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 EIAs 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 Energys
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 Administrations
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 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 EPAs 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 taxpayers 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 RatesDeep 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 Nations 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 technologiessuch
as advanced pulverized coal, fluidized bed, or integrated gasification
combined cycleare 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
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