Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

Side-by-Side Comparison of Energy Tax

Provisions of H.R. 6899 and S. 3478

-name redactedSpecialist in Energy and Environmental Economics

September 18, 2008

Congressional Research Service

7-....

www.crs.gov

RL34674

CRS Report for Congress

Prepared for Members and Committees of Congress

Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

Summary

The Comprehensive American Energy Security and Consumer Protection Act, H.R. 6899, was

introduced on September 15, 2008, and approved by the House on September 16, 2008. This plan

allows oil and gas drilling in the Outer Continental Shelf (OCS), and it incorporates most of the

energy tax provisions from an energy tax bill, H.R. 5351, and some of H.R. 6049, both of which

were previously approved by the House of Representatives but failed to be taken up by the

Senate.

In the Senate, legislative efforts on energy tax incentives and energy tax extenders center around

S. 3478, the $40 billion energy tax bill offered by Finance Committee Chairman Max Baucus and

ranking Republican Charles Grassley, and supported by Senate Democratic leadership. In the

Senate, controversy over tax increases on the oil and gas industry, particularly over proposed

repeal of the tax code’s §199 deduction for the major integrated oil companies, continues; it

remains unclear whether an energy tax bill with this provision will pass a cloture vote to limit

debate, and thus be taken up.

This report is a side-by-side comparison of energy tax bills H.R. 6899 and S. 3478.

Congressional Research Service

Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

Contents

Energy Tax Provisions in H.R. 6899............................................................................................3

S. 3478 .......................................................................................................................................4

Tables

Table 1. Side-by-Side Comparison of S. 3478 and the Energy Tax Provisions of H.R.

6899 ........................................................................................................................................6

Contacts

Author Contact Information ...................................................................................................... 25

Congressional Research Service

Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

T

he idea of using the tax code to achieve energy policy goals and other national objectives

is not new but, historically, U.S. federal energy tax policy promoted the exploration and

development—the supply of—oil and gas. The 1970s witnessed (1) a significant cutback

in the oil and gas industry’s tax preferences, (2) the imposition of new excise taxes on oil (some

of which were subsequently repealed or expired), and (3) the introduction of numerous tax

preferences for energy conservation, the development of alternative fuels, and the

commercialization of the technologies for producing these fuels (renewables such as solar, wind,

and biomass, and nonconventional fossil fuels such as shale oil and coalbed methane).

Comprehensive energy policy legislation containing numerous tax incentives, and some tax

increases on the oil industry, was signed on August 8, 2005 (P.L. 109-58). The law, the Energy

Policy Act of 2005, contained about $15 billion in energy tax incentives over 11 years, including

numerous tax incentives for the supply of conventional fuels, as well as for energy efficiency, and

for several types of alternative and renewable resources, such as solar and geothermal. The Tax

Relief and Health Care Act of 2006 (P.L. 109-432), enacted in December 2006, provided for oneyear extensions of some of these provisions. But some of these energy tax incentives expired on

January 1, 2008, while others are about to expire at the end of 2008.

In early December 2007, it appeared that congressional conferees had reached agreement on

another comprehensive energy bill, the Energy Independence and Security Act (H.R. 6), and

particularly on the controversial energy tax provisions. The Democratic leadership in the 110th

Congress proposed to eliminate or reduce tax subsidies for oil and gas and use the additional

revenues to increase funding for their energy policy priorities: energy efficiency and alternative

and renewable fuels, that is, reducing fossil fuel demand rather than increasing energy (oil and

gas) supply. In addition, congressional leaders wanted to extend many of the energy efficiency

and renewable fuels tax incentives that either had expired or were about to expire.

The compromise on the energy tax title in H.R. 6 proposed to raise taxes by about $21 billion to

fund extensions and liberalization of existing energy tax incentives. However, the Senate on

December 13, 2007, stripped the controversial tax title from its version of the comprehensive

energy bill (H.R. 6) and then passed the bill, 86-8, leading to the President’s signing of the Energy

Independence and Security Act of 2007 (P.L. 110-140), on December 19, 2007. The only taxrelated provisions that survived were (1) an extension of the Federal Unemployment Tax Act

surtax for one year, raising about $1.5 billion; (2) higher penalties for failure to file partnership

returns, increasing revenues by $655 million; and (3) an extension of the amortization period for

geological and geophysical expenditures from five to seven years, raising $103 million in

revenues. The latter provision was the only tax increase on the oil and gas industry in the final

bill. Those three provisions would offset the $2.1 billion in lost excise tax revenues going into the

federal Highway Trust Fund as a result of the implementation of the revised Corporate Average

Fuel Economy standards. The decision to strip the much larger $21 billion tax title stemmed from

a White House veto threat and the Senate’s inability to get the votes required to end debate on the

bill earlier in the day. Senate Majority Leader Harry Reid’s (D-Nev.) effort to invoke cloture fell

short by one vote, in a 59-40 tally.

Since then, the Congress has tried several times to pass energy tax legislation, and thus avoid the

impending expiration of several popular energy tax incentives, such as the “wind” energy tax

credit under Internal Revenue Code (IRC) §45, which, since its enactment in 1992, has lapsed

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Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

three times only to be reinstated.1 Several energy tax bills have passed the House but not the

Senate, where on several occasions, the failure to invoke cloture failed to bring up the legislation

for consideration. Senate Republicans objected to the idea of raising taxes to offset extension of

expiring energy tax provisions, which they consider to be an extension of current tax policy rather

than new tax policy. In addition, Senate Republicans objected to raising taxes on the oil and gas

industry, such as by repealing the (IRC) §199 deduction, and by streamlining the foreign tax

credit for oil companies. 2 The Bush Administration repeatedly threatened to veto these types of

energy tax bills, in part because of their proposed increased taxes on the oil and gas industry.

Frustrated with the lack of action on energy tax legislation over the last two years, House

Democrats introduced and approved several such bills, such as H.R. 5351, which was approved

by the House on February 27, 2008. House Speaker Pelosi and other Democrats sent President

Bush a letter February 28, 2008, urging him to reconsider his opposition to the Democratic

renewable energy plan, arguing that their energy tax plan would “correct an imbalance in the tax

code.”3

At this writing, a renewed legislative effort is being made to enact energy tax legislation, although

the two chambers were moving in different directions on how to bring the legislation to the floor.

In the House, energy tax provisions are part of H.R. 6899, House Democratic leadership’s latest

draft of broad-based energy policy legislation, the Comprehensive American Energy Security and

Consumer Protection Act. Passed on September 16, 2008, the bill would expand oil and gas

drilling offshore by allowing oil and gas exploration and production in areas of the outer

continental shelf that are currently off limits, except for waters in the Gulf of Mexico off the

Florida coast. Under the bill, states could allow such drilling between 50 and 100 miles offshore,

while the federal government could permit drilling from 100 to 200 miles offshore.4 Revenue

from the new offshore leases would be used to assist the development of alternative energy, and

would not be shared by the adjacent coastal states. The bill would also repeal the current ban on

leasing federal lands for oil shale production if states enact laws providing for such leases and

1

See. U.S. Library of Congress. Congressional Research Service. Extension of Expiring Energy Tax Provisions. CRS

Report RL32265 by (name redacted).

2

Enacted in 2004 as an export tax incentive, this provision allows a deduction, as a business expense, for a specified

percentage of the qualified production activity’s income (or profit) subject to a limit of 50% of the wages paid that are

allocable to the domestic production during the taxable year. The deduction was 3% of income for 2006, is currently

6%, and is scheduled to increase to 9% when fully phased in by 2010.

3

Several times the House has approved energy tax legislation, and several times in the Senate such legislation failed a

cloture vote and thus could not be brought to the floor for debate. The latest was H.R. 6049, the House tax extenders

bill, which was approved by the House on May 21, 2008, but failed three cloture votes in the Senate. Several times

recently, the Senate has been prevented from taking action on energy tax legislation due to the failure to invoke cloture

on the motion to proceed to the House energy tax extenders bills. The first was June 10, when the motion failed by a

vote of 50-44; the second was on June 17, when the motion failed by a vote of 52-44; the third was July 29, when the

cloture motion failed by a vote of 53 to 43. In addition, on July 30 the Senate rejected by a vote of 51 to 43 a motion to

invoke cloture on a motion to proceed to debate S. 3335, Senator Baucus’ energy tax bill.

4

The House Democratic leadership’s energy proposal is centered around opening the Outer Continental Shelf to oil and

gas development. The OCS areas—the Atlantic OCS, Gulf of Mexico (GOM) OCS, Pacific OCS, and Alaska OCS—

are the offshore lands under the jurisdiction of the U.S. government. Federal law allows or confirms state boundaries

and jurisdiction over the continental shelf areas up to 3 nautical miles from the coastline, except that (in the GOM)

Texas and Florida offshore boundaries extend up to 9 nautical miles from the coastline. Exclusive federal jurisdiction

over resources of the shelf applies from state boundaries out to 200 miles from the U.S. coastline. For a more detailed

definition of the OCS and various governmental jurisdictions see U.S. Library of Congress. Congressional Research

Service. CRS Report RL33404, Offshore Oil and Gas Development: Legal Framework, by (name redacted). May 3, 2006.

For a comparison of different proposals see U. S. Library of Congress. Congressional Research Service. CRS Report

RL34667, Outer Continental Shelf Leasing: Side-by-Side Comparison of Five Legislative Proposals, by (name

redacted). September 15, 2008.

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Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

production. H.R. 6899 also would enact a renewable portfolio standard, a requirement that power

companies generate 15% of their energy from renewable sources by 2020.

Energy Tax Provisions in H.R. 6899

The energy tax provisions in H.R. 6899 (Title XIII, the Energy Tax Incentives Act of 2008) are

largely the same as those in H.R. 5351, an approximately $18 billion energy tax package that was

approved by the House on February 27, 2008. They also include some of the measures in H.R.

6049, another energy tax bill that was also approved by the House.5 H.R. 5351 is, in turn, a

smaller version of the energy tax title that was dropped from H.R. 3221 in December 2007, but

larger than the $16 billion bill approved by the Ways and Means Committee in 2007 (H.R. 2776).

However, because H.R. 6899 incorporates some of the incentives of H.R. 6049, its total cost is

higher than the cost of H.R. 5351: about $19 billion over 10 years, instead of $18 billion.

H.R. 6899 includes several tax incentives for renewable energy that would reduce revenue by an

estimated $19 billion over 10 years.6 At a cost of $6.9 billion over 10 years, it extends a

renewable energy production tax credit, covering wind facilities for one additional year, through

2009, and certain other renewable energy production for three years, through 2011, while capping

credits for facilities that come into service after 2009. The bill extends for eight years, through

2016, a credit for investing in solar energy and fuel cells, at a cost of $1.8 billion. It also extends

the energy-efficient commercial building deduction for five years, the credit for efficiency

improvements to existing homes for one year, and a credit for energy-efficient appliances for

three years.

The measure provides for the allocation of $2.625 billion in energy conservation bonds, $1.75

billion in clean renewable energy bonds, and $1.75 billion in energy security bonds to finance the

installation of natural gas pumps at gas stations; all would be tax-credit bonds, which provide a

tax credit in lieu of interest, and projects financed through the bonds would have to comply with

Davis-Bacon requirements. It also creates a new tax credit for plug-in electric vehicles, an

accelerated recovery period for smart electric meters and grid systems, and provides $1.1 billion

in tax credits for carbon capture and sequestration projects. The tax title also includes one nonenergy tax subsidy: a $1.1 billion provision to restructure the New York Liberty Zone tax

incentives to allow for new transportation projects.

H.R. 6899 is fully offset, raising $19 billion in taxes, including many of the same energy tax

increases on oil companies also previously approved by the House. The energy tax provisions in

H.R. 6899 are entirely offset, mainly by denying the IRC §199 manufacturing deduction to

certain major integrated oil companies (including oil companies controlled by foreign

governments—including CITGO ) and freezing the deduction for all other oil and gas producers

at the current rate of 6%.7 Earlier §199 repeal proposals had been criticized for seeking to end the

5

As noted, the House has approved several energy tax bills over the last two years, only to have them stall in the

Senate. H.R. 6049, for instance, was approved by the House on May 21, 2008 only to fail several cloture votes in the

Senate (see footnote 3).

6

U.S. Congress. Joint Committee on Taxation. Estimated Revenue Effects of Title VIII of H.R. 6899, The “Energy Tax

Incentives Act of 2008,” as Passed by the House of Representatives on September 16, 2008. JCX-68-08. September 17,

2008.

7

First enacted in 2004, this provision allows a deduction, as a business expense, for a specified percentage of the

qualified production activity’s income subject to a limit of 50% of the wages paid that are allocable to the domestic

(continued...)

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Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

deduction only for U.S.-based major companies, while exempting Venezuelan-controlled CITGO

because, not being a crude oil producer, it does not meet the definition of a “major integrated oil

and gas producer.” The entire provision would raise $13.9 billion over 10 years. Additional

revenue—about $4.0 billion over 10 years—would come from a provision to streamline the tax

treatment of foreign oil-related income so it is treated the same as foreign oil and gas extraction

income.

In addition to the H.R. 6899, the Republican leadership in the House has introduced its own

energy tax bill, H.R. 6566, which also extends and expands some of the energy tax incentives and

contains no tax increases (offsets). The energy tax provisions in this bill are, however, smaller and

somewhat narrower than those in H.R. 6899.

S. 3478

In the Senate, legislative efforts on energy tax incentives and energy tax extenders center around

S. 3478, the Energy Independence and Investment Act of 2008, a $40 billion energy tax bill

offered by Finance Committee Chairman Max Baucus and ranking Republican Charles Grassley.

Senate Majority Leader Harry Reid said on September 12 that S. 3478 is “must-pass” legislation.

Reid told reporters the energy tax package, which includes extensions of tax incentives for

renewable energy, should be prioritized even ahead of the broader energy policy bills being

considered, and the rest of the non-energy tax extenders package. Reid said he hopes to bring the

bill to the floor during the week of September 15, but noted that the schedule depends on whether

Senate Republicans will agree to move to the legislation.8

While most of the tax incentives in the bill are extensions of existing policy and are not

controversial, the legislation would need to be paid for through new sources of revenue. One

proposed offset—which has been previously blocked by Republicans—would repeal the IRC

§199 manufacturing deduction for the five major oil and gas producers, raising $13.9 billion over

10 years. The bill also would be paid for through a new 13% excise tax on oil and natural gas

pumped from the Outer Continental Shelf, a proposal to eliminate the distinction between foreign

oil and gas extraction income and foreign oil-related income, and an extension and increase in the

oil spill tax through the end of 2017. In total, tax increases on the oil and gas industry would

account for $31 billion of the $40 billion total cost of the legislation. The final major offset would

come from a requirement on securities brokers to report on the cost basis for transactions they

handle to the Internal Revenue Service, a provision expected to raise about $8 billion in new

revenues over 10 years.

The tax offsets, or tax increases in S. 3478 are not without controversy, however, particularly the

repeal of the IRC §199 manufacturing deduction for the five major oil and gas producers, as

(...continued)

production during the taxable year. The deduction was 3% of income for 2006, is currently 6%, and is scheduled to

increase to 9% when fully phased in by 2010. For the domestic oil and gas industry, the deduction applies to oil and gas

or any primary product thereof, provided that such product was “manufactured, produced, or extracted in whole or in

significant part in the United States.” Note that extraction is considered to be manufacturing for purposes of this

deduction, which means that domestic firms in the business of extracting oil and gas qualify for the deduction. This

deduction was enacted under the American Jobs Creation Act of 2004 (P.L. 108-357, also known as the “JOBS” bill).

8

Bureau of National Affairs. Daily Tax Report. “Reid Says ‘Must Pass’ Energy Legislation Should be Handled Before

Tax Extenders.” September 15, 2008. P. G-5.

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Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

discussed previously. Several times the House has approved energy tax legislation, and several

times in the Senate such legislation failed a cloture vote and thus could not be brought to the floor

for debate.

As noted above, Republicans have in the past objected to the idea of raising taxes to offset

extension of expiring energy tax provisions, which they consider to be an extension of current tax

policy rather than new tax policy. In addition, some Senate Republicans have objected to raising

taxes on the oil and gas industry, particularly by repealing the IRC §199 deduction. The Bush

Administration threatened to also veto any energy tax bill that would increase taxes on the oil and

gas industry. At this writing, it appears that inclusion of the §199 deduction repeal as an offset

might preclude the energy tax bill from coming to the Senate floor—some believe that it would

fail another cloture vote—so this provision might not survive the process.9

Finally, the debate in the Senate over energy tax incentives and energy tax extenders is seen as

potentially involving three other separate proposals: (1) The Gang of 20 proposal or “New Energy

Reform Act of 2008”(this has not yet been introduced); (2) A Bingaman/Baucus bill (also not

formally introduced); and (3) the Republican “Gas Price Reduction Act” (introduced by Senator

McConnell as Senate Amendment 5108).

A side-by-side comparison of H.R. 6899 and S. 3478 is in Table 1.10 Revenue estimates were

generated by the Joint Committee on Taxation.

9

Bureau of National Affairs. Daily Tax Report. “Plan to Bring Tax Extenders to Floor Scraps Section 199 Deduction

Repeal for Oil Firms.” September 17, 2008. P. G-13.

10

A side-by-side comparison of H.R. 6049 and S. 3478 is in CRS Report RL34669, by (name redacted), September

16, 2008.

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Table 1. Side-by-Side Comparison of S. 3478 and the Energy Tax Provisions of H.R. 6899

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Comments

Fossil Fuels Supply

Percentage

Depletion for

Marginal Oil and

Gas Wells

Independent producers can claim a

higher depletion rate(up to 25%,

rather than the normal 15%) for up to

15 barrels per day of oil (or the

equivalent amount of gas) from

marginal wells ( “stripper” oil/gas and

heavy oil). The percentage depletion

allowance is limited to 100% of

taxable income from each property,

but this limitation is suspended

through December 31, 2007 for

marginal oil and gas. The percentage

depletion allowance is also limited to

65% of taxable income from all

properties [IRC§613A(c)(6);

[IRC§613A(c)(6)(H); [IRC§ 613A(d)].

Sec. 213. The proposal extends for

three years (through December

31, 2010) the suspension on the

taxable income limit for purposes

of depreciating a marginal oil or gas

well. The estimated cost of this

proposal is $364 million over 10

years.

No provision.

Petroleum

Refineries

Assets used in petroleum refining are

generally depreciated over 10 years.

But, a temporary provision allows the

expensing of refinery property which

either increases total capacity by 5%

or which processes nonconventional

feedstocks at a rate equal or greater

to 25% of the total throughput of the

refinery [IRC§168(e)(3)].

Sec. 212. This bill extends the

refinery expensing contract

requirement and the placed-inservice requirement for two years.

The proposal also qualifies

refineries directly processing shale

or tar sands. The estimated cost of

this proposal is $894 million over

10 years.

No provision.

This is one of the several tax

incentives for the oil industry

created by The Energy Policy Act

of 2005(EPACT05, P.L. 109-58).

Sec. 811 & 812. Similar to S. 3478,

except that the total credits are

only $1.1 billion: $950 million for

advanced coal projects, and $150

million for coal gasification

projects. This proposal is estimated

to cost $1.044 billion over 10

years.

This tax credit was also one of

the several energy tax incentives

created by EPACT05.

Carbon Mitigation and Coal

Credit for

Investment in

Clean Coal

Facilities

CRS-6

A 15% investment credit is provided

for advanced coal projects and a 20%

credit is provided for qualified coal

gasification projects, respectively. The

credit is for coal gasification projects

which must use an integrated

gasification combined cycle (IGCC)

technology. The total credits available

for qualifying advanced coal projects is

Sec. 111 & 112. The bill provides

$2.5 billion in new total tax credits

for the creation of advanced coal

electricity projects and certain coal

gasification projects that

demonstrate the greatest potential

for carbon capture and

sequestration (CCS) technology.

Of these $2.5 billion of total

Provision

Current Law

Senate Bill S. 3478

limited to $1.3 billion, with $800

million allocated to IGCC projects

and the remaining $500 million to

projects using other advanced coalbased generation technologies [IRC

§48A and IRC §48B].

incentives, $2 billion would be

earmarked for advanced coal

electricity projects and $500

million for coal gasification

projects. These tax credits will be

awarded by Treasury through an

application process, with applicants

that demonstrate the greatest

CO2 sequestration percentage

receiving the highest priority.

Projects must capture and

sequester at least 65% of the

facility’s CO2 emissions or their

coal gasification project must

capture and sequester at least 75%

of the facility’s CO2 emissions. The

estimated cost of this proposal is

$2.373 billion over 10 years.

CO2 Capture Tax

Credit

No provision.

Sec. 115. The proposal provides a

$10 credit per ton for the first 75

million metric tons of CO2

captured and transported from an

industrial source for use in

enhanced oil recovery and $20

credit per ton for CO2 captured

and transported from an industrial

source for permanent storage in a

geologic formation. Qualifying

facilities must capture at least

500,000 metric tons of CO2 per

year. The credit applies to CO2

stored or used in the United

States. The estimated cost of this

proposal is $1.119 billion over 10

years.

Carbon Audit of

Tax Code

No provision.

Sec. 116. The bill directs the

Secretary of the Treasury to

request that the National Academy

of Sciences undertake a

comprehensive review of the tax

code to identify the types of

CRS-7

House Bill H.R. 6899

No provision.

Sec. 815. Identical to S. 3478.

Comments

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Comments

specific tax provisions that have

the largest effects on carbon and

other greenhouse gas emissions

and to estimate the magnitude of

those effects. Authorizes $1.5

million for the study. This proposal

has no revenue effect.

Other Coal Tax Provisions

Black-Lung Excise

Tax

An excise tax is imposed on coal

mined domestically and sold by the

producer, at the rate of $1.10 per ton

for coal from underground mines and

$0.55 per ton for coal from surface

mines (the aggregate tax per ton is

capped at 4.4% of the amount sold by

the producer). Reduced tax rates

apply after the earlier of December

31, 2013 or the date on which the

Black Lung Disability Trust Fund has

repaid, with interest, all amounts

borrowed from the general fund of

the Treasury. Tax receipts are

deposited in the Black Lung Disability

Trust Fund, and used to pay

compensation, medical and survivor

benefits to eligible miners and their

survivors and to cover costs of

program administration. The Trust

Fund is permitted to borrow from the

General Fund any amounts necessary

to make authorized expenditures if

excise tax receipts do not provide

sufficient funding [IRC§4121].

Sec. 113. The bill would enact the

President’s FY2009 proposal to

bring the Black Lung Disability

Trust Fund out of debt. The

President’s Budget proposes that

the current excise tax rate should

continue to apply beyond 2013

until all amounts borrowed from

the general fund of the Treasury

have been repaid with interest.

After repayment, the reduced

excise tax rates of $0.50 per ton

for coal from underground mines

and $0.25 per ton for coal from

surface mines would apply

(aggregate tax per ton capped at

2% of the amount sold by the

producer). Rates are extended

through 2018. The proposal is

estimated to raise $1.287 billion

over 10 years.

Sec. 813. The House bill in identical

to the Senate bill. The proposal is

estimated to raise $1.287 billion

over 10 years.

See CRS Report RS21935, The

Black Lung Excise Tax on Coal.

Black-Lung Excise

Tax on Exported

Coal

Since 2000 (which is when the IRS

issued Notice 2000-28), the black lung

excise tax has not been imposed on

exported coal (i.e., domestically

produced coal sold and destined for

export). The courts have determined

that the Export Clause of the U.S.

Sec. 114. The bill creates a new

procedure under which certain

coal producers and exporters may

claim a refund of these excise taxes

that were imposed on coal

exported from the United States.

Under this procedure, coal

Sec. 814. This provision is identical

to that in the Senate bill. The

estimated cost of this proposal is

$199 million over 10 years.

See CRS Report RS22881, Coal

Excise Tax Refunds: United States v.

Clintwood Elkhorn Mining Co.

CRS-8

Provision

Current Law

Senate Bill S. 3478

Constitution prevents the imposition

of the coal excise tax on exported

coal and, therefore, any taxes

collected on such exported coal in the

past are subject to a claim for refund.

[IRC§4121.

producers or exporters that

exported coal during the period

beginning on or after October 1,

1990 and ending on or before the

date of enactment of the bill, may

obtain a refund from the Treasury

of excise taxes paid on such

exported coal and any interest

accrued from the date of

overpayment. The estimated cost

of this proposal is $199 million

over 10 years.

House Bill H.R. 6899

Comments

Electricity Restructuring Provisions

Sale or

Disposition of

Transmission

Assets

Under present tax law, the sale of

electricity transmission or distribution

facilities is generally considered to be

an involuntary conversion, and gain

from the sale or disposition of such

assets is recognized over eight years,

rather than taxed all at once in the

year of the sale [IRC §§451, 1033,

1245, 1250].

Sec. 401. The bill extends the

present-law eight-year deferral of

gain on sales of transmission

property by vertically integrated

electric utilities to FERC-approved

independent transmission

companies. The rule applies to

sales before January 1, 2010. This

proposal is revenue neutral over

10 years.

Sec. 805. Identical to the Senate

bill. This proposal is revenue

neutral over 10 years.

The eight-year recognition rule

was introduced by EPACT05.

Renewable and Alternative Fuels

Electricity from

Renewable Fuels

CRS-9

Electricity producers may claim a tax

credit of 1.5¢/kWh (in 1992 dollars;

generally 2.0¢ in current dollars) for

electricity produced from wind

energy, “closed-loop,” and open-loop

biomass, and other renewable

resources as well as for refined coal.

Placed-in-service date is December

31, 2008 [IRC§45].

Sec. 101 &102. The Senate bill

extends the placed-in-service date

by three years, through December

31, 2011. The bill expands the

types of facilities qualifying for the

credit to new biomass facilities and

those that generate electricity

from marine renewables (e.g.,

waves and tides). The bill updates

the definition of an open-loop

biomass facility, the definition of a

trash combustion facility, and the

definition of a non-hydroelectric

dam. The bill also extends the

refined coal credit, while removing

Sec. 801 &802. The House bill also

has a three-year extension of the

placed-in-service date through

December 31, 2011, but for wind,

the extension is for only one year

through 12-31-2009. It also adds

marine renewables (e.g., waves and

tides) and hydrokinetic energy as a

qualified resource. The bill would

repeal the current phase-out

mechanism, replacing it with a cap

on the present value of the credits,

which cannot exceed 35% of the

facility’s cost. The bill clarifies the

availability of the production tax

Current tax credit is generally

available for 10 years after placedin-service, but new equipment has

to be placed-in-service by 12-312008. So this tax credit would not

be available on new investments

after 12-31-2008, unless it is

extended.

Provision

Business Solar,

Geothermal,

Fuels Cells, and

Other Renewable

Technologies

Residential Solar

and Other

Renewables Used

in Residences

CRS-10

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

the market value test and

increasing coal emissions

standards. The estimated cost of

this proposal is $15.414 billion

over 10 years.

credit with respect to certain sales

of electricity to regulated public

utilities and updates the definition

of an open-loop biomass facility,

trash combustion facility, and

nonhydroelectric dam. This

proposal is estimated to cost

$6.893 billion over 10 years.

A permanent 10% tax credit is

provided for investments in solar and

geothermal equipment used to

generate electricity (including

photovoltaic systems), or solar

equipment used to heat or cool a

structure, and for process heat. The

30% credit for solar, fuel cells and the

10% credit for micro-turbines is

available through 12-31-2009.

Geothermal energy reservoirs also

qualify for a 15% percentage depletion

allowance. Depreciation recovery

period for renewable technologies is

five years. Fuel cells do not qualify for

tax subsidies [IRC§45,46,48, 613(e)].

Sec. 103 & 107. S. 3478 extends

the 30% investment tax credit for

solar energy property and qualified

fuel cell property, as well as the

10% investment tax credit for

micro turbines, for eight years

(through 12-31-2016). The bill adds

small commercial wind, geothermal

heat pumps, and combined heat

and power systems (at a 10%

credit rate) as a category of

qualified investment. The bill also

increases the $500 per half

kilowatt of capacity cap for

qualified fuel cells to $1,500 per

half kilowatt and allows these

credits to be used to offset the

alternative minimum tax (AMT).

The estimated cost of this proposal

is $1.919 billion over 10 years.

Sec.803. This provision is similar to

the Senate’s. This proposal is

estimated to cost $1.765 billion

over 10 years.

A 30% tax credit is provided for

residential applications of solar

generated electricity (photovoltaics)

as well for solar water heating. This

credit is available through 12-31-2008

(IRC§25D).

Sec. 104. The bill extends the

credit for residential solar

property for eight years (through

2016), and doubles it from $2,000

to $4,000. The bill adds residential

small wind investment, capped at

$4,000, and geothermal heat

pumps, capped at $2,000, as

qualifying property. The bill also

allows the credit to be used to

offset the AMT. The estimated

cost of this proposal is $907

million over 10 years.

Sec.804. This provision is the same

as in the Senate bill. This proposal

is estimated to cost approximately

$907 million over 10 years.

Comments

Under current law, energy-related

income tax credits, and many of

the non-energy tax credits, are

aggregated and claimed as one

general business credit, which is

also subject to several limitations,

including the alternative minimum

tax limitation.

[IRC§38]

The payment of the AMT may

substantially reduce, or even

eliminate, this (as well as other)

energy tax credits.

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Comments

Clean Renewable

Energy Bonds

State and local governments may issue

clean renewable energy bonds

(“CREBS”) in order to finance

renewable projects (wind, closed-loop

biomass, open-loop biomass,

geothermal, small irrigation, qualified

hydro-power, landfill gas, marine

renewable and trash combustion

facilities). Unlike other state and local

bonds, which are exempt from federal

taxation, these bonds provide a tax

credit to the holding taxpayer. Only

$1.2 billion of such bonds may be

issued nationally; $0.75 billion by

governmental bodies. CREBS must be

issued before 12-31-2008 [IRC §54].

Sec. 105. The Senate bill increases

the maximum authorized amount

of CREBS issues to $2 billion to

finance facilities that generate

electricity from renewables. This

$2 billion authorization is

subdivided into thirds: 1/3 for

qualifying projects of

state/local/tribal governments; 1/3

for qualifying projects of public

power providers; and 1/3 for

qualifying projects of electric

cooperatives. The bill also provides

an additional year for current

allocations to issue bonds. The

estimated cost of this proposal is

$551 million over 10 years.

Sec. 806. The House bill is similar

to the Senate bill, but the national

limitation is $1.75 billion instead of

$2.0 billion. This proposal is

estimated to cost $497 million

over 10 years.

Nuclear

Electricity

Production Tax

Credit

A taxpayer producing electricity at a

qualifying advanced nuclear power

facility can claim a credit equal to

1.8¢/kilowatt hour of electricity

produced for the eight-year period

starting when the facility is placed in

service. The aggregate amount of

credit that a taxpayer may claim in any

year during the eight-year period is

subject to limitation based on

allocated capacity and an annual

limitation. A qualifying advanced

nuclear facility is one that is placed in

service before January 1, 2021. The

Secretary of Treasury may allocate up

to 6,000 megawatts of capacity

[IRC§45I].

Sec. 402. This proposal increases

the maximum allocation amount to

8,000 megawatts. Public-private

partnerships will also be allowed to

utilize the credit. This proposal has

no revenue effect.

No provision.

A qualifying advanced nuclear

facility is one for which the

taxpayer has received an

allocation of megawatt capacity

from the Secretary of the

Treasury, in consultation with the

Secretary of Energy. See CRS

Report RL33558, Nuclear Energy

Policy.

Sec. 843. Same as the Senate bill.

The estimated cost of this proposal

is $891 million over 10 years.

Qualifying property must be

installed as part of: (1) the

interior lighting system, (2) the

Energy Conservation and Energy Efficiency

Business Sector

Energy Efficiency

in Commercial

Buildings

CRS-11

The tax code provides a formulabased tax deduction, subject to a limit

equal to $1.80 per sq.ft. of the

Sec. 303. The bill extends the

energy-efficient commercial

buildings deduction for five years,

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

building, for all or part of the cost of

energy efficient commercial building

property (i.e., certain major energysavings improvements made to

domestic commercial buildings) placed

in service after December 31, 2005

and before January 1, 2009 [IRC

§179D].

through December 31, 2013. The

estimated cost of this proposal is

$891 million over 10 years.

Bonds for Green

Buildings and

Sustainable

Design Projects

State and local governments have the

authority to issue tax-exempt bonds

for green buildings and sustainable

design projects [IRC§142].

Sec. 307. The bill extends the

authority to issue qualified green

building and sustainable design

project bonds through the end of

2012. The bill also clarifies the

application of the reserve account

rules to multiple bond issuances.

The estimated cost of this proposal

is $45 million over 10 years.

Sec. 846. Identical to the Senate

provision. The estimated cost of

this proposal is $45 million over 10

years.

Energy

Management

Devices

Current law provides no special tax

incentives for meters, thermostats,

and other energy management devices

that allow utilities or consumers to

monitor, control energy use; such

property is depreciable over 20 years

if used in a business [IRC §168].

Sec. 306. The bill provides

accelerated depreciation for smart

electric meters and smart electric

grid systems, allowing taxpayers to

recover the cost of this property

over seven years. The estimated

cost of this proposal is $1.716

billion over 10 years.

Sec. 845. Similar to the Senate bill

except that the recovery period

would 10 years instead of seven

years. The estimated cost of this

proposal is $921 million over 10

years.

There is a 10% credit, up to a $500

maximum lifetime credit,- for energy

efficiency improvements in the

building envelope of existing homes

and for the purchase of high-efficiency

heating, cooling, and water heating

equipment. Efficiency improvements

and/or equipment must be placed in

service before December 31, 2007.

Selected energy efficiency equipment

and items qualify for specific tax

credits ranging from $50-$300 [IRC

Sec. 302. The bill retroactively

extends the tax credits for energyefficient retrofits to existing homes

for 2009, 2010 and 2011, and

includes energy-efficient biomass

fuel stoves as a new class of

energy-efficient property eligible

for a consumer tax credit of $300.

The proposal also clarifies the

efficiency standard for water

heaters. The estimated cost of this

proposal is $2.509 billion over 10

Sec. 842. The bill retroactively

extends the tax credits for energyefficient existing homes for two

years (through December 31,

2009) and includes energy-efficient

biomass fuel stoves as a new class

of energy-efficient property eligible

for a consumer tax credit of $300.

This proposal is estimated to cost

$1.067 billion over 10 years.

Comments

heating, cooling, ventilation and

hot water systems, or (3) the

building envelope, and it must

reduce total annual energy and

power costs of the building by

50% or more in comparison to a

reference building that meets the

minimum requirements of building

standards by the society of

engineers.

Residential Sector

Energy-Efficiency

Retrofits to

Existing Homes

CRS-12

This credit was enacted as part of

EPACT05, but it expired at the

end of 2007.

Provision

Senate Bill S. 3478

House Bill H.R. 6899

§25C].

years.

Construction of

Energy-Efficient

New Homes

A tax credit as high as $2,000 is

available to eligible contractors for the

construction of qualified new energyefficient homes if the homes achieve

an energy savings of 50% over the

2003 International Energy

Conservation Code (IECC). The

amount of the new energy-efficient

home credit depends on the energy

savings achieved by the home relative

to that of a 2003 IECC compliant

comparable dwelling unit. The credit

expires at the end of 2008. [IRC §45L]

Sec. 304. The bill extends the new

energy efficient home tax credit for

three years, through December 31,

2011. The estimated cost of the

proposal is $143 million over 10

years.

No provision.

Manufacture of

Energy-Efficient

Home Appliances

A credit is available for the eligible

production (manufacture) of certain

energy-efficient dishwashers, clothes

washers, and refrigerators. The total

credit amount is equal to the sum of

the credit amount separately

calculated for each of the three types

of qualified energy-efficient appliance.

The credit for dishwasher is $3

multiplied by the percentage by which

the efficiency of the 2007 standards

(not yet known) exceeds that of the

2005 standards (the credit may not

exceed $100 per dishwasher). The

credit for clothes washers is $100 for

clothes washers that meet the

requirements of the Energy Star

program in effect for clothes washers

in 2007. The credit for refrigerators

ranges from $75-$175 each [IRC

§45M].

Sec. 305. The bill modifies the

existing energy-efficient appliance

credit and extend this credit for

three years, through the end of

2010. The estimated cost of this

proposal is $322 million over 10

years.

Sec. 844. This provision is identical

to that in S. 3478. The estimated

cost of this proposal is $322

million over 10 years.

CRS-13

Current Law

Comments

The maximum amount of the new

credit allowable to a taxpayer is

capped at $75 million per tax year

for all qualifying appliances

manufactured during that year. In

each subsequent year the cap is

reduced by the amount (if any) of

the credit used in any prior tax

year. Of that $75 million (or

reduced) cap, no more than $20

million of credit amount in a

single tax year may result from

the manufacture of refrigerators

to which the $75 applicable

amount applies (i.e., refrigerators

which are at least 15 percent but

no more than 20 percent below

2001 energy conservation

standards). In addition to the $75

million cap on the credit allowed,

the overall credit amount claimed

for a particular tax year may not

exceed 2% of the taxpayer’s

average annual gross receipts for

the preceding three tax years.

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Qualified Energy

Conservation

Bonds

No provision.

Sec. 301. The bill creates a new

category of tax credit bonds to

finance state and local government

initiatives designed to reduce

greenhouse emissions. There is a

national limitation of $3 billion,

allocated to states, municipalities

and tribal governments. The

estimated cost of this proposal is

$1.025 billion over 10 years.

Sec. 841. The provision is similar to

that in S. 3478, except that the

national limitation is $2.625 billion.

This proposal is estimated to cost

$895 billion over 10 years.

Comments

Transportation Sector

Advanced Technology Vehicles

New Plug-In

Hybrid Vehicles

The Energy Policy Act of 2005 (P.L.

109-58) created a new system of tax

credits for four types of advancedtechnology vehicles (ATVs): hybrid

vehicles, fuel cell vehicles, advanced

lean-burn vehicles, and other

alternative fuel vehicles. The credit for

hybrids range from $250 to $3,400

per vehicle and are available through

December 31, 2009, but each

manufacturer has a 60,000 lifetime

vehicle limit. [IRC §30B].

Sec. 204 & 205. The Senate bill

establishes a new credit for

qualified plug-in electric drive

vehicles. The base amount of the

credit is $2,500. If the qualified

vehicle draws propulsion from a

battery with at least 6 kW hours of

capacity, the credit amount is

increased by $400, plus another

$400 for each kW hour of battery

capacity in excess of 6 kWhours.

Taxpayers may claim the full

amount of the allowable credit up

to the end of the first calendar

quarter after the quarter in which

the total number of qualified plugin electric drive vehicles sold in the

U.S. is at least 250,000. The credit

is available against the alternative

minimum tax (AMT). The

estimated cost of this proposal is

$755 million over 10 years.

Sec. 824. The bill establishes a new

credit for each qualified plug-in

electric drive vehicle placed in

service during each taxable year by

a taxpayer. The base amount of the

credit is $3,000. If the qualified

vehicle draws propulsion from a

battery with at least 5 kilowatt

hours of capacity, the credit

amount is increased by $200, plus

another $200 for each kilowatt

hour of batter/capacity in excess of

5 kilowatt hours up to 15 kilowatt

hours. Taxpayers may claim the full

amount of the allowable credit up

to the end of the first calendar

quarter after the quarter in which

the manufacturer records 60,000

sales. The credit is reduced in

following calendar quarters. The

credit is available against the

alternative minimum tax (AMT).

This proposal is estimated to cost

$1.056 billion over 10 years.

Other Alternative

Technology

Vehicles

The tax credits for advanced leanburn vehicles is the same as for

hybrids; the credit for fuel cell

vehicles may be as high as $4,000 for

Sec. 205. The bill extends the lean

burn, heavy hybrid, and alternative

fuel vehicle tax credit through

2011,and reduces the fuel cell

No provision.

CRS-14

Toyota reached its limit in 2006;

Honda in 2007. Thus, purchasers

of hybrid vehicles from these

manufacturers no longer qualify

for the tax credits. The two bills

essentially add plug-in hybrid

vehicles as a new technology to

the existing system of tax credits,

but with their own separate tax

credit structure.

Provision

Current Law

Senate Bill S. 3478

cars, and $40,000 for heavy-duty

trucks; the credit for advanced

alternative fuel vehicles is up to 80%

of marginal costs, limited to $32,000.

[IRC §30B]

credit to $7,500 at the end of

2009. The credit is available against

the alternative minimum tax

(AMT). The estimated cost of this

proposal is $527 million over 10

years.

Alternative-Fuel

Refueling Stations

A tax credit is provided equal to 30%

of the cost of any qualified alternative

fuel vehicle refueling property

installed to be used in a trade or

business or at the taxpayer’s principal

residence. The credit would be

limited to $30,000 for retail clean-fuel

vehicle refueling property, and $1,000

for residential clean-fuel vehicle

refueling property. The property must

be placed in service before1-1-2010

(1-1-2015 for hydrogen property)

[IRC§30C.]

Energy Security

Bonds

No provision

CRS-15

House Bill H.R. 6899

Comments

Sec. 208. The bill extends the 30%

alternative refueling property

credit (capped at $30,000) for

three years, through 2012. The

provision provides a tax credit to

businesses (e.g., gas stations) that

install alternative fuel pumps, such

as fuel pumps that dispense fuels

such as E85, compressed natural

gas and hydrogen. The bill also

adds electric vehicle recharging

property to the definition of

alternative refueling property. The

estimated cost of this proposal is

$256 million over 10 years.

Sec. 828. The provision in H.R.

6899 is similar to the provision in

S. 3478. The bill increases the 30%

alternative refueling property

credit (capped at $30,000) to 50%

(capped at $50,000). The bill also

extends this credit through the end

of 2010, 2017 for certain natural

gas type fuels. The estimated cost

of this proposal is $226 million

over 10 years.

The credit provides a tax credit

to businesses (e.g., gas stations)

that install alternative fuel pumps,

such as fuel pumps that dispense

E85 fuel.

No provision.

Sec. 828. The bill creates a new

type of tax-credit bond known as

“energy security” bonds and

provides for the allocation of $1.75

billion in bonding authority. The bill

requires 100% of the available

project proceeds to be used for

“qualfied purposes,” which would

include the making of grants and

low-interest loans for natural gas

refueling properties at retail gas

stations. The bill stipulates that a

loan could be no more than

$200,000 for a property located at

any one retail gas station and

stipulates that loans could not

cover more than 50% of the cost

of the property and its installation.

Allocations would be made by the

Treasury Department among

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

qualified issuers, including states

and political subdivisions or

instrumentalities thereof. The bill

requires that 50% of the limitation

be allocated only for loans for

natural gas refueling property in

metropolitan statistical areas. The

measure also directs the

department to attempt to ensure

that at least 10% of the motor fuel

stations receive loans from the

proceeds of the bonds. The

measure’s provisions would apply

to bonds issued by Dec. 31, 2017.

It also coordinates the energy

security tax-credit bonds with the

refueling credit. This proposal is

estimated to cost $76 million over

ten years.

Biofuels

Cellulosic Fuel

Alcohol

Production

Alcohol fuels qualify for production

and blending tax credits (either

income or excise tax credits) and

refunds. The credit for ethanol is

$0.51per gallon. In addition, there is

an ethanol small producer credit of

$0.10 per gallon, up to 15 million

gallons annually. Facilities that

produce cellulosic ethanol are also

allowed the 50% bonus depreciation if

such facilities are placed in service

before January 1, 2013. The farm bill

(P.L. 110-246) also included a new,

temporary cellulosic bio-fuels

production tax credit for up to $1.01

per gallon, available through

December 31, 2012 [IRC §168].

Sec. 201. The bill makes this benefit

available for the production of

other cellulosic biofuels in addition

to cellulosic ethanol. This proposal

is estimated to be revenue neutral

over 10 years.

Sec. 821. The House bill provision

is identical to that in the Senate

bill.

Alternative Fuels

Excise Tax

Credits

The tax code imposes excise taxes on

motor fuels at varying rates, but also

provides tax credits (at varying

amounts) against these taxes for

Sec. 207. The bill extends the

alternative fuel excise tax credit

through December 31, 2011 for all

fuels except for hydrogen (which

No provision.

CRS-16

Comments

Provision

Volumetric

Excise Tax Credit

(VEETC) for Fuel

Ethanol

Current Law

Senate Bill S. 3478

various types of alternative fuels; it

also provides small producer tax

credits for some of the fuels such as

ethanol and bio-diesel. The credits

generally expire at the end of 2008

[IRC §6426, §6427].

maintains its current-law expiration

date of September 30, 2014). Upon

date of enactment, for liquid fuel

derived from coal through the

Fischer-Tropsch process (“coal-toliquids”), to qualify as an alterative

fuel, the fuel must be produced at

a facility that separates and

sequesters at least 50% of its CO2

emissions. The sequestration

requirement increases to 75% on

December 31, 2011. This 75%

standard may be implemented

prior to December 31, 2011,

subject to certification of feasibility.

The proposal further provides that

biomass gas versions of liquefied

petroleum gas and liquefied or

compressed natural gas, and

aviation fuels qualify for the credit.

The proposal is estimated to cost

$569 million over 10 years.

Fuel ethanol qualifies for excise tax

credits (or refunds), at the rate of

$0.51/gallon of ethanol; and a small

producer tax credit of $0.10/gallon.

The excise tax credit was established

in the American Jobs Creation Act of

2004. Per the 2008 farm bill, starting

the year after which 7.5 billion gallons

of ethanol are produced and/or

imported in the United States, the

value of the credit is reduced to

$0.45/gallon. The credit is currently

authorized through December 31,

2010

Sec. 210. This bill extends VEETC,

including the 10¢/gallon small

producer credit, through

12/31/2011. The estimated cost of

this proposal is $4.978 billion over

10 years.

[IRC§40, 6426, §6427]].

CRS-17

House Bill H.R. 6899

No provision.

Comments

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Small Producer

Tax Credit for

Fuel Ethanol

As noted above, in the case of

ethanol, the tax code also provides a

small producer tax credit of

$0.10/gallon, up to 15 million gallons

[IRC §40A].

Sec. 211. S. 3478 creates a new

small producer alcohol credit of 10

cents per gallon for facilities that

produce ethanol through a process

that does not use a fossil-based

resource. The credit is available

through December 31, 2011. The

estimated cost of this proposal is

$210 million over 10 years.

No provision.

Biodiesel

Blender’s Tax

Credit and Small

Biodiesel

Producer Credit

Refundable income tax credits and

excise tax credits are available for the

blending and production of biodiesel.

The basic credit is $0.50/gallon

($1.00/gallon for virgin or “agri”

biodiesel) and is also provided on a

volumetric basis. Production of

biodiesel by a small producer qualifies

for a $0.10/gallon credit up to 15

million gallons. These credits expire at

the end of 2008 [IRC §40A, 6426, and

6427].

Sec. 202 & 203.The bill extends for

three years (through December

31, 2011) the $1.00 per gallon

production tax credits for biodiesel

and the small biodiesel producer

credit of 10¢ per gallon. The bill

extends the $1.00 tax credit for

virgin biodiesel to recycled

biodiesel. Biodiesel that is

imported and sold for export will

not be eligible for the credit

effective May 15, 2008. The

combined cost of the biodiesel

proposal and the renewable diesel

provision (please see the next

item) is $2.256 billion over 10

years.

Sec. 822 & 823. The bill extends

for one year (through December

31, 2009) the $1.00/gallon

production tax credits for biodiesel

and the small biodiesel producer

credit of 10 ¢/ gallon, but does not

eliminate the current-law disparity

in credit for biodiesel and agribiodiesel. The bill also clarifies that

certain fuel-related tax credits are

designed to provide an incentive

for U.S. production, which would

apply to claims for credit or

payment made after May 15. The

combined cost of this proposal and

the renewable diesel proposal

(discussed in the next item below)

is estimated be $401 million over

10 years.

CRS-18

Comments

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Comments

Renewable Diesel

Production Tax

Credit

Refundable income tax credits and

excise tax credits are available for the

blending and production of renewable

biodiesel. The basic credit is

$1.00/gallon. Renewable diesel is

diesel fuel derived from biomass using

a “thermal depolymerization

process”(TDP). TDP is a new

technology that uses heat and

pressure to change the molecular

structure of wastes, plastics, and food

wastes such as poultry carcasses and

offal, and turn it into a boiler fuel. In

order to qualify for the $1.00/gallon

tax credits, the fuel must meet EPA’s

requirements for fuels and fuels

additives under §211 of the Clean Air

Act, and the requirements of the

ASTM D975 and D396. These credits

expire at the end of 2008 [IRC §40A,

6426, and 6427].

Sec. 202. The Senate bill extends

for three years (through

December 31, 2011) the $1.00 per

gallon production tax credit for

diesel fuel created from biomass. It

eliminates the requirement that

renewable diesel fuel must be

produced using a thermal

depolymerization process. As a

result, the credit will be available

for any diesel fuel created from

biomass without regard to the

process used so long as the fuel is

usable as home heating oil, as a fuel

in vehicles, or as aviation jet fuel.

The bill caps the $1 per gallon

production credit for renewable

diesel for facilities that co-process

with petroleum to the first 60

million gallons per facility. The

estimated cost of the combined

biodiesel proposal (previous item)

and this proposal is $2.256 billion

over 10 years.

Sec. 822. The bill extends for one

year (through December 31, 2009)

the $1.00 per gallon production

tax credit for diesel fuel created

from biomass. It also eliminates the

requirement that renewable diesel

fuel must be produced using a

thermal depolymerization process.

As a result, the credit will be

available for any diesel fuel created

from biomass without regard to

the process used so long as the

fuel is usable as home heating oil,

as a fuel in vehicles, or as aviation

jet fuel. The bill also clarifies that

the $1 per gallon production credit

for renewable diesel is limited to

diesel fuel that is produced solely

from biomass. Diesel fuel that is

created by co-processing biomass

with other feedstocks (e.g.,

petroleum) will be eligible for the

50¢/gallon tax credit for alternative

fuels. This provision is estimated to

raise $77 million over 10 years.

Some oil companies are adding

animal fat or vegetable (soybean)

oil as feedstocks along with crude

oil in a conventional refinery to

produce such fuels. Unlike

biodiesel which blends the

soybean oil ester after the diesel

is made, the oil is added before as

a feedstock. The resulting “coproduced fuel” comes out of the

refinery as part of the regular

diesel fuel mix, distributed

through pipelines (unlike

biodiesel), and sold as regular

diesel fuel.

Tax Shelters for

Alternative Fuels

Under current tax law, publicly traded

partnerships are treated as

corporations for tax purposes, unless

they have passive income (dividend,

rents, etc.) and income from certain

mineral exploration and production,

timber, and other activities [IRC

§7704].

Sec. 209. The bill allows publicly

traded partnerships to treat

income derived from the

transportation and storage of

certain alternative fuels as

“qualifying income” for income

tests used to determine whether

an entity qualifies as a publicly

traded partnership. Currently, 90%

of the income of a publicly traded

partnership must be qualifying

income, or the entity is taxed as a

corporation, to which higher rates

apply. The bill covers fuels such as

alcohol fuels and mixtures,

biodiesel fuels and mixtures, and

Sec. 830. This provision appears to

be the same as the Senate bill’s

provision. The estimated cost of

this proposal is $76 million over 10

years.

The measure ensures that income

derived from those fuels would

receive treatment similar to

income from oil and gas.

CRS-19

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

alternative fuels and mixtures. The

bill applies to taxable years that

begin after the measure is enacted.

The estimated cost of this proposal

is $78 million over 10 years.

Miscellaneous Transportation and Energy Provisions

Truck Idling Units

and Advanced

Insulation

A 12% tax is imposed on the sale

price of the first retail sale of (1) truck

bodies and chassis suitable for use

with a vehicle having a gross vehicle

weight of over 33,000 pounds, (2)

truck trailer and semitrailer bodies

and chassis suitable for use with a

vehicle having a gross vehicle weight

over 26,000 pounds, and (3) tractors

of the kind chiefly used for highway

transportation in combination with a

trailer or semitrailer. The retail tax

also generally applies to the price and

installation of parts or accessories

sold on or in connection with, or with

the sale of, a taxable vehicle [IRC

§4051].

Sec. 206. The bill provides an

exemption from the heavy vehicle

excise tax for the cost of idling

reduction units, such as auxiliary

power units (APUs), which are

designed to eliminate the need for

truck engine idling (e.g., to provide

heating, air conditioning, or

electricity) at vehicle rest stops or

other temporary parking locations.

The bill also exempts the

installation of advanced insulation,

which can reduce the need for

energy consumption by

transportation vehicles carrying

refrigerated cargo. Both of these

exemptions are intended to reduce

carbon emissions in the

transportation sector. The

estimated cost of this proposal is

$95 million over 10 years.

Sec. 825. This provision is identical

to that in S. 3478.

Transportation

Fringe Benefits

Gross income includes any income

from whatever source, including

income in kind, such as fringe benefits,

unless specifically excluded. Certain

employer-provided transportation

fringe benefits are excluded up to

certain amounts: up to $220/month

for parking and van pool benefits, and

up to $115/month of transit passes

[IRC §132].

No provision.

Sec. 827. The bill allows employers

to provide employees that

commute to work using a bicycle

limited fringe benefits to offset the

costs of such commuting (e.g.,

bicycle storage). This proposal is

estimated to cost $10 million over

10 years.

CRS-20

Comments

Provision

Recycling

Property

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Comments

Investments in recycling property

receive no special tax incentives and

are generally treated the same as

other assets under the Modified

Accelerated Depreciation System,

which allows for shortened recovery

periods, bonus depreciation, and

expensing under certain conditions

[IRC §168, 179].

Sec. 308. S. 3478 allows recycling

property to qualify for the 50%

special depreciation allowance,

basically equivalent to expensing of

1/2 of the investment in such

property. The estimated cost of

this proposal is $162 million over

10 years.

No Provision.

Under the Crude Oil Windfall

Profits Tax of 1980 (P.L. 96-223,

recycling equipment qualified for a

10% investment tax credit, but

these generally expired at the end

of 1982.

Tax Increases (Offsets) and Other Provisions

Domestic

Activities

Manufacturing

Deduction under

the Corporate

Income Tax

Beginning on 1-1-2005, qualified

“manufacturing” businesses in the

United States can claim a deduction

for a certain percentage of their

taxable incomes, subject to certain

limits. The deduction was initially 3%,

is now 6%, and is scheduled to

increase to 9% in 2010. The definition

of a domestic manufacturing activity is

very broad and generally includes all

energy market activities except for

the transmission and distribution of

electricity and natural gas. In

particular, it includes oil and gas

extraction and production [IRC §199].

Sec. 501. The bill repeals the IRC

§199 manufacturing deduction for

major integrated and state-owned

oil and gas companies, beginning on

1-1-2009. It maintains the 6%

deduction rate for other oil and

gas companies. The proposal is

estimated to raise $13.904 billion

over 10 years.

Sec. 851. The provision in H.R.

5351 is identical to that in S. 3478.

The proposal is estimated to raise

$13.904 billion over 10 years.

The inclusion of state-owned

companies is intended to extend

the denial of the §199 deduction

to foreign owned oil companies

(such as CITGO, which is owned

by the government of Venezuela).

Such companies are large but are

not “integrated” oil companies—

they do not produce sufficient

amounts of crude oil—and thus

would otherwise continue to

receive the deduction.

Excise Taxes on

Oil and Natural

Gas

At the federal level there is no excise

tax on domestic (or imported) oil and

natural gas, including oil and gas

produced from the Outer Continental

Shelf. Oil and gas companies are

assessed excise taxes on oil purchased

for refining (a 5¢/barrel tax that funds

the Oil Spill Liability Trust Fund), and

motor fuels excise taxes on refined

petroleum products that fund various

transportation and environmental

trust funds. In addition, oil companies

pay severance taxes to some states

where they extract minerals, and pay

royalties (which are factor payments,

Sec. 502. The proposal establishes

a 13% excise tax on the removal

price of any taxable crude oil or

natural gas produced from federal

submerged lands on the OCS in

the Gulf of Mexico pursuant to a

federal OCS lease. The removal

price is defined as the amount for

which the barrel of taxable crude

oil or barrel-of-oil equivalent of

natural gas is sold by the taxpayer.

In the case of sales between

related parties, the removal price

is the constructive sales price of

the oil or natural gas. The proposal

No provision.

A type of windfall profit tax on

domestic crude oil production

was in effect from April 1980 to

August 1988. This tax, which was

actually an excise tax, not a

profits or income tax, was part of

a compromise between the

Carter Administration and the

Congress over the decontrol of

crude oil prices. It is discussed

and analyzed in detail in CRS

Report RL33305, The Crude Oil

Windfall Profit Tax of the 1980s:

Implications for Current Energy

Policy.

CRS-21

Provision

Foreign Tax

Credits on Oil

Companies

CRS-22

Current Law

Senate Bill S. 3478

not taxes) to landowners including the

federal government [IRC §4041,

§4081, §4611].

allows as a credit against the excise

tax an amount equal to royalties

paid under federal law with respect

to taxable crude oil or natural gas,

with the credit not to exceed the

tax paid. The excise tax would

apply to crude oil or natural gas

removed after the date of

enactment. The proposal is

estimated to raise $11.663 billion

over 10 years.

United States businesses operating

abroad generally pay taxes to foreign

governments as well as United States

taxes, which are generally assessed on

worldwide income. A tax credit is

allowed, subject to various limitations,

against U.S. taxes for the amounts of

these foreign taxes. Domestic oil

companies operating abroad are also

subject to additional limitation on

their foreign oil and gas extraction

income (“FOGEI”) and foreign oil

related income (“FORI”) [IRC §§901907].

Sec. 503. The proposal eliminates

the distinction between FOGEI and

FORI. FOGEI relates to upstream

production to the point the oil

leaves the wellhead. FORI is

defined as all downstream

processes once the oil leaves the

wellhead (i.e., transportation,

refining). Currently, FOGEI and

FORI have separate foreign tax

credit limitations. This proposal

combines FOGEI and FORI into

one foreign oil basket and applies

the existing FOGEI limitation. The

proposal is estimated to raise

$2.23 billion over 10 years.

House Bill H.R. 6899

Comments

Sec. 852. The House bill, which is

broader than the Senate bill)

makes two specific changes to the

calculation of such income. It bars

the use of two methodologies

established under a 2004 IRS field

directive for calculating FOGEI and

FORI, and would instead require

companies to use an “arm’s length”

price by using the independent

market value at the point nearest

to the well at which an

independent market exists when

calculating such income.

Multinational oil companies

currently allocate their income

between FOGEI and FORI, which

are subject to different taxation

rules.

The bill also requires companies,

when they pay foreign taxes that

are limited to oil and gas

companies, to treat the entire

amount of their taxes on oil and

gas extraction as applying to their

FOGEI, rather than dividing the

taxes between their FOGEI and

their FORI. Because this provision

would subject such income to the

FOGEI limitation for foreign-tax

credits, it would limit the credits

claimed, and thus increase the

revenue raised. This provision is

effective for tax years that begin

after the measure’s enactment

Provision

Current Law

Senate Bill S. 3478

House Bill H.R. 6899

Comments

date. These changes would raise an

estimated $3.84 billion over 10

years.

Oil Spill Liability

Trust Fund Excise

Tax

A 5¢-per-barrel excise tax is imposed

on domestic and imported crude oil

and petroleum products. The

revenues from this tax go into the Oil

Spill Liability Trust Fund and are used

to clean up offshore oil spills [IRC

§4611].

Sec. 505. The proposal extends the

oil spill tax through December 31,

2017, increases the per barrel tax

from 5 cents to 12 cents, and

repeals the requirement that the

tax be suspended when the

unobligated balance exceeds $2.7

billion. The proposal is estimated

to raise $3.4 billion over 10 years.

No provision.

Although the tax had expired at

the end of 1994, Congress

reinstated the 5¢ per barrel tax

effective on April 1, 2006

(EPACT05, P.L. 109-58). The tax

will remain in effect from this date

until the Oil Spill Liability Trust

Fund reaches an unobligated

balance of $2.7 billion. Thereafter,

the oil spill tax will be reinstated

30 days after the last day of any

calendar quarter for which the

IRS estimates that, as of the close

of that quarter, the unobligated

balance of the Oil Spill Liability

Trust Fund is less than $2 billion.

The oil spill tax will cease to apply

after December 31, 2014,

regardless of the Oil Spill Trust

Fund balance.

Estimated

Corporate Tax

Payments

Under current law, corporations with

assets of at least $1 billion are

required to adjust their quarterly

estimated corporate tax payments for

certain quarters, including for July,

August, and September of 2013, which

is the last quarter of FY2013. Affected

firms reduce their payments in the

following quarter by a corresponding

amount.

No provision.

Sec. 853. The bill further increases

the payments due in July, August,

or September 2013 by an

additional 40 percentage points,

but only for companies that had

any significant income for the

preceding taxable year from the

extraction, production, processing,

refining, transportation,

distribution, or retail sale of fuel or

electricity.

These provisions are generally

used to shift anticipated revenue

from one quarter to another in

order to make measures comply

with the pay-as-you-go budget

rule.

Sec. 403. The bill would allow

commercial fishermen and other

individuals whose livelihoods were

negatively impacted by the 1989

Exxon Valdez oil spill to average

any settlement or judgment-related

income that they receive in

No provision.

Income Received

as Damages from

the Exxon-Valdez

Litigation

CRS-23

Provision

Current Law

Senate Bill S. 3478

connection with pending litigation

in the federal courts over three

years for federal tax purposes. The

bill would also allow these

individuals to use these funds to

make contributions to retirement

accounts. The estimated cost of

this proposal is $49 million over 10

years.

CRS-24

House Bill H.R. 6899

Comments

Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478

Author Contact Information

(name redacted)

Specialist in Energy and Environmental Economics

/redacted/@crs.loc.gov, 7-....

Congressional Research Service

25

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