Energy Tax Incentives: A Comparison of the Senate Finance Committee Bill (S.1149) and the House Bill (H.R.6)

Order Code RL31869

CRS Report for Congress

Energy Tax Incentives: A Comparison of the

Senate Finance Committee Bill (S. 1149)

| and the House Bill (H.R. 6)

Updated June 19, 2003

- Salvatore Lazzari

Specialist in Public Finance

Resources, Science, and Industry Division

TAB /5

Prepare 7

AMERICAN JOBS

aa ; COM CREATION ACT. HR. 4520,

Congressional PL 108-357

ma Research

ervice

LL

Energy Tax Incentives: A Comparison of the Senate

Finance Committee Bill (S. 1149) and the House Bill

(H.R. 6)

Summary

The 108" Congress is considering two major bills to provide tax incentives to

increase the supply of, and reduce the demand for, fossil fuels and electricity: S.

1149, the Energy Tax Incentives Act of 2003, approved by the Senate Finance

Committee (SFC) on April 2, 2003 (superseding S. 597), and H.R. 6, introduced as

H.R. 1531 and approved by the House on April 11, 2003, by a vote of 247-175.

Both bills would provide a ten-year tax cut of about $18-$20 billion. However,

the revenue losses in S. 1149 would be partially offset through additional curbs on

corporate tax shelters, an extension of Internal Revenue Service user fees, and other

provisions, which would raise about $4.9 billion over 10 years, so that the net energy

tax cut is about $15.3 billion. In contrast, the House bill includes less than $100

million in general tax increases, so that its net energy tax cut is about $3 billion

greater than the SFC bill.

In comparison with the Senate bill, H.R. 6 confers a larger tax cut, both in

absolute and relative terms, for fossil fuels production and for electricity restructuring

(or the production of electricity), and a smaller tax cut for energy efficiency and

renewable/alternative fuels development. More specifically, H.R. 6 provides about

$13.7 billion in tax incentives for increased fossil fuels supply and electricity

generation (74% of the total gross tax cut), while S. 1149 provides about $10 billion

(about half of the gross tax cut) for fossil fuels and electricity generation. S. 1149

also provides more than $5 billion (about one quarter of the gross tax cut) for

alternative and renewable fuels supply, as compared to $3.6 billion under H.R. 6

(20% of the tax cut). For energy efficiency, the Senate committee bill would cut

taxes by about $2 billion (about 10% of the gross total), while H.R. 6 would provide

$1.3 billion (7%).

Other notable differences between the two bills are: 1) the Senate bill contains

tax incentives for clean coal while the House bill does not; 2) the downstream tax

incentives for oil and gas refining, distribution, and transportation are relatively

larger in the House bill; 3) the tax incentives for electricity restructuring — basically

incentives to increase the generation of electricity — are significantly larger in the

House bill (both in absolute dollar terms and relative to the total tax cut); and 4) the

Senate bill’s incentives for alternative fuel vehicles (including advanced technology

vehicles) and for alternative fuels production are much greater than in the House bill.

The President’s FY2004 budget, released in February 2003, proposes a limited

number of energy tax incentives — both new incentives and liberalization of existing

energy tax subsidies — which would reduce energy taxes by about $9 billion over 10

years (about half of the size of the reductions in either S. 1149 or H.R. 6).

This report will be updated as events warrant.

Contents

Brief Summary of the Two Bills ........... 0. cee cece eee eee 2

Brief Comparison with Energy Tax Incentives Bills in the 107" Congress . 2

President Bush’s Proposals ....... 0.0... cece eee eee eee teen eee 3

Fossil Fuels Supply ....... 0... cece cece eee cece e eee ence eee neeee 5

Oil/Gas Exploration, Development, and Production ................... 5

Refining and Distribution ....... 0... . ccc eee ee eee eens 10

Coal Provisions 2.0.0... cece ee eee eee ee eet eee eee nee 13

Electricity Restructuring ProvisionS ......... 0.0... cece eee eee eens 14

Energy Efficiency .... 0... cece ee eee eee ee ee eee een eees 16

Business Sector 22... . ccc cece ee cee ee eee cece teen tenes 16

Residential Sector 2.0... . cece cee eee cette ence eeeas 17

Transportation SectOr ... 2... cee eee eee eee ee eee eee ene 19

Renewable and Alternative Fuels 1.0.0... 0... cece eee eee eee eeee 20

Business Sector ........ cc ccc cece eee eee eee e eee eeeeneee 20

Residential Sector 2.0... cece cece ee eee ee eee eee eens 23

Transportation Sector... 0... cee eee ce eee eee eee eee eee ees 23

Miscellaneous ProvisionS ........ 0... e cece eect eee eee eee ee ene 26

Energy Tax Incentives: A Comparison of the

senate Finance Committee Bill (S. 1149)

and the House Bill (H.R. 6)

On March 11, 2003, a bipartisan group of four Senate committee leaders —

Senator Grassley, chairman of the Committee on Finance; Senator Baucus, ranking

Democrat of the Committee on Finance; Senator Domenici, chairman of the

Committee on Energy and Natural Resources; and Senator Bingaman, Energy

Committee ranking Democrat — introduced S. 597, the Energy Tax Incentives Act

of 2003. This bill was approved by the Senate Finance Committee (SFC) on April 2,

2003, by a vote of 18-2; the committee reported it as an original measure May 23,

2003 (S. Rpt. 108-54), and it was placed on the Senate calendar as S. 1149. The

Senate is expected to consider the SFC-approved bill during the ongoing debate on

comprehensive energy legislation (S. 14).

On April 3, 2003, the House Ways and Means Committee (WMC) voted 24-12

for an energy tax incentives bill (H.R. 1531). The WMC bill was incorporated into

H.R. 6, the House’s comprehensive energy policy legislation, which was approved

by the House, 247-175, on April 11, 2003. This report provides a summary of the

provisions of each of these two bills, presented as a side-by-side comparison in

tabular form. Note that this is a summary of complex and extensive tax code

provisions. For brevity, much detail is necessarily omitted.

For purposes of this table, tax provisions are organized according to four topics,

rather than by either Senate or House bill section number. Thus, a tax provision is

classified according to whether it is an incentive 1) for fossil fuel supply (including

coal output incentives), 2) to facilitate electricity industry restructuring (which is also

an energy supply incentive), 3) to reduce fossil fuel demand through enhanced energy

efficiency, or 4) to reduce fossil fuel demand through alternative and renewable fuels

output. A miscellaneous category describes provisions that are not easily categorized

according to this schema. The last section of the table compares revenue offset

provisions in each of the two bills. Thus, the table has six major headings (four with

several subheadings), while the House bill is subdivided into four titles, and the SFC

bill has seven sections.

The fossil fuels supply category is further subdivided according to whether a

particular provision affects oil/gas exploration and production, refining and

distribution, or coal output. Similarly, the energy efficiency and renewable fuels tax

incentives are further categorized, as closely as possible, according to the energy

consuming sector that would be primarily affected, i.e., the business (including

commercial and industry), residential, or transportation sectors.

CRS-2

Brief Summary of the Two Bills

Both bills provide a gross ten-year tax cut of about $18-$20 billion for energy

conservation, and for production of oil, gas, and electricity (and coal in the Senate

bill), reflecting a congressional goal of keeping any energy tax cut below $20 billion.

However, the revenue losses in S. 1149 would be partially offset through additional

curbs on the ability of companies to shelter corporate income through incorporating

in low-tax countries, an extension of Internal Revenue Service user fees, and other

provisions, which would raise about $4.9 billion over 10 years, so that the net energy

tax cut is about $15.3 billion. In contrast, the House bill includes less than $100

million in general tax increases so that its net energy tax cut is about $3 billion

greater than the SFC bill.

Both bills provide billions of dollars of tax cuts for fossil fuel supply and energy

conservation, and incentives for renewable, alternative, and unconventional fuels.

However, the mix of tax incentives — the distribution of the total dollars of cuts

among these three broad categories — differs between the two bills. In general, H.R.

6 confers a larger tax cut, both in absolute and relative terms, for fossil fuels

production and for electricity restructuring (or the production of electricity), and a

smaller tax cut for energy efficiency and renewable/alternative fuels development.

More specifically, H.R. 6 provides about $13.7 billion in tax incentives for

increased fossil fuels supply and electricity generation (74% of the total gross tax

cut), while S. 1149 provides about $10 billion (about half of the gross tax cut) for

fossil fuels and electricity generation. S. 1149 also provides more than $5 billion

(about one quarter of the gross tax cut) for alternative and renewable fuels supply, as

compared to $3.6 billion under H.R. 6 (20% of the tax cut). For energy efficiency,

the Senate committee bill would cut taxes by about $2 billion (about 10% of the

gross total), while H.R. 6 would provide $1.3 billion (7%).

Other notable differences between the two bills are: 1) the Senate bill contains

tax incentives for clean coal while the House bill does not; 2) the downstream tax

incentives for oil and gas refining, distribution, and transportation are relatively

larger in the House bill; 3) the tax incentives for electricity restructuring — basically

incentives to increase the generation of electricity — are significantly larger in the

House bill (both in absolute dollar terms and relative to the total tax cut); and 4) the

Senate bill’s incentives for alternative fuel vehicles (including advanced technology

vehicles) and for alternative fuels production are much greater than in the House bill.

Brief Comparison with Energy Tax Incentives Bills in the

107" Congress

In the 107" Congress, both the House and Senate approved energy tax incentives

bills that were incorporated into H.R. 4. (For a comparison of the Senate and House

versions of H.R. 4 see CRS Report RL31427, Omnibus Energy Legislation: H.R. 4

Side-by-Side Comparison., Mark Holt and Carol Glover, coordinators.)

CRS-3

In the 107" Congress, on February 13, 2002, the Senate Finance Committee

approved the Energy Tax Incentives Act of 2002 (S. 1979), which was added to S.

517, the Senate’s energy policy bill, as Amendment #2917. S. 517 was formally

renamed the Energy Policy Act of 2002 when the Senate approved the measure on

April 25, 2002, as an amendment in the nature of a substitute to the House-passed

H.R. 4. The House version of energy tax incentives in the 107" Congress was

originally H.R. 2511. This bill was incorporated into H.R. 4, and approved by the

House on August 2, 2001. In comparing House and Senate versions of H.R. 4 in the

107" Congress, the House bill proposed larger energy tax cuts, net of some energy

tax increases. It reduced energy taxes by about $36.5 billion over 10 years, in

contrast to the Senate version, which cut about $15.5 billion over 10 years. On

November 13, 2002, the conference committee dropped its consideration of H.R. 4

after eight sessions failed to reconcile major differences.

With the exception of two deleted provisions, both relatively minor, and about

$3 billion in corporate revenue increases, S. 1149 (108" Congress) is similar to the

Senate energy tax incentives legislation in the 107" Congress (S. 1979).! The size

of the tax cuts in S. 1149, however, is somewhat larger than in S. 1979, with the

additional tax cuts allocated to oil and gas production and refining.

In comparison, the House energy tax incentives bill, H.R. 6 (108 Congress),

is a substantially scaled-down version of H.R. 2511 (107" Congress), which would

have reduced energy taxes by $36.5 billion. The apportionment of tax savings in H.R.

6 among the three categories — fossil fuel production, energy efficiency, and

alternative/renewable fuels — is the same as the House bill in the last Congress, but

the absolute amounts of the cuts are much smaller.

President Bush’s Proposals

The President’s FY2004 budget, released in February 2003, proposes a limited

number of energy tax incentives — both new incentives and liberalization of existing

energy tax subsidies, which would reduce energy taxes by about $9 billion over 10

years (about half of the size of either S. 1149 or H.R. 6). It would:

e Extend and Liberalize the §45 Tax Credit for Electricity

Produced From Wind, Biomass, and Poultry Waste. The

FY2004 budget proposes to extend the placed-in-service rule for

wind and biomass facilities, for purposes of the §45 tax credit, by an —

additional two years through December 31, 2005. In addition, the

definition of biomass would be liberalized to include some types of

timber and agricultural waste. Other liberalizations are proposed.

* Some energy tax provisions that were in the 107th Congress’s Senate bill have been

deleted from S. 1149, while relatively minor modifications were made to a few other tax

provisions. For more information see CRS Report RL31828, The Energy Tax Incentives Act

of 2003 (S. 597): Summary of Provisions, by Salvatore Lazzari.

CRS-4

Tax Credit for Residential Solar Energy Systems. Homeowners

purchasing solar energy heating or cooling equipment (including

water heating equipment) would qualify for a 15% nonrefundable

income tax credit.

Tax Credit for Hybrid and Fuel Cell Vehicles. An income tax

credit of up to $4,000 would be provided to taxpayers that purchase

fuel-efficient hybrid vehicles; an income tax credit up to $8,000

would be provided to taxpayers that purchase a qualified fuel-cell

vehicle.

Tax Credit for Production of Landfill Gas. Production and sales

of landfill gas from new facilities — those placed in service from

January 1, 2003, through December 31, 2010 — would be permitted

to qualify for the existing income tax credit for fuels produced from

a non-conventional energy resource under §29 of the tax code.

Tax Credit for Combined Heat and Power Systems. Combined

heat and power systems — cogeneration systems that are more energy

efficient than conventional generation and heating technologies —

would be defined as energy property, thus qualifying for the 10%

investment tax credit under current law (which is allowed for

business investment in solar energy equipment). Qualifying systems

would have to meet capacity, output, and efficiency criteria.

Extension of Excise Tax Exemption and Equivalent Income Tax

Credit. The current 5.2¢/gallon excise tax exemption for 10%

alcohol-gasoline fuel blends (which generally expires on September

30, 2007) and the equivalent income tax credit of 52¢ per gallon of

ethanol (which expires on December 31, 2007) would be extended

through December 31, 2010.

Allocate 2.5¢ Portion of Gasohol Tax Rate to the Highway Trust

Fund. Motor fuel blends consisting of 90% gasoline and 10%

ethanol are taxed at 13.2¢/gal (they are exempt from 5.2¢ of the

18.4¢ gas tax) with 10.6¢ going into the Highway Trust Fund, 2.5¢

going into the general fund, and 0.1¢ going into the Leaking

Underground Storage Tank trust fund. For blends consisting of less

than 10% ethanol the tax is pro-rated, but the same amount of 2.5¢

is allocated into the general fund. Under the President’s proposal the

2.5¢ portion of the excise tax on ethanol-gasoline blends would be

allocated from the general fund into the Highway Trust Fund.

Extension of Abandoned Mine Land Reclamation Fees. The

current fees on the amount of coal mined — which range from

10¢/ton to 35¢/ton, depending on the type of mine and coal — would

be extended from September 30, 2004, until most significant

abandoned mine land problems are fixed.

CRS-5

e Reform the Current Tax Treatment of Nuclear Decommissioning Costs. The FY2004 budget proposes

to repeal some of the current-law restrictions to the deductions for nuclear decommissioning costs. In

addition, the budget proposes more liberal treatment of such costs.

Fossil Fuels Supply

Oil/Gas Exploration, Development, and Production

rate (up to 25%, rather than

the normal 15%) for up to

15 barrels per day (bpd) of

oil (or the equivalent

amount of gas) from

marginal wells (“stripper”

oil/gas and heavy oil).

[IRC§613A(c)(6)]

barrel of oil

($0.50/thousand cubic

feet (mcf)

of gas) from marginal

wells, and for heavy oil.

The credit phases out as

oil prices rise from $15

to $18 per barrel (and as

gas prices rise from

$1.67 to $2.00/thousand

cubic feet.)

as the Senate bill

with the exception of

1) the House bill has

no catryback

provision (while the

Senate bill allows the

credit to be carried

back up to 10 years),

and 2) the House bill

goes into effect on

January 1, 2004,

while the Senate bill

goes into effect on

the date the bill is

enacted.

Provision Current Law- SFC Bill (S. 1149) . House Bill (LR. 6) | Comments

MARGINAL OIL AND | Independent producers can | Sec. 501. A $3 tax Sec. 43001. This The credit is limited to 25

GAS WELLS claim a higher depletion credit is provided per provision is the same | bpd or equivalent amount

of gas and to 1,095 barrels

per year or equivalent.

CRS-6

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) Comments

ALASKAN NATURAL | No special tax incentive is Sec. 511. The Senate No provision. In the 107th Congress’s

GAS provided for natural gas bill creates a new tax Senate energy tax bill (S.

produced from Alaska’s credit for the production 1979) would have

North Slope. of natural gas from provided a credit equal to

Alaska’s North Slope the difference between

area. The credit would $3.25/mcef (adjusted for

be $0.52 per million Btu inflation) and the average

of gas (about $0.50/mcf) monthly price for such gas

and would phase out for sold in the Alberta,

wellhead prices between Canada, market. In effect,

$0.83 and $1.35 per the tax provision would

million Btu. The credit have established a price

would be adjusted for floor of $3.25 for such gas.

inflation.

ENHANCED OIL A 15% tax credit is No provision. Sec. 43008. The Unlike the regular income

RECOVERY provided for the costs of House bill repeals tax, which may be reduced

recovering oil by one of

several selected tertiary

recovery techniques. The

credit is part of the general

business credit and is

limited by the minimum

tax. [IRC§43]

the minimum tax

limitation on the

enhanced oil

recovery credit, thus

allowing more of it

to be claimed.

by whatever allowable

corporate tax credits (e.g.,

the energy tax credits, or

the R&D tax credit), no tax

credits are allowed against

the minimum liability.

Further, the law states that

the sum of allowable

credits must be less than

the difference between the

regular tax and the

minimum liability (it

cannot be larger than the

difference between the

two).

CRS-7

Provision Current Law SFC Bill (S..1149) | House Bill (H.R. 6) Comments

PERCENTAGE The percentage depletion Sec. 506. The Sec. 4302. Same as The Job Creation and

DEPLETION: allowance is limited to suspension for marginal | the Senate bill. Worker Assistance Act of

100% of taxable income oil and gas is extended 2002 (P.L. 107-147),

a) 100% Net Income from each property, but this | through December 31, enacted on March 9, 2002,

Limitation limitation is suspended 2006. retroactively extended the

through December 31,

2003, for marginal oil and

gas.

[IRC§613A(c)(6\(H), A(A)]

suspension for marginal oil

and gas (which had

expired on December 31,

2001) through December

31, 2003.

b) 65% Taxable Income

Limitation

The percentage depletion

allowance is also limited to

65% of taxpayer’s overall

taxable income from all

properties.

[IRC§613A(c)(6)(H), A(d)]

No provision.

Sec. 4302. The 65%

limitation on

percentage depletion

for oil and gas is

suspended through

December 31, 2006.

The Senate bill liberalizes

depletion only for

incremental oil and gas

output, while the House

bill liberalizes depletion

for all independent

producers of oil and gas.

c) Independent

Producer Status

For purposes of percentage

depletion, an independent

oil producer is a) one that,

on any given day, does not

refine more than 50,000

barrels of oil, and b) does

not have a retail operation

grossing more than $5

million/year.

[IRC§613A(d)]

Sec. 505. The 50,000

barrel daily limit is

raised to 60,000, and it

applies to the average

over an entire taxable

year, rather than on any

day during the taxable

year.

Sec. 42006. This

provision is generally

the same as in the

Senate bill, except

that the limit is raised

to 75,000.

These provisions are each

the same as in the 107th

Congress’s tax bills.

INTANGIBLE

DRILLING COSTS

(IDCs)

Oil and gas producers are

allowed to expense, rather

than capitalize, certain

intangible drilling and

development costs. With

certain limitations, this

deduction is a tax

preference item subject to

the alternative minimum

tax. ,

[IRC§293(c), 57(a)(2)(e)]

No provision

Sec.43007. The

alternative minimum

tax on IDCs is

repealed through

December 31, 2004.

Integrated oil

companies are

excluded from the

repeal.

The provision in House

Bill (H.R. 6) is the same as

in the House version of

H.R. 4, 107" Congress.

CRS-8

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) Comments

GEOLOGIC & G&G costs for retained Sec. 508. G&G costs for | Sec. 43004 G&G The Senate’s version of

GEOPHYSICAL properties must be retained properties are costs for retained H.R. 4 in the 107th

COSTS (G&G) capitalized (via depletion). | amortizable (deducted properties are Congress specified 4 years;

Dry hole costs are evenly) over 2 years. amortizable but the House version

expensed. (deducted evenly) specified 1 year. Thus,

[IRC§263] over 2 years. each bill basically doubled

the recovery period, which

basically cut the tax

benefits by about half. The

tax treatment of G&G costs

on properties that are

abandoned did not change

— these costs were fully

deductible (expensed) in

the year incurred.

DELAY RENTALS Under the uniform Sec. 507. Delay rental Sec. 43003. Same as_ | The House version of H.R.

capitalization rules, delay

rental payments must be

capitalized (via depletion).

[IRC§263,263A

payments are deducted

evenly (amortizable)

over 2 years.

the Senate bill.

4 (107" Congress)

specified payment

deduction in one year,

which means, expensing of

delay rentals. Thus, H.R.

2511 yielded to the Senate

provision.

CRS-9

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) | Comments

§29 CREDIT FOR A $3 tax credit ($1979) is Sec. 509. The placed- Sec. 43005. The House Bill (H.R. 6) differs

FUELS FROM available for each barrel (or | in-service date for most | House bill also from the House version of

UNCONVENTIONAL | equivalent) of fuels fuels is extended to 12- | extends the credit H.R. 4 (107" Congress) in

SOURCES produced from 31-2006. The credit is and placed-in-service | one important respect: the

unconventional sources or

mined from unconventional

locations. For most fuels,

the credit ended in 2002 for

facilities & mines placed in

service by 12-31-92; for

biogases, the credit ends in

2007 for facilities placed in

service by 6-30-98. No

credit, which is phased out

when oil prices exceed

certain limits (currently

$49.75/barrel), is available

for facilities placed in

service after these cut-off

dates (which apply to

different fuels). The credit

in 2002 was $6.35/barrel of

oil equivalent.

[IRC §29]

rebaselined to $3

without further inflation

adjustment. The list of

qualifying fuels is

expanded to include

refined coal that meets

emissions reduction

targets.

dates, and broadens

the types of

qualifying fuels, but

these differ from the

Senate bill. For new

projects producing

most types of the

preexisting

qualifying fuels, the

credit is extended by

4 years for facilities

placed in service

through 12-31-2006.

For existing “older”

facilities, a lower

credit is extended

from 2002 to 12-31-

2005 to build a

facility. For any

production that

would qualify for a

credit as a result of

the broadening of the

provision under this

bill, the quantity of

fuel qualifying for a

tax credit would be

limited to 200,000

cubic ft/.day of gas

or equivalent.

credit is made part of the

general business credit,

thus potentially reducing

the effective rate of credit.

Although biogases, such as

landfill gas, have qualified

for the credit, most of the

benefits from this tax credit

have accrued to coalbed

methane and to other

unconventional fossil

gases. (See CRS Report

97-679.) Also, it is

important to note the

similarities and differences

between this tax credit and

the §45 tax credit, both of

which apply in part to

certain renewable

resources. The §29 credit

is granted for the

production and sale of the

fuel, while the §45 tax

credit is granted for the

production of the

electricity from the fuel.

Coordination between the

two credits prevents

“double dipping.”

CRS-10

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) Comments

TAX BENEFITS TO Present tax law provides Sec. 701. The Senate bill | No provision. The Job Creation and

AMERICAN INDIANS | accelerated depreciation of | extends both subsidies Worker Assistance Act of

business property located through December 31, 2002 (P.L. 107-147),

on Indian reservations, and 2005. enacted on March 9, 2002,

an employment tax credit extended the incentives

for wages paid to through December 31,

American Indians. Both of 2004. The House bill

these tax subsidies expire at drops the 107th Congress’s

the end of 2004. provision, which would

[IRC§45A, 168(j)] have extended the

subsidies, but only for

energy-related businesses.

Refining and Distribution

Provision Current Law | _| SEC BHI (S. 1149) | House Bi (.R.6) —_ | Comments

OIL AND GAS The recovery period for the Sec. 502, 510, 512. Sec. 42001,42002. The House version of

PIPELINES depreciation of oil and gas This provision Natural gas gathering H.R. 4 would have

pipelines is 15 years; for

natural gas gathering lines, it

could be either 7 or 15 years,

depending upon whether they

are classified as exploration

or transportation equipment.

[IRC§168(e)(3)]

clarifies the recovery

periods by assigning

natural gas gathering

lines a 7 year

recovery period, and

natural gas

distribution lines a

15 year. recovery

period. The

proposed Alaska gas

pipeline would

treated as 7 year

property.

lines are assigned a 7

year recovery period,

but natural gas

distribution lines are

assigned a 15 year

recovery period.

assigned a 10 year

recovery period for

natural gas distribution

lines.

CRS-11

Comments

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6)

LOW SULFUR There are no special tax Sec. 503 and 504. Sec.42004, 42005. The | Both bills reduce the

DIESEL FUEL incentives for refining of low Small refiners are House provision is fraction of expensable

sulfur diesel fuel. permitted to expense | generally the same as costs for taxpayers

Investments are recovered (deduct in the year the Senate bill. refining between 155,000

through depreciation, incurred), rather than and 205,000 barrels per

generally over 10 years. depreciate, 3/4 of the day. A similar limitation

New, stricter Environmental costs of complying is provided with respect

Protection Agency (EPA) with the new EPA to the per-barrel tax

sulfur standards will go into sulfur regulations. A credit. S. 1149 would

effect in 2006. [IRC§168] tax credit of also (unlike the House

| $2.10/barrel of low bill) allow cooperatives to

sulfur diesel fuel is pass through the credits to

also provided for patrons.

small refiners,

limited to 25% of the

expensed capital

costs.

EXCISE TAX ON Diesel used in train engines is | Sec. 703. The 4.3¢ Sec. 41008. The 4.3¢ The House version of

TRAIN DIESEL taxed at 4.4¢/gal., comprising | portion of the taxon | portion of the tax on H.R. 4 (107" Congress)

4.3¢, which goes into the train diesel fuel is train diesel would be 1) would have phased out

general fund, and 0.1¢, which | repealed on 1-1- repealed on 1-1-2004. the excise tax over 8

goes into the LUST (Leaking | 2004. The 0.1¢ Also, any fuel used in years, and 2) did not

Underground Storage Tank) LUST component is | trains is not subject to include the gasoline

trust fund. unchanged. the. LUST provision.

[IRC§4041(a)(d)}

EXCISE TAX ON Diesel used in barges is taxed | Sec. 703. The 4.3¢ Sec. 41008. The 4.3¢

BARGE DIESEL at 24.4¢/gal., comprising 1) portion of the taxon | portion of the tax on

20.1¢ that goes into the Inland

Waterways Trust Fund, 2)

4.3¢, which goes into the

general fund, and 3) 0.1¢,

which goes into the LUST

trust fund.

[IRC§4042]

barge diesel fuel is

repealed on 1-1-

2004. The 0.1¢

LUST component is

unchanged.

barge diesel would be

repealed on 1-1-2004.

CRS-12

Provision Current Law | SFC Bill (S. 1149) House Bill (H.R. 6) Comments

BLEND OF Diesel used in highway No provision. Sec. 41009. The 24.3¢ The Taxpayer Relief Act

DIESEL/WATER vehicles is generally taxed at HTF component of the | of 1997 (P.L. 105-34)

EMULSION FUEL 24.4¢/gal., comprising the tax on emulsified introduced the practice of

24.3¢ Highway Trust Fund blends of diesel and taxing alternative motor

(HTF) rate, and the 0.1¢ water fuels is reduced fuels (such as CNG, LPG,

LUST trust fund rate. to 19.7¢, reflecting the | and LNG) on the basis of

[IRC§4081] lower Btu value of the | the Btu equivalence to a

blended fuel. gallon of gasoline.

UTILITY PURCHASES | State and local governments Sec. 513. Public Sec. 42010. The House | The Senate bill in the

OF NATURAL GAS cannot use the proceeds from | power utilities are provision is the same as | 107 Congress did not

tax-exempt bonds to profit

from arbitrage on natural gas

purchases.

[IRC§148]

exempt from the

arbitrage restrictions

of the tax-exempt

bond rules.

in the Senate bill.

include this provision, so

essentially it adopted the

provision that was in the

107th Congress’s House

bill.

Coal Provisions

CRS-13

for the investments nor the

electricity produced therefrom.

Conventional electricity

generating equipment is generally

depreciable over 15 or 20 years;

renewable generally over 5 years.

Pollution control equipment is

amortizable over 5 years (rather

than depreciated over 20 years).

[IRC§169)

credits are created: 1)

a 10% tax credit for

investments in

selected types of

advanced clean coal

technologies, and 2) a

production tax credit

for electricity

generated from either

advanced clean coal

technologies, or

existing coal-fired

steam generators

retrofitted with more

energy efficient and

cleaner coal

technologies. Tax

exempt entities would

be allowed to sell,

trade, or assign any of

the credits.

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6). | Comments

CLEAN COAL There are no special tax breaks Sec. 401, 411,412, No provision. In the 107" Congress, in one

TECHNOLOGIES | for clean coal technologies, either | 427. Two new tax of the major differences

between the two bills, the

House dropped the clean coal

provisions that were in the

House version of H.R. 4. (In

the 107th Congress’s Senate

bill, clean coal technologies

would essentially have been

conventional systems

retrofitted with pollution

control equipment that would

meet strict standards;

advanced clean coal

technologies are selected

types that meet energy

efficiency and emissions

standards, which would vary

by type of coal and increase

over time.)

CRS-14

Electricity Restructuring Provisions

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) Comments

SALE OR Under present tax law, the Sec. 603. Under this Sec. 42007. Generally The House bill scales

DISPOSITION OF sale of electricity section, gain from the sale the same as in the back this provision

TRANSMISSION transmission or distribution or disposition of Senate bill, but adds from the 107th

ASSETS facilities is generally not transmission assets is additional restrictions. Congress’s House

considered to be an recognized over 8 years. Applies to sales version of H.R. 4,

involuntary conversion, thus | Applies to sales through through December 31, while the Senate’s

such sales generally trigger a | December 31, 2007. 2006. provision is basically

tax, which could inhibit pro- the same as in the

competitive sales of 107th Congress’s

transmission and distribution bill.

lines and facilities to

independent companies, for

example to create regional

transmission organizations

(RTOs). Income is generally

recognized in the year in

which it is constructively

received, unless there is an

explicit exception or the

taxpayer uses the accrual

method of accounting

[IRC§451, 1033, 1245,

1250]

RECOVERY PERIOD | The current law recovery: No provision. Sec. 42003. Shortens This is the only new

FOR TRANSMISSION | period for transmission the recovery period for | energy tax incentive

PROPERTY UNDER _| property is generally 20 transmission property in the House bill.

DEPRECIATION years. from 20 to 15 years.

PROVISIONS [IRC §168(e)(3)]

CRS-15

Provision Current Law SFC Bill (S. 1149) | House Bill (H.R. 6) Comments

NUCLEAR Deductions into a nuclear Sec. 601. The Senate bill Sec. 42008. In addition | Each of these

DECOMMISSIONING | decommissioning fund are repeals provisions that to the amendments provisions is

FUNDS limited to the lesser of the limited the deduction to made by the Senate essentially the same

amounts relating to the cost regulated utilities, thus bill, the House as in the previous

of service regulations or the liberalizing the deduction in | provision further bills.

IRS’s ruling amount. Funds the context of utility liberalizes the tax

may be transferred tax-free restructuring and treatment of nuclear

in connection with a change deregulation. It clarifies decommissioning costs.

in ownership of the nuclear that transfers of funds do Unlike the Senate bill,

facility to which they relate, not trigger a tax, and that the House provision

but the transferee generally the actual decommissioning | allows a utility to make

has to be a regulated utility costs are deductible when contributions into the

eligible to maintain such a paid rather than when the fund in excess of the

fund. In a deregulated and actual decommissioning maximum amount

restructured industry, begins. established by the

ambiguity regarding the tax Internal Revenue

treatment of Service in certain

decommissioning fund circumstances.

transfers. may make such

transactions taxable.

[IRC§468A]

ELECTRIC In general, cooperatives are Sec. 602. The income Sec. 42009. The The Senate bill is

COOPERATIVES exempt from tax although received by a rural electric provision in the House | somewhat broader

patrons must pay tax on any cooperative from any open bill is generally the than in the 107th

distributed profits as access (or nuclear same as the Senate bill, | Congress’s Senate

“patronage dividend.” Rural | decommissioning) except that it limits the | bill, while the House

electric cooperatives are also | transaction with a types of income not bill is essentially the

exempt from tax and patrons | nonmember, and from counted against the same.

do not have to report

dividends provided that no

more than 15% of the

cooperative’s income is from

services to nonmembers.

(IRC§501,512]

certain other transactions, is

excluded from the 15% test.

Thus, participating in open

access restructuring plans

would not jeopardize

cooperatives’ tax

exemption. Certain gross

income from any electricity

to be used to develop

unconventional fuels is also

excluded.

15% test.

Business Sector

Energy Efficiency

CRS-16

same recovery period as

the structure.

[IRC§168(c)]

building are tax

deductible (rather than

depreciable), subject to a

limit equal to $2.25 x

sq.ft. of the building. The

property must reduce the

building’s annual energy

costs by at least 50% as

compared to a reference

building. Commercial

buildings include

residential rental

property.

Provision Current Law SFC Bill (S. 1149)... House Bill (H.R. 6) | Comments...

COMBINED HEAT No special tax subsidies Sec. 308. Combined heat | Sec. 41006. Increasing the recovery

AND POWER are provided to combined and power systems larger | Generally the same | period (slowing the

SYSTEMS heat and power than 50 kW would be as the Senate bill. depreciation deductions)

(cogeneration) systems; treated as business energy reduces somewhat the

the recovery period for property, thus qualifying incentive effects of the 10%

purposes of depreciation is | for the 10% investment investment tax credit. The

generally 15 years. tax credit; the recovery extent of this effect is unclear

period is increased to 22 without further analysis.

years. Property using

back-pressure steam

turbines is also eligible.

ENERGY Energy efficiency property | Sec. 305..Expenditures on | No provision. The Senate bill allows

EFFICIENCY IN that is installed as part of a | energy efficiency designers of commercial

COMMERCIAL structure is depreciable property made with buildings to claim this

BUILDINGS over 39 years — it has the respect to a commercial deduction if the energy

efficiency items are installed

in the buildings of

nontaxable entities. (It is not

clear whether the deduction

applies to the expenditures

on the entire building,

subject to the 50%

limitation.) The House bill

dropped the provision that

was in the 107th Congress’s

House version of H.R. 4.

Residential Sector

CRS-17

Comments

energy efficient new

homes.

more energy efficient. The maximum

credit is $1,000 for at least 30% efficiency

improvements, and $2,000 for at least

50% improvements.

similar to the

Senate’s except that

the maximum credit

is $2,000 and the

efficiency

improvements must

reduce annual

energy consumption

by at least 30%

below a comparable

reference dwelling.

Provision Current Law SFC Bill (S. 1149) ‘House Bill (H.R. 6)

ENERGY- No special tax Sec. 303, 309. A 10% tax credit, up to Sec. 41004. With respect to the

EFFICIENCY treatment is accorded $300 lifetime, is provided for the costs of | Generally the same | Senate bill, there

ITEMS IN to homeowners for energy efficiency improvements as the Senate must be a certified

HOMES purchases of more (insulation, windows/doors, and roofs) to provision except reduction in heating

energy efficient water existing homes, (which must be certified that the credit is and cooling costs of

heaters, furnaces, and as meeting certain standards) and that 20%, up to a at least 30%.

air conditioners. reduce a home’s heat loss or gain. Tax lifetime credit of

credits of 15%-30% are provided for $2,000.

certain renewable energy equipment,

subject to limitations.

ENERGY- No special tax break is | Sec. 301. A tax credit is provided to a Sec. 41005. Under each bill,

EFFICIENT available to builders builder for the costs of property which Conceptually the energy efficiency

NEW HOMES who construct more makes a new home from between 30-50% | House provision is improvements are

insulation,

windows/doors, new

roofs, and other

improvements, which

must be certified as

meeting certain

standards and that

reduce a home’s heat

loss or gain by the

required fractions.

Eligible property

includes heating and

cooling equipment.

CRS-18

Provision Current Law SFC Bill (S. 1149) -House Bill (H.R. 6) |Comments

HOME There is no special tax | Sec. 302. A tax credit of either $50 or No provision. The provision from

APPLIANCES incentive for either the | $100 is provided to manufacturers of more the 107th Congress’s

production or purchase | energy efficient washers, depending on House energy tax bill

of energy efficient energy efficiency rating of the washer and (H.R. 4) was

appliances (although a $150 tax credit for energy efficient dropped.

regulations set refrigerators, depending upon reduction in

standards for energy energy use over reference models. Which

use efficiency and of the credits may be claimed depends on

labeling). the degree of improvements in energy

efficiency. The total credit for any

manufacturer is subject to certain

limitations, including an output annual

gross receipts limitation, and a cumulative

lifetime credit limit per manufacturer of

$30 million for washers, and $60 million

for both appliances.

ENERGY Current law provides Sec. 306, 307. Energy management and No provision. The Senate dropped

MANAGEMENT | no special tax water submetering devices installed in the $30 tax credit

DEVICES incentives for meters, residences or businesses are given a 3-year that would have been

thermostats, and other

energy management

devices that allow

utilities or consumers

to monitor, control, and

thereby possibly

conserve electricity or

natural gas. Such

property is depreciable

if used in a business.

recovery period for depreciation purposes.

provided to such

devices in H.R. 4

(107 Congress), and

the House dropped

its provision

altogether (which

was the same as in

the 107th Congress’s

Senate bill).

Transportation Sector

CRS-19

hybrid vehicles, but

they may qualify for a

deduction of up to

$2,000 as clean-fuel

vehicles.

[IRC§179A]

$250-$1,000 for cars and light trucks, and

$1,000-$10,000 for heavy trucks. An

additional tax credit ranging from $500-

$3,000 for cars and light trucks is provided,

depending on vehicle weight, power, and fuel

efficiency. The credit is increased further for

early adoption of extra-fuel efficient hybrid

heavy trucks.

incentives for

hybrid vehicles,

but existing

clean-fuel vehicle

tax deduction

phase-out, which

begins in 2004

and ends in 2006,

is repealed. Thus,

the tax credit

would be made

permanent

Provision Current Law SFC Bill (S, 1149) | House Bill (LR. | Comments

NEW HYBRID Under current law there | Sec. 201. A base tax credit is provided to Sec. 41010. No The House bill

VEHICLES is no tax credit for purchasers of hybrid vehicles, ranging from additional tax dropped its

relatively generous

tax credits for

hybrid vehicles. The

Senate bill reduced

the amount of tax

credits over in the

107th Congress’s

bill.

CRS-20

Renewable and Alternative Fuels

Business Sector

2003. A 10% tax credit is

provided for investment in 1)

solar and geothermal equipment

used to generate electricity

(including photovoltaic

systems), 2) solar energy used to

heat or cool a structure, and 3)

solar energy used for process

heat. Geothermal energy

reservoirs qualify for a 15%

percentage depletion allowance.

The recovery period for

renewable technologies is 5

years.

[IRC§45,46,48, 613(e)]

[IRC§45]

of renewables that would qualify

for the §45 credit to include six

new types of “renewables:”

closed-loop biomass, co-fired

with coal, open-loop biomass (at

1¢/kWh. instead of 1.5¢), swine

and bovine waste, geothermal,

solar energy, small irrigation

power facilities, municipal

biosolids, and recycled sludge.

The credit is to be available for

ten years after a facility is

‘ placed in service (5 years for

open loop biomass. Allows 1)

lessee-operators (rather than

owners) to qualify for the tax

credit; 2) tax-exempt entities to

sell or trade any unused tax

credits; and 3) rural electric

cooperatives to use the tax

credits to pay back government

subsidized loans. Other existing

law limitations are also

liberalized or repealed.

Extends placed-inservice deadline to

12-31-2006. The

credit for open-loop

biomass and landfill

gas applies

retroactively but the

credit is 1.0¢/kWh.

instead of 1.5¢, and

is available for 5

years instead of the

normal 10 years.

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) | Comments

ELECTRICITY Electricity producers may claim | Sec. 101. The credit is raised to | Sec. 41002. The The Job Creation

FROM a tax credit of 1.5¢/kWh.(in 1.8¢ for new production, with House bill expands and Worker Relief

RENEWABLE 1992 dollars) for electricity no inflation adjustment. The this credit more than | Act of 2002 (P.L.

FUELS produced from wind energy, placed-in-service deadline is the Senate bill. It 107-147)

“closed-loop” biomass, or extended from 12-31-2003 to expands the list of retroactively

poultry waste. The credit for. 12-31-2006 for currently renewables to open- | extended the

2003 was 1.8¢/kWh. _allowed facilities and for most loop biomass, placed-in-service

Investments have to be made of the new facilities added by landfill gas, and trash | deadline from 12-

and producing by December 31, | the bill. The bill expands the list | combustion facilities. | 31-2001 to 12-31-

2003.

In the SFC markup

of S. 1149, the 1.5¢

rate of credit was

raised to 1.8¢/kWh.

The provision in the

House bill is

essentially the same

as in the House

version of H.R. 4

(107" Congress),

except that this

year’s bill allows

the credit to be also

claimed against the

alternative

minimum tax.

CRS-21

Provision Current Law SFC Bill (S. 1149) ‘House Bill (H.R. 6) Comments

SMALL Present law provides fuel Sec. 205. This provision 1) No provision.

ETHANOL ethanol 1) a 5.2¢ excise tax | allows patrons of farmers’

PRODUCER TAX | exemption (or a 52¢ blender’s cooperatives to qualify for the

CREDIT tax credit, and 2) 10¢/gal. tax 10¢ small producer credit; 2)

- credit for small ethanol defines a small producer as one

producers (ones that produce with <60 mil. gal. capacity; 3)

less 15 mil. gal./year, and have exempts the credit from the

less than 30 mil. gal. in passive activity rules; 4) allows

production capacity). Any credit | the credit against the alternative

claimed must be reported as minimum tax; and 5) exempts

income subject to tax. the credit from the regular

Cooperatives are tax-exempt income tax under IRC§87.

and therefore do not benefit

from the producer credit, which

cannot flow through to patrons.

[IRC§40, 87,.4081]

FUEL ETHANOL | Present tax law on fuel ethanol | Sec. 208. Beginning on 10-1- No provision.

AND THE blends results in revenue losses. | 2003, the 2.5¢ component of the

HIGHWAY to the Highway Trust Fund '] tax on fuel ethanot blends will

TRUST FUND (ATF) of 7.7¢/gal., comprising be allocated into the HTF.

for 90/10 blends the 5.2¢ Reduced tax rates on most

exemption, and the 2.5¢ of the alcohol fuels are replaced with

13.2¢ taxable portion that is tax credits.

allocated into the general fund.

[IRC§4081, 9503 (b)(4)}

ETBE USED TO The ether ETBE (ethyl tertiary | Sec. 206. The Senate bill No provision.

PRODUCE butyl ether) blended with | permits refiners to claim the

GASOHOL gasoline qualifies for the same blender’s tax.credit as a credit

tax advantages as ethanol

blended with gasoline, but the

blender’s credit on ethanol used

to produce ETBE can be

claimed only by blenders.

[IRC§40,4081}

| against excise taxes otherwise

due on the ETBE blended fuel.

The bill allows the transfer of

| such credit to any taxpayer with

any gasoline excise tax liability.

CRS-22

Provision

Current Law

SFC Bill (S. 1149)

House Bill (HR. 6)

Comments

BIODIESEL

Under present law, biodiesel has

no special tax break, and, as a

transportation fuel, it is taxed at

the same rate as petroleum

diesel: 4.4¢ for trains, and 24.4¢

for barges and trucks.

[IRC§4041, 4042, 4081]

Sec. 207. The bill provides a tax

credit — in the amount of 1¢ for

each 1% of biodiesel made from

virgin vegetable oil and blended

with petroleum diesel. The

maximum credit is 20¢/gal. The

tax credit for recycled vegetable

oil is % the credit for virgin

biodiesel. The excise tax

otherwise due on highway

biodiesel is reduced by the

.| amount of the tax credit.

No provision.

BUSINESS USE

OF RENEWABLE

TECHNOLOGIES

A 10% tax credit is provided

for investment in solar

equipment used to 1) generate

electricity (including

photovoltaic systems), 2) used

to heat or cool a structure, and

3) used for process heat.

Geothermal energy reservoirs

qualify for a 15% depletion

allowance. Electricity from wind

technologies receives the §45

tax credit. The recovery period -

for renewable technologies is 5

years. Fuel cells do not qualify

for tax subsidies.

[IRC§45,46,48, 613(e)]

Sec. 304, Business investments

in fuel cells would qualify for a

30% tax credit subject to a limit

of $1,000/kW of capacity;

investments in stationary micro

| turbine power plants would

qualify for a 10% tax credit and

the limit would be $200/kW.

Sec. 41003. A 10%

tax credit is provided

for investments in

stationary fuel cells,

subject to a

maximum credit of

$1,000/kW of

capacity.

Each of these

provisions is similar

to the 107th

Congress’s bills.

Residential Sector

CRS-23

renewable energy

technologies: 15% credit

provided for

Provision Current Law SFC Bill (S. 1149) House Bill (AR. 6) | Comments

RENEWABLE There are no tax subsidies Sec. 303. A tax credit is Sec. 41001, 41003. These provisions are very

ENERGY for residential applications | provided for residential A10% tax credit (up | similar to the previous bills.

TECHNOLOGIES of solar, wind, and other applications of renewable | to $2,000) is Special rules enable

expenditures made with

technologies. for solar (including residential solar respect to jointly occupied

photovoltaics), and 30% (10% credit to dwelling units and

for wind and fuel cells. residential fuel cells, condominiums to qualify

The maximum credit is up to $1,000/kW of for the tax credits.

$2,000 except for wind capacity).

technologies, which are

limited to $1,000/kW of

capacity.

Transportation Sector

Provision Current Law SFC Bill (S..1149) | House Bill (H.R. 6) Comments

ALTERNATIVE- | The incremental costs of | Sec. 201. A 40% tax credit is Sec. 41011. Except for fuel | The House bill

FUEL VEHICLES | an alternative fuel provided for the incremental costs | cell vehicles (discussed dropped its larger

vehicle are tax of an alternative fuel vehicle. An above in this table) and tax credits from the

deductible, up to $2,000 | additional 30% tax credit is “advanced clean-burn 107th Congress’s

for a car, $50,000 fora

truck. This applies to

vehicles powered by

LPG, LNG, CNG,

hydrogen, E85 and M85.

The credit phases out

beginning in 2004 and

ending in 2006.

[IRC§179A]

available if the vehicle meets

certain Clean Air Act standards.

The maximum credit would be

$5,000-$40,000 depending on

vehicle weight.

there are no other tax

vehicles.

technology vehicles,” which

are not in the Senate bill,

credits for alternative fuel

bill. Both S. 1149

and H.R. 6 would

allow lessors

(under safe harbor

leasing rules) to

qualify for the tax

credit, thereby

benefitting tax

exempt entities

such as state and

local governments.

CRS-24

Provision Current Law SFC Bill (S. 1149) | House Bill (H.R. 6) Comments

NEW FUEL CELL | Fuel cell vehicles may Sec. 201. A tax credit is provided | Sec. 41011. For fuel cell The credits in the

VEHICLES qualify for the $4,000 to purchasers of fuel cell vehicles, | vehicles, the House House bill for fuel

electric vehicle tax ranging from $4,000-$40,000 provision is generally the cell and lean-burn

credit (discussed below). | depending upon vehicle weight. same as the Senate bill, vehicles may be

[IRC§30] An additional credit for cars and except for differences in the | carried forward for

_ light trucks powered by fuel cells base (or reference vehicle) up to 20 years.

is provided ranging from $1,000- fuel economy for purposes

$4,000 depending on percentage of the additional tax credit.

improvements in fuel efficiency The House bill also covers

relative to a reference “advanced clean-burn

conventional vehicle. technology vehicles,” which

are not in the Senate bill.

ALTERNATIVE- | A maximum lifetime tax | Sec. 203. The Senate bill replaces | No provision. The Senate bill

FUEL deduction, up to the current deduction with a 50% also would permit

REFUELING $100,000, is provided tax credit, through 2007, for the businesses that

STATIONS for the costs of costs of clean-fuel refueling install refueling

alternative fuel refueling

property (excluding

installation costs). This

deduction expires on

2006.

[IRC§179A]

equipment (subject to a maximum

tax credit of $30,000). It adds

“residential clean-refueling

property” to qualifying property,

subject to a maximum credit of

$1,000. For hydrogen refueling

stations, the credit is available

through 2011.

equipment on

property owned by

tax-exempt entities

to qualify for the

tax credit.

CRS-25

Provision Current Law SFC Bill (S. 1149) House Bill (CELE. 6) Comments

RETAIL SALE Fuel ethanol (and Sec. 204. A 30¢/gal. tax credit No provision.

OF methanol) qualifies for (rising to 50¢/gal.) is provided for

ALTERNATIVE an excise tax exemption. | the retail sale of an alternative fuel

FUELS Fuel ethanol also (CNG, LNG, LPG, hydrogen, E85,

qualifies for blender’s and M85). The credit is based on

and production tax the gasoline equivalent of

credits. CNG and other alternative fuel, rated at 114,000

alternative fuels are Btu/gal. of gasoline.

taxed at lower rates, as

measured against the

Btu equivalence of

gasoline. Electricity

used in vehicles is not

taxed. There is a tax

break for the retail sale

of alternative motor

fuels.

[IRC§40, 4041, 4081]

ELECTRIC A 10% tax credit, upto | Sec. 202. The Senate bill repeals Sec. 41010. Repeals the The Job Creation

VEHICLES $4,000, is available for the existing credit and provides a phase-out of the existing tax | and Worker Relief

the costs of an electric new tax credit ranging from credit. No additional Act of 2002 (P.L.

vehicle. The credit $3,500-$40,000, depending on incentives are provided. 107-147)

phases out from 2004- vehicle weight, payload capacity, retroactively

2006. and driving range. A smaller tax extended the

[IRC§30] credit (10% of costs up to $1,500) phase-out dates

is provided for electric vehicles

with.a maximum velocity of

between 20-25 mph. Leases of

electric vehicles would also

qualify for the tax credit.

from 2002-2004

to 2004-2006.

SFC Bill (S. 1149)

does not change

these dates.

CRS-26

Miscellaneous Provisions

Provision Current Law SFC Bill (S. 1149) House Bill (H.R. 6) Comments

STUDY OF COALBED Coalbed methane is one of the Sec. 509. The No provision. CRS has analyzed

METHANE unconventional fuels that qualify Secretary of the the economic

for the §29 tax credit. There isno | Treasury shall study effects of the §29

provision in current law for the the effects of the §29 tax credit,

study of the effects of the §29 tax | tax credit on the including the

credit on coalbed methane. production of coalbed effects on coalbed

methane. methane, through

1997. See CRS

Report 97-679, An

Economic Analysis

of the §29 Tax

Credit for

Unconventional

Fuels.

STUDY OF CERTAIN There is no provision in the Sec. 702. GAO is No provision.

TAX INCENTIVES Internal Revenue Code directing directed to undertake

the General Accounting Office to | an analysis of the

study the effects of the tax effectiveness of the tax

incentives for alternative motor incentives for

fuels and for energy efficiency. alternative motor

vehicles and energy

efficiency investments

proposed in the bill.

DUTY FREE SALES OF | Customs duties are imposed on Sec. 209. The Senate No provision.

GASOLINE AND the importation of commodities bill provides that any

DIESEL into the United States The duty gasoline or diesel sold

on gasoline and diesel imports is

52.5¢/barrel (1.25¢/gal.). ,

Commodities sold in duty-free

shops may be sold duty-free if the

commodity is not entered into the

United States.

[Harmonized tariff schedules of

the U.S.; 19 U.S.C. 1555(b)]

in duty-free shops will

be considered entered

for consumption, and

therefore subject to

duty.

CRS-27

| SFC Bill (S. 1149)

Provision Current Law House Bill (H.R. 6) Comments

ENERGY CREDITS AND | Under current law, energy-related | No provision Sec. 43006, 43007.

THE ALTERNATIVE income tax credits, and many of This section makes

MINIMUM TAX the non-energy tax credits, are the minimum tax

aggregated and claimed as one limitation inapplicable

general business credit, which is to several of the

also subject to several limitations, personal and business

including the alternative energy tax credits

minimum tax limitation. introduced by the bill.

{IRC§38]

COAL MINER’S In 1992 the Congress established | No provision. Sec. 42011. The

HEALTH BENEFITS a health benefits fund to pay for proposal allows

FUND the medical expenses of retired assigned coal

miners and their dependents. operators to be

Coal operators make annual relieved of their

contributions for each retired liability to make

miner assigned to a particular annual contributions,

operator. provided that the

[IRC§9704] operator’s parent

company prepays the

premiums.

ENERGY RESEARCH A 20% research tax credit is Sec. 704. The 20%

CREDIT available on the amount by which | credit is to be available

a taxpayer's qualified research

expenses for a taxable year

exceed its base amount for that

year. The research tax credit is

scheduled to expire and generally

will not apply to amounts paid or

incurred after June 30, 2004.

[IRC §41]

for all expenditures on

qualified energy

research undertaken by

a research consortium.

[OCR skipped on page(s) 31-33]

[Read from a scan; the first 30 pages.]