Energy Tax Incentives Act of 2003

        [Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 597 Introduced in Senate (IS)]

108th CONGRESS
1st Session
S. 597

To amend the Internal Revenue Code of 1986 to provide energy tax
incentives.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

March 11, 2003

Mr. Grassley (for himself, Mr. Baucus, Mr. Domenici, and Mr. Bingaman)
introduced the following bill; which was read twice and referred to the
Committee on Finance

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide energy tax
incentives.

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

SECTION 1. SHORT TITLE; ETC.

(a) Short Title.--This Act may be cited as the ``Energy Tax
Incentives Act of 2003''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this division an amendment or repeal is expressed
in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:

Sec. 1. Short title; etc.
TITLE I--EXTENSION AND MODIFICATION OF RENEWABLE ELECTRICITY PRODUCTION
TAX CREDIT

Sec. 101. Three-year extension of credit for producing electricity from
wind and poultry waste.
Sec. 102. Credit for electricity produced from biomass.
Sec. 103. Credit for electricity produced from swine and bovine waste
nutrients, geothermal energy, and solar
energy.
Sec. 104. Treatment of persons not able to use entire credit.
Sec. 105. Credit for electricity produced from small irrigation power.
Sec. 106. Credit for electricity produced from municipal biosolids and
recycled sludge.
TITLE II--ALTERNATIVE MOTOR VEHICLES AND FUELS INCENTIVES

Sec. 201. Alternative motor vehicle credit.
Sec. 202. Modification of credit for qualified electric vehicles.
Sec. 203. Credit for installation of alternative fueling stations.
Sec. 204. Credit for retail sale of alternative fuels as motor vehicle
fuel.
Sec. 205. Small ethanol producer credit.
Sec. 206. All alcohol fuels taxes transferred to Highway Trust Fund.
Sec. 207. Increased flexibility in alcohol fuels tax credit.
Sec. 208. Incentives for biodiesel.
Sec. 209. Credit for taxpayers owning commercial power takeoff
vehicles.
TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

Sec. 301. Credit for construction of new energy efficient home.
Sec. 302. Credit for energy efficient appliances.
Sec. 303. Credit for residential energy efficient property.
Sec. 304. Credit for business installation of qualified fuel cells and
stationary microturbine power plants.
Sec. 305. Energy efficient commercial buildings deduction.
Sec. 306. Allowance of deduction for qualified new or retrofitted
energy management devices.
Sec. 307. Three-year applicable recovery period for depreciation of
qualified energy management devices.
Sec. 308. Energy credit for combined heat and power system property.
Sec. 309. Credit for energy efficiency improvements to existing homes.
Sec. 310. Allowance of deduction for qualified new or retrofitted water
submetering devices.
Sec. 311. Three-year applicable recovery period for depreciation of
qualified water submetering devices.
TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements
in Existing Coal-Based Electricity Generation Facilities

Sec. 401. Credit for production from a qualifying clean coal technology
unit.
Subtitle B--Incentives for Early Commercial Applications of Advanced
Clean Coal Technologies

Sec. 411. Credit for investment in qualifying advanced clean coal
technology.
Sec. 412. Credit for production from a qualifying advanced clean coal
technology unit.
Subtitle C--Treatment of Persons Not Able To Use Entire Credit

Sec. 421. Treatment of persons not able to use entire credit.
TITLE V--OIL AND GAS PROVISIONS

Sec. 501. Oil and gas from marginal wells.
Sec. 502. Natural gas gathering lines treated as 7-year property.
Sec. 503. Expensing of capital costs incurred in complying with
Environmental Protection Agency sulfur
regulations.
Sec. 504. Environmental tax credit.
Sec. 505. Determination of small refiner exception to oil depletion
deduction.
Sec. 506. Marginal production income limit extension.
Sec. 507. Amortization of geological and geophysical expenditures.
Sec. 508. Amortization of delay rental payments.
Sec. 509. Study of coal bed methane.
Sec. 510. Extension and modification of credit for producing fuel from
a nonconventional source.
Sec. 511. Natural gas distribution lines treated as 15-year property.
TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

Sec. 601. Ongoing study and reports regarding tax issues resulting from
future restructuring decisions.
Sec. 602. Modifications to special rules for nuclear decommissioning
costs.
Sec. 603. Treatment of certain income of cooperatives.
Sec. 604. Sales or dispositions to implement Federal Energy Regulatory
Commission or State electric restructuring
policy.
Sec. 605. Treatment of certain development income of cooperatives.
TITLE VII--ADDITIONAL PROVISIONS

Sec. 701. Extension of accelerated depreciation and wage credit
benefits on Indian reservations.
Sec. 702. Study of effectiveness of certain provisions by GAO.
Sec. 703. Credit for production of Alaska natural gas.
Sec. 704. Sale of gasoline and diesel fuel at duty-free sales
enterprises.
Sec. 705. Clarification of excise tax exemptions for agricultural
aerial applicators.
Sec. 706. Modification of rural airport definition.
Sec. 707. Exemption from ticket taxes for transportation provided by
seaplanes.

TITLE I--EXTENSION AND MODIFICATION OF RENEWABLE ELECTRICITY PRODUCTION
TAX CREDIT

SEC. 101. THREE-YEAR EXTENSION OF CREDIT FOR PRODUCING ELECTRICITY FROM
WIND AND POULTRY WASTE.

(a) In General.--Subparagraphs (A) and (C) of section 45(c)(3)
(relating to qualified facility), as amended by section 603(a) of the
Job Creation and Worker Assistance Act of 2002, are each amended by
striking ``January 1, 2004'' and inserting ``January 1, 2007''.
(b) Effective Date.--The amendments made by this section shall
apply to electricity sold after the date of the enactment of this Act,
in taxable years ending after such date.

SEC. 102. CREDIT FOR ELECTRICITY PRODUCED FROM BIOMASS.

(a) Extension and Modification of Placed-In-Service Rules.--
Paragraph (3) of section 45(c) is amended--
(1) by striking subparagraph (B) and inserting the
following new subparagraph:
``(B) Closed-loop biomass facility.--
``(i) In general.--In the case of a
facility using closed-loop biomass to produce
electricity, the term `qualified facility'
means any facility--
``(I) owned by the taxpayer which
is originally placed in service after
December 31, 1992, and before January
1, 2007, or
``(II) owned by the taxpayer which
is originally placed in service before
January 1, 1993, and modified to use
closed-loop biomass to co-fire with
coal or other biomass before January 1,
2007, as approved under the Biomass
Power for Rural Development Programs or
under a pilot project of the Commodity
Credit Corporation as described in 65
Fed. Reg. 63052.
``(ii) Special rules.--In the case of a
qualified facility described in clause
(i)(II)--
``(I) the 10-year period referred
to in subsection (a) shall be treated
as  beginning no earlier than the date
of the enactment of this subclause, and
``(II) if the owner of such
facility is not the producer of the
electricity, the person eligible for
the credit allowable under subsection
(a) is the lessee or the operator of
such facility.'', and
(2) by adding at the end the following new subparagraph:
``(D) Biomass facility.--
``(i) In general.--In the case of a
facility using biomass (other than closed-loop
biomass) to produce electricity, the term
`qualified facility' means any facility owned
by the taxpayer which is originally placed in
service before January 1, 2005.
``(ii) Special rule for posteffective date
facilities.--In the case of any facility
described in clause (i) which is placed in
service after the date of the enactment of this
clause, the 3-year period beginning on the date
the facility is originally placed in service
shall be substituted for the 10-year period in
subsection (a)(2)(A)(ii).
``(iii) Special rules for preeffective date
facilities.--In the case of any facility
described in clause (i) which is placed in
service before the date of the enactment of
this clause--
``(I) subsection (a)(1) shall be
applied by substituting `1.0 cents' for
`1.5 cents', and
``(II) the 3-year period beginning
after the date of the enactment of this
subparagraph, shall be substituted for
the 10-year period in subsection
(a)(2)(A)(ii).
``(iv) Credit eligibility.--In the case of
any facility described in clause (i), if the
owner of such facility is not the producer of
the electricity, the person eligible for the
credit allowable under subsection (a) is the
lessee or the operator of such facility.''.
(b) Definition of Biomass.--
(1) In general.--Section 45(c)(1) (defining qualified
energy resources) is amended--
(A) by striking ``and'' at the end of subparagraph
(B),
(B) by striking the period at the end of
subparagraph (C) and inserting ``, and'', and
(C) by adding at the end the following new
subparagraph:
``(D) biomass (other than closed-loop biomass).''.
(2) Biomass defined.--Section 45(c) (relating to
definitions) is amended by adding at the end the following new
paragraph:
``(5) Biomass.--The term `biomass' means any solid,
nonhazardous, cellulosic waste material which is segregated
from other waste materials and which is derived from--
``(A) any of the following forest-related
resources: mill residues, precommercial thinnings,
slash, and brush, but not including old-growth timber
(other than old-growth timber which has been permitted
or contracted for removal by any appropriate Federal
authority through the National Environmental Policy Act
or by any appropriate State authority),
``(B) solid wood waste materials, including waste
pallets, crates, dunnage, manufacturing and
construction wood wastes (other than pressure-treated,
chemically-treated, or painted wood wastes), and
landscape or right-of-way tree trimmings, but not
including municipal solid waste (garbage), gas derived
from the biodegradation of solid waste, or paper that
is commonly recycled, or
``(C) agriculture sources, including orchard tree
crops, vineyard, grain, legumes, sugar, and other crop
by-products or residues.''.
(c) Coordination With Section 29.--Section 45(c) (relating to
definitions) is amended by adding at the end the following new
paragraph:
``(6) Coordination with section 29.--The term `qualified
facility' shall not include any facility the production from
which is taken into account in determining any credit under
section 29 for the taxable year or any prior taxable year.''.
(d) Clerical Amendments.--
(1) The heading for subsection (c) of section 45 is amended
by inserting ``and Special Rules'' after ``Definitions''.
(2) The heading for subsection (d) of section 45 is amended
by inserting ``Additional'' before ``Definitions''.
(e) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to electricity sold
after the date of the enactment of this Act, in taxable years
ending after such date.
(2) Certain biomass facilities.--With respect to any
facility described in section 45(c)(3)(D)(i) of the Internal
Revenue Code of 1986, as added by this section, which is placed
in service before the date of the enactment of this Act, the
amendments made by this section shall apply to electricity sold
after the date of the enactment of this Act, in taxable years
ending after such date.

SEC. 103. CREDIT FOR ELECTRICITY PRODUCED FROM SWINE AND BOVINE WASTE
NUTRIENTS, GEOTHERMAL ENERGY, AND SOLAR ENERGY.

(a) Expansion of Qualified Energy Resources.--
(1) In general.--Section 45(c)(1) (defining qualified
energy resources), as amended by this Act, is amended by
striking ``and'' at the end of subparagraph (C), by striking
the period at the end of subparagraph (D) and inserting a
comma, and by adding at the end the following new
subparagraphs:
``(E) swine and bovine waste nutrients,
``(F) geothermal energy, and
``(G) solar energy.''.
(2) Definitions.--Section 45(c) (relating to definitions
and special rules), as amended by this Act, is amended by
redesignating paragraph (6) as paragraph (8) and by inserting
after paragraph (5) the following new paragraphs:
``(6) Swine and bovine waste nutrients.--The term `swine
and bovine waste nutrients' means swine and bovine manure and
litter, including bedding material for the disposition of
manure.
``(7) Geothermal energy.--The term `geothermal energy'
means energy derived from a geothermal deposit (within the
meaning of section 613(e)(2)).''.
(b) Extension and Modification of Placed-In-Service
Rules.--Section 45(c)(3) (relating to qualified facility), as
amended by this Act, is amended by adding at the end the
following new subparagraphs:
``(E) Swine and bovine waste nutrients facility.--
In the case of a facility using swine and bovine waste
nutrients to produce electricity, the term `qualified
facility' means any facility owned by the taxpayer
which is originally placed in service after the date of
the enactment of this subparagraph and before January
1, 2007.
``(F) Geothermal or solar energy facility.--
``(i) In general.--In the case of a
facility using geothermal or solar energy to
produce electricity, the term `qualified
facility' means any facility owned by the
taxpayer which is originally placed in service
after the date of the enactment of this clause
and before January 1, 2007.
``(ii) Special rule.--In the case of any
facility described in clause (i), the 5-year
period beginning on the date the facility was
originally placed in service shall be
substituted for the 10-year period in
subsection (a)(2)(A)(ii).''.
(c) Effective Date.--The amendments made by this section shall
apply to electricity sold after the date of the enactment of this Act,
in taxable years ending after such date.

SEC. 104. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

(a) In General.--Section 45(d) (relating to additional definitions
and special rules), as amended by this Act, is amended by adding at the
end the following new paragraph:
``(8) Treatment of persons not able to use entire credit.--
``(A) Allowance of credit.--
``(i) In general.--Except as otherwise
provided in this subsection--
``(I) any credit allowable under
subsection (a) with respect to a
qualified facility owned by a person
described in clause (ii) may be
transferred or used as provided in this
paragraph, and
``(II) the determination as to
whether the credit is allowable shall
be made without regard to the tax-
exempt status of the person.
``(ii) Persons described.--A person is
described in this clause if the person is--
``(I) an organization described in
section 501(c)(12)(C) and exempt from
tax under section 501(a),
``(II) an organization described in
section 1381(a)(2)(C),
``(III) a public utility (as
defined in section 136(c)(2)(B)), which
is exempt from income tax under this
subtitle,
``(IV) any State or political
subdivision thereof, the District of
Columbia, any possession of the United
States, or any agency or
instrumentality of any of the
foregoing, or
``(V) any Indian tribal government
(within the meaning of section 7871) or
any agency or instrumentality thereof.
``(B) Transfer of credit.--
``(i) In general.--A person described in
subparagraph (A)(ii) may transfer any credit to
which subparagraph (A)(i) applies through an
assignment to any other person not described in
subparagraph (A)(ii). Such transfer may be
revoked only with the consent of the Secretary.
``(ii) Regulations.--The Secretary shall
prescribe such regulations as necessary to
ensure that any credit described in clause (i)
is claimed once and not reassigned by such
other person.
``(iii) Transfer proceeds treated as
arising from essential government function.--
Any proceeds derived by a person described in
subclause (III), (IV), or (V) of subparagraph
(A)(ii) from the transfer of any credit under
clause (i) shall be treated as arising from the
exercise of an essential government function.
``(C) Use of credit as an offset.--Notwithstanding
any other provision of law, in the case of a person
described in subclause (I), (II), or (V) of
subparagraph (A)(ii), any credit to which subparagraph
(A)(i) applies may be applied by such person, to the
extent provided by the Secretary of Agriculture, as a
prepayment of any loan, debt, or other obligation the
entity has incurred under subchapter I of chapter 31 of
title 7 of the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq.), as in effect on the date of the
enactment of the Energy Tax Incentives Act of 2003.
``(D) Credit not income.--Any transfer under
subparagraph (B) or use under subparagraph (C) of any
credit to which subparagraph (A)(i) applies shall not
be treated as income for purposes of section
501(c)(12).
``(E) Treatment of unrelated persons.--For purposes
of subsection (a)(2)(B), sales among and between
persons described in subparagraph (A)(ii) shall be
treated as sales between unrelated parties.''.
(b) Credits Not Reduced by Tax-Exempt Bonds or Certain Other
Subsidies.--Section 45(b)(3) (relating to credit reduced for grants,
tax-exempt bonds, subsidized energy financing, and other credits) is
amended--
(1) by striking clause (ii),
(2) by redesignating clauses (iii) and (iv) as clauses (ii)
and (iii),
(3) by inserting ``(other than any loan, debt, or other
obligation incurred under subchapter I of chapter 31 of title 7
of the Rural Electrification Act of 1936 (7 U.S.C. 901 et
seq.), as in effect on the  date of the enactment of the Energy
Tax Incentives Act of 2003)'' after ``project'' in clause (ii) (as so
redesignated),
(4) by adding at the end the following new sentence: ``This
paragraph shall not apply with respect to any facility
described in subsection (c)(3)(B)(i)(II).'', and
(5) by striking ``tax-exempt bonds,'' in the heading and
inserting ``certain''.
(c) Effective Date.--The amendments made by this section shall
apply to electricity sold after the date of the enactment of this Act,
in taxable years ending after such date.

SEC. 105. CREDIT FOR ELECTRICITY PRODUCED FROM SMALL IRRIGATION POWER.

(a) In General.--Section 45(c)(1) (defining qualified energy
resources), as amended by this Act, is amended by striking ``and'' at
the end of subparagraph (F), by striking the period at the end of
subparagraph (G) and inserting ``, and'', and by adding at the end the
following new subparagraph:
``(H) small irrigation power.''.
(b) Qualified Facility.--Section 45(c)(3) (relating to qualified
facility), as amended by this Act, is amended by adding at the end the
following new subparagraph:
``(G) Small irrigation power facility.--In the case
of a facility using small irrigation power to produce
electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally
placed in service after date of the enactment of this
subparagraph and before January 1, 2007.''.
(c) Definition.--Section 45(c), as amended by this Act, is amended
by redesignating paragraph (8) as paragraph (9) and by inserting after
paragraph (7) the following new paragraph:
``(8) Small irrigation power.--The term `small irrigation
power' means power--
``(A) generated without any dam or impoundment of
water through an irrigation system canal or ditch, and
``(B) the installed capacity of which is less than
5 megawatts.''.
(d) Effective Date.--The amendments made by this section shall
apply to electricity sold after the date of the enactment of this Act,
in taxable years ending after such date.

SEC. 106. CREDIT FOR ELECTRICITY PRODUCED FROM MUNICIPAL BIOSOLIDS AND
RECYCLED SLUDGE.

(a) In General.--Section 45(c)(1) (defining qualified energy
resources), as amended by this Act, is amended by striking ``and'' at
the end of subparagraph (G), by striking the period at the end of
subparagraph (H), and by adding at the end the following new
subparagraphs:
``(I) municipal biosolids, and
``(J) recycled sludge.''.
(b) Qualified Facilities.--Section 45(c)(3) (relating to qualified
facility), as amended by this Act, is amended by adding at the end the
following new subparagraphs:
``(H) Municipal biosolids facility.--In the case of
a facility using municipal biosolids to produce
electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally
placed in service after the date of the enactment of
this subparagraph and before January 1, 2007.
``(I) Recycled sludge facility.--
``(i) In general.--In the case of a
facility using recycled sludge to produce
electricity, the term `qualified facility'
means any facility owned by the taxpayer which
is originally placed in service before January
1, 2007.
``(ii) Special rule.--In the case of a
qualified facility described in clause (i), the
10-year period referred to in subsection (a)
shall be treated as beginning no earlier than
the date of the enactment of this
subparagraph.''.
(c) Definitions.--Section 45(c), as amended by this Act, is amended
by redesignating paragraph (9) as paragraph (11) and by inserting after
paragraph (8) the following new paragraphs:
``(9) Municipal biosolids.--The term `municipal biosolids'
means the residue or solids removed by a municipal wastewater
treatment facility.
``(10) Recycled sludge.--
``(A) In general.--The term `recycled sludge' means
the recycled residue byproduct created in the treatment
of commercial, industrial, municipal, or navigational
wastewater.
``(B) Recycled.--The term `recycled' means the
processing of residue into a marketable product, but
does not include incineration for the purpose of volume
reduction.''.
(d) Effective Date.--The amendments made by this section shall
apply to electricity sold after the date of the enactment of this Act,
in taxable years ending after such date.

TITLE II--ALTERNATIVE MOTOR VEHICLES AND FUELS INCENTIVES

SEC. 201. ALTERNATIVE MOTOR VEHICLE CREDIT.

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

``SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an amount
equal to the sum of--
``(1) the new qualified fuel cell motor vehicle credit
determined under subsection (b),
``(2) the new qualified hybrid motor vehicle credit
determined under subsection (c), and
``(3) the new qualified alternative fuel motor vehicle
credit determined under subsection (d).
``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
``(1) In general.--For purposes of subsection (a), the new
qualified fuel cell motor vehicle credit determined under this
subsection with respect to a new qualified fuel cell motor vehicle
placed in service by the taxpayer during the taxable year is--
``(A) $4,000, if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
``(B) $10,000, if such vehicle has a gross vehicle
weight rating of more than 8,500 pounds but not more
than 14,000 pounds,
``(C) $20,000, if such vehicle has a gross vehicle
weight rating of more than 14,000 pounds but not more
than 26,000 pounds, and
``(D) $40,000, if such vehicle has a gross vehicle
weight rating of more than 26,000 pounds.
``(2) Increase for fuel efficiency.--
``(A) In general.--The amount determined under
paragraph (1)(A) with respect to a new qualified fuel
cell motor vehicle which is a passenger automobile or
light truck shall be increased by--
``(i) $1,000, if such vehicle achieves at
least 150 percent but less than 175 percent of
the 2002 model year city fuel economy,
``(ii) $1,500, if such vehicle achieves at
least 175 percent but less than 200 percent of
the 2002 model year city fuel economy,
``(iii) $2,000, if such vehicle achieves at
least 200 percent but less than 225 percent of
the 2002 model year city fuel economy,
``(iv) $2,500, if such vehicle achieves at
least 225 percent but less than 250 percent of
the 2002 model year city fuel economy,
``(v) $3,000, if such vehicle achieves at
least 250 percent but less than 275 percent of
the 2002 model year city fuel economy,
``(vi) $3,500, if such vehicle achieves at
least 275 percent but less than 300 percent of
the 2002 model year city fuel economy, and
``(vii) $4,000, if such vehicle achieves at
least 300 percent of the 2002 model year city
fuel economy.
``(B) 2002 model year city fuel economy.--For
purposes of subparagraph (A), the 2002 model year city
fuel economy with respect to a vehicle shall be
determined in accordance with the following tables:
``(i) In the case of a passenger
automobile:
The 2002 model year city
``If vehicle inertia weight class                      fuel economy is:
is:
1,500 or 1,750 lbs............................            45.2 mpg
2,000 lbs.....................................            39.6 mpg
2,250 lbs.....................................            35.2 mpg
2,500 lbs.....................................            31.7 mpg
2,750 lbs.....................................            28.8 mpg
3,000 lbs.....................................            26.4 mpg
3,500 lbs.....................................            22.6 mpg
4,000 lbs.....................................            19.8 mpg
4,500 lbs.....................................            17.6 mpg
5,000 lbs.....................................            15.9 mpg
5,500 lbs.....................................            14.4 mpg
6,000 lbs.....................................            13.2 mpg
6,500 lbs.....................................            12.2 mpg
7,000 to 8,500 lbs............................            11.3 mpg.
``(ii) In the case of a light truck:

The 2002 model year city
``If vehicle inertia weight class                      fuel economy is:
is:
1,500 or 1,750 lbs............................            39.4 mpg
2,000 lbs.....................................            35.2 mpg
2,250 lbs.....................................            31.8 mpg
2,500 lbs.....................................            29.0 mpg
2,750 lbs.....................................            26.8 mpg
3,000 lbs.....................................            24.9 mpg
3,500 lbs.....................................            21.8 mpg
4,000 lbs.....................................            19.4 mpg
4,500 lbs.....................................            17.6 mpg
5,000 lbs.....................................            16.1 mpg
5,500 lbs.....................................            14.8 mpg
6,000 lbs.....................................            13.7 mpg
6,500 lbs.....................................            12.8 mpg
7,000 to 8,500 lbs............................            12.1 mpg.
``(C) Vehicle inertia weight class.--For purposes
of subparagraph (B), the term `vehicle inertia weight
class' has the same meaning as when defined in
regulations prescribed by the Administrator of the
Environmental Protection Agency for purposes of the
administration of title II of the Clean Air Act (42
U.S.C. 7521 et seq.).
``(3) New qualified fuel cell motor vehicle.--For purposes
of this subsection, the term `new qualified fuel cell motor
vehicle' means a motor vehicle--
``(A) which is propelled by power derived from one
or more cells which convert chemical energy directly
into electricity by combining oxygen with hydrogen fuel
which is stored on board the vehicle in any form and
may or may not require reformation prior to use,
``(B) which, in the case of a passenger automobile
or light truck--
``(i) for 2002 and later model vehicles,
has received a certificate of conformity under
the Clean Air Act and meets or exceeds the
equivalent qualifying California low emission
vehicle standard under section 243(e)(2) of the
Clean Air Act for that make and model year, and
``(ii) for 2004 and later model vehicles,
has received a certificate that such vehicle
meets or exceeds the Bin 5 Tier II emission
level established in regulations prescribed by
the Administrator of the Environmental
Protection Agency under section 202(i) of the
Clean Air Act for that make and model year
vehicle,
``(C) the original use of which commences with the
taxpayer,
``(D) which is acquired for use or lease by the
taxpayer and not for resale, and
``(E) which is made by a manufacturer.
``(c) New Qualified Hybrid Motor Vehicle Credit.--
``(1) In general.--For purposes of subsection (a), the new
qualified hybrid motor vehicle credit determined under this
subsection with respect to a new qualified hybrid motor vehicle
placed in service by the taxpayer during the taxable year is
the credit amount determined under paragraph (2).
``(2) Credit amount.--
``(A) In general.--The credit amount determined
under this paragraph shall be determined in accordance
with the following tables:
``(i) In the case of a new qualified hybrid
motor vehicle which is a passenger  automobile
or light truck and which provides the following percentage of the
maximum available power:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 4 percent but less than 10 percent...                $250
At least 10 percent but less than 20 percent..                $500
At least 20 percent but less than 30 percent..                $750
At least 30 percent...........................              $1,000.
``(ii) In the case of a new qualified
hybrid motor vehicle which is a heavy duty
hybrid motor vehicle and which provides the
following percentage of the maximum available
power:
``(I) If such vehicle has a gross
vehicle weight rating of not more than
14,000 pounds:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 20 percent but less than 30 percent..              $1,000
At least 30 percent but less than 40 percent..              $1,750
At least 40 percent but less than 50 percent..              $2,000
At least 50 percent but less than 60 percent..              $2,250
At least 60 percent...........................              $2,500.
``(II) If such vehicle has a gross
vehicle weight rating of more than
14,000 but not more than 26,000 pounds:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 20 percent but less than 30 percent..              $4,000
At least 30 percent but less than 40 percent..              $4,500
At least 40 percent but less than 50 percent..              $5,000
At least 50 percent but less than 60 percent..              $5,500
At least 60 percent...........................              $6,000.
``(III) If such vehicle has a gross
vehicle weight rating of more than
26,000 pounds:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 20 percent but less than 30 percent..              $6,000
At least 30 percent but less than 40 percent..              $7,000
At least 40 percent but less than 50 percent..              $8,000
At least 50 percent but less than 60 percent..              $9,000
At least 60 percent...........................             $10,000.
``(B) Increase for fuel efficiency.--
``(i) Amount.--The amount determined under
subparagraph (A)(i) with respect to a new
qualified hybrid motor vehicle which is a
passenger automobile or light truck shall be
increased by--
``(I) $500, if such vehicle
achieves at least 125 percent but less
than 150 percent of the 2002 model year
city fuel economy,
``(II) $1,000, if such vehicle
achieves at least 150 percent but less
than 175 percent of the 2002 model year
city fuel economy,
``(III) $1,500, if such vehicle
achieves at least 175 percent but less
than 200 percent of the 2002 model year
city fuel economy,
``(IV) $2,000, if such vehicle
achieves at least 200 percent but less
than 225 percent of the 2002 model year
city fuel economy,
``(V) $2,500, if such vehicle
achieves at least 225 percent but less
than 250 percent of the 2002 model year
city fuel economy, and
``(VI) $3,000, if such vehicle
achieves at least 250 percent of the
2002 model year city fuel economy.
``(ii) 2002 model year city fuel economy.--
For purposes of clause (i), the 2002 model year
city fuel economy with respect to a vehicle
shall be determined using the tables provided
in subsection (b)(2)(B) with respect to such
vehicle.
``(C) Increase for accelerated emissions
performance.--The amount determined under subparagraph
(A)(ii) with respect to an applicable heavy duty hybrid
motor vehicle shall be increased by the increased
credit amount determined in accordance with the
following tables:
``(i) In the case of a vehicle which has a
gross vehicle weight rating of not more than
14,000 pounds:

``If the model year is:             The increased credit amount is:
2003..........................................              $3,000
2004..........................................              $2,500
2005..........................................              $2,000
2006..........................................              $1,500.
``(ii) In the case of a vehicle which has a
gross vehicle weight rating of more than 14,000
pounds but not more than 26,000 pounds:

``If the model year is:             The increased credit amount is:
2003..........................................              $7,750
2004..........................................              $6,500
2005..........................................              $5,250
2006..........................................              $4,000.
``(iii) In the case of a vehicle which has
a gross vehicle weight rating of more than
26,000 pounds:

``If the model year is:             The increased credit amount is:
2003..........................................             $12,000
2004..........................................             $10,000
2005..........................................              $8,000
2006..........................................              $6,000.
``(D) Definitions.--
``(i) Applicable heavy duty hybrid motor
vehicle.--For purposes of subparagraph (C), the
term `applicable heavy duty hybrid motor
vehicle' means a heavy duty hybrid motor
vehicle which is powered by an internal
combustion or heat engine which is certified as
meeting the emission standards set in the
regulations prescribed by the Administrator of
the Environmental Protection Agency for 2007
and later model year diesel heavy duty engines,
or for 2008 and later model year ottocycle
heavy duty engines, as applicable.
``(ii) Heavy duty hybrid motor vehicle.--
For purposes of this paragraph, the term `heavy
duty hybrid motor vehicle' means a new
qualified hybrid motor vehicle which has a
gross vehicle weight rating of more than 10,000
pounds and draws propulsion energy from both of
the following onboard sources of stored energy:
``(I) An internal combustion or
heat engine using consumable fuel
which, for 2002 and later model
vehicles, has received a certificate of
conformity under the Clean Air Act and
meets or exceeds a level of not greater
than 3.0 grams per brake horsepower-
hour of oxides of nitrogen and 0.01 per
brake horsepower-hour of particulate
matter.
``(II) A rechargeable energy
storage system.
``(iii) Maximum available power.--
``(I) Passenger automobile or light
truck.--For purposes of subparagraph
(A)(i), the term `maximum available
power' means the maximum power
available from the rechargeable energy
storage system, during a standard 10
second pulse power or equivalent test,
divided by such maximum power and the
SAE net power of the heat engine.
``(II) Heavy duty hybrid motor
vehicle.--For purposes of subparagraph
(A)(ii), the term `maximum available
power' means the maximum power
available from the rechargeable energy
storage system, during a standard 10
second pulse power or equivalent test,
divided by the vehicle's total traction
power. The term `total traction power'
means the sum of the peak power from
the rechargeable energy storage system
and the heat engine peak power of the
vehicle, except that if such storage
system is the sole means by which the
vehicle can be driven, the total
traction power is the peak power of
such storage system.
``(3) New qualified hybrid motor vehicle.--For purposes of
this subsection, the term `new qualified hybrid motor vehicle'
means a motor vehicle--
``(A) which draws propulsion energy from onboard
sources of stored energy which are both--
``(i) an internal combustion or heat engine
using combustible fuel, and
``(ii) a rechargeable energy storage
system,
``(B) which, in the case of a passenger automobile
or light truck--
``(i) for 2002 and later model vehicles,
has received a certificate of conformity under
the Clean Air Act and meets or exceeds the
equivalent qualifying California low emission
vehicle standard under section 243(e)(2) of the
Clean Air Act for that make and model year, and
``(ii) for 2004 and later model vehicles,
has received a certificate that such vehicle
meets or exceeds the Bin 5 Tier II emission
level established in regulations prescribed by
the Administrator of the Environmental
Protection Agency under section 202(i) of the
Clean Air Act for that make and model year
vehicle,
``(C) the original use of which commences with the
taxpayer,
``(D) which is acquired for use or lease by the
taxpayer and not for resale, and
``(E) which is made by a manufacturer.
``(d) New Qualified Alternative Fuel Motor Vehicle Credit.--
``(1) Allowance of credit.--Except as provided in paragraph
(5), the new qualified alternative fuel motor vehicle credit
determined under this subsection is an amount equal to the
applicable percentage of the incremental cost of any new
qualified alternative fuel motor vehicle placed in service by
the taxpayer during the taxable year.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage with respect to any new
qualified alternative fuel motor vehicle is--
``(A) 40 percent, plus
``(B) 30 percent, if such vehicle--
``(i) has received a certificate of
conformity under the Clean Air Act and meets or
exceeds the most stringent standard available
for certification under the Clean Air Act for
that make and model year vehicle (other than a
zero emission standard), or
``(ii) has received an order certifying the
vehicle as meeting the same requirements as
vehicles which may be sold or leased in
California and meets or exceeds the most
stringent standard available for certification
under the State laws of California (enacted in
accordance with a waiver granted under section
209(b) of the Clean Air Act) for that make and
model year vehicle (other than a zero emission
standard).
``(3) Incremental cost.--For purposes of this subsection,
the incremental cost of any new qualified alternative fuel
motor vehicle is equal to the amount of the excess of the
manufacturer's suggested retail price for such vehicle over
such price for a gasoline or diesel fuel motor vehicle of the
same model, to the extent such amount does not exceed--
``(A) $5,000, if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
``(B) $10,000, if such vehicle has a gross vehicle
weight rating of more than 8,500 pounds but not more
than 14,000 pounds,
``(C) $25,000, if such vehicle has a gross vehicle
weight rating of more than 14,000 pounds but not more
than 26,000 pounds, and
``(D) $40,000, if such vehicle has a gross vehicle
weight rating of more than 26,000 pounds.
``(4) New qualified alternative fuel motor vehicle.--For
purposes of this subsection--
``(A) In general.--The term `new qualified
alternative fuel motor vehicle' means any motor
vehicle--
``(i) which is only capable of operating on
an alternative fuel,
``(ii) the original use of which commences
with the taxpayer,
``(iii) which is acquired by the taxpayer
for use or lease, but not for resale, and
``(iv) which is made by a manufacturer.
``(B) Alternative fuel.--The term `alternative
fuel' means compressed natural gas, liquefied natural
gas, liquefied petroleum gas, hydrogen, and any liquid
at least 85 percent of the volume of which consists of
methanol.
``(5) Credit for mixed-fuel vehicles.--
``(A) In general.--In the case of a mixed-fuel
vehicle placed in service by the taxpayer during the
taxable year, the credit determined under this
subsection is an amount equal to--
``(i) in the case of a 75/25 mixed-fuel
vehicle, 70 percent of the credit which would
have been allowed under this subsection if such
vehicle was a qualified alternative fuel motor
vehicle, and
``(ii) in the case of a 90/10 mixed-fuel
vehicle, 90 percent of the credit which would
have been allowed under this subsection if such
vehicle was a qualified alternative fuel motor
vehicle.
``(B) Mixed-fuel vehicle.--For purposes of this
subsection, the term `mixed-fuel vehicle' means any
motor vehicle described in subparagraph (C) or (D) of
paragraph (3), which--
``(i) is certified by the manufacturer as
being able to perform efficiently in normal
operation on a combination of an alternative
fuel and a petroleum-based fuel,
``(ii) either--
``(I) has received a certificate of
conformity under the Clean Air Act, or
``(II) has received an order
certifying the vehicle as meeting the
same requirements as vehicles which may
be sold or leased in California and
meets or exceeds the low emission
vehicle standard under section 88.105-
94 of title 40, Code of Federal
Regulations, for that make and model
year vehicle,
``(iii) the original use of which commences
with the taxpayer,
``(iv) which is acquired by the taxpayer
for use or lease, but not for resale, and
``(v) which is made by a manufacturer.
``(C) 75/25 mixed-fuel vehicle.--For purposes of
this subsection, the term `75/25 mixed-fuel vehicle'
means a mixed-fuel vehicle which operates using at
least 75 percent alternative fuel and not more than 25
percent petroleum-based fuel.
``(D) 90/10 mixed-fuel vehicle.--For purposes of
this subsection, the term `90/10 mixed-fuel vehicle'
means a mixed-fuel vehicle which operates using at
least 90 percent alternative fuel and not more than 10
percent petroleum-based fuel.
``(e) Application With Other Credits.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess (if
any) of--
``(1) the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27,
29, and 30, over
``(2) the tentative minimum tax for the taxable year.
``(f) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Consumable fuel.--The term `consumable fuel' means
any solid, liquid, or gaseous matter which releases energy when
consumed by an auxiliary power unit.
``(2) Motor vehicle.--The term `motor vehicle' has the
meaning given such term by section 30(c)(2).
``(3) City fuel economy.--The city fuel economy with
respect to any vehicle shall be measured in a manner which is
substantially similar to the manner city fuel economy is
measured in accordance with procedures under part 600 of
subchapter Q of chapter I of title 40, Code of Federal
Regulations, as in effect on the date of the enactment of this
section.
``(4) Other terms.--The terms `automobile', `passenger
automobile', `light truck', and `manufacturer' have the
meanings given such terms in regulations prescribed by the
Administrator of the Environmental Protection Agency for
purposes of the administration of title II of the Clean Air Act
(42 U.S.C. 7521 et seq.).
``(5)  Reduction in basis.--For purposes of this subtitle,
the basis of any property for which a credit is allowable under
subsection (a) shall be reduced by the amount of such credit so
allowed (determined without regard to subsection (e)).
``(6) No double benefit.--The amount of any deduction or
other credit allowable under this chapter--
``(A) for any incremental cost taken into account
in computing the amount of the credit determined under
subsection (d) shall be reduced by the amount of such
credit attributable to such cost, and
``(B) with respect to a vehicle described under
subsection (b) or (c), shall be reduced by the amount
of credit allowed under subsection (a) for such vehicle
for the taxable year.
``(7) Property used by tax-exempt entities.--In the case of
a credit amount which is allowable with respect to a motor
vehicle which is acquired by an entity exempt from tax under
this chapter, the person which sells or leases such vehicle to
the entity shall be treated as the taxpayer with respect to the
vehicle for purposes of this section and the credit shall be
allowed to such person, but only if the person clearly
discloses to the entity at the time of any sale or lease the
specific amount of any credit otherwise allowable to the entity
under this section.
``(8) Recapture.--The Secretary shall, by regulations,
provide for recapturing the benefit of any credit allowable
under subsection (a) with respect to any property which ceases
to be property eligible for such credit (including recapture in
the case of a lease period of less than the economic life of a
vehicle).
``(9) Property used outside united states, etc., not
qualified.--No credit shall be allowed under subsection (a)
with respect to any property referred to in section 50(b) or
with respect to the portion of the cost of any property taken
into account under section 179.
``(10) Election to not take credit.--No credit shall be
allowed under subsection (a) for any vehicle if the taxpayer
elects to not have this section apply to such vehicle.
``(11) Carryback and carryforward allowed.--
``(A) In general.--If the credit amount allowable
under subsection (a) for a taxable year exceeds the
amount of the limitation under subsection (e) for such
taxable year (in this paragraph referred to as the
`unused credit year'), such excess shall be allowed as
a credit carryback for each of the 3 taxable years
beginning after the date of the enactment of this
paragraph, which precede the unused credit year and a
credit carryforward for each of the 20 taxable years
which succeed the unused credit year.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).
``(12) Interaction with air quality and motor vehicle
safety standards.--Unless otherwise provided in this section, a
motor vehicle shall not be considered eligible for a credit
under this section unless such vehicle is in compliance with--
``(A) the applicable provisions of the Clean Air
Act for the applicable make and model year of the
vehicle (or applicable air quality provisions of State
law in the case of a State which has adopted such
provision under a waiver under section 209(b) of the
Clean Air Act), and
``(B) the motor vehicle safety provisions of
sections 30101 through 30169 of title 49, United States
Code.
``(g) Regulations.--
``(1) In general.--Except as provided in paragraph (2), the
Secretary shall promulgate such regulations as necessary to
carry out the provisions of this section.
``(2) Coordination in prescription of certain
regulations.--The Secretary of the Treasury, in coordination
with the Secretary of Transportation and the Administrator of
the Environmental Protection Agency, shall prescribe such
regulations as necessary to determine whether a motor vehicle
meets the requirements to be eligible for a credit under this
section.
``(h) Termination.--This section shall not apply to any property
purchased after--
``(1) in the case of a new qualified fuel cell motor
vehicle (as described in subsection (b)), December 31, 2011,
and
``(2) in the case of any other property, December 31,
2006.''.
(b) Conforming Amendments.--
(1) Section 1016(a) is amended by striking ``and'' at the
end of paragraph (27), by striking the period at the end of
paragraph (28) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(29) to the extent provided in section 30B(f)(5).''.
(2) Section 55(c)(2) is amended by inserting ``30B(e),''
after ``30(b)(3)''.
(3) Section 6501(m) is amended by inserting ``30B(f)(10),''
after ``30(d)(4),''.
(4) The table of sections for subpart B of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 30A the following new item:

``Sec. 30B. Alternative motor vehicle credit.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 202. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

(a) Amount of Credit.--
(1) In general.--Section 30(a) (relating to allowance of
credit) is amended by striking ``10 percent of''.
(2) Limitation of credit according to type of vehicle.--
Section 30(b) (relating to limitations) is amended--
(A) by striking paragraphs (1) and (2) and
inserting the following new paragraph:
``(1) Limitation according to type of vehicle.--The amount
of the credit allowed under subsection (a) for any vehicle
shall not exceed the greatest of the following amounts
applicable to such vehicle:
``(A) In the case of a vehicle which conforms to
the Motor Vehicle Safety Standard 500 prescribed by the
Secretary of Transportation, as in effect on the date
of the enactment of the Energy Tax Incentives Act of
2003, the lesser of--
``(i) 10 percent of the manufacturer's
suggested retail price of the vehicle, or
``(ii) $1,500.
``(B) In the case of a vehicle not described in
subparagraph (A) with a gross vehicle weight rating not
exceeding 8,500 pounds--
``(i) $3,500, or
``(ii) $6,000, if such vehicle is--
``(I) capable of a driving range of
at least 100 miles on a single charge
of the vehicle's rechargeable batteries
as measured pursuant to the urban
dynamometer schedules under appendix I
to part 86 of title 40, Code of Federal
Regulations, or
``(II) capable of a payload
capacity of at least 1,000 pounds.
``(C) In the case of a vehicle with a gross vehicle
weight rating exceeding 8,500 but not exceeding 14,000
pounds, $10,000.
``(D) In the case of a vehicle with a gross vehicle
weight rating exceeding 14,000 but not exceeding 26,000
pounds, $20,000.
``(E) In the case of a vehicle with a gross vehicle
weight rating exceeding 26,000 pounds, $40,000.'', and
(B) by redesignating paragraph (3) as paragraph
(2).
(3) Conforming amendments.--
(A) Section 53(d)(1)(B)(iii) is amended by striking
``section 30(b)(3)(B)'' and inserting ``section
30(b)(2)(B)''.
(3) Section 55(c)(2), as amended by this Act, is amended by
striking ``30(b)(3)'' and inserting ``30(b)(2)''.
(b) Qualified Battery Electric Vehicle.--
(1) In general.--Section 30(c)(1)(A) (defining qualified
electric vehicle) is amended to read as follows:
``(A) which is--
``(i) operated solely by use of a battery
or battery pack, or
``(ii) powered primarily through the use of
an electric battery or battery pack using a
flywheel or capacitor which stores energy
produced by an electric motor through
regenerative braking to assist in vehicle
operation,''.
(2) Leased vehicles.--Section 30(c)(1)(C) is amended by
inserting ``or lease'' after ``use''.
(3) Conforming amendments.--
(A) Subsections (a), (b)(2), and (c) of section 30
are each amended by inserting ``battery'' after
``qualified'' each place it appears.
(B) The heading of subsection (c) of section 30 is
amended by inserting ``Battery'' after ``Qualified''.
(C) The heading of section 30 is amended by
inserting ``battery'' after ``qualified''.
(D) The item relating to section 30 in the table of
sections for subpart B of part IV of subchapter A of
chapter 1 is amended by inserting ``battery'' after
``qualified''.
(E) Section 179A(c)(3) is amended by inserting
``battery'' before ``electric''.
(F) The heading of paragraph (3) of section 179A(c)
is amended by inserting ``battery'' before
``electric''.
(c) Additional Special Rules.--Section 30(d) (relating to special
rules) is amended by adding at the end the following new paragraphs:
``(5) No double benefit.--The amount of any deduction or
other credit allowable under this chapter for any cost taken
into account in computing the amount of the credit determined
under subsection (a) shall be reduced by the amount of such
credit attributable to such cost.
``(6) Property used by tax-exempt entities.--In the case of
a credit amount which is allowable with respect to a vehicle
which is acquired by an entity exempt from tax under this
chapter, the person which sells or leases such vehicle to the
entity shall be treated as the taxpayer with respect to the
vehicle for purposes of this section and the credit shall be
allowed to such person, but only if the person clearly
discloses to the entity at the time of any sale or lease the
specific amount of any credit otherwise allowable to the entity
under this section.
``(7) Carryback and carryforward allowed.--
``(A) In general.--If the credit amount allowable
under subsection (a) for a taxable year exceeds the
amount of the limitation under subsection (b)(2) for
such taxable year (in this paragraph referred to as the
`unused credit year'), such excess shall be allowed as
a credit carryback for each of the 3 taxable years
beginning after the date of the enactment of this
paragraph, which precede the unused credit year and a
credit carryforward for each of the 20 taxable years
which succeed the unused credit year.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 203. CREDIT FOR INSTALLATION OF ALTERNATIVE FUELING STATIONS.

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

``SEC. 30C. CLEAN-FUEL VEHICLE REFUELING PROPERTY CREDIT.

``(a) Credit Allowed.--There shall be allowed as a credit against
the tax imposed by this chapter for the taxable year an amount equal to
50 percent of the amount paid or incurred by the taxpayer during the
taxable year for the installation of qualified clean-fuel vehicle
refueling property.
``(b) Limitation.--The credit allowed under subsection (a)--
``(1) with respect to any retail clean-fuel vehicle
refueling property, shall not exceed $30,000, and
``(2) with respect to any residential clean-fuel vehicle
refueling property, shall not exceed $1,000.
``(c) Year Credit Allowed.--The credit allowed under subsection (a)
shall be allowed in the taxable year in which the qualified clean-fuel
vehicle refueling property is placed in service by the taxpayer.
``(d) Definitions.--For purposes of this section--
``(1) Qualified clean-fuel vehicle refueling property.--The
term `qualified clean-fuel vehicle refueling property' has the
same meaning given such term by section 179A(d).
``(2) Residential clean-fuel vehicle refueling property.--
The term `residential clean-fuel vehicle refueling property'
means qualified clean-fuel vehicle refueling property which is
installed on property which is used as the principal residence
(within the meaning of section 121) of the taxpayer.
``(3) Retail clean-fuel vehicle refueling property.--The
term `retail clean-fuel vehicle refueling property' means
qualified clean-fuel vehicle refueling property which is
installed on property (other than property described in
paragraph (2)) used in a trade or business of the taxpayer.
``(e) Application With Other Credits.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess (if
any) of--
``(1) the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27,
29, 30, and 30B, over
``(2) the tentative minimum tax for the taxable year.
``(f) Basis Reduction.--For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
``(g) No Double Benefit.--No deduction shall be allowed under
section 179A with respect to any property with respect to which a
credit is allowed under subsection (a).
``(h) Refueling Property Installed for Tax-Exempt Entities.--In the
case of qualified clean-fuel vehicle refueling property installed on
property owned or used by an entity exempt from tax under this chapter,
the person which installs such refueling property for the entity shall
be treated as the taxpayer with respect to the refueling property for
purposes of this section (and such refueling property shall be treated
as retail clean-fuel vehicle refueling property) and the credit shall
be allowed to such person, but only if the person clearly discloses to
the entity in any installation contract the specific amount of the
credit allowable under this section.
``(i) Carryforward Allowed.--
``(1) In general.--If the credit amount allowable under
subsection (a) for a taxable year exceeds the amount of the
limitation under subsection (e) for such taxable year (referred
to as the `unused credit year' in this subsection), such excess
shall be allowed as a credit carryforward for each of the 20
taxable years following the unused credit year.
``(2) Rules.--Rules similar to the rules of section 39
shall apply with respect to the credit carryforward under
paragraph (1).
``(j) Special Rules.--Rules similar to the rules of paragraphs (4)
and (5) of section 179A(e) shall apply.
``(k) Regulations.--The Secretary shall prescribe such regulations
as necessary to carry out the provisions of this section.
``(l) Termination.--This section shall not apply to any property
placed in service--
``(1) in the case of property relating to hydrogen, after
December 31, 2011, and
``(2) in the case of any other property, after December 31,
2007.''.
(b) Modifications to Extension of Deduction for Certain Refueling
Property.--
(1) In general.--Subsection (f) of section 179A is amended
to read as follows:
``(f) Termination.--This section shall not apply to any property
placed in service--
``(1) in the case of property relating to hydrogen, after
December 31, 2011, and
``(2) in the case of any other property, after December 31,
2007.''.
(2) Extension of phaseout.--Section 179A(b)(1)(B), as
amended by section 606(a) of the Job Creation and Worker
Assistance Act of 2002, is amended--
(A) by striking ``calendar year 2004'' in clause
(i) and inserting ``calendar years 2004 and 2005
(calendar years 2004 through 2009 in the case of
property relating to hydrogen) '',
(B) by striking ``2005'' in clause (ii) and
inserting ``2006 (calendar year 2010 in the case of
property relating to hydrogen)'', and
(C) by striking ``2006'' in clause (iii) and
inserting ``2007 (calendar year 2011 in the case of
property relating to hydrogen)''.
(c) Incentive for Production of Hydrogen at Qualified Clean-Fuel
Vehicle Refueling Property.--Section 179A(d) (defining qualified clean-
fuel vehicle refueling property) is amended by adding at the end the
following new flush sentence:
``In the case of clean-burning fuel which is hydrogen produced from
another clean-burning fuel, paragraph (3)(A) shall be applied by
substituting `production, storage, or dispensing' for `storage or
dispensing' both places it appears.''.
(d) Conforming Amendments.--(1) Section 1016(a), as amended by this
Act, is amended by striking ``and'' at the end of paragraph (28), by
striking the period at the end of paragraph (29) and inserting ``,
and'', and by adding at the end the following new paragraph:
``(30) to the extent provided in section 30C(f).''.
(2) Section 55(c)(2), as amended by this Act, is amended by
inserting ``30C(e),'' after ``30B(e)''.
(3) The table of sections for subpart B of part IV of subchapter A
of chapter 1, as amended by this Act, is amended by inserting after the
item relating to section 30B the following new item:

``Sec. 30C. Clean-fuel vehicle refueling property credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 204. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE
FUEL.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by inserting after
section 40 the following new section:

``SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR
VEHICLE FUEL.

``(a) General Rule.--For purposes of section 38, the alternative
fuel retail sales credit for any taxable year is the applicable amount
for each gasoline gallon equivalent of alternative fuel sold at retail
by the taxpayer during such year as a fuel to propel any qualified
motor vehicle.
``(b) Definitions.--For purposes of this section--
``(1) Applicable amount.--The term `applicable amount'
means the amount determined in accordance with the following
table:

``In the case of any taxable year
ending in--                                The applicable amount is--
2003..........................................            30 cents
2004..........................................            40 cents
2005 and 2006.................................            50 cents.
``(2) Alternative fuel.--The term `alternative fuel' means
compressed natural gas, liquefied natural gas, liquefied
petroleum gas, hydrogen, and any liquid at least 85 percent of
the volume of which consists of methanol or ethanol.
``(3) Gasoline gallon equivalent.--The term `gasoline
gallon equivalent' means, with respect to any alternative fuel,
the amount (determined by the Secretary) of such fuel having a
Btu content of 114,000.
``(4) Qualified motor vehicle.--The term `qualified motor
vehicle' means any motor vehicle (as defined in section
30(c)(2)) which meets any applicable Federal or State emissions
standards with respect to each fuel by which such vehicle is
designed to be propelled.
``(5) Sold at retail.--
``(A) In general.--The term `sold at retail' means
the sale, for a purpose other than resale, after
manufacture, production, or importation.
``(B) Use treated as sale.--If any person uses
alternative fuel (including any use after importation)
as a fuel to propel any qualified alternative fuel
motor vehicle (as defined in section 30B(d)(4)) before
such fuel is sold at retail, then such use shall be
treated in the same manner as if such fuel were sold at
retail as a fuel to propel such a vehicle by such
person.
``(c) No Double Benefit.--The amount of any deduction or other
credit allowable under this chapter for any fuel taken into account in
computing the amount of the credit determined under subsection (a)
shall be reduced by the amount of such credit attributable to such
fuel.
``(d) Pass-Thru in the Case of Estates and Trusts.--Under
regulations prescribed by the Secretary, rules similar to the rules of
subsection (d) of section 52 shall apply.
``(e) Termination.--This section shall not apply to any fuel sold
at retail after December 31, 2006.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit) is amended by striking ``plus'' at the
end of paragraph (14), by striking the period at the end of paragraph
(15) and inserting ``, plus'', and by adding at the end the following
new paragraph:
``(16) the alternative fuel retail sales credit determined
under section 40A(a).''.
(c) Transitional Rule.--Section 39(d) (relating to transitional
rules) is amended by adding at the end the following new paragraph:
``(11) No carryback of section 40a credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the alternative fuel retail sales
credit determined under section 40A(a) may be carried back to a
taxable year ending on or before the date of the enactment of
such section.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by inserting after the
item relating to section 40 the following new item:

``Sec. 40A. Credit for retail sale of alternative fuels as
motor vehicle fuel.''.
(e) Effective Date.--The amendments made by this section shall
apply to fuel sold at retail after the date of the enactment of this
Act, in taxable years ending after such date.

SEC. 205. SMALL ETHANOL PRODUCER CREDIT.

(a) Allocation of Alcohol Fuels Credit to Patrons of a
Cooperative.--Section 40(g) (relating to alcohol used as fuel) is
amended by adding at the end the following new paragraph:
``(6) Allocation of small ethanol producer credit to
patrons of cooperative.--
``(A) Election to allocate.--
``(i) In general.--In the case of a
cooperative organization described in section
1381(a), any portion of the credit determined
under subsection (a)(3) for the taxable year
may, at the election of the organization, be
apportioned pro rata among patrons of the
organization on the basis of the quantity or
value of business done with or for such patrons
for the taxable year.
``(ii) Form and effect of election.--An
election under clause (i) for any taxable year
shall be made on a timely filed return for such
year. Such election, once made, shall be
irrevocable for such taxable year.
``(B) Treatment of organizations and patrons.--The
amount of the credit apportioned to patrons under
subparagraph (A)--
``(i) shall not be included in the amount
determined under subsection (a) with respect to
the organization for the taxable year,
``(ii) shall be included in the amount
determined under subsection (a) for the taxable
year of each patron for which the patronage
dividends for the taxable year described in
subparagraph (A) are included in gross income,
and
``(iii) shall be included in gross income
of such patrons for the taxable year in the
manner and to the extent provided in section
87.
``(C) Special rules for decrease in credits for
taxable year.--If the amount of the credit of a
cooperative organization determined under subsection
(a)(3) for a taxable year is less than the amount of
such credit shown on the return of the cooperative
organization for such year, an amount equal to the
excess of--
``(i) such reduction, over
``(ii) the amount not apportioned to such
patrons under subparagraph (A) for the taxable
year,
shall be treated as an increase in tax imposed by this
chapter on the organization. Such increase shall not be
treated as tax imposed by  this chapter for purposes of
determining the amount of any credit under this chapter or for purposes
of section 55.''.
(b) Improvements to Small Ethanol Producer Credit.--
(1) Definition of small ethanol producer.--Section 40(g)
(relating to definitions and special rules for eligible small
ethanol producer credit) is amended by striking ``30,000,000''
each place it appears and inserting ``60,000,000''.
(2) Small ethanol producer credit not a passive activity
credit.--Clause (i) of section 469(d)(2)(A) is amended by
striking ``subpart D'' and inserting ``subpart D, other than
section 40(a)(3),''.
(3) Allowing credit against entire regular tax and minimum
tax.--
(A) In general.--Subsection (c) of section 38
(relating to limitation based on amount of tax), as
amended by section 301(b) of the Job Creation and
Worker Assistance Act of 2002, is amended by
redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new
paragraph:
``(4) Special rules for small ethanol producer credit.--
``(A) In general.--In the case of the small ethanol
producer credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) the amounts in subparagraphs
(A) and (B) thereof shall be treated as
being zero, and
``(II) the limitation under
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the small
ethanol producer credit).
``(B) Small ethanol producer credit.--For purposes
of this subsection, the term `small ethanol producer
credit' means the credit allowable under subsection (a)
by reason of section 40(a)(3).''.
(B) Conforming amendments.--Subclause (II) of
section 38(c)(2)(A)(ii), as amended by section
301(b)(2) of the Job Creation and Worker Assistance Act
of 2002, and subclause (II) of section 38(c)(3)(A)(ii),
as added by section 301(b)(1) of such Act, are each
amended by inserting ``or the small ethanol producer
credit'' after ``employee credit''.
(4) Small ethanol producer credit not added back to income
under section 87.--Section 87 (relating to income inclusion of
alcohol fuel credit) is amended to read as follows:

``SEC. 87. ALCOHOL FUEL CREDIT.

``Gross income includes an amount equal to the sum of--
``(1) the amount of the alcohol mixture credit determined
with respect to the taxpayer for the taxable year under section
40(a)(1), and
``(2) the alcohol credit determined with respect to the
taxpayer for the taxable year under section 40(a)(2).''.
(c) Conforming Amendment.--Section 1388 (relating to definitions
and special rules for cooperative organizations) is amended by adding
at the end the following new subsection:
``(k) Cross Reference.--For provisions relating to the
apportionment of the alcohol fuels credit between cooperative
organizations and their patrons, see section 40(g)(6).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 206. ALL ALCOHOL FUELS TAXES TRANSFERRED TO HIGHWAY TRUST FUND.

(a) In General.--Section 9503(b)(4) (relating to certain taxes not
transferred to Highway Trust Fund) is amended--
(1) by adding ``or'' at the end of subparagraph (C),
(2) by striking the comma at the end of subparagraph
(D)(iii) and inserting a period, and
(3) by striking subparagraphs (E) and (F).
(b) Effective Date.--The amendments made by this section shall
apply to taxes imposed after September 30, 2003.

SEC. 207. INCREASED FLEXIBILITY IN ALCOHOL FUELS TAX CREDIT.

(a) Alcohol Fuels Credit May Be Transferred.--Section 40 (relating
to alcohol used as fuel) is amended by adding at the end the following
new subsection:
``(i) Credit May Be Transferred.--
``(1) In general.--A taxpayer may transfer any credit
allowable under paragraph (1) or (2) of subsection (a) with
respect to alcohol used in the production of ethyl tertiary
butyl ether through an assignment to a qualified assignee. Such
transfer may be revoked only with the consent of the Secretary.
``(2) Qualified assignee.--For purposes of this subsection,
the term `qualified assignee' means any person who--
``(A) is liable for taxes imposed under section
4081,
``(B) is required to register under section 4101,
and
``(C) obtains a certificate from the taxpayer
described in paragraph (1) which identifies the amount
of alcohol used in such production.
``(3) Regulations.--The Secretary shall prescribe such
regulations as necessary to insure that any credit described in
paragraph (1) is claimed once and not reassigned by a qualified
assignee.''.
(b) Alcohol Fuels Credit May Be Taken Against Motor Fuels Tax
Liability.--
(1) In general.--Subpart C of part III of subchapter A of
chapter 32 (relating to special provisions applicable to
petroleum products) is amended by adding at the end the
following new section:

``SEC. 4104. CREDIT AGAINST MOTOR FUELS TAXES.

``(a) Election To Use Credit Against Motor Fuels Taxes.--There is
hereby allowed as a credit against the taxes imposed by section 4081,
any credit allowed under paragraph (1) or (2) of section 40(a) with
respect to alcohol used in the production of ethyl tertiary butyl ether
to the extent--
``(1) such credit is not claimed by the taxpayer or the
qualified assignee under section 40(i) as a credit under
section 40, and
``(2) the taxpayer or qualified assignee elects to claim
such credit under this section.
``(b) Election Irrevocable.--Any election under subsection (a)
shall be irrevocable.
``(c) Required Statement.--Any return claiming a credit pursuant to
an election under this section shall be accompanied by a statement that
the credit was not, and will not, be claimed on an income tax return.
``(d) Regulations.--The Secretary shall prescribe such regulations
as necessary to avoid the claiming of double benefits and to prescribe
the taxable periods with respect to which the credit may be claimed.''.
(2) Conforming amendment.--Section 40(c) is amended by
striking ``or section 4091(c)'' and inserting ``section
4091(c), or section 4104''.
(3) Clerical amendment.--The table of sections for subpart
C of part III of subchapter A of chapter 32 is amended by
adding at the end the following new item:

``Sec. 4104. Credit against motor fuels
taxes.''.
(c) Effective Date.--The amendments made by this section shall take
effect on and after the date of the enactment of this Act.

SEC. 208. INCENTIVES FOR BIODIESEL.

(a) Credit for Biodiesel Used as a Fuel.--
(1) In general.--Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits), as amended by
this Act, is amended by inserting after section 40A the
following new section:

``SEC. 40B. BIODIESEL USED AS FUEL.

``(a) General Rule.--For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable year is an
amount equal to the biodiesel mixture credit.
``(b) Definition of Biodiesel Mixture Credit.--For purposes of this
section--
``(1) Biodiesel mixture credit.--
``(A) In general.--The biodiesel mixture credit of
any taxpayer for any taxable year is the sum of the
products of the biodiesel mixture rate for each
qualified biodiesel mixture and the number of gallons
of such mixture of the taxpayer for the taxable year.
``(B) Biodiesel mixture rate.--For purposes of
subparagraph (A), the biodiesel mixture rate for each
qualified biodiesel mixture shall be--
``(i) in the case of a mixture with only
biodiesel V, 1 cent for each whole percentage
point (not exceeding 20 percentage points) of
biodiesel V in such mixture, and
``(ii) in the case of a mixture with
biodiesel NV, or a combination of biodiesel V
and biodiesel NV, 0.5 cent for each whole
percentage point (not exceeding 20 percentage
points) of such biodiesel in such mixture.
``(2) Qualified biodiesel mixture.--
``(A) In general.--The term `qualified biodiesel
mixture' means a mixture of diesel and biodiesel V or
biodiesel NV which--
``(i) is sold by the taxpayer producing
such mixture to any person for use as a fuel,
or
``(ii) is used as a fuel by the taxpayer
producing such mixture.
``(B) Sale or use must be in trade or business,
etc.--
``(i) In general.--Biodiesel V or biodiesel
NV used in the production of a qualified
biodiesel mixture shall be taken into account--
``(I) only if the sale or use
described in subparagraph (A) is in a
trade or business of the taxpayer, and
``(II) for the taxable year in
which such sale or use occurs.
``(ii) Certification for biodiesel v.--
Biodiesel V used in the production of a
qualified biodiesel mixture shall be taken into
account only if the taxpayer described in
subparagraph (A) obtains a certification from
the producer of the biodiesel V which
identifies the product produced.
``(C) Casual off-farm production not eligible.--No
credit shall be allowed under this section with respect
to any casual off-farm production of a qualified
biodiesel mixture.
``(c) Coordination With Exemption From Excise Tax.--The amount of
the credit determined under this section with respect to any biodiesel
V shall, under regulations prescribed by the Secretary, be properly
reduced to take into account any benefit provided with respect to such
biodiesel V solely by reason of the application of section 4041(n) or
section 4081(f).
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Biodiesel v defined.--The term `biodiesel V' means
the monoalkyl esters of long chain fatty acids derived solely
from virgin vegetable oils for use in compressional-ignition
(diesel) engines. Such term shall include esters derived from
vegetable oils from corn, soybeans, sunflower seeds,
cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds,
rice bran, and mustard seeds.
``(2) Biodiesel nv defined.--The term `biodiesel NV' means
the monoalkyl esters of long chain fatty acids derived from
nonvirgin vegetable oils or animal fats for use in
compressional-ignition (diesel) engines.
``(3) Registration requirements.--The terms `biodiesel V'
and `biodiesel NV' shall only include a biodiesel which meets--
``(i) the registration requirements for
fuels and fuel additives established by the
Environmental Protection Agency under section
211 of the Clean Air Act (42 U.S.C. 7545), and
``(ii) the requirements of the American
Society of Testing and Materials D6751.
``(2) Biodiesel mixture not used as a fuel, etc.--
``(A) Imposition of tax.--If--
``(i) any credit was determined under this
section with respect to biodiesel V or
biodiesel NV used in the production of any
qualified biodiesel mixture, and
``(ii) any person--
``(I) separates such biodiesel from
the mixture, or
``(II) without separation, uses the
mixture other than as a fuel,
then there is hereby imposed on such person a
tax equal to the product of the biodiesel
mixture rate applicable under subsection
(b)(1)(B) and the number of gallons of the
mixture.
``(B) Applicable laws.--All provisions of law,
including penalties, shall, insofar as applicable and
not inconsistent with this section, apply in respect of
any tax imposed under subparagraph (A) as if such tax
were imposed by section 4081 and not by this chapter.
``(3) Pass-thru in the case of estates and trusts.--Under
regulations prescribed by the Secretary, rules similar to the
rules of subsection (d) of section 52 shall apply.
``(e) Election To Have Biodiesel Fuels Credit Not Apply.--
``(1) In general.--A taxpayer may elect to have this
section not apply for any taxable year.
``(2) Time for making election.--An election under
paragraph (1) for any taxable year may be made (or revoked) at
any time before the expiration of the 3-year period beginning
on the last date prescribed by law for filing the return for
such taxable year (determined without regard to extensions).
``(3) Manner of making election.--An election under
paragraph (1) (or revocation thereof) shall be made in such
manner as the Secretary may by regulations prescribe.''.
``(f) Termination.--This section shall not apply to any fuel sold
after December 31, 2005.''.
(2) Credit treated as part of general business credit.--
Section 38(b), as amended by this Act, is amended by striking
``plus'' at the end of paragraph (15), by striking the period
at the end of paragraph (16) and inserting ``, plus'', and by
adding at the end the following new paragraph:
``(17) the biodiesel fuels credit determined under section
40B(a).''.
(3) Conforming amendments.--
(A) Section 39(d), as amended by this Act, is
amended by adding at the end the following new
paragraph:
``(12) No carryback of biodiesel fuels credit before
january 1, 2003.--No portion of the unused business credit for
any taxable year which is attributable to the biodiesel fuels
credit determined under section 40B may be carried back to a
taxable year beginning before January 1, 2003.''.
(B) Section 196(c) is amended by striking ``and''
at the end of paragraph (9), by striking the period at
the end of paragraph (10), and by adding at the end the
following new paragraph:
``(11) the biodiesel fuels credit determined under section
40B(a).''.
(C) Section 6501(m), as amended by this Act, is
amended by inserting ``40B(e),'' after ``40(f),''.
(D) The table of sections for subpart D of part IV
of subchapter A of chapter 1, as amended by this Act,
is amended by adding after the item relating to section
40A the following new item:

``Sec. 40B. Biodiesel used as fuel.''.
(4) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2002.
(b) Reduction of Motor Fuel Excise Taxes on Biodiesel V Mixtures.--
(1) In general.--Section 4081 (relating to manufacturers
tax on petroleum products) is amended by adding at the end the
following new subsection:
``(f) Biodiesel V Mixtures.--Under regulations prescribed by the
Secretary--
``(1) In general.--In the case of the removal or entry of a
qualified biodiesel mixture with biodiesel V, the rate of tax
under subsection (a) shall be the otherwise applicable rate
reduced by the biodiesel mixture rate (if any) applicable to
the mixture.
``(2) Tax prior to mixing.--
``(A) In general.--In the case of the removal or
entry of diesel fuel for use in producing at the time
of such removal or entry a qualified biodiesel mixture
with biodiesel V, the rate of tax under subsection (a)
shall be the rate determined under subparagraph (B).
``(B) Determination of rate.--For purposes of
subparagraph (A), the rate determined under this
subparagraph is the rate determined under paragraph
(1), divided by a percentage equal to 100 percent minus
the percentage of biodiesel V which will be in the
mixture.
``(3) Definitions.--For purposes of this subsection, any
term used in this subsection which is also used in section 40B
shall have the meaning given such term by section 40B.
``(4) Certain rules to apply.--Rules similar to the rules
of paragraphs (6) and (7) of subsection (c) shall apply for
purposes of this subsection.''.
(2) Conforming amendments.--
(A) Section 4041 is amended by adding at the end
the following new subsection:
``(n) Biodiesel V Mixtures.--Under regulations prescribed by the
Secretary, in the case of the sale or use of a qualified biodiesel
mixture (as defined in section 40B(b)(2)) with biodiesel V, the rates
under paragraphs (1) and (2) of subsection (a) shall be the otherwise
applicable rates, reduced by any applicable biodiesel mixture rate (as
defined in section 40B(b)(1)(B)).''.
(B) Section 6427 is amended by redesignating
subsection (p) as subsection (q) and by inserting after
subsection (o) the following new subsection:
``(p) Biodiesel V Mixtures.--Except as provided in subsection (k),
if any diesel fuel on which tax was imposed by section 4081 at a rate
not determined under section 4081(f) is used by any person in producing
a qualified biodiesel mixture (as defined in section 40B(b)(2)) with
biodiesel V which is sold or used in such person's trade  or business,
the Secretary shall pay (without interest) to such person an amount
equal to the per gallon applicable biodiesel mixture rate (as defined
in section 40B(b)(1)(B)) with respect to such fuel.''.
(3) Effective date.--The amendments made by this subsection
shall apply to any fuel sold after the date of the enactment of
this Act, and before January 1, 2006.
(c) Highway Trust Fund Held Harmless.--There are hereby transferred
(from time to time) from the funds of the Commodity Credit Corporation
amounts determined by the Secretary of the Treasury to be equivalent to
the reductions that would occur (but for this subsection) in the
receipts of the Highway Trust Fund by reason of the amendments made by
this section.

SEC. 209. CREDIT FOR TAXPAYERS OWNING COMMERCIAL POWER TAKEOFF
VEHICLES.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by section 703, is
amended by adding at the end the following new section:

``SEC. 45N. COMMERCIAL POWER TAKEOFF VEHICLES CREDIT.

``(a) General Rule.--For purposes of section 38, the amount of the
commercial power takeoff vehicles credit determined under this section
for the taxable year is $250 for each qualified commercial power
takeoff vehicle owned by the taxpayer as of the close of the calendar
year in which or with which the taxable year of the taxpayer ends.
``(b) Definitions.--For purposes of this section--
``(1) Qualified commercial power takeoff vehicle.--The term
`qualified commercial power takeoff vehicle' means any highway
vehicle described in paragraph (2) which is propelled by any
fuel subject to tax under section 4041 or 4081 if such vehicle
is used in a trade or business or for the production of income
(and is licensed and insured for such use).
``(2) Highway vehicle described.--A highway vehicle is
described in this paragraph if such vehicle is--
``(A) designed to engage in the daily collection of
refuse or recyclables from homes or businesses and is
equipped with a mechanism under which the vehicle's
propulsion engine provides the power to operate a load
compactor, or
``(B) designed to deliver ready mixed concrete on a
daily basis and is equipped with a mechanism under
which the vehicle's propulsion engine provides the
power to operate a mixer drum to agitate and mix the
product en route to the delivery site.
``(c) Exception for Vehicles Used by Governments, Etc.--No credit
shall be allowed under this section for any vehicle owned by any person
at the close of a calendar year if such vehicle is used at any time
during such year by--
``(1) the United States or an agency or instrumentality
thereof, a State, a political subdivision of a State, or an
agency or instrumentality of one or more States or political
subdivisions, or
``(2) an organization exempt from tax under section 501(a).
``(d) Denial of Double Benefit.--The amount of any deduction under
this subtitle for any tax imposed by subchapter B of chapter 31 or part
III of subchapter A of chapter 32 for any taxable year shall be reduced
(but not below zero) by the amount of the credit determined under this
subsection for such taxable year.
``(e) Termination.--This section shall not apply with respect to
any calendar year after 2004.''.
(b) Credit Made Part of General Business Credit.--Subsection (b) of
section 38 (relating to general business credit), as amended by section
703, is amended by striking ``plus'' at the end of paragraph (23), by
striking the period at the end of paragraph (24) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(25) the commercial power takeoff vehicles credit under
section 45N(a).''.
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by section 703, is
amended by adding at the end the following new item:

``Sec. 45N. Commercial power takeoff
vehicles credit.''.
(d) Regulations.--Not later than January 1, 2005, the Secretary of
the Treasury, in consultation with the Secretary of Energy, shall by
regulation provide for the method of determining the exemption from any
excise tax imposed under section 4041 or 4081 of the Internal Revenue
Code of 1986 on fuel used through a mechanism to power equipment
attached to a highway vehicle as described in section 45N(b)(2) of such
Code, as added by subsection (a).
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

SEC. 301. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

``(a) In General.--For purposes of section 38, in the case of an
eligible contractor, the credit determined under this section for the
taxable year is an amount equal to the aggregate adjusted bases of all
energy efficient property installed in a qualifying new home during
construction of such home.
``(b) Limitations.--
``(1) Maximum credit.--
``(A) In general.--The credit allowed by this
section with respect to a qualifying new home shall not
exceed--
``(i) in the case of a 30-percent home,
$1,250, and
``(ii) in the case of a 50-percent home,
$2,000.
``(B) 30- or 50-percent home.--For purposes of
subparagraph (A)--
``(i) 30-percent home.--The term `30-
percent home' means a qualifying new home which
is certified to have a projected level of
annual heating and cooling energy consumption,
measured in terms of average annual energy cost
to the homeowner, which is at least 30 percent
less than the annual level of heating and
cooling energy consumption of a reference
qualifying new home constructed in accordance
with the standards of chapter 4 of the 2000
International Energy Conservation Code, or a
qualifying new home which is a manufactured
home which meets the applicable standards of
the Energy Star program managed jointly by the
Environmental Protection Agency and the
Department of Energy.
``(ii) 50-percent home.--The term `50-
percent home' means a qualifying new home which
is certified to have a projected level of
annual heating and cooling energy consumption,
measured in terms of average annual energy cost
to the homeowner, which is at least 50 percent
less than such annual level of heating and
cooling energy consumption.
``(C) Prior credit amounts on same home taken into
account.--If a credit was allowed under subsection (a)
with respect to a qualifying new home in 1 or more
prior taxable years, the amount of the credit otherwise
allowable for the taxable year with respect to that
home shall not exceed the amount under clause (i) or
(ii) of subparagraph (A) (as the case may be), reduced
by the sum of the credits allowed under subsection (a)
with respect to the home for all prior taxable years.
``(2) Coordination with rehabilitation and energy
credits.--For purposes of this section--
``(A) the basis of any property referred to in
subsection (a) shall be reduced by that portion of the
basis of any property which is attributable to the
rehabilitation credit (as determined under section
47(a)) or to the energy percentage of energy property
(as determined under section 48(a)), and
``(B) expenditures taken into account under either
section 47 or 48(a) shall not be taken into account
under this section.
``(c) Definitions.--For purposes of this section--
``(1) Eligible contractor.--The term `eligible contractor'
means the person who constructed the qualifying new home, or in
the case of a manufactured home which conforms to Federal
Manufactured Home Construction and Safety Standards (24 C.F.R.
3280), the manufactured home producer of such home.
``(2) Energy efficient property.--The term `energy
efficient property' means any energy efficient building
envelope component, and any energy efficient heating or cooling
equipment which can, individually or in combination with other
components, meet the requirements of this section.
``(3) Qualifying new home.--The term `qualifying new home'
means a dwelling--
``(A) located in the United States,
``(B) the construction of which is substantially
completed after the date of the enactment of this
section, and
``(C) the first use of which after construction is
as a principal residence (within the meaning of section
121).
``(4) Construction.--The term `construction' includes
reconstruction and rehabilitation.
``(5) Building envelope component.--The term `building
envelope component' means--
``(A) any insulation material or system which is
specifically and primarily designed to reduce the heat
loss or gain of a qualifying new home when installed in
or on such home, and
``(B) exterior windows (including skylights) and
doors.
``(6) Manufactured home included.--The term `qualifying new
home' includes a manufactured home conforming to Federal
Manufactured Home Construction and Safety Standards (24 C.F.R.
3280).
``(d) Certification.--
``(1) Method of certification.--
``(A) In general.--A certification described in
subsection (b)(1)(B) shall be determined either by a
component-based method or a performance-based method.
``(B) Component-based method.--A component-based
method is a method which uses the applicable technical
energy efficiency specifications or ratings (including
product labeling requirements) for the energy efficient
building envelope component or energy efficient heating
or cooling equipment. The Secretary shall, in
consultation with the Administrator of the
Environmental Protection Agency, develop prescriptive
component-based packages that are equivalent in energy
performance to properties that qualify under
subparagraph (C).
``(C) Performance-based method.--
``(i) In general.--A performance-based
method is a method which calculates projected
energy usage and cost reductions in the
qualifying new home in relation to a reference
qualifying new home--
``(I) heated by the same energy
source and heating system type, and
``(II) constructed in accordance
with the standards of chapter 4 of the
2000 International Energy Conservation
Code.
``(ii) Computer software.--Computer
software shall be used in support of a
performance-based method certification under
clause (i). Such software shall meet procedures
and methods for calculating energy and cost
savings in regulations promulgated by the
Secretary of Energy. Such regulations on the
specifications for software and verification
protocols shall be based on the 2001 California
Residential Alternative Calculation Method
Approval Manual.
``(2) Provider.--A certification described in subsection
(b)(1)(B) shall be provided by--
``(A) in the case of a component-based method, a
local building regulatory authority, a utility, a
manufactured home production inspection primary
inspection agency (IPIA), or a home energy rating
organization, or
``(B) in the case of a performance-based method, an
individual recognized by an organization designated by
the Secretary for such purposes.
``(3) Form.--
``(A) In general.--A certification described in
subsection (b)(1)(B) shall be made in writing in a
manner that specifies in readily verifiable fashion the
energy efficient building envelope components and
energy efficient heating or cooling equipment installed
and their respective rated energy efficiency
performance, and in the case of a performance-based
method, accompanied by a written analysis documenting
the proper application of a permissible energy
performance calculation method to the specific
circumstances of such qualifying new home.
``(B) Form provided to buyer.--A form documenting
the energy efficient building envelope components and
energy efficient heating or cooling equipment installed
and their rated energy efficiency performance shall be
provided to the buyer of the qualifying new home. The
form shall include labeled R-value for insulation
products, NFRC-labeled U-factor and Solar Heat Gain
Coefficient for windows, skylights, and doors, labeled
AFUE ratings for furnaces and boilers, labeled HSPF
ratings for electric heat pumps, and labeled SEER
ratings for air conditioners.
``(C) Ratings label affixed in dwelling.--A
permanent label documenting the ratings in subparagraph
(B) shall be affixed to the front of the electrical
distribution panel of the qualifying new home, or shall
be otherwise permanently displayed in a readily
inspectable location in such home.
``(4) Regulations.--
``(A) In general.--In prescribing regulations under
this subsection for performance-based certification
methods, the Secretary, after examining the
requirements for energy consultants and home energy
ratings providers specified by the Mortgage Industry
National Accreditation Procedures for Home Energy
Rating Systems, shall prescribe procedures for
calculating annual energy usage and cost reductions for
heating and cooling and for the reporting of the
results. Such regulations shall--
``(i) provide that any calculation
procedures be fuel neutral such that the same
energy efficiency measures allow a qualifying
new home to be eligible for the credit under
this section regardless of whether such home
uses a gas or oil furnace or boiler or an
electric heat pump, and
``(ii) require that any computer software
allow for the printing of the Federal tax forms
necessary for the credit under this section and
for the printing of forms for disclosure to the
homebuyer.
``(B) Providers.--For purposes of paragraph (2)(B),
the Secretary shall establish requirements for the
designation of individuals based on the requirements
for energy consultants and home energy raters specified
by the Mortgage Industry National Accreditation
Procedures for Home Energy Rating Systems.
``(e) Termination.--Subsection (a) shall apply to qualifying new
homes purchased during the period beginning on the date of the
enactment of this section and ending on December 31, 2007.''.
(b) Credit Made Part of General Business Credit.--Subsection (b) of
section 38 (relating to current year business credit), as amended by
this Act, is amended by striking ``plus'' at the end of paragraph (16),
by striking the period at the end of paragraph (17) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(18) the new energy efficient home credit determined
under section 45G(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable) is amended by adding at the
end the following new subsection:
``(d) New Energy Efficient Home Expenses.--No deduction shall be
allowed for that portion of expenses for a qualifying new home
otherwise allowable as a deduction for the taxable year which is equal
to the amount of the credit determined for such taxable year under
section 45G(a).''.
(d) Limitation on Carryback.--Subsection (d) of section 39, as
amended by this Act, is amended by adding at the end the following new
paragraph:
``(13) No carryback of new energy efficient home credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the credit
determined under section 45G may be carried back to any taxable
year ending on or before the date of the enactment of such
section.''.
(e) Deduction for Certain Unused Business Credits.--Subsection (c)
of section 196, as amended by this Act, is amended by striking ``and''
at the end of paragraph (10), by striking the period at the end of
paragraph (11) and inserting ``, and'', and by adding after paragraph
(11) the following new paragraph:
``(12) the new energy efficient home credit determined
under section 45G(a).''.
(f) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45G. New energy efficient home
credit.''.
(g) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.

SEC. 302. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT.

``(a) General Rule.--For purposes of section 38, the energy
efficient appliance credit determined under this section for the
taxable year is an amount equal to the applicable amount determined
under subsection (b) with respect to the eligible production of
qualified energy efficient appliances produced by the taxpayer during
the calendar year ending with or within the taxable year.
``(b) Applicable Amount; Eligible Production.--For purposes of
subsection (a)--
``(1) Applicable amount.--The applicable amount is--
``(A) $50, in the case of--
``(i) a clothes washer which is
manufactured with at least a 1.26 MEF, or
``(ii) a refrigerator which consumes at
least 10 percent less kWh per year than the
energy conservation standards for refrigerators
promulgated by the Department of Energy
effective July 1, 2001, and
``(B) $100, in the case of--
``(i) a clothes washer which is
manufactured with at least a 1.42 MEF (at least
1.5 MEF for washers produced after 2004), or
``(ii) a refrigerator which consumes at
least 15 percent less kWh per year than such
energy conservation standards.
``(2) Eligible production.--
``(A) In general.--The eligible production of each
category of qualified energy efficient appliances is
the excess of--
``(i) the number of appliances in such
category which are produced by the taxpayer
during such calendar year, over
``(ii) the average number of appliances in
such category which were produced by the
taxpayer during calendar years 2000, 2001, and
2002.
``(B) Categories.--For purposes of subparagraph
(A), the categories are--
``(i) clothes washers described in
paragraph (1)(A)(i),
``(ii) clothes washers described in
paragraph (1)(B)(i),
``(iii) refrigerators described in
paragraph (1)(A)(ii), and
``(iv) refrigerators described in paragraph
(1)(B)(ii).
``(c) Limitation on Maximum Credit.--
``(1) In general.--The maximum amount of credit allowed
under subsection (a) with respect to a taxpayer for all taxable
years shall be--
``(A) $30,000,000 with respect to the credit
determined under subsection (b)(1)(A), and
``(B) $30,000,000 with respect to the credit
determined under subsection (b)(1)(B).
``(2) Limitation based on gross receipts.--The credit
allowed under subsection (a) with respect to a taxpayer for the
taxable year shall not exceed an amount equal to 2 percent of
the average annual gross receipts of the taxpayer for the 3
taxable years preceding the taxable year in which the credit is
determined.
``(3) Gross receipts.--For purposes of this subsection, the
rules of paragraphs (2) and (3) of section 448(c) shall apply.
``(d) Definitions.--For purposes of this section--
``(1) Qualified energy efficient appliance.--The term
`qualified energy efficient appliance' means--
``(A) a clothes washer described in subparagraph
(A)(i) or (B)(i) of subsection (b)(1), or
``(B) a refrigerator described in subparagraph
(A)(ii) or (B)(ii) of subsection (b)(1).
``(2) Clothes washer.--The term `clothes washer' means a
residential clothes washer, including a residential style coin
operated washer.
``(3) Refrigerator.--The term `refrigerator' means an
automatic defrost refrigerator-freezer which has an internal
volume of at least 16.5 cubic feet.
``(4) MEF.--The term `MEF' means Modified Energy Factor (as
determined by the Secretary of Energy).
``(e) Special Rules.--
``(1) In general.--Rules similar to the rules of
subsections (c), (d), and (e) of section 52 shall apply for
purposes of this section.
``(2) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414 shall be treated as 1
person for purposes of subsection (a).
``(f) Verification.--The taxpayer shall submit such information or
certification as the Secretary, in consultation with the Secretary of
Energy, determines necessary to claim the credit amount under
subsection (a).
``(g) Termination.--This section shall not apply--
``(1) with respect to refrigerators described in subsection
(b)(1)(A)(ii) produced after December 31, 2004, and
``(2) with respect to all other qualified energy efficient
appliances produced after December 31, 2006.''.
(b) Limitation on Carryback.--Section 39(d) (relating to transition
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(14) No carryback of energy efficient appliance credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the energy
efficient appliance credit determined under section 45H may be
carried to a taxable year ending on or before the date of the
enactment of such section.''.
(c) Conforming Amendment.--Section 38(b) (relating to general
business credit), as amended by this Act, is amended by striking
``plus'' at the end of paragraph (17), by striking the period at the
end of paragraph (18) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(19) the energy efficient appliance credit determined
under section 45H(a).''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45H. Energy efficient appliance
credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to appliances produced after the  date of the enactment of this
Act, in taxable years ending after such date.

SEC. 303. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.

(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits) is amended by inserting
after section 25B the following new section:

``SEC. 25C. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the sum of--
``(1) 15 percent of the qualified photovoltaic property
expenditures made by the taxpayer during such year,
``(2) 15 percent of the qualified solar water heating
property expenditures made by the taxpayer during such year,
``(3) 30 percent of the qualified fuel cell property
expenditures made by the taxpayer during such year,
``(4) 30 percent of the qualified wind energy property
expenditures made by the taxpayer during such year, and
``(5) the sum of the qualified Tier 2 energy efficient
building property expenditures made by the taxpayer during such
year.
``(b) Limitations.--
``(1) Maximum credit.--The credit allowed under subsection
(a) shall not exceed--
``(A) $2,000 for property described in subsection
(d)(1),
``(B) $2,000 for property described in subsection
(d)(2),
``(C) $1,000 for each kilowatt of capacity of
property described in subsection (d)(4),
``(D) $2,000 for property described in subsection
(d)(5), and
``(E) for property described in subsection (d)(6)--
``(i) $75 for each electric heat pump water
heater,
``(ii) $250 for each electric heat pump,
``(iii) $250 for each advanced natural gas
furnace,
``(iv) $250 for each central air
conditioner,
``(v) $75 for each natural gas water
heater, and
``(vi) $250 for each geothermal heat pump.
``(2) Safety certifications.--No credit shall be allowed
under this section for an item of property unless--
``(A) in the case of solar water heating property,
such property is certified for performance and safety
by the non-profit Solar Rating Certification
Corporation or a comparable entity endorsed by the
government of the State in which such property is
installed,
``(B) in the case of a photovoltaic property, a
fuel cell property, or a wind energy property, such
property meets appropriate fire and electric code
requirements, and
``(C) in the case of property described in
subsection (d)(6), such property meets the performance
and quality standards, and the certification
requirements (if any), which--
``(i) have been prescribed by the Secretary
by regulations (after consultation with the
Secretary of Energy or the Administrator of the
Environmental Protection Agency, as
appropriate),
``(ii) in the case of the energy efficiency
ratio (EER)--
``(I) require measurements to be
based on published data which is tested
by manufacturers at 95 degrees
Fahrenheit, and
``(II) do not require ratings to be
based on certified data of the Air
Conditioning and Refrigeration
Institute, and
``(iii) are in effect at the time of the
acquisition of the property.
``(c) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for such
taxable year reduced by the sum of the credits allowable under this
subpart (other than this section and section 25D), such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year.
``(d) Definitions.--For purposes of this section--
``(1) Qualified solar water heating property expenditure.--
The term `qualified solar water heating property expenditure'
means an expenditure for property to heat water for use in a
dwelling unit located in the United States and used as a
residence by the taxpayer if at least half of the energy used
by such property for such purpose is derived from the sun.
``(2) Qualified photovoltaic property expenditure.--The
term `qualified photovoltaic property expenditure' means an
expenditure for property that uses solar energy to generate
electricity for use in such a dwelling unit.
``(3) Solar panels.--No expenditure relating to a solar
panel or other property installed as a roof (or portion
thereof) shall fail to be treated as property described in
paragraph (1) or (2) solely because it constitutes a structural
component of the structure on which it is installed.
``(4) Qualified fuel cell property expenditure.--The term
`qualified fuel cell property expenditure' means an expenditure
for qualified fuel cell property (as defined in section
48(a)(4)) installed on or in connection with such a dwelling
unit.
``(5) Qualified wind energy property expenditure.--The term
`qualified wind energy property expenditure' means an
expenditure for property which uses wind energy to generate
electricity for use in such a dwelling unit.
``(6) Qualified tier 2 energy efficient building property
expenditure.--
``(A) In general.--The term `qualified Tier 2
energy efficient building property expenditure' means
an expenditure for any Tier 2 energy efficient building
property.
``(B) Tier 2 energy efficient building property.--
The term `Tier 2 energy efficient building property'
means--
``(i) an electric heat pump water heater
which yields an energy factor of at least 1.7
in the standard Department of Energy test
procedure,
``(ii) an electric heat pump which has a
heating seasonal performance factor (HSPF) of
at least 9, a seasonal energy efficiency ratio
(SEER) of at least 15, and an energy efficiency
ratio (EER) of at least 12.5,
``(iii) an advanced natural gas furnace
which achieves at least 95 percent annual fuel
utilization efficiency (AFUE),
``(iv) a central air conditioner which has
a seasonal energy efficiency ratio (SEER) of at
least 15 and an energy efficiency ratio (EER)
of at least 12.5,
``(v) a natural gas water heater which has
an energy factor of at least 0.80 in the
standard Department of Energy test procedure,
and
``(vi) a geothermal heat pump which has an
energy efficiency ratio (EER) of at least 21.
``(7) Labor costs.--Expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property described in paragraph (1), (2),
(4), (5), or (6) and for piping or wiring to interconnect such
property to the dwelling unit shall be taken into account for
purposes of this section.
``(8) Swimming pools, etc., used as storage medium.--
Expenditures which are properly allocable to a swimming pool,
hot tub, or any other energy storage medium which has a
function other than the function of such storage shall not be
taken into account for purposes of this section.
``(e) Special Rules.--For purposes of this section--
``(1) Dollar amounts in case of joint occupancy.--In the
case of any dwelling unit which is jointly occupied and used
during any calendar year as a residence by 2 or more
individuals the following shall apply:
``(A) The amount of the credit allowable, under
subsection (a) by reason of expenditures (as the case
may be) made during such calendar year by any of such
individuals with respect to such dwelling unit shall be
determined by treating all of such individuals as 1
taxpayer whose taxable year is such calendar year.
``(B) There shall be allowable, with respect to
such expenditures to each of such individuals, a credit
under subsection (a) for the taxable year in which such
calendar year ends in an amount which bears the same
ratio to the amount determined under subparagraph (A)
as the amount of such expenditures made by such
individual during such calendar year bears to the
aggregate of such expenditures made by all of such
individuals during such calendar year.
``(2) Tenant-stockholder in cooperative housing
corporation.--In the case of an individual who is a tenant-
stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), such
individual shall be treated as having made his tenant-
stockholder's proportionate share (as defined in section
216(b)(3)) of any expenditures of such corporation.
``(3) Condominiums.--
``(A) In general.--In the case of an individual who
is a member of a condominium management association
with respect to a condominium which the individual
owns, such individual shall be treated as having made
the individual's proportionate share of any
expenditures of such association.
``(B) Condominium management association.--For
purposes of this paragraph, the term `condominium
management association' means an organization which
meets the requirements of paragraph (1) of section
528(c) (other than subparagraph (E) thereof) with
respect to a condominium project substantially all of
the units of which are used as residences.
``(4) Allocation in certain cases.--Except in the case of
qualified wind energy property expenditures, if less than 80
percent of the use of an item is for nonbusiness purposes, only
that portion of the expenditures for such item which is
properly allocable to use for nonbusiness purposes shall be
taken into account.
``(5) When expenditure made; amount of expenditure.--
``(A) In general.--Except as provided in
subparagraph (B), an expenditure with respect to an
item shall be treated as made when the original
installation of the item is completed.
``(B) Expenditures part of building construction.--
In the case of an expenditure in connection with the
construction or reconstruction of a structure, such
expenditure shall be treated as made when the original
use of the constructed or reconstructed structure by
the taxpayer begins.
``(C) Amount.--The amount of any expenditure shall
be the cost thereof.
``(6) Property financed by subsidized energy financing.--
For purposes of determining the amount of expenditures made by
any individual with respect to any dwelling unit, there shall
not be taken into account expenditures which are made from
subsidized energy financing (as defined in section
48(a)(5)(C)).
``(f) Basis Adjustments.--For purposes of this subtitle, if a
credit is allowed under this section for any expenditure with respect
to any property, the increase in the basis of such property which would
(but for this subsection) result from such expenditure shall be reduced
by the amount of the credit so allowed.
``(g) Termination.--The credit allowed under this section shall not
apply to expenditures after December 31, 2007.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25C(b), as added by subsection
(a), is amended by adding at the end the following new
paragraph:
``(3) Limitation based on amount of tax.--The credit
allowed under subsection (a) for the taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section and section 25D) and
section 27 for the taxable year.''.
(2) Conforming amendments.--
(A) Section 25C(c), as added by subsection (a), is
amended by striking ``section 26(a) for such taxable
year reduced by the sum of the credits allowable under
this subpart (other than this section and section
25D)'' and inserting ``subsection (b)(3)''.
(B) Section 23(b)(4)(B) is amended by inserting
``and section 25C'' after ``this section''.
(C) Section 24(b)(3)(B) is amended by striking ``23
and 25B'' and inserting ``23, 25B, and 25C''.
(D) Section 25(e)(1)(C) is amended by inserting
``25C,'' after ``25B,''.
(E) Section 25B(g)(2) is amended by striking
``section 23'' and inserting ``sections 23 and 25C''.
(F) Section 26(a)(1) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(G) Section 904(h) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(H) Section 1400C(d) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(c) Additional Conforming Amendments.--
(1) Section 23(c), as in effect for taxable years beginning
before January 1, 2004, is amended by striking ``section
1400C'' and inserting ``sections 25C and 1400C''.
(2) Section 25(e)(1)(C), as in effect for taxable years
beginning before January 1, 2004, is amended by inserting ``,
25Cs,'' after ``sections 23''.
(3) Subsection (a) of section 1016, as amended by this Act,
is amended by striking ``and'' at the end of paragraph (29), by
striking the period at the end of paragraph (30) and inserting
``, and'', and by adding at the end the following new
paragraph:
``(31) to the extent provided in section 25C(f), in the
case of amounts with respect to which a credit has been allowed
under section 25C.''.
(4) Section 1400C(d), as in effect for taxable years
beginning before January 1, 2004, is amended by inserting ``and
section 25C'' after ``this section''.
(5) The table of sections for subpart A of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 25B the following new item:

``Sec. 25C. Residential energy efficient
property.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to expenditures
after the date of the enactment of this Act, in taxable years
ending after such date.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2003.

SEC. 304. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS AND
STATIONARY MICROTURBINE POWER PLANTS.

(a) In General.--Subparagraph (A) of section 48(a)(3) (defining
energy property) is amended by striking ``or'' at the end of clause
(i), by adding ``or'' at the end of clause (ii), and by inserting after
clause (ii) the following new clause:
``(iii) qualified fuel cell property or
qualified microturbine property,''.
(b) Qualified Fuel Cell Property; Qualified Microturbine
Property.--Subsection (a) of section 48 is amended by redesignating
paragraphs (4) and (5) as paragraphs (5) and (6), respectively, and by
inserting after paragraph (3) the following new paragraph:
``(4) Qualified fuel cell property; qualified microturbine
property.--For purposes of this subsection--
``(A) Qualified fuel cell property.--
``(i) In general.--The term `qualified fuel
cell property' means a fuel cell power plant
that--
``(I) generates at least 0.5
kilowatt of electricity using an
electrochemical process, and
``(II) has an electricity-only
generation efficiency greater than 30
percent.
``(ii) Limitation.--In the case of
qualified fuel cell property placed in service
during the taxable year, the credit determined
under paragraph (1) for such year with respect
to such property shall not exceed an amount
equal to the lesser of--
``(I) 30 percent of the basis of
such property, or
``(II) $500 for each 0.5 kilowatt
of capacity of such property.
``(iii) Fuel cell power plant.--The term
`fuel cell power plant' means an integrated
system comprised of a fuel cell stack assembly
and associated balance of plant components that
converts a fuel into electricity using
electrochemical means.
``(iv) Termination.--Such term shall not
include any property placed in service after
December 31, 2007.
``(B) Qualified microturbine property.--
``(i) In general.--The term `qualified
microturbine property' means a stationary
microturbine power plant which has an
electricity-only generation efficiency not less
than 26 percent at International Standard
Organization conditions.
``(ii) Limitation.--In the case of
qualified microturbine property placed in
service during the taxable year, the credit
determined under paragraph (1) for such year
with respect to such property shall not exceed
an amount equal to the lesser of--
``(I) 10 percent of the basis of
such property, or
``(II) $200 for each kilowatt of
capacity of such property.
``(iii) Stationary microturbine power
plant.--The term `stationary microturbine power
plant' means a system comprising of a rotary
engine which is actuated by the aerodynamic
reaction or impulse or both on radial or axial
curved full-circumferential-admission airfoils
on a central axial rotating spindle. Such
system--
``(I) commonly includes an air
compressor, combustor, gas pathways
which lead compressed air to the
combustor and which lead hot combusted
gases from the combustor to 1 or more
rotating turbine spools, which in turn
drive the compressor and power output
shaft,
``(II) includes a fuel compressor,
recuperator/regenerator, generator or
alternator, integrated combined cycle
equipment, cooling-heating-and-power
equipment, sound attenuation apparatus,
and power conditioning equipment, and
``(III) includes all secondary
components located between the existing
infrastructure for fuel delivery and
the existing infrastructure for power
distribution, including equipment and
controls for meeting relevant power
standards, such as voltage, frequency,
and power factors.
``(iv) Termination.--Such term shall not
include any property placed in service after
December 31, 2006.''.
(c) Limitation.--Section 48(a)(2)(A) (relating to energy
percentage) is amended to read as follows:
``(A) In general.--The energy percentage is--
``(i) in the case of qualified fuel cell
property, 30 percent, and
``(ii) in the case of any other energy
property, 10 percent.''.
(d) Conforming Amendments.--
(A) Section 29(b)(3)(A)(i)(III) is amended by
striking ``section 48(a)(4)(C)'' and inserting
``section 48(a)(5)(C)''.
(B) Section 48(a)(1) is amended by inserting
``except as provided in subparagraph (A)(ii) or (B)(ii)
of paragraph (4),'' before ``the energy''.
(e) Effective Date.--The amendments made by this subsection shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date, under rules similar
to the rules of section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990).

SEC. 305. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

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

``SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

``(a) In General.--There shall be allowed as a deduction for the
taxable year an amount equal to the energy efficient commercial
building property expenditures made by a taxpayer for the taxable year.
``(b) Maximum Amount of Deduction.--The amount of energy efficient
commercial building property expenditures taken into account under
subsection (a) shall not exceed an amount equal to the product of--
``(1) $2.25, and
``(2) the square footage of the building with respect to
which the expenditures are made.
``(c) Year Deduction Allowed.--The deduction under subsection (a)
shall be allowed in the taxable year in which the construction of the
building is completed.
``(d) Energy Efficient Commercial Building Property Expenditures.--
For purposes of this section--
``(1) In general.--The term `energy efficient commercial
building property expenditures' means an amount paid or
incurred for energy efficient commercial building property
installed on or in connection with new construction or
reconstruction of property--
``(A) for which depreciation is allowable under
section 167,
``(B) which is located in the United States, and
``(C) the construction or erection of which is
completed by the taxpayer.
Such property includes all residential rental property,
including low-rise multifamily structures and single family
housing property which is not within the scope of Standard
90.1-1999 (described in paragraph (2)). Such term includes
expenditures for labor costs properly allocable to the onsite
preparation, assembly, or original installation of the
property.
``(2) Energy efficient commercial building property.--For
purposes of paragraph (1)--
``(A) In general.--The term `energy efficient
commercial building property' means any property which
reduces total annual energy and power costs with
respect to the lighting, heating, cooling, ventilation,
and hot water supply systems of the building by 50
percent or more in comparison to a reference building
which meets the requirements of Standard 90.1-1999 of
the American Society of Heating, Refrigerating, and Air
Conditioning Engineers and the Illuminating Engineering
Society of North America using methods of calculation
under subparagraph (B) and certified by qualified
professionals as provided under paragraph (5).
``(B) Methods of calculation.--The Secretary, in
consultation with the Secretary of Energy, shall
promulgate regulations which describe in detail methods
for calculating and verifying energy and power
consumption and cost, taking into consideration the
provisions of the 2001 California Nonresidential
Alternative Calculation Method Approval Manual. These
regulations shall meet the following requirements:
``(i) In calculating tradeoffs and energy
performance, the regulations shall prescribe
the costs per unit of energy and power, such as
kilowatt hour, kilowatt, gallon of fuel oil,
and cubic foot or Btu of natural gas, which may
be dependent on time of usage.
``(ii) The calculational methodology shall
require that compliance be demonstrated for a
whole building. If some systems of the
building, such as lighting, are designed later
than other systems of the building, the method
shall provide that either--
``(I) the expenses taken into
account under paragraph (1) shall not
occur until the date designs for all
energy-using systems of the building
are completed,
``(II) the energy performance of
all systems and components not
yet designed shall be assumed to comply minimally with the requirements
of such Standard 90.1-1999, or
``(III) the expenses taken into
account under paragraph (1) shall be a
fraction of such expenses based on the
performance of less than all energy-
using systems in accordance with clause
(iii).
``(iii) The expenditures in connection with
the design of subsystems in the building, such
as the envelope, the heating, ventilation, air
conditioning and water heating system, and the
lighting system shall be allocated to the
appropriate building subsystem based on system-
specific energy cost savings targets in
regulations promulgated by the Secretary of
Energy which are equivalent, using the
calculation methodology, to the whole building
requirement of 50 percent savings.
``(iv) The calculational methods under this
subparagraph need not comply fully with section
11 of such Standard 90.1-1999.
``(v) The calculational methods shall be
fuel neutral, such that the same energy
efficiency features shall qualify a building
for the deduction under this subsection
regardless of whether the heating source is a
gas or oil furnace or an electric heat pump.
``(vi) The calculational methods shall
provide appropriate calculated energy savings
for design methods and technologies not
otherwise credited in either such Standard
90.1-1999 or in the 2001 California
Nonresidential Alternative Calculation Method
Approval Manual, including the following:
``(I) Natural ventilation.
``(II) Evaporative cooling.
``(III) Automatic lighting controls
such as occupancy sensors, photocells,
and timeclocks.
``(IV) Daylighting.
``(V) Designs utilizing semi-
conditioned spaces that maintain
adequate comfort conditions without air
conditioning or without heating.
``(VI) Improved fan system
efficiency, including reductions in
static pressure.
``(VII) Advanced unloading
mechanisms for mechanical cooling, such
as multiple or variable speed
compressors.
``(VIII) The calculational methods
may take into account the extent of
commissioning in the building, and
allow the taxpayer to take into account
measured performance that exceeds
typical performance.
``(C) Computer software.--
``(i) In general.--Any calculation under
this paragraph shall be prepared by qualified
computer software.
``(ii) Qualified computer software.--For
purposes of this subparagraph, the term
`qualified computer software' means software--
``(I) for which the software
designer has certified that the
software meets all procedures and
detailed methods for calculating energy
and power consumption and costs as
required by the Secretary,
``(II) which provides such forms as
required to be filed by the Secretary
in connection with energy efficiency of
property and the deduction allowed
under this subsection, and
``(III) which provides a notice
form which summarizes the energy
efficiency features of the building and
its projected annual energy costs.
``(3) Allocation of deduction for public property.--In the
case of energy efficient commercial building property installed
on or in public property, the Secretary shall promulgate a
regulation to allow the allocation of the deduction to the
person primarily responsible for designing the property in lieu
of the public entity which is the owner of such property. Such
person shall be treated as the taxpayer for purposes of this
subsection.
``(4) Notice to owner.--The qualified individual shall
provide an explanation to the owner of the building regarding
the energy efficiency features of the building and its
projected annual energy costs as provided in the notice under
paragraph (2)(C)(ii)(III).
``(5) Certification.--
``(A) In general.--Except as provided in this
paragraph, the Secretary shall prescribe procedures for
the inspection and testing for compliance of buildings
that are comparable, given the difference between
commercial and residential buildings, to the
requirements in the Mortgage Industry National
Accreditation Procedures for Home Energy Rating
Systems.
``(B) Qualified individuals.--Individuals qualified
to determine compliance shall be only those individuals
who are recognized by an organization certified by the
Secretary for such purposes. The Secretary may qualify
a Home Ratings Systems Organization, a local building
code agency, a State or local energy office, a utility,
or any other organization which meets the requirements
prescribed under this section.
``(C) Proficiency of qualified individuals.--The
Secretary shall consult with nonprofit organizations
and State agencies with expertise in energy efficiency
calculations and inspections to develop proficiency
tests and training programs to qualify individuals to
determine compliance.
``(e) Basis Reduction.--For purposes of this subtitle, if a
deduction is allowed under this section with respect to any energy
efficient commercial building property, the basis of such property
shall be reduced by the amount of the deduction so allowed.
``(f) Regulations.--The Secretary shall promulgate such regulations
as necessary to take into account new technologies regarding energy
efficiency and renewable energy for purposes of determining energy
efficiency and savings under this section.
``(g) Termination.--This section shall not apply with respect to
any energy efficient commercial building property expenditures in
connection with property--
``(1) the plans for which are not certified under
subsection (d)(5) on or before December 31, 2007, and
``(2) the construction of which is not completed on or
before December 31, 2009.''.
(b) Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (30), by striking the
period at the end of paragraph  (31) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(32) to the extent provided in section 179B(e).''.
(2) Section 1245(a) is amended by inserting ``179B,'' after
``179A,'' both places it appears in paragraphs (2)(C) and
(3)(C).
(3) Section 1250(b)(3) is amended by inserting before the
period at the end of the first sentence ``or by section 179B''.
(4) Section 263(a)(1) is amended by striking ``or'' at the
end of subparagraph (G), by striking the period at the end of
subparagraph (H) and inserting ``, or'', and by inserting after
subparagraph (H) the following new subparagraph:
``(I) expenditures for which a deduction is allowed
under section 179B.''.
(5) Section 312(k)(3)(B) is amended by striking ``or 179A''
each place it appears in the heading and text and inserting ``,
179A, or 179B''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after section 179A
the following new item:

``Sec. 179B. Energy efficient commercial
buildings deduction.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 306. ALLOWANCE OF DEDUCTION FOR QUALIFIED NEW OR RETROFITTED
ENERGY MANAGEMENT DEVICES.

(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations), as amended by
this Act, is amended by inserting after section 179B the following new
section:

``SEC. 179C. DEDUCTION FOR QUALIFIED NEW OR RETROFITTED ENERGY
MANAGEMENT DEVICES.

``(a) Allowance of Deduction.--In the case of a taxpayer who is a
supplier of electric energy or natural gas or a provider of electric
energy or natural gas services, there shall be allowed as a deduction
an amount equal to the cost of each qualified energy management device
placed in service during the taxable year.
``(b) Maximum Deduction.--The deduction allowed by this section
with respect to each qualified energy management device shall not
exceed $30.
``(c) Qualified Energy Management Device.--The term `qualified
energy management device' means any tangible property to which section
168 applies if such property is a meter or metering device--
``(1) which is acquired and used by the taxpayer to enable
consumers to manage their purchase or use of electricity or
natural gas in response to energy price and usage signals, and
``(2) which permits reading of energy price and usage
signals on at least a daily basis.
``(d) Property Used Outside the United States Not Qualified.--No
deduction shall be allowed under subsection (a) with respect to
property which is used predominantly outside the United States or with
respect to the portion of the cost of any property taken into account
under section 179.
``(e) Basis Reduction.--
``(1) In general.--For purposes of this title, the basis of
any property shall be reduced by the amount of the deduction
with respect to such property which is allowed by subsection
(a).
``(2) Ordinary income recapture.--For purposes of section
1245, the amount of the deduction allowable under subsection
(a) with respect to any property that is of a character subject
to the allowance for depreciation shall be treated as a
deduction allowed for depreciation under section 167.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ``or'' at the end of subparagraph (H), by striking
the period at the end of subparagraph (I) and inserting ``,
or'', and by inserting after subparagraph (I) the following new
subparagraph:
``(J) expenditures for which a deduction is allowed
under section 179C.''.
(2) Section 312(k)(3)(B), as amended by this Act, is
amended by striking ``or 179B'' each place it appears in the
heading and text and inserting ``, 179B, or 179C''.
(3) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (31), by striking the
period at the end of paragraph (32) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(33) to the extent provided in section 179C(e)(1).''.
(4) Section 1245(a), as amended by this Act, is amended by
inserting ``179C,'' after ``179B,'' both places it appears in
paragraphs (2)(C) and (3)(C).
(5) The table of contents for subpart B of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 179B the
following new item:

``Sec. 179C. Deduction for qualified new
or retrofitted energy
management devices.''.
(c) Effective Date.--The amendments made by this section shall
apply to qualified energy management devices placed in service after
the date of the enactment of this Act, in taxable years ending after
such date.

SEC. 307. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF
QUALIFIED ENERGY MANAGEMENT DEVICES.

(a) In General.--Subparagraph (A) of section 168(e)(3) (relating to
classification of property) is amended by striking ``and'' at the end
of clause (ii), by striking the period at the end of clause (iii) and
inserting ``, and'', and by adding at the end the following new clause:
``(iv) any qualified energy management
device.''.
(b) Definition of Qualified Energy Management Device.--Section
168(i) (relating to definitions and special rules) is amended by
inserting at the end the following new paragraph:
``(15) Qualified energy management device.--The term
`qualified energy management device' means any qualified energy
management device as defined in section 179C(c) which is placed
in  service by a taxpayer who is a supplier of electric energy
or natural gas or a provider of electric energy or natural gas
services.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 308. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

(a) In General.--Subparagraph (A) of section 48(a)(3) (defining
energy property), as amended by this Act, is amended by striking ``or''
at the end of clause (ii), by adding ``or'' at the end of clause (iii),
and by inserting after clause (iii) the following new clause:
``(iv) combined heat and power system
property,''.
(b) Combined Heat and Power System Property.--Subsection (a) of
section 48, as amended by this Act, is amended by redesignating
paragraphs (5) and (6) as paragraphs (6) and (7), respectively, and by
inserting after paragraph (4) the following new paragraph:
``(5) Combined heat and power system property.--For
purposes of this subsection--
``(A) Combined heat and power system property.--The
term `combined heat and power system property' means
property comprising a system--
``(i) which uses the same energy source for
the simultaneous or sequential generation of
electrical power, mechanical shaft power, or
both, in combination with the generation of
steam or other forms of useful thermal energy
(including heating and cooling applications),
``(ii) which has an electrical capacity of
more than 50 kilowatts or a mechanical energy
capacity of more than 67 horsepower or an
equivalent combination of electrical and
mechanical energy capacities,
``(iii) which produces--
``(I) at least 20 percent of its
total useful energy in the form of
thermal energy, and
``(II) at least 20 percent of its
total useful energy in the form of
electrical or mechanical power (or
combination thereof),
``(iv) the energy efficiency percentage of
which exceeds 60 percent (70 percent in the
case of a system with an electrical capacity in
excess of 50 megawatts or a mechanical energy
capacity in excess of 67,000 horsepower, or an
equivalent combination of electrical and
mechanical energy capacities), and
``(v) which is placed in service after the
date of the enactment of this paragraph, and
before January 1, 2007.
``(B) Special rules.--
``(i) Energy efficiency percentage.--For
purposes of subparagraph (A)(iv), the energy
efficiency percentage of a system is the
fraction--
``(I) the numerator of which is the
total useful electrical, thermal, and
mechanical power produced by the system
at normal operating rates, and expected
to be consumed in its normal
application, and
``(II) the denominator of which is
the lower heating value of the primary
fuel source for the system.
``(ii) Determinations made on btu basis.--
The energy efficiency percentage and the
percentages under subparagraph (A)(iii) shall
be determined on a Btu basis.
``(iii) Input and output property not
included.--The term `combined heat and power
system property' does not include property used
to transport the energy source to the facility
or to distribute energy produced by the
facility.
``(iv) Public utility property.--
``(I) Accounting rule for public
utility property.--If the combined heat
and power system property is public
utility property (as defined in section
168(i)(10)), the taxpayer may only
claim the credit under the subsection
if, with respect to such property, the
taxpayer uses a normalization method of
accounting.
``(II) Certain exception not to
apply.--The matter following paragraph
(3)(D) shall not apply to combined heat
and power system property.
``(v) Nonapplication of certain rules.--
For purposes of determining if the term
`combined heat and power system property'
includes technologies which generate
electricity or mechanical power using back-
pressure steam turbines in place of existing
pressure-reducing valves or which make use of
waste heat from industrial processes such as by
using organic rankin, stirling, or kalina heat
engine systems, subparagraph (A) shall be
applied without regard to clauses (iii) and
(iv) thereof.
``(C) Extension of depreciation recovery period.--
If a taxpayer is allowed credit under this section for
combined heat and power system property and such
property would (but for this subparagraph) have a class
life of 15 years or less under section 168, such
property shall be treated as having a 22-year class
life for purposes of section 168.''.
(c) No Carryback of Energy Credit Before Effective Date.--
Subsection (d) of section 39, as amended by this Act, is amended by
adding at the end the following new paragraph:
``(15) No carryback of energy credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the energy credit with respect to
property described in section 48(a)(5) may be carried back to a
taxable year ending on or before the date of the enactment of
such section.''.
(d) Conforming Amendments.--
(A) Section 25C(e)(6), as added by this Act, is
amended by striking ``section 48(a)(5)(C)'' and
inserting ``section 48(a)(6)(C)''.
(B) Section 29(b)(3)(A)(i)(III), as amended by this
Act, is amended by striking ``section 48(a)(5)(C)'' and
inserting ``section 48(a)(6)(C)''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 309. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits), as amended by this Act,
is amended by inserting after section 25C the following new section:

``SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to 10 percent of the amount paid
or incurred by the taxpayer for qualified energy efficiency
improvements installed during such taxable year.
``(b) Limitations.--
``(1) Maximum credit.--The credit allowed by this section
with respect to a dwelling shall not exceed $300.
``(2) Prior credit amounts for taxpayer on same dwelling
taken into account.--If a credit was allowed to the taxpayer
under subsection (a) with respect to a dwelling in 1 or more
prior taxable years, the amount of the credit otherwise
allowable for the taxable year with respect to that dwelling
shall not exceed the amount of $300 reduced by the sum of the
credits allowed under subsection (a) to the taxpayer with
respect to the dwelling for all prior taxable years.
``(c) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for such
taxable year reduced by the sum of the credits allowable under this
subpart (other than this section) for any taxable year, such excess
shall be carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year.
``(d) Qualified Energy Efficiency Improvements.--For purposes of
this section, the term `qualified energy efficiency improvements' means
any energy efficient building envelope component which is certified to
meet or exceed the prescriptive criteria for such component in the 2000
International Energy Conservation Code, any energy efficient building
envelope component which is described in subsection (f)(4)(B) and is
certified by the Energy Star program managed jointly by the
Environmental Protection Agency and the Department of Energy, or any
combination of energy efficiency measures which are certified as
achieving at least a 30 percent reduction in heating and cooling energy
usage for the dwelling (as measured in terms of energy cost to the
taxpayer), if--
``(1) such component or combination of measures is
installed in or on a dwelling--
``(A) located in the United States, and
``(B) owned and used by the taxpayer as the
taxpayer's principal residence (within the meaning of
section 121),
``(2) the original use of such component or combination of
measures commences with the taxpayer, and
``(3) such component or combination of measures reasonably
can be expected to remain in use for at least 5 years.
``(e) Certification.--
``(1) Methods of certification.--
``(A) Component-based method.--The certification
described in subsection (d) for any component described
in such subsection shall be determined on the basis of
applicable energy efficiency ratings (including product
labeling requirements) for affected building envelope
components.
``(B) Performance-based method.--
``(i) In general.--The certification
described in subsection (d) for any combination
of measures described in such subsection shall
be--
``(I) determined by comparing the
projected heating and cooling energy
usage for the dwelling to such usage
for such dwelling in its original
condition, and
``(II) accompanied by a written
analysis documenting the proper
application of a permissible energy
performance calculation method to the
specific circumstances of such
dwelling.
``(ii) Computer software.--Computer
software shall be used in support of a
performance-based method certification under
clause (i). Such software shall meet procedures
and methods for calculating energy and cost
savings in regulations promulgated by the
Secretary of Energy. Such regulations on the
specifications for software and verification
protocols shall be based on the 2001 California
Residential Alternative Calculation Method
Approval Manual.
``(2) Provider.--A certification described in subsection
(d) shall be provided by--
``(A) in the case of the method described in
paragraph (1)(A), by a third party, such as a local
building regulatory authority, a utility, a
manufactured home production inspection primary
inspection agency (IPIA), or a home energy rating
organization, or
``(B) in the case of the method described in
paragraph (1)(B), an individual recognized by an
organization designated by the Secretary for such
purposes.
``(3) Form.--A certification described in subsection (d)
shall be made in writing on forms which specify in readily
inspectable fashion the energy efficient components and other
measures and their respective efficiency ratings, and which
include a permanent label affixed to the electrical
distribution panel of the dwelling.
``(4) Regulations.--
``(A) In general.--In prescribing regulations under
this subsection for certification methods described in
paragraph (1)(B), the Secretary, after examining the
requirements for energy consultants and home energy
ratings providers specified by the Mortgage Industry
National Accreditation Procedures for Home Energy
Rating Systems, shall prescribe procedures for
calculating annual energy usage and cost reductions for
heating and cooling and for the reporting of the
results. Such regulations shall--
``(i) provide that any calculation
procedures be fuel neutral such that the same
energy efficiency measures allow a dwelling to
be eligible for the credit under this section
regardless of whether such dwelling uses a gas
or oil furnace or boiler or an electric heat
pump, and
``(ii) require that any computer software
allow for the printing of the Federal tax forms
necessary for the credit under this section and
for the printing of forms for disclosure to the
owner of the dwelling.
``(B) Providers.--For purposes of paragraph (2)(B),
the Secretary shall establish requirements for the
designation of individuals based on the requirements
for energy consultants and home energy raters specified
by the Mortgage Industry National Accreditation
Procedures for Home Energy Rating Systems.
``(f) Definitions and Special Rules.--For purposes of this
section--
``(1) Dollar amounts in case of joint occupancy.--In the
case of any dwelling unit which is jointly occupied and used
during any calendar year as a residence by 2 or more individuals the
following shall apply:
``(A) The amount of the credit allowable under
subsection (a) by reason of expenditures for the
qualified energy efficiency improvements made during
such calendar year by any of such individuals with
respect to such dwelling unit shall be determined by
treating all of such individuals as 1 taxpayer whose
taxable year is such calendar year.
``(B) There shall be allowable, with respect to
such expenditures to each of such individuals, a credit
under subsection (a) for the taxable year in which such
calendar year ends in an amount which bears the same
ratio to the amount determined under subparagraph (A)
as the amount of such expenditures made by such
individual during such calendar year bears to the
aggregate of such expenditures made by all of such
individuals during such calendar year.
``(2) Tenant-stockholder in cooperative housing
corporation.--In the case of an individual who is a tenant-
stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), such
individual shall be treated as having paid his tenant-
stockholder's proportionate share (as defined in section
216(b)(3)) of the cost of qualified energy efficiency
improvements made by such corporation.
``(3) Condominiums.--
``(A) In general.--In the case of an individual who
is a member of a condominium management association
with respect to a condominium which the individual
owns, such individual shall be treated as having paid
the individual's proportionate share of the cost of
qualified energy efficiency improvements made by such
association.
``(B) Condominium management association.--For
purposes of this paragraph, the term `condominium
management association' means an organization which
meets the requirements of paragraph (1) of section
528(c) (other than subparagraph (E) thereof) with
respect to a condominium project substantially all of
the units of which are used as residences.
``(4) Building envelope component.--The term `building
envelope component' means--
``(A) insulation material or system which is
specifically and primarily designed to reduce the heat
loss or gain or a dwelling when installed in or on such
dwelling,
``(B) exterior windows (including skylights), and
``(C) exterior doors.
``(5) Manufactured homes included.--For purposes of this
section, the term `dwelling' includes a manufactured home which
conforms to Federal Manufactured Home Construction and Safety
Standards (24 C.F.R. 3280).
``(g) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section for any expenditure with respect to any
property, the increase in the basis of such property which would (but
for this subsection) result from such expenditure shall be reduced by
the amount of the credit so allowed.
``(h) Application of Section.--Subsection (a) shall apply to
qualified energy efficiency improvements installed during the period
beginning on the date of the enactment of this section and ending on
December 31, 2006.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25D(b), as added by subsection
(a), is amended by adding at the end the following new
paragraph:
``(3) Limitation based on amount of tax.--The credit
allowed under subsection (a) for the taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section) and section 27 for
the taxable year.''.
(2) Conforming amendments.--
(A) Section 25D(c), as added by subsection (a), is
amended by striking ``section 26(a) for such taxable
year reduced by the sum of the credits allowable under
this subpart (other than this section)'' and inserting
``subsection (b)(3)''.
(B) Section 23(b)(4)(B), as amended by this Act, is
amended by striking ``section 25C'' and inserting
``sections 25C and 25D''.
(C) Section 24(b)(3)(B), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(D) Section 25(e)(1)(C), as amended by this Act, is
amended by inserting ``25D,'' after ``25C,''.
(E) Section 25B(g)(2), as amended by this Act, is
amended by striking ``23 and 25C'' and inserting ``23,
25C, and 25D''.
(F) Section 26(a)(1), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(G) Section 904(h), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(H) Section 1400C(d), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(c) Additional Conforming Amendments.--
(1) Section 23(c), as in effect for taxable years beginning
before January 1, 2004, and as amended by this Act, is amended
by inserting ``, 25D,'' after ``sections 25C''.
(2) Section 25(e)(1)(C), as in effect for taxable years
beginning before January 1, 2004, and as amended by this Act,
is amended by inserting ``25D,'' after ``25C,''.
(3) Subsection (a) of section 1016, as amended by this Act,
is amended by striking ``and'' at the end of paragraph (32), by
striking the period at the end of paragraph (33) and inserting
``; and'', and by adding at the end the following new
paragraph:
``(34) to the extent provided in section 25D(f), in the
case of amounts with respect to which a credit has been allowed
under section 25D.''.
(4) Section 1400C(d), as in effect for taxable years
beginning before January 1, 2004, and as amended by this Act,
is amended by striking ``section 25C'' and inserting ``sections
25C and 25D''.
(5) The table of sections for subpart A of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 25C the
following new item:

``Sec. 25D. Energy efficiency
improvements to existing
homes.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to expenditures
after the date of the enactment of this Act, in taxable years
ending after such date.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2003.

SEC. 310. ALLOWANCE OF DEDUCTION FOR QUALIFIED NEW OR RETROFITTED WATER
SUBMETERING DEVICES.

(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations), as amended by
section 503, is amended by inserting after section 179D the following
new section:

``SEC. 179E. DEDUCTION FOR QUALIFIED NEW OR RETROFITTED WATER
SUBMETERING DEVICES.

``(a) Allowance of Deduction.--In the case of a taxpayer who is an
eligible resupplier, there shall be allowed as a deduction an amount
equal to the cost of each qualified water submetering device placed in
service during the taxable year.
``(b) Maximum Deduction.--The deduction allowed by this section
with respect to each qualified water submetering device shall not
exceed $30.
``(c) Eligible Resupplier.--For purposes of this section, the term
`eligible resupplier' means any taxpayer who purchases and installs
qualified water submetering devices in every unit in any multi-unit
property.
``(d) Qualified Water Submetering Device.--The term `qualified
water submetering device' means any tangible property to which section
168 applies if such property is a submetering device (including
ancillary equipment)--
``(1) which is purchased and installed by the taxpayer to
enable consumers to manage their purchase or use of water in
response to water price and usage signals, and
``(2) which permits reading of water price and usage
signals on at least a daily basis.
``(e) Property Used Outside the United States Not Qualified.--No
deduction shall be allowed under subsection (a) with respect to
property which is used predominantly outside the United States or with
respect to the portion of the cost of any property taken into account
under section 179.
``(f) Basis Reduction.--
``(1) In general.--For purposes of this title, the basis of
any property shall be reduced by the amount of the deduction
with respect to such property which is allowed by subsection
(a).
``(2) Ordinary income recapture.--For purposes of section
1245, the amount of the deduction allowable under subsection
(a) with respect to any property that is of a character subject
to the allowance for depreciation shall be treated as a
deduction allowed for depreciation under section 167.
``(g) Termination.--This section shall not apply to any property
placed in service after December 31, 2007.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by section 503, is
amended by striking ``or'' at the end of subparagraph (J), by
striking the period at the end of subparagraph (K) and
inserting ``, or'', and by inserting after subparagraph (K) the
following new subparagraph:
``(L) expenditures for which a deduction is allowed
under section 179E.''.
(2) Section 312(k)(3)(B), as amended by section 503, is
amended by striking ``or 179D'' each place it appears in the
heading and text and inserting ``, 179D, or 179E''.
(3) Section 1016(a), as amended by section 503, is amended
by striking ``and'' at the end of paragraph (34), by striking
the period at the end of paragraph (35) and inserting ``,
and'', and by adding at the end the following new paragraph:
``(36) to the extent provided in section 179E(f)(1).''.
(4) Section 1245(a), as amended by section 503, is amended
by inserting ``179E,'' after ``179D,'' both places it appears
in paragraphs (2)(C) and (3)(C).
(5) The table of contents for subpart B of part IV of
subchapter A of chapter 1, as amended by section 503, is
amended by inserting after the item relating to section 179D
the following new item:

``Sec. 179E. Deduction for qualified new
or retrofitted water
submetering devices.''.
(c) Effective Date.--The amendments made by this section shall
apply to qualified water submetering devices placed in service after
the date of the enactment of this Act, in taxable years ending after
such date.

SEC. 311. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF
QUALIFIED WATER SUBMETERING DEVICES.

(a) In General.--Subparagraph (A) of section 168(e)(3) (relating to
classification of property), as amended by this Act, is amended by
striking ``and'' at the end of clause (iii), by striking the period at
the end of clause (iv) and inserting ``, and'', and by adding at the
end the following new clause:
``(v) any qualified water submetering
device.''.
(b) Definition of Qualified Water Submetering Device.--Section
168(i) (relating to definitions and special rules), as amended by this
Act, is amended by inserting at the end the following new paragraph:
``(16) Qualified water submetering device.--The term
`qualified water submetering device' means any qualified water
submetering device (as defined in section 179E(d)) which is
placed in service before January 1, 2008, by a taxpayer who is
an eligible resupplier (as defined in section 179E(c)).''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements
in Existing Coal-Based Electricity Generation Facilities

SEC. 401. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY
UNIT.

(a) Credit for Production From a Qualifying Clean Coal Technology
Unit.--Subpart D of part IV of subchapter A of chapter 1 (relating to
business related credits), as amended by this Act, is amended by adding
at the end the following new section:

``SEC. 45I. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL
TECHNOLOGY UNIT.

``(a) General Rule.--For purposes of section 38, the qualifying
clean coal technology production credit of any taxpayer for any taxable
year is equal to the product of--
``(1) the applicable amount of clean coal technology
production credit, multiplied by
``(2) the applicable percentage of the kilowatt hours of
electricity produced by the taxpayer during such taxable year
at a qualifying clean coal technology unit, but only if such
production occurs during the 10-year period beginning on the
date the unit was returned to service after becoming a
qualifying clean coal technology unit.
``(b) Applicable Amount.--
``(1) In general.--For purposes of this section, the
applicable amount of clean coal technology production credit is
equal to $0.0034.
``(2) Inflation adjustment.--For calendar years after 2004,
the applicable amount of clean coal technology production
credit shall be adjusted by multiplying such amount by the
inflation adjustment factor for the calendar year in which the
amount is applied. If any amount as increased under the
preceding sentence is not a multiple of 0.01 cent, such amount
shall be rounded to the nearest multiple of 0.01 cent.
``(c) Applicable Percentage.--For purposes of this section, with
respect to any qualifying clean coal technology unit, the applicable
percentage is the percentage equal to the ratio which the portion of
the national megawatt capacity limitation allocated to the taxpayer
with respect to such unit under subsection (e) bears to the total
megawatt capacity of such unit.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Qualifying clean coal technology unit.--The term
`qualifying clean coal technology unit' means a clean coal
technology unit of the taxpayer which--
``(A) on the date of the enactment of this section
was a coal-based electricity generating steam
generator-turbine unit which was not a clean coal
technology unit,
``(B) has a nameplate capacity rating of not more
than 300,000 kilowatts,
``(C) becomes a clean coal technology unit as the
result of the retrofitting, repowering, or replacement
of the unit with clean coal technology during the 10-
year period beginning on the date of the enactment of
this section,
``(D) is not receiving nor is scheduled to receive
funding under the Clean Coal Technology Program, the
Power Plant Improvement Initiative, or the Clean Coal
Power Initiative administered by the Secretary of
Energy, and
``(E) receives an allocation of a portion of the
national megawatt capacity limitation under subsection
(e).
``(2) Clean coal technology unit.--The term `clean coal
technology unit' means a unit which--
``(A) uses clean coal technology, including
advanced pulverized coal or atmospheric fluidized bed
combustion, pressurized fluidized bed combustion,
integrated gasification combined cycle, or any other
technology for the production of electricity,
``(B) uses coal to produce 75 percent or more of
its thermal output as electricity,
``(C) has a design net heat rate of at least 500
less than that of such unit as described in paragraph
(1)(A),
``(D) has a maximum design net heat rate of not
more than 9,500, and
``(E) meets the pollution control requirements of
paragraph (3).
``(3) Pollution control requirements.--
``(A) In general.--A unit meets the requirements of
this paragraph if--
``(i) its emissions of sulfur dioxide,
nitrogen oxide, or particulates meet the lower
of the emission levels for each such emission
specified in--
``(I) subparagraph (B), or
``(II) the new source performance
standards of the Clean Air Act (42
U.S.C. 7411) which are in effect for
the category of source at the time of
the retrofitting, repowering, or
replacement of the unit, and
``(ii) its emissions do not exceed any
relevant emission level specified by regulation
pursuant to the hazardous air pollutant
requirements of the Clean Air Act (42 U.S.C.
7412) in effect at the time of the
retrofitting, repowering, or replacement.
``(B) Specific levels.--The levels specified in
this subparagraph are--
``(i) in the case of sulfur dioxide
emissions, 50 percent of the sulfur dioxide
emission levels specified in the new source
performance standards of the Clean Air Act (42
U.S.C. 7411) in effect on the date of the
enactment of this section for the category of
source,
``(ii) in the case of nitrogen oxide
emissions--
``(I) 0.1 pound per million Btu of
heat input if the unit is not a
cyclone-fired boiler, and
``(II) if the unit is a cyclone-
fired boiler, 15 percent of the
uncontrolled nitrogen oxide emissions
from such boilers, and
``(iii) in the case of particulate
emissions, 0.02 pound per million Btu of heat
input.
``(4) Design net heat rate.--The design net heat rate with
respect to any unit, measured in Btu per kilowatt hour (HHV)--
``(A) shall be based on the design annual heat
input to and the design annual net electrical output
from such unit (determined without regard to such
unit's co-generation of steam),
``(B) shall be adjusted for the heat content of the
design coal to be used by the unit if it is less than
12,000 Btu per pound according to the following
formula:
Design net heat rate = Unit net heat rate  x  [l- {((12,000-
design coal heat content, Btu per pound)/1,000)  x  0.013}],
and
``(C) shall be corrected for the site reference
conditions of--
``(i) elevation above sea level of 500 feet,
``(ii) air pressure of 14.4 pounds per square inch absolute
(psia),
``(iii) temperature, dry bulb of 63 deg.F,
``(iv) temperature, wet bulb of 54 deg.F, and
``(v) relative humidity of 55 percent.
``(5) HHV.--The term `HHV' means higher heating value.
``(6) Application of certain rules.--The rules of
paragraphs (3), (4), and (5) of section 45(d) shall apply.
``(7) Inflation adjustment factor.--
``(A) In general.--The term `inflation adjustment
factor' means, with respect to a calendar year, a
fraction the numerator of which is the GDP implicit
price deflator for the preceding calendar year and the
denominator of which is the GDP implicit price deflator
for the calendar year 2003.
``(B) GDP implicit price deflator.--The term `GDP
implicit price deflator' means the most recent revision
of the implicit price deflator for the gross domestic
product as computed by the Department of Commerce
before March 15 of the calendar year.
``(8) Noncompliance with pollution laws.--For purposes of
this section, a unit which is not in compliance with the
applicable State and Federal pollution prevention, control, and
permit requirements for any period of time shall not be
considered to be a qualifying clean coal technology unit during
such period.
``(e) National Limitation on the Aggregate Capacity of Qualifying
Clean Coal Technology Units.--
``(1) In general.--For purposes of subsection (d)(1)(E),
the national megawatt capacity limitation for qualifying clean
coal technology units is 4,000 megawatts.
``(2) Allocation of limitation.--The Secretary shall
allocate the national megawatt capacity limitation for
qualifying clean coal technology units in such manner as the
Secretary may prescribe under the regulations under paragraph
(3).
``(3) Regulations.--Not later than 6 months after the date
of the enactment of this section, the Secretary shall prescribe
such regulations as may be necessary or appropriate--
``(A) to carry out the purposes of this subsection,
``(B) to limit the capacity of any qualifying clean
coal technology unit to which this section applies so
that the combined megawatt capacity allocated to all
such units under this subsection when all such units
are placed in service during the 10-year period
described in subsection (d)(1)(C), does not exceed
4,000 megawatts,
``(C) to provide a certification process under
which the Secretary, in consultation with the Secretary
of Energy, shall approve and allocate the national
megawatt capacity limitation--
``(i) to encourage that units with the
highest thermal efficiencies, when adjusted for
the heat content of the design coal and site
reference conditions described in subsection
(d)(4)(C), and environmental performance be
placed in service as soon as possible, and
``(ii) to allocate capacity to taxpayers
that have a definite and credible plan for
placing into commercial operation a qualifying
clean coal technology unit, including--
``(I) a site,
``(II) contractual commitments for
procurement and construction or, in the
case of regulated utilities, the
agreement of the State utility
commission,
``(III) filings for all necessary
preconstruction approvals,
``(IV) a demonstrated record of
having successfully completed
comparable projects on a timely basis,
and
``(V) such other factors that the
Secretary determines are appropriate,
``(D) to allocate the national megawatt capacity
limitation to a portion of the capacity of a qualifying
clean coal technology unit if the Secretary determines
that such an allocation would maximize the amount of
efficient production encouraged with the available tax
credits,
``(E) to set progress requirements and conditional
approvals so that capacity allocations for clean coal
technology units that become unlikely to meet the
necessary conditions for qualifying can be reallocated
by the Secretary to other clean coal technology units,
and
``(F) to provide taxpayers with opportunities to
correct administrative errors and omissions with
respect to allocations and record keeping within a
reasonable period after discovery, taking into account
the availability of regulations and other
administrative guidance from the Secretary.''.
(b) Credit Treated as Business Credit.--Section 38(b), as amended
by this Act, is amended by striking ``plus'' at the end of paragraph
(18), by striking the period at the end of paragraph (19) and inserting
``, plus'', and by adding at the end the following new paragraph:
``(20) the qualifying clean coal technology production
credit determined under section 45I(a).''.
(c) Transitional Rule.--Section 39(d) (relating to transitional
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(16) No carryback of section 45i credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the qualifying clean coal
technology production credit determined under section 45I may
be carried back to a taxable year ending on or before the date
of the enactment of such section.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45I. Credit for production from a qualifying clean coal
technology unit.''.
(e) Effective Date.--The amendments made by this section shall
apply to production after the date of the enactment of this Act, in
taxable years ending after such date.

Subtitle B--Incentives for Early Commercial Applications of Advanced
Clean Coal Technologies

SEC. 411. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY.

(a) Allowance of Qualifying Advanced Clean Coal Technology Unit
Credit.--Section 46 (relating to amount of credit) is amended by
striking ``and'' at the end of paragraph (2), by striking the period at
the end of paragraph (3) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(4) the qualifying advanced clean coal technology unit
credit.''.
(b) Amount of Qualifying Advanced Clean Coal Technology Unit
Credit.--Subpart E of part IV of subchapter A of chapter 1 (relating to
rules for computing investment credit) is amended by inserting after
section 48 the following new section:

``SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT.

``(a) In General.--For purposes of section 46, the qualifying
advanced clean coal technology unit credit for any taxable year is an
amount equal to 10 percent of the applicable percentage of the
qualified investment in a qualifying advanced clean coal technology
unit for such taxable year.
``(b) Qualifying Advanced Clean Coal Technology Unit.--
``(1) In general.--For purposes of subsection (a), the term
`qualifying advanced clean coal technology unit' means an
advanced clean coal technology unit of the taxpayer--
``(A)(i)(I) in the case of a unit first placed in
service after the date of the enactment of this
section, the original use of which commences with the
taxpayer, or
``(II) in the case of the retrofitting or
repowering of a unit first placed in service before
such date of enactment, the retrofitting or repowering
of which is completed by the taxpayer after such date,
or
``(ii) which is acquired through purchase (as
defined by section 179(d)(2)),
``(B) which is depreciable under section 167,
``(C) which has a useful life of not less than 4
years,
``(D) which is located in the United States,
``(E) which is not receiving nor is scheduled to
receive funding under the Clean Coal Technology
Program, the Power Plant Improvement Initiative, or the
Clean Coal Power Initiative administered by the
Secretary of Energy,
``(F) which is not a qualifying clean coal
technology unit, and
``(G) which receives an allocation of a portion of
the national megawatt capacity limitation under
subsection (f).
``(2) Special rule for sale-leasebacks.--For purposes of
subparagraph (A) of paragraph (1), in the case of a unit
which--
``(A) is originally placed in service by a person,
and
``(B) is sold and leased back by such person, or is
leased to such person, within 3 months after the date
such unit was originally placed in service, for a
period of not less than 12 years,
such unit shall be treated as originally placed in service not
earlier than the date on which such unit is used under the
leaseback (or lease) referred to in subparagraph (B). The
preceding sentence shall not apply to any property if the
lessee and lessor of such property make an election under this
sentence. Such an election, once made, may be revoked only with the
consent of the Secretary.
``(3) Noncompliance with pollution laws.--For purposes of
this subsection, a unit which is not in compliance with the
applicable State and Federal pollution prevention, control, and
permit requirements for any period of time shall not be
considered to be a qualifying advanced clean coal technology
unit during such period.
``(c) Applicable Percentage.--For purposes of this section, with
respect to any qualifying advanced clean coal technology unit, the
applicable percentage is the percentage equal to the ratio which the
portion of the national megawatt capacity limitation allocated to the
taxpayer with respect to such unit under subsection (f) bears to the
total megawatt capacity of such unit.
``(d) Advanced Clean Coal Technology Unit.--For purposes of this
section--
``(1) In general.--The term `advanced clean coal technology
unit' means a new, retrofit, or repowering unit of the taxpayer
which--
``(A) is--
``(i) an eligible advanced pulverized coal
or atmospheric fluidized bed combustion
technology unit,
``(ii) an eligible pressurized fluidized
bed combustion technology unit,
``(iii) an eligible integrated gasification
combined cycle technology unit, or
``(iv) an eligible other technology unit,
and
``(B) meets the carbon emission rate requirements
of paragraph (6).
``(2) Eligible advanced pulverized coal or atmospheric
fluidized bed combustion technology unit.--The term `eligible
advanced pulverized coal or atmospheric fluidized bed
combustion technology unit' means a clean coal technology unit
using advanced pulverized coal or atmospheric fluidized bed
combustion technology which--
``(A) is placed in service after the date of the
enactment of this section and before January 1, 2013,
and
``(B) has a design net heat rate of not more than
8,350 (8,750 in the case of units placed in service
before 2009).
``(3) Eligible pressurized fluidized bed combustion
technology unit.--The term `eligible pressurized fluidized bed
combustion technology unit' means a clean coal technology unit
using pressurized fluidized bed combustion technology which--
``(A) is placed in service after the date of the
enactment of this section and before January 1, 2017,
and
``(B) has a design net heat rate of not more than
7,720 (8,750 in the case of units placed in service
before 2009, and 8,350 in the case of units placed in
service after 2008 and before 2013).
``(4) Eligible integrated gasification combined cycle
technology unit.--The term `eligible integrated gasification
combined cycle technology unit' means a clean coal technology
unit using integrated gasification combined cycle technology,
with or without fuel or chemical co-production, which--
``(A) is placed in service after the date of the
enactment of this section and before January 1, 2017,
``(B) has a design net heat rate of not more than
7,720 (8,750 in the case of units placed in service
before 2009, and 8,350 in the case of units placed in
service after 2008 and before 2013), and
``(C) has a net thermal efficiency (HHV) using coal
with fuel or chemical co-production of not less than
43.9 percent (39 percent in the case of units placed in
service before 2009, and 40.9 percent in the case of
units placed in service after 2008 and before 2013).
``(5) Eligible other technology unit.--The term `eligible
other technology unit' means a clean coal technology unit using
any other technology for the production of electricity which is
placed in service after the date of the enactment of this
section and before January 1, 2017.
``(6) Carbon emission rate requirements.--
``(A) In general.--Except as provided in
subparagraph (B), a unit meets the requirements of this
paragraph if--
``(i) in the case of a unit using design
coal with a heat content of not more than 9,000
Btu per pound, the carbon emission rate is less
than 0.60 pound of carbon per kilowatt hour,
and
``(ii) in the case of a unit using design
coal with a heat content of more than 9,000 Btu
per pound, the carbon emission rate is less
than 0.54 pound of carbon per kilowatt hour.
``(B) Eligible other technology unit.--In the case
of an eligible other technology unit, subparagraph (A)
shall be applied by substituting `0.51' and `0.459' for
`0.60' and `0.54', respectively.
``(e) General Definitions.--Any term used in this section which is
also used in section 45I shall have the meaning given such term in
section 45I.
``(f) National Limitation on the Aggregate Capacity of Advanced
Clean Coal Technology Units.--
``(1) In general.--For purposes of subsection (b)(1)(G),
the national megawatt capacity limitation is--
``(A) for qualifying advanced clean coal technology
units using advanced pulverized coal or atmospheric
fluidized bed combustion technology, not more than
1,000 megawatts (not more than 500 megawatts in the
case of units placed in service before 2009),
``(B) for such units using pressurized fluidized
bed combustion technology, not more than 500 megawatts
(not more than 250 megawatts in the case of units
placed in service before 2009),
``(C) for such units using integrated gasification
combined cycle technology, with or without fuel or
chemical co-production, not more than 2,000 megawatts
(not more than 1,000 megawatts in the case of units
placed in service before 2009 and not more than 1,500
megawatts in the case of units placed in service after
2008 and before 2013), and
``(D) for such units using other technology for the
production of electricity, not more than 500 megawatts
(not more than 250 megawatts in the case of units
placed in service before 2009).
``(2) Allocation of limitation.--The Secretary shall
allocate the national megawatt capacity limitation for
qualifying advanced clean coal technology units in such manner
as the Secretary may prescribe under the regulations under
paragraph (3).
``(3) Regulations.--Not later than 6 months after the date
of the enactment of this section, the Secretary shall prescribe
such regulations as may be necessary or appropriate--
``(A) to carry out the purposes of this subsection
and section 45J,
``(B) to limit the capacity of any qualifying
advanced clean coal technology unit to which this
section applies so that the combined megawatt capacity
of all such units to which this section applies does
not exceed 4,000 megawatts,
``(C) to provide a certification process described
in section 45I(e)(3)(C),
``(D) to carry out the purposes described in
subparagraphs (D), (E), and (F) of section 45I(e)(3),
and
``(E) to reallocate capacity which is not allocated
to any technology described in subparagraphs (A)
through (D) of paragraph (1) because an insufficient
number of qualifying units request an allocation for
such technology, to another technology described in
such subparagraphs in order to maximize the amount of
energy efficient production encouraged with the
available tax credits.
``(4) Selection criteria.--For purposes of paragraph
(3)(C), the selection criteria for allocating the national
megawatt capacity limitation to qualifying advanced clean coal
technology units--
``(A) shall be established by the Secretary of
Energy as part of a competitive solicitation,
``(B) shall include primary criteria of minimum
design net heat rate, maximum design thermal
efficiency, environmental performance, and lowest cost
to the Government, and
``(C) shall include supplemental criteria as
determined appropriate by the Secretary of Energy.
``(g) Qualified Investment.--For purposes of subsection (a), the
term `qualified investment' means, with respect to any taxable year,
the basis of a qualifying advanced clean coal technology unit placed in
service by the taxpayer during such taxable year (in the case of a unit
described in subsection (b)(1)(A)(i)(II), only that portion of the
basis of such unit which is properly attributable to the retrofitting
or repowering of such unit).
``(h) Qualified Progress Expenditures.--
``(1) Increase in qualified investment.--In the case of a
taxpayer who has made an election under paragraph (5), the
amount of the qualified investment of such taxpayer for the
taxable year (determined under subsection (g) without regard to
this subsection) shall be increased by an amount equal to the
aggregate of each qualified progress expenditure for the
taxable year with respect to progress expenditure property.
``(2) Progress expenditure property defined.--For purposes
of this subsection, the term `progress expenditure property'
means any property being constructed by or for the taxpayer and
which it is reasonable to believe will qualify as a qualifying
advanced clean coal technology unit which is being constructed
by or for the taxpayer when it is placed in service.
``(3) Qualified progress expenditures defined.--For
purposes of this subsection--
``(A) Self-constructed property.--In the case of
any self-constructed property, the term `qualified
progress expenditures' means the amount which, for
purposes of this subpart, is properly chargeable
(during such taxable year) to capital account with
respect to such property.
``(B) Nonself-constructed property.--In the case of
nonself-constructed property, the term `qualified
progress expenditures' means the amount paid during the
taxable year to another person for the construction of
such property.
``(4) Other definitions.--For purposes of this subsection--
``(A) Self-constructed property.--The term `self-
constructed property' means property for which it is
reasonable to believe that more than half of the
construction expenditures will be made directly by the
taxpayer.
``(B) Nonself-constructed property.--The term
`nonself-constructed property' means property which is
not self-constructed property.
``(C) Construction, etc.--The term `construction'
includes reconstruction and erection, and the term
`constructed' includes reconstructed and erected.
``(D) Only construction of qualifying advanced
clean coal technology unit to be taken into account.--
Construction shall be taken into account only if, for
purposes of this subpart, expenditures therefor are
properly chargeable to capital account with respect to
the property.
``(5) Election.--An election under this subsection may be
made at such time and in such manner as the Secretary may by
regulations prescribe. Such an election shall apply to the
taxable year for which made and to all subsequent taxable
years. Such an election, once made, may not be revoked except
with the consent of the Secretary.
``(i) Coordination With Other Credits.--This section shall not
apply to any property with respect to which the rehabilitation credit
under section 47 or the energy credit under section 48 is allowed
unless the taxpayer elects to waive the application of such credit to
such property.''.
(c) Recapture.--Section 50(a) (relating to other special rules) is
amended by adding at the end the following new paragraph:
``(6) Special rules relating to qualifying advanced clean
coal technology unit.--For purposes of applying this subsection
in the case of any credit allowable by reason of section 48A,
the following shall apply:
``(A) General rule.--In lieu of the amount of the
increase in tax under paragraph (1), the increase in
tax shall be an amount equal to the investment tax
credit allowed under section 38 for all prior taxable
years with respect to a qualifying advanced clean coal
technology unit (as defined by section 48A(b)(1))
multiplied by a fraction whose numerator is the number
of years remaining to fully depreciate under this title
the qualifying advanced clean coal technology unit
disposed of, and whose denominator is the total number
of years over which such unit would otherwise have been
subject to depreciation. For purposes of the preceding
sentence, the year of disposition of the qualifying
advanced clean coal technology unit shall be treated as
a year of remaining depreciation.
``(B) Property ceases to qualify for progress
expenditures.--Rules similar to the rules of paragraph
(2) shall apply in the case of qualified progress
expenditures for a qualifying advanced clean coal
technology unit under section 48A, except that the
amount of the increase in tax under subparagraph (A) of
this paragraph shall be substituted for the amount
described in such paragraph (2).
``(C) Application of paragraph.--This paragraph
shall be applied separately with respect to the credit
allowed under section 38 regarding a qualifying
advanced clean coal technology unit.''.
(d) Transitional Rule.--Section 39(d) (relating to transitional
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(17) No carryback of section 48a credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the qualifying advanced clean
coal technology unit credit determined under section 48A may be
carried back to a taxable year ending on or before the date of
the enactment of such section.''.
(e) Technical Amendments.--
(1) Section 49(a)(1)(C) is amended by striking ``and'' at
the end of clause (ii), by striking the period at the end of
clause (iii) and inserting ``, and'', and by adding at the end
the following new clause:
``(iv) the portion of the basis of any
qualifying advanced clean coal technology unit
attributable to any qualified investment (as
defined by section 48A(g)).''.
(2) Section 50(a)(4) is amended by striking ``and (2)'' and
inserting ``(2), and (6)''.
(3) Section 50(c) is amended by adding at the end the
following new paragraph:
``(6) Nonapplication.--Paragraphs (1) and (2) shall not
apply to any qualifying advanced clean coal technology unit
credit under section 48A.''.
(4) The table of sections for subpart E of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 48 the following new item:

``Sec. 48A. Qualifying advanced clean coal technology unit credit.''.
(f) Effective Date.--The amendments made by this section shall
apply to periods after the date of the enactment of this Act, under
rules similar to the rules of section 48(m) of the Internal Revenue
Code of 1986 (as in effect on the day before the date of the enactment
of the Revenue Reconciliation Act of 1990).

SEC. 412. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45J. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT.

``(a) General Rule.--For purposes of section 38, the qualifying
advanced clean coal technology production credit of any taxpayer for
any taxable year is equal to--
``(1) the applicable amount of advanced clean coal
technology production credit, multiplied by
``(2) the applicable percentage (as determined under
section 48A(c)) of the sum of--
``(A) the kilowatt hours of electricity, plus
``(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at a
qualifying advanced clean coal technology unit during the 10-
year period beginning on the date the unit was originally
placed in service (or returned to service after becoming a
qualifying advanced clean coal technology unit).
``(b) Applicable Amount.--For purposes of this section, the
applicable amount of advanced clean coal technology production credit
with respect to production from a qualifying advanced clean coal
technology unit shall be determined as follows:
``(1) Where the qualifying advanced clean coal technology
unit is producing electricity only:
``(A) In the case of a unit originally placed in
service before 2009, if--

------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is:      For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not more than 8,400...................          $.0060           $.0038
More than 8,400 but not more than               $.0025           $.0010
8,550................................
More than 8,550 but less than 8,750...          $.0010          $.0010.
------------------------------------------------------------------------

``(B) In the case of a unit originally placed in
service after 2008 and before 2013, if--

------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is:      For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not more than 7,770...................          $.0105           $.0090
More than 7,770 but not more than               $.0085           $.0068
8,125................................
More than 8,125 but less than 8,350...          $.0075          $.0055.
------------------------------------------------------------------------

``(C) In the case of a unit originally placed in
service after 2012 and before 2017, if--

------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is:      For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not more than 7,380...................          $.0140           $.0115
More than 7,380 but not more than               $.0120          $.0090.
7,720................................
------------------------------------------------------------------------

``(2) Where the qualifying advanced clean coal technology
unit is producing fuel or chemicals:
``(A) In the case of a unit originally placed in
service before 2009, if--

------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal     ---------------------------------
efficiency (HHV) is:           For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not less than 40.6 percent............          $.0060           $.0038
Less than 40.6 but not less than 40             $.0025           $.0010
percent..............................
Less than 40 but not less than 39               $.0010          $.0010.
percent..............................
------------------------------------------------------------------------

``(B) In the case of a unit originally placed in
service after 2008 and before 2013, if--

------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal     ---------------------------------
efficiency (HHV) is:           For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not less than 43.6 percent............          $.0105           $.0090
Less than 43.6 but not less than 42             $.0085           $.0068
percent..............................
Less than 42 but not less than 40.9             $.0075          $.0055.
percent..............................
------------------------------------------------------------------------

``(C) In the case of a unit originally placed in
service after 2012 and before 2017, if--

------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal     ---------------------------------
efficiency (HHV) is:           For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------

Not less than 44.2 percent............          $.0140           $.0115
Less than 44.2 but not less than 43.9           $.0120          $.0090.
percent..............................
------------------------------------------------------------------------

``(c) Inflation Adjustment.--For calendar years after 2004, each
amount in paragraphs (1) and (2) of subsection (b) shall be adjusted by
multiplying such amount by the inflation adjustment factor for the
calendar year in which the amount is applied. If any amount as
increased under the preceding sentence is not a multiple of 0.01 cent,
such amount shall be rounded to the nearest multiple of 0.01 cent.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) In general.--Any term used in this section which is
also used in section 45I or 48A shall have the meaning given
such term in such section.
``(2) Applicable rules.--The rules of paragraphs (3), (4),
and (5) of section 45(d) shall apply.''.
(b) Credit Treated as Business Credit.--Section 38(b), as amended
by this Act, is amended by striking ``plus'' at the end of paragraph
(19), by striking the period at the end of paragraph (20) and inserting
``, plus'', and by adding at the end the following new paragraph:
``(21) the qualifying advanced clean coal technology
production credit determined under section 45J(a).''.
(c) Transitional Rule.--Section 39(d) (relating to transitional
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(18) No carryback of section 45j credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the qualifying advanced clean
coal technology production credit determined under section 45J
may be carried back to a taxable year ending on or before the
date of the enactment of such section.''.
(d) Denial of Double Benefit.--Section 29(d) (relating to other
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(9) Denial of double benefit.--This section shall not
apply with respect to any qualified fuel the production of
which may be taken into account for purposes of determining the
credit under section 45J.''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45J. Credit for production from a qualifying advanced clean coal
technology unit.''.
(f) Effective Date.--The amendments made by this section shall
apply to production after the date of the enactment of this Act, in
taxable years ending after such date.

Subtitle C--Treatment of Persons Not Able To Use Entire Credit

SEC. 421. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

(a) In General.--Section 45I, as added by this Act, is amended by
adding at the end the following new subsection:
``(f) Treatment of Person Not Able To Use Entire Credit.--
``(1) Allowance of credits.--
``(A) In general.--Any credit allowable under this
section, section 45J, or section 48A with respect to a
facility owned by a person described in subparagraph
(B) may be transferred or used as provided in this
subsection, and the determination as to whether the
credit is allowable shall be made without regard to the
tax-exempt status of the person.
``(B) Persons described.--A person is described in
this subparagraph if the person is--
``(i) an organization described in section
501(c)(12)(C) and exempt from tax under section
501(a),
``(ii) an organization described in section
1381(a)(2)(C),
``(iii) a public utility (as defined in
section 136(c)(2)(B)),
``(iv) any State or political subdivision
thereof, the District of Columbia, or any
agency or instrumentality of any of the
foregoing,
``(v) any Indian tribal government (within
the meaning of section 7871) or any agency or
instrumentality thereof, or
``(vi) the Tennessee Valley Authority.
``(2) Transfer of credit.--
``(A) In general.--A person described in clause
(i), (ii), (iii), (iv), or (v) of paragraph (1)(B) may
transfer any credit to which paragraph (1)(A) applies
through an assignment to any other person not described
in paragraph (1)(B). Such transfer may be revoked only
with the consent of the Secretary.
``(B) Regulations.--The Secretary shall prescribe
such regulations as necessary to insure that any credit
described in subparagraph (A) is claimed once and not
reassigned by such other person.
``(C) Transfer proceeds treated as arising from
essential government function.--Any proceeds derived by
a person described in clause (iii), (iv), or (v) of
paragraph (1)(B) from the transfer of any credit under
subparagraph (A) shall be treated as arising from the
exercise of an essential government function.
``(3) Use of credit as an offset.--Notwithstanding any
other provision of law, in the case of a person described in
clause (i), (ii), or (v) of paragraph (1)(B), any credit to
which paragraph (1)(A) applies may be applied by such person,
to the extent provided by the Secretary of Agriculture, as a
prepayment of any loan, debt, or other obligation the entity
has incurred under subchapter I of chapter 31 of title 7 of the
Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), as in
effect on the date of the enactment of this section.
``(4) Use by tva.--
``(A) In general.--Notwithstanding any other
provision of law, in the case of a person described in
paragraph (1)(B)(vi), any credit to which paragraph
(1)(A) applies may be applied as a credit against the
payments required to be made in any fiscal year under
section 15d(e) of the Tennessee Valley Authority Act of
1933 (16 U.S.C. 831n-4(e)) as an annual return on the
appropriations investment and an annual repayment sum.
``(B) Treatment of credits.--The aggregate amount
of credits described in paragraph (1)(A) with respect
to such person shall be treated in the same manner and
to the same extent as if such credits were a payment in
cash and shall be applied first against the annual
return on the appropriations investment.
``(C) Credit carryover.--With respect to any fiscal
year, if the aggregate amount of credits described
paragraph (1)(A) with respect to such person exceeds
the aggregate amount of payment obligations described
in subparagraph (A), the excess amount shall remain
available for application as credits against the
amounts of such payment obligations in succeeding
fiscal years in the same manner as described in this
paragraph.
``(5) Credit not income.--Any transfer under paragraph (2)
or use under paragraph (3) of any credit to which paragraph
(1)(A) applies shall not be treated as income for purposes of
section 501(c)(12).
``(6) Treatment of unrelated persons.--For purposes of this
subsection, sales among and between persons described in
clauses (i), (ii), (iii), (iv), and (v) of paragraph (1)(A)
shall be treated as sales between unrelated parties.''.
(b) Effective Date.--The amendment made by this section shall apply
to production after the date of the enactment of this Act, in taxable
years ending after such date.

TITLE V--OIL AND GAS PROVISIONS

SEC. 501. OIL AND GAS FROM MARGINAL WELLS.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business credits), as amended by this Act, is amended by
adding at the end the following new section:

``SEC. 45K. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

``(a) General Rule.--For purposes of section 38, the marginal well
production credit for any taxable year is an amount equal to the
product of--
``(1) the credit amount, and
``(2) the qualified credit oil production and the qualified
natural gas production which is attributable to the taxpayer.
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount is--
``(A) $3 per barrel of qualified crude oil
production, and
``(B) 50 cents per 1,000 cubic feet of qualified
natural gas production.
``(2) Reduction as oil and gas prices increase.--
``(A) In general.--The $3 and 50 cents amounts
under paragraph (1) shall each be reduced (but not
below zero) by an amount which bears the same ratio to
such amount (determined without regard to this
paragraph) as--
``(i) the excess (if any) of the applicable
reference price over $15 ($1.67 for qualified
natural gas production), bears to
``(ii) $3 ($0.33 for qualified natural gas
production).
The applicable reference price for a taxable year is
the reference price of the calendar year  preceding the
calendar year in which the taxable year begins.
``(B) Inflation adjustment.--In the case of any
taxable year beginning in a calendar year after 2003,
each of the dollar amounts contained in subparagraph
(A) shall be increased to an amount equal to such
dollar amount multiplied by the inflation adjustment
factor for such calendar year (determined under section
43(b)(3)(B) by substituting `2002' for `1990').
``(C) Reference price.--For purposes of this
paragraph, the term `reference price' means, with
respect to any calendar year--
``(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
``(ii) in the case of qualified natural gas
production, the Secretary's estimate of the
annual average wellhead price per 1,000 cubic
feet for all domestic natural gas.
``(c) Qualified Crude Oil and Natural Gas Production.--For purposes
of this section--
``(1) In general.--The terms `qualified crude oil
production' and `qualified natural gas production' mean
domestic crude oil or natural gas which is produced from a
qualified marginal well.
``(2) Limitation on amount of production which may
qualify.--
``(A) In general.--Crude oil or natural gas
produced during any taxable year from any well shall
not be treated as qualified crude oil production or
qualified natural gas production to the extent
production from the well during the taxable year
exceeds 1,095 barrels or barrel equivalents.
``(B) Proportionate reductions.--
``(i) Short taxable years.--In the case of
a short taxable year, the limitations under
this paragraph shall be proportionately reduced
to reflect the ratio which the number of days
in such taxable year bears to 365.
``(ii) Wells not in production entire
year.--In the case of a well which is not
capable of production during each day of a
taxable year, the limitations under this
paragraph applicable to the well shall be
proportionately reduced to reflect the ratio
which the number of days of production bears to
the total number of days in the taxable year.
``(3) Definitions.--
``(A) Qualified marginal well.--The term `qualified
marginal well' means a domestic well--
``(i) the production from which during the
taxable year is treated as marginal production
under section 613A(c)(6), or
``(ii) which, during the taxable year--
``(I) has average daily production
of not more than 25 barrel equivalents,
and
``(II) produces water at a rate not
less than 95 percent of total well
effluent.
``(B) Crude oil, etc.--The terms `crude oil',
`natural gas', `domestic', and `barrel' have the
meanings given such terms by section 613A(e).
``(C) Barrel equivalent.--The term `barrel
equivalent' means, with respect to natural gas, a
conversation ratio of 6,000 cubic feet of natural gas
to 1 barrel of crude oil.
``(d) Other Rules.--
``(1) Production attributable to the taxpayer.--In the case
of a qualified marginal well in which there is more than one
owner of operating interests in the well and the crude oil or
natural gas production exceeds the limitation under subsection
(c)(2), qualifying crude oil production or qualifying natural
gas production attributable to the taxpayer shall be determined
on the basis of the ratio which taxpayer's revenue interest in
the production bears to the aggregate of the revenue interests
of all operating interest owners in the production.
``(2) Operating interest required.--Any credit under this
section may be claimed only on production which is attributable
to the holder of an operating interest.
``(3) Production from nonconventional sources excluded.--In
the case of production from a qualified marginal well which is
eligible for the credit allowed under section 29 for the
taxable year, no credit shall be allowable under this section
unless the taxpayer elects not to claim the credit under
section 29 with respect to the well.
``(4) Noncompliance with pollution laws.--For purposes of
subsection (c)(3)(A), a marginal well which is not in
compliance with the applicable State and Federal pollution
prevention, control, and permit requirements for any period of
time shall not be considered to be a qualified marginal well
during such period.''.
(b) Credit Treated as Business Credit.--Section 38(b), as amended
by this Act, is amended by striking ``plus'' at the end of paragraph
(20), by striking the period at the end of paragraph (21) and inserting
``, plus'', and by adding at the end the following new paragraph:
``(22) the marginal oil and gas well production credit
determined under section 45K(a).''.
(c) No Carryback of Marginal Oil and Gas Well Production Credit
Before Effective Date.--Subsection (d) of section 39, as amended by
this Act, is amended by adding at the end the following new paragraph:
``(19) No carryback of marginal oil and gas well production
credit before effective date.--No portion of the unused
business credit for any taxable year which is attributable to
the marginal oil and gas well production credit determined
under section 45K may be carried back to a taxable  year ending
on or before the date of the enactment of such section.''.
(d) Coordination With Section 29.--Section 29(a) is amended by
striking ``There'' and inserting ``At the election of the taxpayer,
there''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45K. Credit for producing oil and
gas from marginal wells.''.
(f) Effective Date.--The amendments made by this section shall
apply to production in taxable years beginning after the date of the
enactment of this Act.

SEC. 502. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.

(a) In General.--Subparagraph (C) of section 168(e)(3) (relating to
classification of certain property) is amended by striking ``and'' at
the end of clause (i), by redesignating clause (ii) as clause (iii),
and by inserting after clause (i) the following new clause:
``(ii) any natural gas gathering line,
and''.
(b) Natural Gas Gathering Line.--Subsection (i) of section 168, as
amended by this Act, is amended by adding at the end the following new
paragraph:
``(16) Natural gas gathering line.--The term `natural gas
gathering line' means--
``(A) the pipe, equipment, and appurtenances
determined to be a gathering line by the Federal Energy
Regulatory Commission, or
``(B) the pipe, equipment, and appurtenances used
to deliver natural gas from the wellhead or a
commonpoint to the point at which such gas first
reaches--
``(i) a gas processing plant,
``(ii) an interconnection with a
transmission pipeline certificated by the
Federal Energy Regulatory Commission as an
interstate transmission pipeline,
``(iii) an interconnection with an
intrastate transmission pipeline, or
``(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer.''.
(c) Alternative System.--The table contained in section
168(g)(3)(B) is amended by inserting after the item relating to
subparagraph (C)(i) the following new item:

``(C)(ii)......................................................   10''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 503. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations), as amended by
this Act, is amended by inserting after section 179C the following new
section:

``SEC. 179D. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

``(a) Treatment as Expense.--
``(1) In general.--A small business refiner may elect to
treat any qualified capital costs as an expense which is not
chargeable to capital account. Any qualified cost which is so
treated shall be allowed as a deduction for the taxable year in
which the cost is paid or incurred.
``(2) Limitation.--
``(A) In general.--The aggregate costs which may be
taken into account under this subsection for any
taxable year may not exceed the applicable percentage
of the qualified capital costs paid or incurred for the
taxable year.
``(B) Applicable percentage.--For purposes of
subparagraph (A)--
``(i) In general.--Except as provided in
clause (ii), the applicable percentage is 75
percent.
``(ii) Reduced percentage.--In the case of
a small business refiner with average daily
refinery runs for the period described in
subsection (b)(2) in excess of 155,000 barrels,
the percentage described in clause (i) shall be
reduced (not below zero) by the product of such
percentage (before the application of this
clause) and the ratio of such excess to 50,000
barrels.
``(b) Definitions.--For purposes of this section--
``(1) Qualified capital costs.--The term `qualified capital
costs' means any costs which--
``(A) are otherwise chargeable to capital account,
and
``(B) are paid or incurred for the purpose of
complying with the Highway Diesel Fuel Sulfur Control
Requirement of the Environmental Protection Agency, as
in effect on the date of the enactment of this section,
with respect to a facility placed in service by the
taxpayer before such date.
``(2) Small business refiner.--The term `small business
refiner' means, with respect to any taxable year, a refiner of
crude oil, which, within the refinery operations of the
business, employs not more than 1,500 employees on any day
during such taxable year and whose average daily refinery run
for the 1-year period ending on the date of the enactment of
this section did not exceed 205,000 barrels.
``(c) Coordination With Other Provisions.--Section 280B shall not
apply to amounts which are treated as expenses under this section.
``(d) Basis Reduction.--For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as a single employer.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ``or'' at the end of subparagraph (I), by striking
the period at the end of subparagraph (J) and inserting ``,
or'', and by inserting after subparagraph (J) the following new
subparagraph:
``(K) expenditures for which a deduction is allowed
under section 179D.''.
(2) Section 263A(c)(3) is amended by inserting ``179C,''
after ``section''.
(3) Section 312(k)(3)(B), as amended by this Act, is
amended by striking ``or 179C'' each place it appears in the
heading and text and inserting ``, 179C, or 179D''.
(4) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (33), by striking the
period at the end of paragraph (34) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(35) to the extent provided in section 179D(d).''.
(5) Section 1245(a), as amended by this Act, is amended by
inserting ``179D,'' after ``179C,'' both places it appears in
paragraphs (2)(C) and (3)(C).
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended  by inserting
after section 179C the following new item:

``Sec. 179D. Deduction for capital costs incurred in complying with
Environmental Protection Agency sulfur
regulations.''.
(c) Effective Date.--The amendment made by this section shall apply
to expenses paid or incurred after the date of the enactment of this
Act, in taxable years ending after such date.

SEC. 504. ENVIRONMENTAL TAX CREDIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45L. ENVIRONMENTAL TAX CREDIT.

``(a) In General.--For purposes of section 38, the amount of the
environmental tax credit determined under this section with respect to
any small business refiner for any taxable year is an amount equal to 5
cents for every gallon of 15 parts per million or less sulfur diesel
produced at a facility by such small business refiner during such
taxable year.
``(b) Maximum Credit.--
``(1) In general.--For any small business refiner, the
aggregate amount determined under subsection (a) for any
taxable year with respect to any facility shall not exceed the
applicable percentage of the qualified capital costs paid or
incurred by such small business refiner with respect to such
facility during the applicable period, reduced by the credit
allowed under subsection (a) for any preceding year.
``(2) Applicable percentage.--For purposes of paragraph
(1)--
``(A) In general.--Except as provided in
subparagraph (B), the applicable percentage is 25
percent.
``(B) Reduced percentage.--The percentage described
in subparagraph (A) shall be reduced in the same manner
as under section 179D(a)(2)(B)(ii).
``(c) Definitions.--For purposes of this section--
``(1) In general.--The terms `small business refiner' and
`qualified capital costs' have the same meaning as given in
section 179D.
``(2) Applicable period.--The term `applicable period'
means, with respect to any facility, the period beginning on
the day after the date which is 1 year after the date of the
enactment of this section and ending with the date which is 1
year after the date on which the taxpayer must comply with the
applicable EPA regulations with respect to such facility.
``(3) Applicable epa regulations.--The term `applicable EPA
regulations' means the Highway Diesel Fuel Sulfur Control
Requirements of the Environmental Protection Agency, as in
effect on the date of the enactment of this section.
``(d) Certification.--
``(1) Required.--Not later than the date which is 30 months
after the first day of the first taxable year in which the
environmental tax credit is allowed with respect to qualified
capital costs paid or incurred with respect to a facility, the
small business refiner shall obtain a certification from the
Secretary, in consultation with the Administrator of the
Environmental Protection Agency, that the taxpayer's qualified
capital costs with respect to such facility will result in
compliance with the applicable EPA regulations.
``(2) Contents of application.--An application for
certification shall include relevant information regarding unit
capacities and operating characteristics sufficient for the
Secretary, in consultation with the Administrator of the
Environmental Protection Agency, to determine that such
qualified capital costs are necessary for compliance with the
applicable EPA regulations.
``(3) Review period.--Any application shall be reviewed and
notice of certification, if applicable, shall be made within 60
days of receipt of such application. In the event the Secretary
does not notify the taxpayer of the results of such
certification within such period, the taxpayer may presume the
certification to be issued until so notified.
``(4) Statute of limitations.--With respect to the credit
allowed under this section--
``(A) the statutory period for the assessment of
any deficiency attributable to such credit shall not
expire before the end of the 3-year period ending on
the date that the review period described in paragraph
(3) ends, and
``(B) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as a single employer.
``(f) Cooperative Organizations.--
``(1) Apportionment of credit.--In the case of a
cooperative organization described in section 1381(a), any
portion of the credit determined under subsection (a) of this
section, for the taxable year may, at the election of the
organization, be apportioned among patrons eligible to share in
patronage dividends on the basis of the quantity or value of
business done with or for such patrons for the taxable year.
Such an election shall be irrevocable for such taxable year.
``(2) Treatment of organizations and patrons.--
``(A) Organizations.--The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the taxable year of the organization.
``(B) Patrons.--The amount of the credit
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the first taxable year of each patron ending on
or after the last day of the payment period (as defined
in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of
each patron ending on or after the date on which the
patron receives notice from the cooperative of the apportionment.''.
(b) Credit Made Part of General Business Credit.--Subsection (b) of
section 38 (relating to general business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (21), by
striking the period at the end of paragraph (22) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(23) in the case of a small business refiner, the
environmental tax credit determined under section 45L(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable), as amended by this Act, is
amended by adding after subsection (d) the following new subsection:
``(e) Environmental Tax Credit.--No deduction shall be allowed for
that portion of the expenses otherwise allowable as a deduction for the
taxable year which is equal to the amount of the credit determined for
the taxable year under section 45L(a).''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45L. Environmental tax credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 505. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION
DEDUCTION.

(a) In General.--Paragraph (4) of section 613A(d) (relating to
certain refiners excluded) is amended to read as follows:
``(4) Certain refiners excluded.--If the taxpayer or 1 or
more related persons engages in the refining of crude oil,
subsection (c) shall not apply to the taxpayer for a taxable
year if the average daily refinery runs of the taxpayer and
such persons for the taxable year exceed 60,000 barrels. For
purposes of this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the aggregate
refinery runs for the taxable year by the number of days in the
taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.

SEC. 506. MARGINAL PRODUCTION INCOME LIMIT EXTENSION.

Section 613A(c)(6)(H) (relating to temporary suspension of taxable
income limit with respect to marginal production) is amended by
striking ``2004'' and inserting ``2007''.

SEC. 507. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

(a) In General.--Part VI of subchapter B of chapter 1, as amended
by this Act, is amended by adding at the end the following new section:

``SEC. 199. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES FOR
DOMESTIC OIL AND GAS WELLS.

``A taxpayer shall be entitled to an amortization deduction with
respect to any geological and geophysical expenses incurred in
connection with the exploration for, or development of, oil or gas
within the United States (as defined in section 638) based on a period
of 24 months beginning with the month in which such expenses were
incurred.''.
(b) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1, as amended by this Act, is amended by adding
at the end the following new item:

``Sec. 199. Amortization of geological and geophysical expenditures for
domestic oil and gas wells.''.
(c) Effective Date.--The amendments made by this section shall
apply to costs paid or incurred in taxable years beginning after the
date of the enactment of this Act.

SEC. 508. AMORTIZATION OF DELAY RENTAL PAYMENTS.

(a) In General.--Part VI of subchapter B of chapter 1, as amended
by this Act, is amended by adding at the end the following new section:

``SEC. 199A. AMORTIZATION OF DELAY RENTAL PAYMENTS FOR DOMESTIC OIL AND
GAS WELLS.

``(a) In General.--A taxpayer shall be entitled to an amortization
deduction with respect to any delay rental payments incurred in
connection with the development of oil or gas within the United States
(as defined in section 638) based on a period of 24 months beginning
with the month in which such payments were incurred.''.
``(b) Delay rental payments.--For purposes of this section, the
term `delay rental payment' means an amount paid for the privilege of
deferring development of an oil or gas well under an oil or gas
lease.''.
(b) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1, as amended by this Act, is amended by adding
at the end the following new item:

``Sec. 199A. Amortization of delay rental payments for domestic oil and
gas wells.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years beginning after the
date of the enactment of this Act.

SEC. 509. STUDY OF COAL BED METHANE.

(a) In General.--The Secretary of the Treasury shall study the
effect of section 29 of the Internal Revenue Code of 1986 on the
production of coal bed methane.
(b) Contents of Study.--The study under subsection (a) shall
estimate the total amount of credits under section 29 of the Internal
Revenue Code of 1986 claimed annually and in the aggregate which are
related to the production of coal bed methane since the date of the
enactment of such section 29. Such study shall report the annual value
of such credits allowable for coal bed methane compared to the average
annual wellhead price of natural gas (per thousand cubic feet of
natural gas). Such study shall also estimate the incremental increase
in production of coal bed methane that has resulted from the enactment
of such section 29, and the cost to the Federal Government, in terms of
the net tax benefits claimed, per thousand cubic feet of incremental
coal bed methane produced annually and in the aggregate since such
enactment.

SEC. 510. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE.

(a) In General.--Section 29 is amended by adding at the end the
following new subsection:
``(h) Extension for Other Facilities.--
``(1) Oil and gas.--In the case of a well or facility for
producing qualified fuels described in subparagraph (A) or (B)
of subsection (c)(1) which was drilled or placed in service
after the date of the enactment of this subsection and before
January 1, 2005, notwithstanding subsection (f), this section
shall apply with respect to such fuels produced at such well or
facility not later than the close of the 3-year period
beginning on the date that such well is drilled or such
facility is placed in service.
``(2) Facilities producing refined coal.--
``(A) In general.--In the case of a facility
described in subparagraph (C) for producing refined
coal which was placed in service after the date of the
enactment of this subsection and before January 1,
2007, this section shall apply with respect to fuel
produced at such facility not later than the close of
the 5-year period beginning on the date such facility
is placed in service.
``(B) Refined coal.--For purposes of this
paragraph, the term `refined coal' means a fuel which
is a liquid, gaseous, or solid synthetic fuel produced
from coal (including lignite) or high carbon fly ash,
including such fuel used as a feedstock.
``(C) Covered facilities.--
``(i) In general.--A facility is described
in this subparagraph if such facility produces
refined coal using a technology that results
in--
``(I) a qualified emission
reduction, and
``(II) a qualified enhanced value.
``(ii) Qualified emission reduction.--For
purposes of this subparagraph, the term
`qualified emission reduction' means a
reduction of at least 20 percent of the
emissions of nitrogen oxide and either sulfur
dioxide or mercury released when burning the
refined coal (excluding any dilution caused by
materials combined or added during the
production process), as compared to the
emissions released when burning the feedstock
coal or comparable coal predominantly available
in the marketplace as of January 1, 2003.
``(iii) Qualified enhanced value.--For
purposes of this subparagraph, the term
`qualified enhanced value' means an increase of
at least 50 percent in the market value of the
refined coal (excluding any increase caused by
materials combined or added during the
production process), as compared to the value
of the feedstock coal.
``(iii) Qualifying advanced clean coal
technology facilities excluded.--A facility
described in this subparagraph shall not
include a qualifying advanced clean coal
technology facility (as defined in section
48A(b)).
``(3) Wells producing viscous oil.--
``(A) In general.--In the case of a well for
producing viscous oil which was placed in service after
the date of the enactment of this subsection and before
January 1, 2005, this section shall apply with respect
to fuel produced at such well not later than the close
of the 3-year period beginning on the date such well is
placed in service.
``(B) Viscous oil.--The term `viscous oil' means
heavy oil, as defined in section 613A(c)(6), except
that--
``(i) `22 degrees' shall be substituted for
`20 degrees' in applying subparagraph (F)
thereof, and
``(ii) in all cases, the oil gravity shall
be measured from the initial well-head samples,
drill cuttings, or down hole samples.
``(C) Waiver of unrelated person requirement.--In
the case of viscous oil, the requirement under
subsection (a)(1)(B)(i) of a sale to an unrelated
person shall not apply to any sale to the extent that
the viscous oil is not consumed in the immediate
vicinity of the wellhead.
``(4) Coalmine methane gas.--
``(A) In general.--This section shall apply to
coalmine methane gas--
``(i) captured or extracted by the taxpayer
after the date of the enactment of this
subsection and before January 1, 2005, and
``(ii) utilized as a fuel source or sold by
or on behalf of the taxpayer to an unrelated
person after the date of the enactment of this
subsection and before January 1, 2005.
``(B) Coalmine methane gas.--For purposes of this
paragraph, the term `coalmine methane gas' means any
methane gas which is--
``(i) liberated during qualified coal
mining operations, or
``(ii) extracted up to 5 years in advance
of qualified coal mining operations as part of
a specific plan to mine a coal deposit.
``(C) Special rule for advanced extraction.--In the
case of coalmine methane gas which is captured in
advance of qualified coal mining operations, the credit
under subsection (a) shall be allowed only after the
date the coal extraction occurs in the immediate area
where the coalmine methane gas was removed.
``(D) Noncompliance with pollution laws.--For
purposes of subparagraphs (B) and (C), coal mining
operations which are not in compliance with the
applicable State and Federal pollution prevention,
control, and permit requirements for any period of time
shall not be considered to be qualified coal mining
operations during such period.
``(5) Facilities producing fuels from agricultural and
animal waste.--
``(A) In general.--In the case of facility for
producing liquid, gaseous, or solid fuels from
qualified agricultural and animal wastes, including
such fuels when used as feedstocks, which was placed in
service after the date of the enactment of this
subsection and before January 1, 2005, this section
shall apply with respect to fuel produced at such
facility not later than the close of the 3-year period
beginning on the date such facility is placed in
service.
``(B) Qualified agricultural and animal waste.--For
purposes of this paragraph, the term `qualified
agricultural and animal waste' means agriculture and
animal waste, including by-products, packaging, and any
materials associated with the processing, feeding,
selling, transporting, or disposal of agricultural or
animal products or wastes, including wood shavings,
straw, rice hulls, and other bedding for the
disposition of manure.
``(6) Credit amount.--In determining the amount of credit
allowable under this section solely by reason of this
subsection, the dollar amount applicable under subsection
(a)(1) shall be $3 (without regard to subsection (b)(2)).''.
(b) Extension for certain fuel produced at existing
facilities.--Paragraph (2) of section 29(f) (relating to
application of section) is amended by inserting ``(January 1,
2005, in the case of any coke, coke gas, or natural gas and
byproducts produced by coal gasification from lignite in a
facility described in paragraph (1)(B))'' after ``January 1,
2003''.
(c) Effective Date.--The amendment made by this section shall apply
to fuel sold after the date of the enactment of this Act, in taxable
years ending after such date.

SEC. 511. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.

(a) In General.--Subparagraph (E) of section 168(e)(3) (relating to
classification of certain property) is amended by striking ``and'' at
the end of clause (ii), by striking the period at the end of clause
(iii) and by inserting ``, and'', and by adding at the end the
following new clause:
``(iv) any natural gas distribution
line.''.
(b) Alternative System.--The table contained in section
168(g)(3)(B), as amended by this Act, is amended by adding after the
item relating to subparagraph (E)(iii) the following new item:

``(E)(iv)......................................................   20''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

SEC. 601. ONGOING STUDY AND REPORTS REGARDING TAX ISSUES RESULTING FROM
FUTURE RESTRUCTURING DECISIONS.

(a) Ongoing Study.--The Secretary of the Treasury, after
consultation with the Federal Energy Regulatory Commission, shall
undertake an ongoing study of Federal tax issues resulting from nontax
decisions on the restructuring of the electric industry. In particular,
the study shall focus on the effect on tax-exempt bonding authority of
public power entities and on corporate restructuring which results from
the restructuring of the electric industry.
(b) Regulatory Relief.--In connection with the study described in
subsection (a), the Secretary of the Treasury should exercise the
Secretary's authority, as appropriate, to modify or suspend regulations
that may impede an electric utility company's ability to reorganize its
capital stock structure to respond to a competitive marketplace.
(c) Reports.--The Secretary of the Treasury shall report to the
Committee on Finance of the Senate and the Committee on Ways and Means
of the House of Representatives not later than December 31, 2003,
regarding Federal tax issues identified under the study described in
subsection (a), and at least annually thereafter, regarding such issues
identified since the preceding report. Such reports shall also include
such legislative recommendations regarding changes to the private
business use rules under subpart A of part IV of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 as the Secretary of the
Treasury deems necessary. The reports shall continue until such time as
the Federal Energy Regulatory Commission has completed the
restructuring of the electric industry.

SEC. 602. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING
COSTS.

(a) Repeal of Limitation on Deposits Into Fund Based on Cost of
Service; Contributions After Funding Period.--Subsection (b) of section
468A is amended to read as follows:
``(b) Limitation on Amounts Paid Into Fund.--The amount which a
taxpayer may pay into the Fund for any taxable year shall not exceed
the ruling amount applicable to such taxable year.''.
(b) Clarification of Treatment of Fund Transfers.--Subsection (e)
of section 468A is amended by adding at the end the following new
paragraph:
``(8) Treatment of fund transfers.--If, in connection with
the transfer of the taxpayer's interest in a nuclear power
plant, the taxpayer transfers the Fund with respect to such
power plant to the transferee of such interest and the
transferee elects to continue the application of this section
to such Fund--
``(A) the transfer of such Fund shall not cause
such Fund to be disqualified from the application of
this section, and
``(B) no amount shall be treated as distributed
from such Fund, or be includible in gross income, by
reason of such transfer.''.
(c) Deduction for Nuclear Decommissioning Costs When Paid.--
Paragraph (2) of section 468A(c) is amended to read as follows:
``(2) Deduction of nuclear decommissioning costs.--In
addition to any deduction under subsection (a), nuclear
decommissioning costs paid or incurred by the taxpayer during
any taxable year shall constitute ordinary and necessary
expenses in carrying on a trade or business under section
162.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 603. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

(a) Income From Open Access and Nuclear Decommissioning
Transactions.--
(1) In general.--Subparagraph (C) of section 501(c)(12) is
amended by striking ``or'' at the end of clause (i), by
striking clause (ii), and by adding at the end the following
new clauses:
``(ii) from any open access transaction
(other than income received or accrued directly
or indirectly from a member),
``(iii) from any nuclear decommissioning
transaction,
``(iv) from any asset exchange or
conversion transaction, or
``(v) from the prepayment of any loan,
debt, or obligation made, insured, or
guaranteed under the Rural Electrification Act
of 1936.''.
(2) Definitions and special rules.--Paragraph (12) of
section 501(c) is amended by adding at the end the following
new subparagraphs:
``(E) For purposes of subparagraph (C)(ii)--
``(i) The term `open access transaction'
means any transaction meeting the open access
requirements of any of the following subclauses
with respect to a mutual or cooperative
electric company:
``(I) The provision or sale of
transmission service or ancillary
services meets the open access
requirements of this subclause only if
such services are provided on a
nondiscriminatory open access basis
pursuant to an open access transmission
tariff filed with and approved by FERC,
including an acceptable reciprocity
tariff, or under a regional
transmission organization agreement
approved by FERC.
``(II) The provision or sale of
electric energy distribution services
or ancillary services meets the open
access requirements of this subclause
only if such services are provided on a
nondiscriminatory open access basis to
end-users served by distribution
facilities owned by the mutual or
cooperative electric company (or its
members).
``(III) The delivery or sale of
electric energy generated by a
generation facility meets the open
access requirements of this subclause
only if such facility is directly
connected to distribution facilities
owned by the mutual or cooperative
electric company (or its members) which
owns the generation facility, and such
distribution facilities meet the open
access requirements of subclause (II).
``(ii) Clause (i)(I) shall apply in the
case of a voluntarily filed tariff only if the
mutual or cooperative electric company files a
report with FERC within 90 days after the date
of the enactment of this subparagraph relating
to whether or not such company will join a
regional transmission organization.
``(iii) A mutual or cooperative electric
company shall be treated as meeting the open
access requirements of clause (i)(I) if a
regional transmission organization controls the
transmission facilities.
``(iv) References to FERC in this
subparagraph shall be treated as including
references to the Public Utility Commission of
Texas with respect to any ERCOT utility (as
defined in section 212(k)(2)(B) of the Federal
Power Act (16 U.S.C. 824k(k)(2)(B))) or
references to the Rural Utilities Service with
respect to any other facility not subject to
FERC jurisdiction.
``(v) For purposes of this subparagraph--
``(I) The term `transmission
facility' means an electric output
facility (other than a generation
facility) that operates at an electric
voltage of 69 kV or greater. To the
extent provided in regulations, such
term includes any output facility that
FERC determines is a transmission
facility under standards applied by
FERC under the Federal Power Act (as in
effect on the date of the enactment of
the Energy Tax Incentives Act of 2003).
``(II) The term `regional
transmission organization' includes an
independent system operator.
``(III) The term `FERC' means the
Federal Energy Regulatory Commission.
``(F) The term `nuclear decommissioning
transaction' means--
``(i) any transfer into a trust, fund, or
instrument established to pay any nuclear
decommissioning costs if the transfer is in
connection with the transfer of the mutual or
cooperative electric company's interest in a
nuclear power plant or nuclear power plant
unit,
``(ii) any distribution from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs, or
``(iii) any earnings from any trust, fund,
or instrument established to pay any nuclear
decommissioning costs.
``(G) The term `asset exchange or conversion
transaction' means any voluntary exchange or
involuntary conversion of any property related to
generating, transmitting, distributing, or selling
electric energy by a mutual or cooperative electric
company, the gain from which qualifies for deferred
recognition under section 1031 or 1033, but only if the
replacement property acquired by such company pursuant
to such section constitutes property which is used, or
to be used, for--
``(i) generating, transmitting,
distributing, or selling electric energy, or
``(ii) producing, transmitting,
distributing, or selling natural gas.''.
(b) Treatment of Income From Load Loss Transactions.--Paragraph
(12) of section 501(c), as amended by subsection (a)(2), is amended by
adding after subparagraph (G) the following new subparagraph:
``(H)(i) In the case of a mutual or cooperative
electric company described in this paragraph or an
organization described in section 1381(a)(2)(C), income
received or accrued from a load loss transaction shall
be treated as an amount collected from members for the
sole purpose of meeting losses and expenses.
``(ii) For purposes of clause (i), the term `load
loss transaction' means any wholesale or retail sale of
electric energy (other than to members) to the extent
that the aggregate sales during the recovery period
does not exceed the load loss mitigation sales limit
for such period.
``(iii) For purposes of clause (ii), the load loss
mitigation sales limit for the recovery period is the
sum of the annual load losses for each year of such
period.
``(iv) For purposes of clause (iii), a mutual or
cooperative electric company's annual load loss for
each year of the recovery period is the amount (if any)
by which--
``(I) the megawatt hours of electric energy
sold during such year to members of such
electric company are less than
``(II) the megawatt hours of electric
energy sold during the base year to such
members.
``(v) For purposes of clause (iv)(II), the term
`base year' means--
``(I) the calendar year preceding the
start-up year, or
``(II) at the election of the electric
company, the second or third calendar years
preceding the start-up year.
``(vi) For purposes of this subparagraph, the
recovery period is the 7-year period beginning with the
start-up year.
``(vii) For purposes of this subparagraph, the
start-up year is the calendar year which includes the
date of the enactment of this subparagraph or, if
later, at the election of the mutual or cooperative
electric company--
``(I) the first year that such electric
company offers nondiscriminatory open access,
or
``(II) the first year in which at least 10
percent of such electric company's sales are
not to members of such electric company.
``(viii) A company shall not fail to be treated as
a mutual or cooperative company for purposes of this
paragraph or as a corporation operating on a
cooperative basis for purposes of section 1381(a)(2)(C)
by reason of the treatment under clause (i).
``(ix) In the case of a mutual or cooperative
electric company, income from any open access
transaction received, or accrued, indirectly from a
member shall be treated as an amount collected from
members for the sole purpose of meeting losses and
expenses.''.
(c) Exception From Unrelated Business Taxable Income.--Subsection
(b) of section 512 (relating to modifications) is amended by adding at
the end the following new paragraph:
``(18) Treatment of mutual or cooperative electric
companies.--In the case of a mutual or cooperative electric
company described in section 501(c)(12), there shall be
excluded income which is treated as member income under
subparagraph (H) thereof.''.
(d) Cross Reference.--Section 1381 is amended by adding at the end
the following new subsection:
``(c) Cross Reference.--

``For treatment of income from load
loss transactions of organizations described in subsection (a)(2)(C),
see section 501(c)(12)(H).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 604. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY
COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

(a) In General.--Section 451 (relating to general rule for taxable
year of inclusion) is amended by adding at the end the following new
subsection:
``(i) Special Rule for Sales or Dispositions To Implement Federal
Energy Regulatory Commission or State Electric Restructuring Policy.--
``(1) In general.--For purposes of this subtitle, if a
taxpayer elects the application of this subsection to a
qualifying electric transmission transaction in any taxable
year--
``(A) any ordinary income derived from such
transaction which would be required to be recognized
under section 1245 or 1250 for such taxable year
(determined without regard to this subsection), and
``(B) any income derived from such transaction in
excess of such ordinary income which is required to be
included in gross income for such taxable year,
shall be so recognized and included ratably over the 8-taxable
year period beginning with such taxable year.
``(2) Qualifying electric transmission transaction.--For
purposes of this subsection, the term `qualifying electric
transmission transaction' means any sale or other disposition
before January 1, 2007, of--
``(A) property used by the taxpayer in the trade or
business of providing electric transmission services,
or
``(B) any stock or partnership interest in a
corporation or partnership, as the case may be, whose
principal trade or business consists of providing
electric transmission services,
but only if such sale or disposition is to an independent
transmission company.
``(3) Independent transmission company.--For purposes of
this subsection, the term `independent transmission company'
means--
``(A) a regional transmission organization approved
by the Federal Energy Regulatory Commission,
``(B) a person--
``(i) who the Federal Energy Regulatory
Commission determines in its authorization of
the transaction under section 203 of the
Federal Power Act (16 U.S.C. 824b) is not a
market participant within the meaning of such
Commission's rules applicable to regional
transmission organizations, and
``(ii) whose transmission facilities to
which the election under this subsection
applies are under the operational control of a
Federal Energy Regulatory Commission-approved
regional transmission organization before the
close of the period specified in such
authorization, but not later than the close of
the period applicable under paragraph (1), or
``(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Commission
of Texas, a person which is approved by that Commission
as consistent with Texas State law regarding an
independent transmission organization.
``(4) Election.--An election under paragraph (1), once
made, shall be irrevocable.
``(5) Nonapplication of installment sales treatment.--
Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election to
apply this subsection is made.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions occurring after the date of the enactment of this Act.

SEC. 605. TREATMENT OF CERTAIN DEVELOPMENT INCOME OF COOPERATIVES.

(a) In General.--Subparagraph (C) of section 501(c)(12), as amended
by this Act, is amended by striking ``or'' at the end of clause (iv),
by striking the period at the end of clause (v) and insert ``, or'',
and by adding at the end the following new clause:
``(vi) from the receipt before January 1,
2007, of any money, property, capital, or any
other contribution in aid of construction or
connection charge intended to facilitate the
provision of electric service for the purpose
of developing qualified fuels from
nonconventional sources (within the meaning of
section 29).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

TITLE VII--ADDITIONAL PROVISIONS

SEC. 701. EXTENSION OF ACCELERATED DEPRECIATION AND WAGE CREDIT
BENEFITS ON INDIAN RESERVATIONS.

(a) Special Recovery Period for Property on Indian Reservations.--
Section 168(j)(8) (relating to termination), as amended by section
613(b) of the Job Creation and Worker Assistance Act of 2002, is
amended by striking ``2004'' and inserting ``2005''.
(b) Indian Employment Credit.--Section 45A(f) (relating to
termination), as amended by section 613(a) of the Job Creation and
Worker Assistance Act of 2002, is amended by striking ``2004'' and
inserting ``2005''.

SEC. 702. STUDY OF EFFECTIVENESS OF CERTAIN PROVISIONS BY GAO.

(a) Study.--The Comptroller General of the United States shall
undertake an ongoing analysis of--
(1) the effectiveness of the alternative motor vehicles and
fuel incentives provisions under title II and the conservation
and energy efficiency provisions under title III, and
(2) the recipients of the tax benefits contained in such
provisions, including an identification of such recipients by
income and other appropriate measurements.
Such analysis shall quantify the effectiveness of such provisions by
examining and comparing the Federal Government's forgone revenue to the
aggregate amount of energy actually conserved and tangible
environmental benefits gained as a result of such provisions.
(b) Reports.--The Comptroller General of the United States shall
report the analysis required under subsection (a) to Congress not later
than December 31, 2003, and annually thereafter.

SEC. 703. CREDIT FOR PRODUCTION OF ALASKA NATURAL GAS.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45M. ALASKA NATURAL GAS.

``(a) In General.--For purposes of section 38, the Alaska natural
gas credit of any taxpayer for any taxable year is the credit amount
per 1,000,000 Btu of Alaska natural gas entering any intake or tie-in
point which was derived from an area of the State of Alaska lying north
of 64 degrees North latitude, which is attributable to the taxpayer and
sold by or on behalf of the taxpayer to an unrelated person during such
taxable year (within the meaning of section 45).
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount per 1,000,000 Btu of
Alaska natural gas entering any intake or tie-in point which
was derived from an area of the State of Alaska lying north of
64 degrees North latitude (determined in United States
dollars), is the excess of--
``(A) $3.25, over
``(B) the average monthly price at the AECO C Hub
in Alberta, Canada, for Alaska natural gas for the
month in which occurs the date of such entering.
``(2) Inflation adjustment.--In the case of any taxable
year beginning in a calendar year after the first calendar year
ending after the date described in subsection (g)(1), the
dollar amount contained in paragraph (1)(A) shall be increased
to an amount equal to such dollar amount multiplied by the
inflation adjustment factor for such calendar year (determined
under section 43(b)(3)(B) by substituting `the calendar year
ending before the date described in section 45M(g)(1)' for
`1990').
``(c) Alaska Natural Gas.--For purposes of this section, the term
`Alaska natural gas' means natural gas entering any intake or tie-in
point which was derived from an area of the State of Alaska lying north
of 64 degrees North latitude produced in compliance with the applicable
State and Federal pollution prevention, control, and permit
requirements from the area generally known as the North Slope of Alaska
(including the continental shelf thereof within the meaning of section
638(l)), determined without regard to the area of the Alaska National
Wildlife Refuge (including the continental shelf thereof within the
meaning of section 638(l)).
``(d) Recapture.--
``(1) In general.--With respect to each 1,000,000 Btu of
Alaska natural gas entering any intake or tie-in point which
was derived from an area of the State of Alaska lying north of
64 degrees North latitude after the date which is 3 years after
the date described in subsection (g)(1), if the average monthly
price described in subsection (b)(1)(B) exceeds 150 percent of
the amount described in subsection (b)(1)(A) for the month in
which occurs the date of such entering, the taxpayer's tax
under this chapter for the taxable year shall be increased by
an amount equal to the lesser of--
``(A) such excess, or
``(B) the aggregate decrease in the credits allowed
under section 38 for all prior taxable years which
would have resulted if the Alaska natural gas credit
received by the taxpayer for such years had been zero.
``(2) Special rules.--
``(A) Tax benefit rule.--The tax for the taxable
year shall be increased under paragraph (1) only with
respect to credits allowed by reason of this section
which were used to reduce tax liability. In the case of
credits not so used to reduce tax liability, the
carryforwards and carrybacks under section 39 shall be
appropriately adjusted.
``(B) No credits against tax.--Any increase in tax
under this subsection shall not be treated as a tax
imposed by this chapter for purposes of determining the
amount of any credit under this chapter or for purposes
of section 55.
``(e) Application of Rules.--For purposes of this section, rules
similar to the rules of paragraphs (3), (4), and (5) of section 45(d)
shall apply.
``(f) No Double Benefit.--The amount of any deduction or other
credit allowable under this chapter for any fuel taken into account in
computing the amount of the credit determined under subsection (a)
shall be reduced by the amount of such credit attributable to such
fuel.
``(g) Application of Section.--This section shall apply to Alaska
natural gas entering any intake or tie-in point which was derived from
an area of the State of Alaska lying north of 64 degrees North latitude
for the period--
``(1) beginning with the later of--
``(A) January 1, 2010, or
``(B) the initial date for the interstate
transportation of such Alaska natural gas, and
``(2) except with respect to subsection (d), ending with
the date which is 15 years after the date described in
paragraph (1).''.
(b) Credit Treated as Business Credit.--Section 38(b), as amended
by this Act, is amended by striking ``plus'' at the end of paragraph
(22), by striking the period at the end of paragraph (23) and inserting
``, plus'', and by adding at the end the following new paragraph:
``(24) The Alaska natural gas credit determined under
section 45M(a).''.
(c) Allowing Credit Against Entire Regular Tax and Minimum Tax.--
(1) In general.--Subsection (c) of section 38 (relating to
limitation based on amount of tax), as amended by this Act, is
amended by redesignating paragraph (5) as paragraph (6) and by
inserting after paragraph (4) the following new paragraph:
``(5) Special rules for alaska natural gas credit.--
``(A) In general.--In the case of the Alaska
natural gas credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) the amounts in subparagraphs
(A) and (B) thereof shall be treated as
being zero, and
``(II) the limitation under
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the Alaska
natural gas credit).
``(B) Alaska Natural Gas Credit.--For purposes of
this subsection, the term `Alaska natural gas credit'
means the credit allowable under subsection (a) by
reason of section 45M(a).''.
(2) Conforming amendments.--Subclause (II) of section
38(c)(2)(A)(ii), as amended by this Act, subclause (II) of
section 38(c)(3)(A)(ii), as amended by this Act, and subclause
(II) of section 38(c)(4)(A)(ii), as added by this Act, are each
amended by inserting ``or the Alaska natural gas credit'' after
``producer credit''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45M. Alaska natural gas.''.

SEC. 704. SALE OF GASOLINE AND DIESEL FUEL AT DUTY-FREE SALES
ENTERPRISES.

(a) Prohibition.--Section 555(b) of the Tariff Act of 1930 (19
U.S.C. 1555(b)) is amended--
(1) by redesignating paragraphs (6) through (8) as
paragraphs (7) through (9), respectively; and
(2) by inserting after paragraph (5) the following:
``(6) Any gasoline or diesel fuel sold at a duty-free sales
enterprise shall be considered to be entered for consumption
into the customs territory of the United States.''.
(b) Construction.--The amendments made by this section shall not be
construed to create any inference with respect to the interpretation of
any provision of law as such provision was in effect on the day before
the date of enactment of this Act.
(c) Effective date.--The amendments made by this section shall take
effect on the date of enactment of this Act.

SEC. 705. CLARIFICATION OF EXCISE TAX EXEMPTIONS FOR AGRICULTURAL
AERIAL APPLICATORS.

(a) No Waiver by Farm Owner, Tenant, or Operator Necessary.--
Subparagraph (B) of section 6420(c)(4) (relating to certain farming use
other than by owner, etc.) is amended to read as follows:
``(B) if the person so using the gasoline is an
aerial or other applicator of fertilizers or other
substances and is the ultimate purchaser of the
gasoline, then subparagraph (A) of this paragraph shall
not apply and the aerial or other applicator shall be
treated as having used such gasoline on a farm for
farming purposes.''.
(b) Exemption Includes Fuel Used Between Airfield and Farm.--
Section 6420(c)(4), as amended by subsection (a), is amended by adding
at the end the following new flush sentence:
``For purposes of this paragraph, in the case of an aerial
applicator, gasoline shall be treated as used on a farm for
farming purposes if the gasoline is used for the direct flight
between the airfield and 1 or more farms.''.
(c) Exemption From Tax on Air Transportation of Persons for
Forestry Purposes Extended to Fixed-Wing Aircraft.--Subsection (f) of
section 4261 (relating to tax on air transportation of persons) is
amended to read as follows:
``(f) Exemption for Certain Uses.--No tax shall be imposed under
subsection (a) or (b) on air transportation--
``(1) by helicopter for the purpose of transporting
individuals, equipment, or supplies in the exploration for, or
the development or removal of, hard minerals, oil, or gas, or
``(2) by helicopter or by fixed-wing aircraft for the
purpose of the planting, cultivation, cutting, or
transportation of, or caring for, trees (including logging
operations),
but only if the helicopter or fixed-wing aircraft does not take off
from, or land at, a facility eligible for assistance under the Airport
and Airway Development Act of 1970, or otherwise use services provided
pursuant to section 44509 or 44913(b) or subchapter I of chapter 471 of
title 49, United States Code, during such use. In the case of
helicopter transportation described in paragraph (1), this subsection
shall be applied by treating each flight segment as a distinct
flight.''.
(d) Effective Date.--The amendments made by this section shall
apply to fuel use or air transportation after December 31, 2002, and
before January 1, 2004.

SEC. 706. MODIFICATION OF RURAL AIRPORT DEFINITION.

(a) In General.--Clause (ii) of section 4261(e)(1)(B) (defining
rural airport) is amended by striking the period at the end of
subclause (II) and inserting ``, or'' and by adding at the end the
following new subclause:
``(III) is not connected by paved
roads to another airport.''.
(b) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after 2003.

SEC. 707. EXEMPTION FROM TICKET TAXES FOR TRANSPORTATION PROVIDED BY
SEAPLANES.

(a) In General.--The taxes imposed by sections 4261 and 4271 shall
not apply to transportation by a seaplane with respect to any segment
consisting of a takeoff from, and a landing on, water.
(b) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after 2003.
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