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Legislation and Regulations.

The Energy Policy Act of 2003 

The U.S. House of Representatives passed H.R. 6.EH, The Energy Policy Act of 2003 (EPACT03), on April 11, 2003. The Senate passed H.R. 6.EAS (the same bill it had passed in 2002) on July 31, 2003. A Conference Committee was convened to resolve differences between the two bills, and a conference report was approved and issued on November 17, 2003 [31]. The House approved the conference report on November 18, 2003, but a Senate vote on cloture failed, and further action has been delayed at least until January 2004. 

Consistent with the approach adopted in the AEO to include only Federal and State laws and regulations in effect, the various provisions of EPACT03 are not represented in the AEO2004 projections. This discussion focuses on selected provisions of the current version of EPACT03 that have, in EIA’s estimation, significant potential to affect energy consumption and supply at the national level. Proposed provisions in the following areas are addressed: 

  • Tax credits, grants, low-income subsidies, mandatory standards, and voluntary programs that act to reduce the cost and use of energy in the buildings sectors 
  • Industrial programs providing tax credits for combined heat and power (CHP) generation, blended cement, and voluntary programs to reduce energy intensity 
  • Tax credits for alternative fuel vehicles 
  • Establishment of a renewable fuels standard 
  • Elimination of the use of methyl tertiary butyl ether (MTBE) in gasoline 
  • Elimination of oxygen content requirements for reformulated gasoline 
  • Creation of tax deductions and credits for small refiners to encourage the production of low-sulfur diesel fuels 
  • Ethanol and biodiesel tax credits 
  • Extension of royalty relief to natural gas production from deep wells on existing leases in shallow waters 
  • Establishment and funding of a research program for ultra-deepwater and nonconventional natural gas and other petroleum resources from royalty payments 
  • Section 29 tax credits for nonconventional fuels production 
  • Assistance for constructing the Alaska Natural Gas Pipeline 
  • Establishment of a series of tax credits for natural gas gathering, distribution, and high-volume pipelines and gas processing facilities 
  • Provisions to improve the reliability of the electricity transmission grid 
  • Tax incentives and other provisions to encourage generation from renewable and nuclear fuels. 

End-Use Energy Demand 

EPACT03 includes tax incentives, standards, voluntary programs, and other miscellaneous provisions that affect the end-use demand sectors. Provisions that affect the residential and commercial sectors (the buildings sectors) are discussed together, because many of the legislative proposals affect both sectors. 

Buildings 

EPACT03 contains several provisions designed to mitigate future energy consumption in the buildings sectors. They encompass a multifaceted policy approach, employing tax credits, grants, low-income subsidies, mandatory standards, and voluntary programs in an attempt to reduce both expenditures for and use of residential and commercial energy. Each of these approaches can yield different results in terms of program effectiveness. 

Of all the provisions included in EPACT03, only the mandatory standards for products such as torchiere lighting and traffic signals (Section 133) force a direct impact on buildings sector energy use; the other provisions require homeowners, occupants, builders, and/or government officials to pursue a specific course of action to spur measurable energy savings. In terms of proposed tax credits, for the next 3 years, builders can claim $1,000 to $2,000 for each home built that meets certain efficiency criteria (Section 1305). Likewise, homeowners who upgrade the building envelopes of existing homes can claim a 20-percent tax credit (up to $2,000) from 2004 to 2006 (Section 1304). 

Other provisions include production tax credits for efficient refrigerators and clothes washers through 2007, as well as credits for the installation of fuel cells, CHP systems, and solar thermal and photovoltaic equipment (Sections 1307, 1303, 1306, and 1301). Commercial businesses can also claim a tax deduction of $1.50 per square foot for expenditures on energy-efficient building property (Section 1308). In terms of subsidies, EPACT03 directs funding increases over the next several years for both the Low Income Home Energy Assistance Program (LIHEAP) and the Department of Energy’s weatherization program (Sections 121 and 122), which could reduce future energy use by allowing more low-income homes to be weatherized. Other provisions update Executive Order mandates regarding Federal purchasing requirements and energy intensity reductions (Sections 102 through 104); allow for energy conservation measures in congressional buildings (Section 101); and establish a program to install photovoltaic energy systems in public buildings over the next 5 years (Section 205). 

Several provisions of EPACT03 either are less specific in terms of what the future law might require or are difficult to assess and, therefore, have less certain impacts. They include the establishment of test procedures for several products (Section 133), programs to educate homeowners on the importance of maintaining heating and cooling equipment (Section 132), and grants to States for rebates on the purchase of energy-efficient products (Section 124). 

Industrial 

The industrial sector provisions of EPACT03 include tax credit programs for CHP, blended cements, and voluntary programs to reduce industrial energy intensity. Section 1306 would extend the current 10-percent business credit for solar power generation equipment to CHP systems. Qualifying equipment must have electrical capacity of not more than 15 megawatts or mechanical energy no greater than 2,000 horsepower. Qualifying equipment must produce at least 20 percent of its useful output as thermal energy and at least 20 percent as electricity. Such equipment must also have a system efficiency of at least 60 percent. The credit would be effective from December 31, 2003, to January 1, 2007. The tax credit would create an incentive to increase CHP generation, but that incentive would be diminished by the relatively small size limit for qualifying facilities. Further, the short time frame of the credit probably would limit CHP expansion to plants that would have been built in its absence. 

Section 110 would encourage Federal agencies to require greater use of blended cements but does not specify the amount of blending that would be allowed. Generally, increasing the recovered mineral component would decrease the amount of new cement production required to produce a given output of concrete. 

Section 107 would authorize the Secretary of Energy to enter into voluntary agreements with one or more persons in the industrial sector to reduce their energy intensity by a significant amount compared with recent years. This program appears similar to the existing Climate Vision program, which is part of the Administration’s effort to reduce greenhouse gas intensity by 18 percent over the next decade [32]. 

Transportation 

Present law provides a maximum tax deduction for alternative fuel motor vehicles of $50,000 for a truck or van weighing over 26,000 pounds and $2,000 for a vehicle weighing 10,000 pounds or less. In addition, current law provides a 10-percent tax credit toward the cost of a qualified electric vehicle, up to $4,000. The tax deductions and credit are scheduled to be phased out between January 1, 2002, and December 31, 2004. 

Section 1317 of EPACT03 would extend the existing alternative fuel motor vehicle deduction through December 31, 2006; repeal an existing credit for electric fuel cell vehicles; and provide credits for the purchase of fuel cell powered motor vehicles, hybrid motor vehicles, mixed-fuel motor vehicles, and advanced lean-burn technology motor vehicles. Unused credits could be carried forward 20 years and would apply to hybrid and advanced lean-burn technology vehicles placed in service before 2008 and to fuel cell vehicles placed in service before 2012. Property placed in service after the enactment of EPACT03 could also receive the tax credits. Credits for hybrid and advanced lean-burn technology vehicles would be phased out after cumulative sales of the specific technology exceeded 80,000 units. Section 1318 specifies allowable tax credits by vehicle and fuel type. 

Although EPACT03 does not prescribe a change in corporate average fuel economy (CAFE) standards, Section 772 sets out specific items that the Secretary of Transportation should consider when evaluating a potential increase, including technological feasibility, economic practicability, the effect of other government motor vehicles standards on fuel economy, the need of the United States to conserve energy, the effects of fuel economy standards on safety, and the effect of compliance on automobile industry employment. Further, Section 774 would require the Administrator of the National Highway Traffic Safety Administration to initiate a study no later than 30 days after enactment of EPACT03 to look at the feasibility and effects of requiring a significant percentage reduction in automobile fuel consumption beginning in model year 2012. 

Petroleum, Ethanol, and Biofuel Tax Provisions 

Numerous provisions of EPACT03 would affect the supply, composition, and refining of petroleum and related products. The major issues include: 

  • Establishment of a renewable fuels standard 
  • Elimination of MTBE 
  • Elimination of the oxygen content requirement for reformulated gasoline 
  • Small refiner deductions to encourage investment in low-sulfur fuel production 
  • Ethanol and biofuel tax provisions. 

Renewable Fuels Standard 

Section 1501 of EPACT03 requires the production and use of 3.1 billion gallons of renewable fuel in 2005, increasing to 5.0 billion gallons by 2012. For calendar year 2013 and each year thereafter, the minimum renewable fuels required would be determined by the volume percentage of 5.0 billion gallons over the total gasoline sold in the Nation in 2012. Small refineries with a capacity not exceeding 75,000 barrels per calendar year, and the States of Alaska and Hawaii, are exempted from the renewable fuels standard. Both ethanol and biodiesel are considered as renewable fuels, with a 1.5-gallon credit toward the renewable fuels standard for every gallon of biomass ethanol produced and a 2.5-gallon credit if the biomass ethanol is derived from agricultural residue or is an agricultural byproduct. A renewable fuels credit program would allow refiners, blenders, and importers flexibility to comply with the renewable fuels standard across geographical regions and successive years. 

MTBE Phaseout 

Section 1502 exempts MTBE and renewable fuels used in motor vehicles from being deemed “defective products.” However, the exemption does not “affect the liability of any person for environmental remediation costs, drinking water contamination, negligence for spills or other reasonably foreseeable events, public or private nuisance, trespass, breach of warranty, breach of contract, or any other liability other than liability based on a claim of defect product.” Section 1503 provides for transition assistance up to $250 million per year between 2005 and 2012 to merchant MTBE producers moving to production of iso-octane, iso-octene, alkylates, or renewable fuels. Section 1504 prohibits the use of MTBE after December 31, 2014, but trace quantities not exceeding 0.5 percent by volume are allowed. The Governor of a State may submit a notification to the EPA authorizing the continued use of MTBE, and the President of the United States may also void the MTBE restrictions by June 30, 2014, based on findings by the National Academy of Sciences on the costs and benefits of motor fuel additives, including MTBE. 

Oxygen Requirement for Reformulated Gasoline 

Section 1506 would eliminate the oxygen content requirement for reformulated gasoline. It would take effect 270 days after enactment of EPACT03, except for California, which would receive the exemption immediately. Volatile organic compound (VOC) Control Regions 1 and 2 for reformulated gasoline would be consolidated by eliminating the less stringent requirements applicable to gasoline designated for VOC Control Region 2 (northern). 

Small Refiners 

Section 1324 allows small refiners to deduct 75 percent of qualified capital expenditures in the year of the expense for costs related to compliance with the EPA’s Tier 2 low-sulfur gasoline and highway diesel fuel requirements. The provision applies as a deduction for expenses incurred in a taxable year beginning after December 31, 2002. Gasoline sulfur reductions could be phased in between 2004 and 2007; diesel sulfur reductions would take effect starting in mid-2006. 

Section 1325 of EPACT03 provides for a 5-cent-per-gallon tax credit to small refiners of low-sulfur diesel fuel (15 ppm or less) for expenses incurred after December 31, 2002. The total amount of the credit is limited to 25 percent of qualified capital costs incurred to reach compliance with EPA diesel fuel regulations, and no credit is allowed until the refiner obtains certification of compliance. The credit is reduced pro rata for refiners processing over 155,000 barrels per day but less than 205,000 barrels per day. It applies to organizations with no more than 1,500 individuals engaged in refinery business operations on any day during the year. For cooperative organizations, the credit can be apportioned among members. The effective period runs from January 1, 2003, to one year after the date the refiner must comply with EPA regulations, but no later than December 31, 2009. 

Ethanol and Biofuel Tax Provisions 

The current gasoline and highway diesel fuel excise taxes are 18.4 and 24.4 cents per gallon, respectively. For each gallon of highway fuel, 0.1 cents is deposited in the Leaking Underground Storage Tank Trust Fund, and the balance is deposited in the Highway Trust Fund. Gasoline blended with 10 percent ethanol receives an excise tax reduction of 5.2 cents per gallon. Gasoline blended with 5.7 percent or 7.7 percent ethanol receives a proportionally smaller excise tax reduction. Under current law, if gasoline is blended with ethanol, the General Fund receives 2.5 cents, the Leaking Underground Storage Tank Trust Fund receives 0.1 cent, and the Highway Trust Fund receives the remainder. 

Section 1314 would establish a biodiesel fuels credit analogous to the existing alcohol fuels income tax credit. A biodiesel mixture tax credit of 50 cents per gallon of biodiesel produced from recycled oil or $1 per gallon of biodiesel produced from virgin oil or virgin animal fat applies to biodiesel blended with petroleum diesel. A biodiesel credit in the same amount applies to each gallon of neat biodiesel. A taxpayer’s biodiesel fuels tax credit is the sum of the biodiesel mixture credit and the biodiesel credit and is claimed against business income tax. The credit would be effective from December 31, 2003, through December 31, 2005. 

Section 1315 would give fuel blenders the options of the alcohol fuel mixture excise tax credit and the biodiesel fuel mixture excise tax credit. Gasoline blended with renewable-source alcohol or ethers produced from renewable-source alcohol would be taxed at the full 18.4 cents per gallon. Diesel blended with biodiesel would be taxed at the full 24.4 cents per gallon. A tax credit of 52 or 51 cents per gallon of ethanol blended into gasoline or used to produce ethyl tertiary butyl ether blended into gasoline would be paid out of the General Fund. Receipts to the Highway Trust Fund would not be reduced by the use of ethanol in gasoline if blenders choose these credits. The credit is 60 cents per gallon of alcohol other than ethanol (such as methanol) derived from renewable sources. The excise tax credit for biodiesel is 50 cents per gallon of biodiesel from recycled oil or $1 per gallon of biodiesel from virgin oil or virgin animal fat. The excise tax credits cannot be claimed for alcohol or biodiesel for which an income tax credit is claimed or which are taxed at a reduced excise tax rate. The new alcohol excise tax credits would be available through December 31, 2010, and the new biodiesel excise tax credit would be available through December 31, 2005. 

The current alcohol fuels income tax credit includes the alcohol mixture credit, the alcohol credit, and the small ethanol producer credit. Gasoline blended with ethanol qualifies for an alcohol mixture credit of 52 or 51 cents per gallon. Gasoline blended with an alcohol other than ethanol qualifies for an alcohol mixture credit of 60 cents per gallon. Alcohol tax credits in the same amount apply to fuel alcohols not blended with gasoline. A small ethanol producer qualifies for an additional credit up to 10 cents per gallon for annual production of 15 million gallons or less. Small ethanol producers currently cannot have production capacity above 30 million gallons per year. Section 1313 would raise the capacity limit to 60 million gallons per year. Section 1315 would move the expiration date of the alcohol fuels income tax credit from December 31, 2007, to December 31, 2010. 

Natural Gas Supply Provisions 

EPACT03 includes a number of provisions that would affect natural gas supply, including: 

  • Extension of royalty relief to natural gas production from deep wells in shallow waters 
  • Establishment of a research program covering ultra-deepwater offshore and unconventional natural gas and petroleum resources and funding from existing royalties 
  • Extension and modification of the Section 29 tax credit for nonconventional production 
  • Assistance for constructing the Alaska Natural Gas Pipeline 
  • Tax incentives for natural gas gathering and distribution 
  • Tax incentives for high-volume natural gas pipelines and gas processing facilities. 

Royalty Relief for Natural Gas Production from Deep Wells in the Shallow Waters of the Gulf of Mexico 

Section 314 of EPACT03 would authorize the Secretary of Energy to publish a final regulation to complete the rulemaking begun by the Notice of Proposed Rulemaking entitled “Relief or Reduction in Royalty Rates—Deep Gas Provisions,” published in March 2003. The rule would grant various levels of royalty relief for wells drilled within the first 5 years of a lease in the shallow waters (less than 200 meters) of the Gulf of Mexico. The minimum volume of production with suspended royalty payments is 15 billion cubic feet for wells drilled to at least 15,000 feet and 25 billion cubic feet for wells drilled to more than 18,000 feet. In addition, unsuccessful wells drilled to a depth of at least 15,000 feet would receive a royalty tax credit for 5 billion cubic feet of natural gas. Credits could be received for up to two wells. 

Section 314 would further grant royalty suspension volumes of not less than 35 billion cubic feet from ultra-deep wells on leases issued before January 1, 2001. An ultra-deep well is defined as a well drilled to at least 20,000 feet. 

Funding and Establishment of a Research Program for Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources 

Sections 941 through 949 would provide for the establishment of a research program covering the ultra-deepwater offshore and unconventional natural gas and petroleum resources (onshore) to advance activities related to development, demonstration, and commercialization of new technologies. 

A separate fund will be established in the U.S. Treasury under this provision. Program funding will consist of $150 million annually from Federal royalties, rents, and bonuses for each fiscal year from 2004 through 2013. In addition, another $50 million for each corresponding year is authorized is to be appropriated by Congress, and the funds will remain available until expended. Total program impacts range from $1.5 billion to $2.0 billion over the 10-year period, representing more than a doubling of current annual funding for research. 

Amounts obligated from the fund will be allocated in each fiscal year as follows. One-half of the funds shall be for activities under Section 942 for an ultra-deepwater program. A nonprofit, tax-exempt consortium will be selected and awarded a contract to perform authorized research activities in this offshore area. The next 35 percent of the funds are allotted for activities under Section 943(d)(1), which includes work related to coalbed methane, deep drilling, natural gas production from tight sands, stranded gas, innovative exploration and production techniques, enhanced recovery techniques, and environmental mitigation of unconventional natural gas and exploration and production of other petroleum resources. The next 10 percent of the funds shall be for activities under Section 943(d)(2) and awarded to consortia of small producers focusing on changes in complex geology and reservoirs, low reservoir pressure, unconventional natural gas reservoirs in coalbeds, deep reservoirs, tight sands, and shales as well as unconventional oil reservoirs in tar sands and oil shales. The remaining 5 percent of the funds are allocated under Section 941(d) to corresponding research activities at the National Energy Technology Laboratory. 

Extension and Modification of the Section 29 Tax Credit for Producing Fuel from a Nonconventional Source 

Section 1345 of EPACT03 would extend and modify the Section 29 tax credit for producing fuel from nonconventional sources. It would allow a credit of $3 (indexed for inflation with 2002 as the base year) per barrel (or Btu equivalent) for production from all nonconventional sources except landfills for 4 years of production prior to 2010 for new wells placed in service through 2006. Production from existing wells (drilled in 1980-1992), previously eligible through 2002, would also be eligible for the credit through 2006. For landfills regulated by the EPA there would be a credit of $3 for facilities placed in service after June 30, 1998, and before January 1, 2007. These facilities would be eligible for 5 years of credit. The credit in Section 1345 would be limited to an average daily production of 200,000 cubic feet of gas (or oil equivalent) per well or facility. The credit would be fully effective when the price of crude oil is $35 per barrel or less and would phase out gradually as the price rises to $41 per barrel. 

Assistance for Constructing the Alaska Natural Gas Pipeline 

Section 386 of EPACT03 would give the Secretary of Energy authority to issue Federal loan guarantees for any natural gas pipeline system that carries Alaskan natural gas to the border between Alaska and Canada south of 68 degrees north latitude. This authority would expire 2 years after the final certificate of public convenience and necessity is issued. The guarantee would not exceed: (1) 80 percent of total capital costs (including interest during construction); (2) $18 billion dollars (indexed for inflation at the time of enactment); or (3) a term of 30 years. Other assistance for construction of the Alaska Natural Gas Pipeline would be provided by the tax incentives for natural gas gathering, high-volume natural gas pipelines, and gas processing summarized below. 

Tax Incentives for Natural Gas Gathering and Distribution 

Section 1321 would provide a 7-year recovery period for natural gas gathering lines, as opposed to the current 15-year recovery period, for tax purposes. It also would allow for alternative minimum tax relief by not adjusting the allowable amount of depreciation. The treatment would apply to property placed in service after the date of enactment. The Joint Committee on Taxation estimates the negative effect on the budget from the provision at $16 million from 2004 to 2013. 

Section 1322 would provide a 15-year recovery period for natural gas distribution lines, as opposed to the current 20-year recovery life available for taxpayers. The provision would be effective for property placed in service after the date of enactment. 

Tax Incentives for High-Volume Natural Gas Pipelines and Gas Processing Facilities 

Section 1355 would allow a 7-year recovery period for natural gas pipelines with a pipe diameter of at least 42 inches, and any related equipment, as opposed to the current 15-year recovery life available for taxpayers. The provision would be effective for property placed in service after the date of enactment. An Alaska pipeline to Canada is expected to satisfy the 42-inch requirement. 

Section 1356 would extend the 15-percent tax credit currently applied to costs related to enhanced oil recovery to construction costs for a gas treatment plant that supplies natural gas to a 1 trillion Btu per day pipeline and produces carbon dioxide for injection into hydrocarbon-bearing geological formations. A gas treatment plant on the North Slope that feeds gas into an Alaska pipeline to Canada could be built to satisfy this requirement. The provision would be effective for costs incurred after 2003. 

Electricity Provisions 

EPACT03 includes provisions targeted at improving the reliability and operation of the electricity transmission grid; investment tax credits for “basic” and “advanced” clean coal generating technologies; tax provisions, targeted programs, and changes in regulatory structure to support the introduction of renewable electricity generation; and nuclear production tax credits. 

Reliability and Operation of the Grid 

The electricity title of EPACT03 contains numerous provisions aimed at improving the reliability and operation of the electricity grid, encouraging additional investment in critical grid infrastructure, and revising rules on utility ownership structure and power purchase requirements. For example, to improve reliability, it calls for the creation of mandatory grid reliability standards to replace the voluntary standards that exist today. These standards would be administered by new “electric reliability organizations,” which are to be certified by the Federal Energy Regulatory Commission (FERC) and responsible for developing and enforcing reliability standards for their regions. Subject to FERC approval, electric reliability organizations can propose and modify reliability standards and issue fines to those who violate them. 

To improve grid operation, EPACT03 calls for open nondiscriminatory access to the grid for all market participants. In other words, transmission-owning utilities are required to offer grid services to others under the same terms and conditions that they provide for themselves. The bill would call for FERC to reconsider its standard market design, and no final rule would be issued before October 31, 2006. However, through a sense of the Congress provision, utilities engaging in interstate commerce would be encouraged to voluntarily join regional transmission organizations. The bill states that regional transmission organizations are needed “in order to promote fair, open access to electric transmission service, benefit retail consumers, facilitate wholesale competition, improve efficiencies in transmission grid management, promote grid reliability, remove opportunities for unduly discriminatory or preferential transmission practices, and provide for the efficient development of transmission infrastructure needed to meet the growing demands of competitive wholesale power markets.” 

To stimulate investment in the Nation’s transmission grid, the bill would give the Secretary of Energy the authority to designate national interest electric transmission corridors in areas experiencing transmission constraints or congestion. Once an area has been designated a national interest electric transmission corridor, within certain limitations, the FERC could issue a permit to modify existing or construct new transmission infrastructure. The goal of these provisions is to expedite the review, permitting, and construction of needed grid enhancements. The FERC would also be required to develop incentive rate structures for transmission pricing and to provide incentives for investments in advanced transmission equipment. 

EPACT03 also calls for key changes in the Public Utility Holding Company Act of 1935 (PUHCA) and the Public Utility Regulatory Policies Act of 1978 (PURPA). PUHCA places significant limitations on the corporate structure and geographic scope of utility companies. It does not allow utility holding companies to own noncontiguous utilities and limits their investments outside the utility business. EPACT03 would repeal PUHCA but require that public utility holding companies provide Federal and State regulators access to their books. PURPA was enacted to promote alternative energy sources and energy efficiency, and to diversify the electric power industry. One of its key provisions required utilities to purchase power from qualifying cogeneration and small power production facilities. EPACT03 would remove the purchase requirement for new qualifying facilities, provided that the facility has open access to transmission services and wholesale energy markets. 

Key Coal-Fired Electricity Provisions 

EPACT03 provides investment tax credits for two specific categories of new coal-fired generating capacity. New coal-fired generating units employing “basic” clean coal technologies—such as advanced pulverized coal, fluidized bed, or integrated gasification combined cycle—are eligible for a tax credit that amounts to 15 percent of the basis of the property placed in service during a specific year. The tax credit for this category of coal plants applies to new facilities placed in service before January 1, 2014, and is limited to a national cap of 4,000 megawatts. 

New coal-fired generating units employing “advanced” clean coal technologies are eligible for a tax credit that amounts to 17.5 percent of the basis of the property placed in service during a specific year. The “advanced” technologies include primarily the same technologies specified for the “basic” category, but they must meet both a higher standard for energy conversion efficiency and a cap on carbon emissions. The tax credit for this category of coal plants applies to new facilities placed in service before January 1, 2017, and is limited to a national cap of 6,000 megawatts. 

Key Renewable Electricity Provisions 

EPACT03 contains three types of provision that would affect renewable electricity markets: tax provisions, authorized programs, and changes to regulatory structures. The primary tax provisions relate to the renewable electricity production tax credit, which currently provides a tax credit of 1.8 cents per kilowatthour for 10 years from the initial online date of wind energy and qualifying biomass facilities entering service by December 31, 2003. EPACT03 would extend the eligibility period for the credit through December 31, 2006, and expand the program to include new biomass feedstocks, biomass co-firing facilities, geothermal facilities, solar power, and power from small irrigation systems. Facilities using “closed-loop” biomass supplies (energy crops grown specifically for energy production), either in dedicated use or in co-firing, would be eligible for the full credit value, but facilities using “open-loop” biomass 

resources (waste or byproducts from other processes) would receive a credit reduced by 33 percent for the first 5 years of operation from the initial online date. Co-firing facilities would receive the credit pro-rated to the thermal content of the biomass fuel. The tax credit and payment period would also be reduced for some of the other newly eligible technologies. Also, the credit would be allowed to reduce Alternative Minimum Tax payments, which should increase its value to project owners subject to Alternative Minimum Tax liability. 

Authorized programs, including direct subsidies, research and development activities, and other programs to support renewable electricity, would be established with maximum allowable funding levels; however, actual execution of the programs would depend on annual budget appropriations. Newly authorized programs would include a direct production incentive payment for some new and incremental hydroelectric power facilities; a direct subsidy to encourage the use of forest thinnings for power production; and new research and development programs, such as the use of concentrating solar power to produce hydrogen. 

Changes to regulatory structures would affect both hydroelectric licensing and geothermal leasing. The hydroelectric licensing revisions would allow license applicants to propose alternatives to proposed Federal agency fishway and other license conditions. Leasing and royalty procedures for use of geothermal resources on Federal lands would also be streamlined. 

Nuclear Electricity Production Tax Credit 

EPACT03 introduces a production tax credit for generation from advanced nuclear power facilities, similar to that in existence for renewables. The provision provides a tax credit of 1.8 cents per kilowatthour for the first 8 years of operation by qualified nuclear facilities. (Unlike the renewable provision, the credit is not adjusted for inflation.) Qualifying facilities must enter service after enactment of the bill and by December 31, 2020. There is a national capacity limitation of 6,000 megawatts; the bill does not specify the allocation of the limit but leaves it to the discretion of the Secretary of Energy. The provision also puts a limit of $125 million per 1,000 megawatts of capacity on the annual credit that can be received by any facility. 

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Notes and Sources

 

Released: January 2004