[Congressional Record (Bound Edition), Volume 148 (2002), Part 3]
[Senate]
[Pages 4015-4017]
[From the U.S. Government Publishing Office, www.gpo.gov]




                REVISION IN ENERGY TAX INCENTIVES REPORT

  Mr. BAUCUS. Madam President, on March 1, 2002, I filed Report 107-140 
to accompany S. 1979, the Energy Tax Incentives Act of 2002. Since that 
time, the Congressional Budget Office has revised its estimate to 
reflect changes resulting from enactment of Public Law 107-147, the Job 
Creation and Worker Assistance Act of 2002, plus direct spending 
effects that were not in the previous estimate. I ask unanimous consent 
that the revised CBO estimate, dated April 1, 2002, be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
                                                    U.S. Congress,


                                  Congressional Budget Office,

                                    Washington, DC, April 1, 2002.
     Hon. Max Baucus,
     Chairman, Committee on Finance, U.S. Senate, Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed revised cost estimate for S. 1979, the 
     Energy Tax Incentives Act of 2002. The estimate includes 
     direct spending effects on the Tennessee Valley Authority, 
     loans issued by the Rural Utilities Service, and crop 
     subsidies provided by the Department of Agriculture that were 
     not in the previous estimate. Review estimates reflect 
     changes in current law resulting from enactment of Public Law 
     107-147, the Job Creation and Worker Assistance Act of 2002, 
     which was signed on March 9, 2002. This estimate supersedes 
     the estimate that CBO provided for this bill on February 27, 
     2002.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contacts are Erin 
     Whitaker (for revenues), who can be reached at 226-2720, and 
     Lisa Cash Driskill (for direct spending), who can be reached 
     at 226-2860.
           Sincerely,
                                                 Barry B. Anderson
                                   (For Dan L. Crippen, Director).
       Enclosure.

    Congressional Budget Office Cost Estimate, Revised April 1, 2002

[S. 1979: Energy Tax Incentives Act of 2002, as ordered reported by the 
           Senate Committee on Finance on February 13, 2002]


                                summary

       S. 1979, the Energy Tax Incentives Act, would amend 
     numerous provisions of tax law relating to energy. The bill 
     would enhance and create credits for the use and development 
     of energy-efficient technologies, amend tax rules to provide 
     deductions for certain devices and credits for businesses 
     that provide energy, and enhance and create credits and 
     deductions for the production of oil, gas, and other types of 
     fuel. Certain tax credits would be available to the Tennessee 
     valley Authority (TVA) and rural electric cooperatives in the 
     form of credits that could be used to pay sums owed to the 
     Treasury. The bill also would provide tax credits for the 
     production of biodiesel fuels. which would result in a 
     reduction in the subsidies provided by the Department of 
     Agriculture (USDA) for certain crops. Most provisions of S. 
     1979 would take effect in 2003, but some would take effect in 
     2002.
       The Congressional Budget Office (CBO) and the Joint 
     Committee on Taxation (JCT) estimate that enacting the bill 
     would decrease governmental receipts by $80 million in 2002, 
     by $8.3 billion over the 2002-2007 period, and by $14.4 
     billion over the 2002-2012 period. CBO estimates that 
     provisions in the bill affecting TVA, rural electric 
     cooperatives, and USDA would result in an increase in direct 
     spending of $20 million in 2002, a decrease of about $75 
     million over the 2002-2007 period, and a decrease of about 
     $200 million over the 2002-2012 period. CBO also estimates 
     that certain provisions requiring studies and reports would 
     have an insignificant impact on spending subject to 
     appropriation. Since S. 1979 would affect direct spending and 
     receipts, pay-as-you-go procedures would apply.
       CBO has determined that provisions of the bill requiring 
     the Secretary of the Treasury and the General Accounting 
     Office to report the results of certain studies contain no 
     intergovernmental mandates as defined in the Unfunded 
     Mandates Reform Act (UMRA) and would not affect the budgets 
     of state, local, or tribal governments. JCT has determined 
     that the remaining provisions of the bill contain no 
     intergovernmental mandates as defined in UMRA. The bill 
     contains no new private-sector mandates as defined in UMRA.


                ESTIMATED COST TO THE FEDERAL GOVERNMENT

       The estimated budgetary impact of the bill is shown in the 
     following table.

[[Page 4016]]


----------------------------------------------------------------------------------------------------------------
                                                       By Fiscal Year, in Millions of Dollars
                                   -----------------------------------------------------------------------------
                                        2002         2003         2004         2005         2006         2007
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES
 
Estimated Revenues................          -80         -312       -1,237       -2,259       -2,583       -1,869
 
                                           CHANGES IN DIRECT SPENDING
 
Credits for Clean Coal and
 Renewable Technologies Used by
 TVA:
    Estimated budget Authority....  ...........  ...........           10           10           10           10
    Estimated Outlays.............  ...........  ...........           10           10           10           10
Credits for Clean Coal and
 Renewable Technologies Used by
 Rural Electric Cooperatives:
    Estimated Budget Authority....           20            0  ...........  ...........  ...........  ...........
    Estimated Outlays.............           20            0  ...........  ...........  ...........  ...........
Effect of Biodiesel Tax Credits on
 Spending for Farm Programs:
    Estimated Budget Authority....  ...........          -13          -22          -28          -33          -38
    Estimated Outlays.............  ...........          -13          -22          -28          -33          -38
Total Changes in Direct Spending:
    Estimated Budget Authority....           20          -13          -12          -18          -23          -28
    Estimated Outlays.............           20          -13          -12          -18          -23          -28
----------------------------------------------------------------------------------------------------------------

                           BASIS OF ESTIMATE

                                Revenues

       All revenue estimates were provided by JCT except for one 
     provision. For the years 2006-2012, CBO estimated the revenue 
     effects of the provision providing a tax credit and excise 
     tax rate reduction for biodiesel fuel mixtures.
       Five provisions would compose a significant portion of the 
     effect on revenues if enacted. Those provisions would extend 
     the credit for producing energy from certain sources, extend 
     the credit for purchase of alternative motor vehicles, and 
     modify the credit for purchase of electric vehicles. They 
     also would establish a statutory 15-year recovery period for 
     natural gas distribution lines, expand the credit for certain 
     qualifying fuels produced from coal to fuels produced in 
     facilities placed in service after the date of enactment, and 
     modify the rules governing certain requirements for 
     contributions to, and transfers of, qualified nuclear 
     decommissioning funds. These provisions would, if enacted, 
     reduce revenues by $57 million in 2002, $3.3 billion over the 
     2002-2007 period, and $6.8 billion over the 2002-2012 period.
       Section 209 of the bill would provide for an income tax 
     credit and a reduction in the excise tax rate on purchases of 
     biodiesel fuel mixtures (a combination of diesel fuel and 
     vegetable oil). These provisions would expire on December 31, 
     2005. The JCT assumes that they would expire at that time and 
     estimates that they would reduce revenue by $74 million 
     through fiscal year 2006. CBO extends those revenue losses 
     beyond 2006, however, based on the rules governing CBO's 
     revenue baseline. Those rules require CBO to treat excise 
     taxes dedicated to trust funds as permanent, even if they 
     expire during the projection period. The excise taxes on 
     motor fuels are dedicated to the Highway Trust Fund and are 
     scheduled to expire on September 30, 2005. The biodiesel 
     provision would reduce the excise tax rate on certain motor 
     fuels. Because CBO's baseline extends the excise taxes at the 
     rate existing at time of expiration, the biodiesel provision 
     would, for budgetary scoring purposes, be treated as if it 
     were extended permanently. On that basis, CBO estimates that 
     the biodiesel provision would reduce revenues by $448 million 
     from 2006 through 2012. In all, CBO and JCT estimate that the 
     provision would reduce revenues by $552 million from 2002 
     through 2012.

                            Direct Spending

       Effect of Biodiesel Tax Credits on Farm Programs. Because 
     of the bill's incentives to sell and use biodiesel fuels, JCT 
     and CBO have estimated that use of these fuel mixtures would 
     increase. Because the vegetable oil in the mixtures is 
     expected to be primarily derived from soybeans and a few 
     other oilseeds, the price of these oilseeds would increase. 
     (Qualifying vegetable oils may be derived from corn, soybeans 
     and a list of other oil seeds.) Higher commodity prices would 
     result in lower costs of farm price-support and income-
     support programs administered by the Agriculture Department. 
     CBO estimates these changes in the demand for soybeans and 
     other grains would reduce federal spending by $308 million 
     over the 2002-2002 period.
       Use of Credits for Federal Payments by TVA and Rural 
     Electric Cooperatives. The bill would establish tax credits 
     for electric power producers using certain coal and renewable 
     technologies. Although exempt from taxation, TVA and rural 
     electric cooperatives would be eligible to take such credits 
     in the form of cash-equivalent credits that could be used to 
     repay amounts they owe to the Treasury. We estimate that the 
     provisions would cost $20 million in 2002 and $110 million 
     over the 2002-2012 period.
       CBO expects that TVA will make significant investments in 
     pollution control and clean coal technologies over the next 
     10 years and thus would be eligible for the cash-equivalent 
     credits authorized by the bill. TVA could use such credits to 
     reduce its payments to the Treasury for past appropriations. 
     TVA could then pass such savings on to its customers by 
     lowering the price it charges for electricity. We estimate 
     that this price adjustment would reduce TVA's power revenues 
     by an average of $10 million a year beginning in 2004, when 
     we expect the agency would revise its rates. Hence, CBO 
     estimates that this provision would cost a total of about $90 
     million over the 2002-2012 period.
       Rural electric cooperatives would be eligible for both the 
     clean coal technology and renewable energy tax credits 
     offered under the bill. Based on information from industry 
     analysts, CBO expects that rural electric cooperatives would 
     make investments in technologies that would qualify for such 
     credits over the next several years. The bill would allow the 
     credits to be sold or traded to certain other taxable 
     entities, or used to prepay loans held by the federal 
     spending. For this estimate, we assume that around 15 percent 
     of eligible cooperatives would prepay their federal loans 
     with the Rural Utilities Service, rather than trade the 
     credits.
       The authority provided by the bill to prepay federal loans 
     with non-cash credits would be considered a loan 
     modification. Under the Credit Reform Act, the cost of a loan 
     modification is the change in the subsidy cost of the cost of 
     this provision would be about $20 million and would be 
     recorded in 2002, when the modification would be authorized.

                   Spending Subject to Appropriation

       The bill would require the General Accounting Office and 
     the Department of the Treasury to provide annual reports on 
     energy tax incentives. Based on information from these 
     agencies, CBO expects that preparing the reports would cost 
     less than $500,000 per year, assuming appropriation of the 
     necessary amounts.


                      PAY-AS-YOU-GO CONSIDERATIONS

       The Balanced Budget and Emergency Deficit Control Act sets 
     up pay-as-you-go procedures for legislation affecting direct 
     spending or receipts. The net changes in outlays and 
     governmental receipts that are subject to pay-as-you-go 
     procedures are shown in the following table. For the purposes 
     of enforcing those procedures, only the effects through 2006 
     are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          By Fiscal Year, in Millions of Dollars
                                ------------------------------------------------------------------------------------------------------------------------
                                    2002       2003       2004       2005       2006       2007       2008       2009       2010       2011       2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays.............         20        -13        -12        -18        -23        -28        -29        -31        -22        -26        -16
Changes in receipts............        -80       -312     -1,237     -2,259     -2,583     -1,869     -1,234     -1,181     -1,174     -1,214     -1,289
--------------------------------------------------------------------------------------------------------------------------------------------------------

                      PREVIOUS CBO COST ESTIMATES

       This revised cost estimate supersedes the CBO cost estimate 
     for this bill prepared on February 27, 2002. Revenue 
     estimates have changed because Public Law 107-147, the Job 
     Creation and Worker Assistance Act of 2002, signed on March 
     9, 2002 extends certain tax credits that would also be 
     extended by S. 1979. In addition, CBO has increased the 
     estimate of revenue losses by about $448 million to account 
     for the impact on baseline projections of the reduction in 
     excise tax rates for biodiesel fuels.
       The revised estimate also includes an estimate of direct 
     spending effects on TVA, loans issued by the Rural Utilities 
     Service to rural electric cooperatives, and crop subsidies 
     provided by the USDA. The effect of these changes would be to 
     increase direct spending by $20 million in 2002 and decrease 
     direct spending by about $200 million over the 2002-2012 
     period.


              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

       CBO has determined that provisions of the bill requiring 
     the Secretary of the Treasury and the General Accounting 
     Office to report

[[Page 4017]]

     the results of certain studies contain no intergovernmental 
     mandates as defined in UMRA and would not affect the budgets 
     of state, local, or tribal governments. JCT has determined 
     that the remaining provisions of the bill contain no 
     intergovernmental mandates as defined in UMRA. The bill 
     contains no private-sector mandates as defined by UMRA.
       Estimate prepared by: Revenues: Erin Whitaker (226-2720); 
     Federal Costs: Lisa Cash Driskill, and Dave Hull (226-2860); 
     Impact on State, Local, and Tribal Governments: Susan Sieg 
     Tompkins (225-3220); and Impact on the Private Sector: Paige 
     Piper/Bach (226-2940).
       Estimate approved by: G. Thomas Woodward, Assistant 
     Director for Tax Analysis and Robert A. Sunshine, Assistant 
     Director for Budget Analysis.

                          ____________________