such automobiles, 
     manufactured in any model year after model year 2007 and 
     distributed in commerce for sale in the United States, which 
     are dual fueled automobiles is equal to not less than the 
     applicable percentage set forth in the following table:
           The percentage of dual fueled automobiles manufactured shall
``For the model year:                                 be not less than:
  2008.......................................................10 percent
  2009.......................................................20 percent
  2010.......................................................30 percent
  2011.......................................................40 percent
  2012.......................................................50 percent
  2013.......................................................60 percent
  2014.......................................................70 percent
  2015.......................................................80 percent
  2016.......................................................90 percent
  2017 and beyond...........................................100 percent

       ``(b) Production Credits for Exceeding Flexible Fuel 
     Automobile Production Requirement.--
       ``(1) Earning and period for applying credits.--If the 
     number of dual fueled automobiles manufactured by a 
     manufacturer in a particular model year exceeds the number 
     required under subsection (a), the manufacturer earns credits 
     under this section, which may be applied to any of the 3 
     consecutive model years immediately after the model year for 
     which such credits are earned.
       ``(2) Trading credits.--A manufacturer that has earned 
     credits under paragraph (1) may sell credits to another 
     manufacturer to enable the purchaser to meet the requirement 
     under subsection (a).''.
       (2) Technical amendment.--The table of sections for chapter 
     329 of title 49, United States Code, is amended by inserting 
     after the item relating to section 32902 the following:

``32902A. Requirement to manufacture dual fueled automobiles.''.

       (b) Activities to Promote the Use of Certain Alternative 
     Fuels.--The Secretary of Transportation shall carry out 
     activities to promote the use of fuel mixtures containing 
     gasoline or diesel fuel and 1 or more alternative fuels, 
     including a mixture containing at least 85 percent of 
     methanol, denatured ethanol, and other alcohols by volume 
     with gasoline or other fuels, to power automobiles in the 
     United States.

     SEC. 7. DEFINITION OF AUTOMOBILE.

       (a) In General.--Section 32901(a)(3) of title 49, United 
     States Code, is amended by striking ``rated at--'' and all 
     that follows through the period at the end and inserting 
     ``rated at not more than 10,000 pounds gross vehicle 
     weight.''.
       (b) Fuel Economy Information.--Section 32908(a) of title 
     49, United States Code, is amended, by striking ``section--'' 
     and all that follows through ``(2)'' and inserting ``section, 
     the term''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to model year 2009 and each subsequent model 
     year.

     SEC. 8. AVERAGE FUEL ECONOMY STANDARDS.

       (a) Standards.--Section 32902 of title 49, United States 
     Code, is amended--
       (1) in subsection (a)--
       (A) in the header, by inserting ``Manufactured Before Model 
     Year 2012'' after ``Non-Passenger Automobiles''; and
       (B) by adding at the end the following: ``This subsection 
     shall not apply to automobiles manufactured after model year 
     2011.'';
       (2) in subsection (b)--
       (A) in the header, by inserting ``Manufactured Before Model 
     Year 2012'' after ``Passenger Automobiles'';
       (B) by inserting ``and before model year 2009'' after 
     ``1984''; and
       (C) by adding at the end the following: ``Such standard 
     shall be increased by 4 percent per year for model years 2009 
     through 2011 (rounded to the nearest 1/10 mile per gallon)'';
       (3) by amending subsection (c) to read as follows:
       ``(c) Automobiles Manufactured After Model Year 2011.--(1) 
     Not later than 18 months before the beginning of each model 
     year after model year 2011, the Secretary of Transportation 
     shall prescribe, by regulation--
       ``(A) an average fuel economy standard for automobiles 
     manufactured by a manufacturer in that model year; or
       ``(B) based on 1 or more vehicle attributes that relate to 
     fuel economy--
       ``(i) separate standards for different classes of 
     automobiles; or
       ``(ii) standards expressed in the form of a mathematical 
     function.
       ``(2)(A) Except as provided under paragraphs (3) and (4) 
     and subsection (d), standards under paragraph (1) shall 
     attain a projected aggregate level of average fuel economy of 
     27.5 miles per gallon for all automobiles manufactured by all 
     manufacturers for model year 2012.
       ``(B) The projected aggregate level of average fuel economy 
     for model year 2013 and each succeeding model year shall be 
     increased by 4 percent from the level for the prior model 
     year (rounded to the nearest 1/10 mile per gallon).
       ``(C) Notwithstanding subparagraphs (A) and (B), the 
     fleetwide average fuel economy standard for passenger 
     automobiles manufactured by a manufacturer in a model year 
     for that manufacturer's domestic fleet and for its foreign 
     fleet as calculated under section 32904 as in effect before 
     the date of enactment of the National Fuels Initiative shall 
     not be less than 92 percent of the average fuel economy 
     projected by the Secretary for the combined domestic and 
     foreign fleets manufactured by all manufacturers in that 
     model year.
       ``(3) If the actual aggregate level of average fuel economy 
     achieved by manufacturers for each of 3 consecutive model 
     years is at least 5 percent less than the projected aggregate 
     level of average fuel economy for such model year, the 
     Secretary shall make appropriate adjustments to the standards 
     prescribed under this subsection.
       ``(4)(A) Notwithstanding paragraphs (1) through (3) and 
     subsection (b), the Secretary of Transportation may prescribe 
     a lower average fuel economy standard for 1 or more model 
     years if the Secretary of Transportation, in consultation 
     with the Secretary of Energy, determines that the minimum 
     standards prescribed under paragraph (2) or (3) or subsection 
     (b) for each model year--
       ``(i) are technologically unachievable;
       ``(ii) cannot be achieved without materially reducing the 
     overall safety of automobiles manufactured or sold in the 
     United States; or
       ``(iii) is shown, by clear and convincing evidence, not to 
     be cost effective.
       ``(B) If a lower standard is prescribed for a model year 
     under subparagraph (A), such standard shall be the maximum 
     standard that--
       ``(i) is technologically achievable;
       ``(ii) can be achieved without materially reducing the 
     overall safety of automobiles manufactured or sold in the 
     United States; and
       ``(iii) is cost effective.
       ``(5) In determining cost effectiveness under paragraph 
     (4)(A)(iii), the Secretary of Transportation shall take into 
     account the total value to the Nation of reduced petroleum 
     use, including the value of reducing external costs of 
     petroleum use, using a value for such costs equal to 50 
     percent of the value of a gallon of gasoline saved or the

[[Page S10687]]

     amount determined in an analysis of the external costs of 
     petroleum use that considers--
       ``(A) value to consumers;
       ``(B) economic security;
       ``(C) national security;
       ``(D) foreign policy;
       ``(E) the impact of oil use--
       ``(i) on sustained cartel rents paid to foreign suppliers;
       ``(ii) on long-run potential gross domestic product due to 
     higher normal-market oil price levels, including inflationary 
     impacts;
       ``(iii) on import costs, wealth transfers, and potential 
     gross domestic product due to increased trade imbalances;
       ``(iv) on import costs and wealth transfers during oil 
     shocks;
       ``(v) on macroeconomic dislocation and adjustment costs 
     during oil shocks;
       ``(vi) on the cost of existing energy security policies, 
     including the management of the Strategic Petroleum Reserve;
       ``(vii) on the timing and severity of the oil peaking 
     problem;
       ``(viii) on the risk, probability, size, and duration of 
     oil supply disruptions;
       ``(ix) on OPEC strategic behavior and long-run oil pricing;
       ``(x) on the short term elasticity of energy demand and the 
     magnitude of price increases resulting from a supply shock;
       ``(xi) on oil imports, military costs, and related security 
     costs, including intelligence, homeland security, sea lane 
     security and infrastructure, and other military activities;
       ``(xii) on oil imports, diplomatic and foreign policy 
     flexibility, and connections to geopolitical strife, 
     terrorism, and international development activities;
       ``(xiii) all relevant environmental hazards under the 
     jurisdiction of the Environmental Protection Agency; and
       ``(xiv) on well-to-wheels urban and local air emissions of 
     `pollutants' and their uninternalized costs;
       ``(F) the impact of the oil or energy intensity of the 
     United States economy on the sensitivity of the economy to 
     oil price changes, including the magnitude of gross domestic 
     product losses in response to short term price shocks or long 
     term price increases;
       ``(G) the impact of United States payments for oil imports 
     on political, economic, and military developments in unstable 
     or unfriendly oil exporting countries;
       ``(H) the uninternalized costs of pipeline and storage oil 
     seepage, and for risk of oil spills from production, 
     handling, and transport, and related landscape damage; and
       ``(I) additional relevant factors, as determined by the 
     Secretary.
       ``(6) When considering the value to consumers of a gallon 
     of gasoline saved, the Secretary of Transportation may not 
     use a value less than the greatest of--
       ``(A) the average national cost of a gallon of gasoline 
     sold in the United States during the 12-month period ending 
     on the date on which the new fuel economy standard is 
     proposed;
       ``(B) the most recent weekly estimate by the Energy 
     Information Administration of the Department of Energy of the 
     average national cost of a gallon of gasoline (all grades) 
     sold in the United States; or
       ``(C) the gasoline prices projected by the Energy 
     Information Administration for the 20-year period beginning 
     in the year following the year in which the standards are 
     established.
       ``(7) In prescribing standards under this subsection, the 
     Secretary may prescribe standards for 1 or more model years.
       ``(8)(A) Not later than December 31, 2016, the Secretary of 
     Transportation, the Secretary of Energy, and the 
     Administrator of the Environmental Protection Agency shall 
     submit a joint report to Congress on the state of global 
     automotive efficiency technology development, and on the 
     accuracy of tests used to measure fuel economy of automobiles 
     under section 32904(c), utilizing the study and assessment of 
     the National Academy of Sciences referred to in subparagraph 
     (B).
       ``(B) The Secretary shall enter into appropriate 
     arrangements with the National Academy of Sciences to conduct 
     a comprehensive study of the technological opportunities to 
     enhance fuel economy and an analysis and assessment of the 
     accuracy of fuel economy tests used by the Administrator of 
     the Environmental Protection Agency to measure fuel economy 
     for each model under section 32904(c). Such analysis and 
     assessment shall identify any additional factors or methods 
     that should be included in tests to measure fuel economy for 
     each model to more accurately reflect actual fuel economy of 
     automobiles. The Secretary and the Administrator of the 
     Environmental Protection Agency shall furnish, at the request 
     of the Academy, any information which the Academy determines 
     to be necessary to conduct the study, analysis, and 
     assessment under this subparagraph.
       ``(C) The report submitted under subparagraph (A) shall 
     include--
       ``(i) the study of the National Academy of Sciences 
     referred to in subparagraph (B); and
       ``(ii) an assessment by the Secretary of technological 
     opportunities to enhance fuel economy and opportunities to 
     increase overall fleet safety.
       ``(D) The report submitted under subparagraph (A) shall 
     identify and examine additional opportunities to reform the 
     regulatory structure under this chapter, including approaches 
     that seek to merge vehicle and fuel requirements into a 
     single system that achieves equal or greater reduction in 
     petroleum use and environmental benefits.
       ``(E) The report submitted under subparagraph (A) shall--
       ``(i) include conclusions reached by the Administrator of 
     the Environmental Protection Agency, as a result of detailed 
     analysis and public comment, on the accuracy of current fuel 
     economy tests;
       ``(ii) identify any additional factors that the 
     Administrator determines should be included in tests to 
     measure fuel economy for each model to more accurately 
     reflect actual fuel economy of automobiles; and
       ``(iii) include a description of options, formulated by the 
     Secretary and the Administrator, to incorporate such 
     additional factors in fuel economy tests in a manner that 
     will not effectively increase or decrease average fuel 
     economy for any automobile manufacturer.
       ``(F) There is authorized to be appropriated to the 
     Secretary such amounts as are required to carry out the 
     study, analysis, and assessment required by subparagraph 
     (B).''; and
       (4) in subsection (g)(2), by striking ``(and submit the 
     amendment to Congress when required under subsection (c)(2) 
     of this section)''.
       (b) Conforming Amendments.--
       (1) In general.--Chapter 329 of title 49, United States 
     Code, is amended--
       (A) in section 32903--
       (i) by striking ``passenger'' each place it appears;
       (ii) by striking ``section 32902(b)-(d) of this title'' 
     each place it appears and inserting ``subsection (c) or (d) 
     of section 32902'';
       (iii) by striking subsection (e); and
       (iv) by redesignating subsection (f) as subsection (e); and
       (B) in section 32904(a)--
       (i) by striking ``passenger'' each place it appears; and
       (ii) in paragraph (1), by striking ``subject to'' and all 
     that follows through ``section 32902(b)-(d) of this title'' 
     and inserting ``subsection (c) or (d) of section 32902''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to automobiles manufactured after model year 
     2011.

     SEC. 9. CREDIT TRADING AND COMPLIANCE.

       (a) Credit Trading.--Section 32903(a) of title 49, United 
     States Code, is amended--
       (1) by inserting ``Credits earned by a manufacturer under 
     this section may be sold to any other manufacturer and used 
     as if earned by that manufacturer; except that credits earned 
     by a manufacturer described in section 32904(b)(1)(A)(i) may 
     not be sold to or purchased by a manufacturer described in 
     32904(b)(1)(A)(ii),'' after ``earns credits.''; and
       (2) by striking ``3 consecutive model years immediately'' 
     each place it appears and inserting ``model years''.
       (b) Treatment of Imports.--
       (1) Conforming amendment.--Section 32904(b) is amended by 
     striking ``passenger'' each place it appears.
       (2) Applicability.--The amendments made by paragraph (1) 
     shall apply to automobiles manufactured after model year 
     2011.
       (c) Multi-Year Compliance Period.--Section 32904(c) of such 
     title is amended--
       (1) by inserting ``(1)'' before ``The Administrator''; and
       (2) by adding at the end the following:
       ``(2) The Secretary, by rule, may allow a manufacturer to 
     elect a multi-year compliance period of not more than 4 
     consecutive model years in lieu of the single model year 
     compliance period otherwise applicable under this chapter.''.

     SEC. 10. CONSUMER TAX CREDIT.

       (a) Elimination on Number of New Qualified Hybrid and 
     Advanced Lean Burn Technology Vehicles Eligible for 
     Alternative Motor Vehicle Credit.--
       (1) In general.--Section 30B of the Internal Revenue Code 
     of 1986 is amended--
       (A) by striking subsection (f); and
       (B) by redesignating subsections (g) through (j) as 
     subsections (f) through (i), respectively.
       (2) Conforming amendments.--
       (A) Paragraphs (4) and (6) of section 30B(h) of such Code 
     are each amended by striking ``(determined without regard to 
     subsection (g))'' and inserting ``determined without regard 
     to subsection (f))''.
       (B) Section 38(b)(25) of such Code is amended by striking 
     ``section 30B(g)(1)'' and inserting ``section 30B(f)(1)''.
       (C) Section 55(c)(2) of such Code is amended by striking 
     ``section 30B(g)(2)'' and inserting ``section 30B(f)(2)''.
       (D) Section 1016(a)(36) of such Code is amended by striking 
     ``section 30B(h)(4)'' and inserting ``section 30B(g)(4)''.
       (E) Section 6501(m) of such Code is amended by striking 
     ``section 30B(h)(9)'' and inserting ``section 30B(g)(9)''.
       (b) Extension of Alternative Vehicle Credit for New 
     Qualified Hybrid Motor Vehicles.--Paragraph (3) of section 
     30B(i) of such Code (as redesignated by subsection (a)) is 
     amended by striking ``December 31, 2009'' and inserting 
     ``December 31, 2010''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service after December 31, 
     2005, in taxable years ending after such date.

     SEC. 11. ADVANCED TECHNOLOGY MOTOR VEHICLES MANUFACTURING 
                   CREDIT.

       (a) In General.--Subpart B of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     foreign tax credit, etc.) is amended by adding at the end the 
     following new section:

     ``SEC. 30D. ADVANCED TECHNOLOGY MOTOR VEHICLES MANUFACTURING 
                   CREDIT.

       ``(a) Credit Allowed.--There shall be allowed as a credit 
     against the tax imposed by

[[Page S10688]]

     this chapter for the taxable year an amount equal to 35 
     percent of the qualified investment of an eligible taxpayer 
     for such taxable year.
       ``(b) Qualified Investment.--For purposes of this section--
       ``(1) In general.--The qualified investment for any taxable 
     year is equal to the incremental costs incurred during such 
     taxable year--
       ``(A) to re-equip, expand, or establish any manufacturing 
     facility in the United States of the eligible taxpayer to 
     produce advanced technology motor vehicles or to produce 
     eligible components,
       ``(B) for engineering integration performed in the United 
     States of such vehicles and components as described in 
     subsection (d),
       ``(C) for research and development performed in the United 
     States related to advanced technology motor vehicles and 
     eligible components, and
       ``(D) for employee retraining with respect to the 
     manufacturing of such vehicles or components (determined 
     without regard to wages or salaries of such retrained 
     employees).
       ``(2) Attribution rules.--In the event a facility of the 
     eligible taxpayer produces both advanced technology motor 
     vehicles and conventional motor vehicles, or eligible and 
     non-eligible components, only the qualified investment 
     attributable to production of advanced technology motor 
     vehicles and eligible components shall be taken into account.
       ``(c) Definitions.--In this section:
       ``(1) Advanced technology motor vehicle.--The term 
     `advanced technology motor vehicle' means--
       ``(A) any qualified electric vehicle (as defined in section 
     30(c)(1)),
       ``(B) any new qualified fuel cell motor vehicle (as defined 
     in section 30B(b)(3)),
       ``(C) any new advanced lean burn technology motor vehicle 
     (as defined in section 30B(c)(3)),
       ``(D) any new qualified hybrid motor vehicle (as defined in 
     section 30B(d)(2)(A) and determined without regard to any 
     gross vehicle weight rating),
       ``(E) any new qualified alternative fuel motor vehicle (as 
     defined in section 30B(e)(4), including any mixed-fuel 
     vehicle (as defined in section 30B(e)(5)(B)), and
       ``(F) any other motor vehicle using electric drive 
     transportation technology (as defined in paragraph (3)).
       ``(2) Electric drive transportation technology.--The term 
     `electric drive transportation technology' means technology 
     used by vehicles that use an electric motor for all or part 
     of their motive power and that may or may not use off-board 
     electricity, such as battery electric vehicles, fuel cell 
     vehicles, engine dominant hybrid electric vehicles, plug-in 
     hybrid electric vehicles, and plug-in hybrid fuel cell 
     vehicles.
       ``(3) Eligible components.--The term `eligible component' 
     means any component inherent to any advanced technology motor 
     vehicle, including--
       ``(A) with respect to any gasoline or diesel-electric new 
     qualified hybrid motor vehicle--
       ``(i) electric motor or generator;
       ``(ii) power split device;
       ``(iii) power control unit;
       ``(iv) power controls;
       ``(v) integrated starter generator; or
       ``(vi) battery;
       ``(B) with respect to any hydraulic new qualified hybrid 
     motor vehicle--
       ``(i) accumulator or other energy storage device;
       ``(ii) hydraulic pump;
       ``(iii) hydraulic pump-motor assembly;
       ``(iv) power control unit; and
       ``(v) power controls;
       ``(C) with respect to any new advanced lean burn technology 
     motor vehicle--
       ``(i) diesel engine;
       ``(ii) turbo charger;
       ``(iii) fuel injection system; or
       ``(iv) after-treatment system, such as a particle filter or 
     NOx absorber; and
       ``(D) with respect to any advanced technology motor 
     vehicle, any other component submitted for approval by the 
     Secretary.
       ``(4) Eligible taxpayer.--The term `eligible taxpayer' 
     means any taxpayer if more than 20 percent of the taxpayer's 
     gross receipts for the taxable year is derived from the 
     manufacture of motor vehicles or any component parts of such 
     vehicles.
       ``(d) Engineering Integration Costs.--For purposes of 
     subsection (b)(1)(B), costs for engineering integration are 
     costs incurred prior to the market introduction of advanced 
     technology vehicles for engineering tasks related to--
       ``(1) establishing functional, structural, and performance 
     requirements for component and subsystems to meet overall 
     vehicle objectives for a specific application,
       ``(2) designing interfaces for components and subsystems 
     with mating systems within a specific vehicle application,
       ``(3) designing cost effective, efficient, and reliable 
     manufacturing processes to produce components and subsystems 
     for a specific vehicle application, and
       ``(4) validating functionality and performance of 
     components and subsystems for a specific vehicle application.
       ``(e) Limitation Based on Amount of Tax.--The credit 
     allowed under subsection (a) for the taxable year shall not 
     exceed the excess of--
       ``(1) the sum of--
       ``(A) the regular tax liability (as defined in section 
     26(b)) for such taxable year, plus
       ``(B) the tax imposed by section 55 for such taxable year 
     and any prior taxable year beginning after 1986 and not taken 
     into account under section 53 for any prior taxable year, 
     over
       ``(2) the sum of the credits allowable under subpart A and 
     sections 27, 30, and 30B for the taxable year.
       ``(f) Reduction in Basis.--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 paragraph) result 
     from such expenditure shall be reduced by the amount of the 
     credit so allowed.
       ``(g) No Double Benefit.--
       ``(1) Coordination with other deductions and credits.--
     Except as provided in paragraph (2), the amount of any 
     deduction or other credit allowable under this chapter for 
     any cost taken into account in determining the amount of the 
     credit under subsection (a) shall be reduced by the amount of 
     such credit attributable to such cost.
       ``(2) Research and development costs.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     any amount described in subsection (b)(1)(C) taken into 
     account in determining the amount of the credit under 
     subsection (a) for any taxable year shall not be taken into 
     account for purposes of determining the credit under section 
     41 for such taxable year.
       ``(B) Costs taken into account in determining base period 
     research expenses.--Any amounts described in subsection 
     (b)(1)(C) taken into account in determining the amount of the 
     credit under subsection (a) for any taxable year which are 
     qualified research expenses (within the meaning of section 
     41(b)) shall be taken into account in determining base period 
     research expenses for purposes of applying section 41 to 
     subsequent taxable years.
       ``(h) Business Carryovers Allowed.--If the credit allowable 
     under subsection (a) for a taxable year exceeds the 
     limitation under subsection (e) for such taxable year, such 
     excess (to the extent of the credit allowable with respect to 
     property subject to the allowance for depreciation) shall be 
     allowed as a credit carryback to each of the 15 taxable years 
     immediately preceding the unused credit year and as a 
     carryforward to each of the 20 taxable years immediately 
     following the unused credit year.
       ``(i) Special Rules.--For purposes of this section, rules 
     similar to the rules of section 179A(e)(4) and paragraphs (1) 
     and (2) of section 41(f) shall apply
       ``(j) Election Not to Take Credit.--No credit shall be 
     allowed under subsection (a) for any property if the taxpayer 
     elects not to have this section apply to such property.
       ``(k) Regulations.--The Secretary shall prescribe such 
     regulations as necessary to carry out the provisions of this 
     section.
       ``(l) Termination.--This section shall not apply to any 
     qualified investment after December 31, 2010.''.
       (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 30D(g).''.
       (2) Section 6501(m) of such Code is amended by inserting 
     ``30D(k),'' after ``30C(e)(5),''.
       (3) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1 of such Code is amended by 
     inserting after the item relating to section 30C the 
     following new item:

``Sec. 30D. Advanced technology motor vehicles manufacturing credit.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts incurred in taxable years beginning 
     after December 31, 1999.
                                 ______