Energy Improvement and Extension Act of 2008: Summary of Provisions |
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The Emergency Economic Stabilization Act of 2008 (Public Law 110-343) [4], which was signed into law on October 3, 2008, incorporates EIEA2008 in Division B. Provisions in EIEA2008 that require funding appropriations to be implemented, whose impact is highly uncertain or that require further specification by Federal agencies or Congress, are not included in AEO2009. Moreover, AEO2009 does not include any provision that addresses a level of detail beyond that modeled in NEMS. AEO2009 addresses those provisions in EIEA2008 that establish specific tax credits and incentives, including the following:
The following discussion provides a summary of the EIEA2008 provisions included in AEO2009 and some of the provisions that could be included if more complete information were available about their funding and implementation. This discussion is not a complete summary of all the sections of EIEA2008. End-Use Demand Residential and Commercial Buildings EIEA2008 reinstates and extends tax credits for renewable energy and for the purchase and production of certain energy-efficient appliances, many of which were originally enacted in EPACT2005. Some of the tax credits are extended to 2016. In addition, the $2,000 cap for residential PV purchases is removed, and the cap for ground-source heat pumps is raised from $300 to $2,000. The legislation also adds business ITCs for CHP, small wind systems, and commercial ground-source heat pumps. Residential Tax Credits EIEA2008 Titles I and III include various extensions, modifications, and additions to the tax code that have the potential to affect future energy demand in the residential sector. Sections 103 through 106 of Title I reinstate the tax credits that were implemented under EPACT2005 for efficient water heaters, boilers, furnaces, heat pumps, air conditioners, and building shell equipment, such as windows, doors, weather stripping, and insulation. The amount of the credit varies by appliance type and ranges from $150 to $300. The maximum credit for ground-source heat pumps, which was $300 under EPACT2005, is $2,000 under EIEA2008. For solar installations, which can receive a 30-percent tax credit under both EPACT2005 and EIEA2008, the $2,000 cap has been removed. With the cost and unit size of residential PV assumed in AEO2009, the credit can now reach nearly $10,000 per unit. The tax credit for small wind generators is also extended through 2016 in EIEA2008; however, penetration of residential wind installations over the next decade is projected to be negligible. Sections 302, 304, and 305 of EIEA2008 Title III also contain provisions that can directly or indirectly affect future residential energy demand. Section 302 adds a provision to allow a tax credit for the use of biomass fuel, which can include wood, wood pellets, and crops. In NEMS, the credit is represented as a reduction in the cost of wood stoves used as the primary space heating system. Section 304 extends the $2,000 tax credit for new homes that are 50 percent more efficient than specified in the International Energy Conservation Code through 2009. Section 305 extends the PTC for refrigerators, dishwashers, and clothes washing machines that are a certain percentage more efficient than the current Federal standard. The duration and value of the credit vary by appliance and the level of efficiency achieved. For AE02009, it is assumed that the full amount of the credit is realized by consumers in the form of reduced purchase costs. Commercial Tax Credits Sections 103, 104, and 105 of EIEA2008 Title I extend or expand tax credits to businesses for investment in energy efficiency and renewable energy properties. Section 103 extends the EPACT2005 business ITCs (30 percent for solar energy systems and fuel cells, 10 percent for microturbines) through 2016; expands the ITC to include a 10-percent credit for CHP systems through 2016; and increases the credit limit for fuel cells from $500 to $1,500 per half kilowatt of capacity. Section 104 provides a 30-percent business ITC through 2016 for wind turbines with an electrical capacity of 100 kilowatts or less, capped at $4,000. Section 105 adds a 10-percent business ITC for ground-source heat pumps through 2016. In the AEO2009 reference case, relative to a case without the tax credits, these provisions result in a 3.2-percent increase in electrical capacity in the commercial sector by 2016. Section 303 of EIEA2008 Title III extends the EPACT2005 tax deduction allowed for expenditures on energy-efficient commercial building property through 2013. This provision is not reflected in AEO2009, because NEMS does not include economic analysis at the building level. Industrial Sector Under EIEA2008 Title I, “Energy Production Incentives,” Section 103 provides an ITC for qualifying CHP systems placed in service before January 1, 2017. Systems with up to 15 megawatts of electrical capacity qualify for an ITC up to 10 percent of the installed cost. For systems between 15 and 50 megawatts, the percentage tax credit declines linearly with the capacity, from 10 percent to 3 percent. To qualify, systems must exceed 60-percent fuel efficiency, with a minimum of 20 percent each for useful thermal and electrical energy produced. The provision was modeled in AEO2009 by adjusting the assumed capital cost of industrial CHP systems to reflect the applicable credit. Section 108 extends an existing PTC, originally created under the American Jobs Creation Act of 2004 for new “refined coal” facilities producing steam coal, to those that produce metallurgical coal for the steel industry. The credit applies to coal processed with liquefied coal waste sludge and “steel industry coal” (defined as coal used for feedstock in coke manufacture). The production credit for steel industry coal is $2 per barrel of oil equivalent actually produced (equivalent to 34 cents per million Btu or $8.55 per short ton) over the first 10 years of operation for plants placed in service in 2008 and 2009. Because the AEO2009 NEMS does not include the level of detail addressed by this tax credit, its incremental effect is not reflected in AEO2009. To the extent that the credit is passed on from coal suppliers as a reduction in the price of metallurgical coal, the provision would tend to reduce steel production costs and provide an incentive for domestic manufacture of coke. Transportation Sector EIEA2008 Title II, Section 205, provides a tax credit for the purchase of new, qualified plug-in electric drive motor vehicles. According to the legislation, a qualified plug-in electric drive motor vehicle must draw propulsion from a traction battery with at least 4 kilowatthours of capacity, use an off-board source of energy to recharge the battery, and, depending on the gross vehicle weight rating (GVWR), meet the U.S. Environmental Protection Agency (EPA) Tier II vehicle emission standards or equivalent California low-emission vehicle emission standards. The tax credit for the purchase of a PHEV is $2,500 plus $417 per kilowatthour of traction battery capacity in excess of the minimum required 4 kilowatthours, up to a total of $7,500 for a PHEV with a GVWR of 10,000 pounds or less. The limit is raised to $10,000 for any new eligible PHEV with a GVWR between 10,000 and 14,000 pounds, $12,500 for a PHEV between 14,000 and 26,000 pounds GVWR, and $15,000 for any eligible PHEV with a GVWR greater than 26,000 pounds. The legislation also includes a phaseout period for the tax credit, beginning two calendar quarters after the first quarter in which the cumulative number of qualified plug-in electric vehicles sold in total by all manufacturers reaches 250,000. The credit will be reduced by 50 percent in the first two calendar quarters of the phaseout period and by another 25 percent in the third and fourth calendar quarters. Thereafter, the credit will be eliminated. Regardless of calendar quarter or whether 250,000 vehicles are sold, the credit will be phased out after December 31, 2014. The tax credits for PHEVs are included in AEO2009. Liquids and Natural Gas EIEA2008 includes tax provisions that address petroleum liquids and natural gas. In Title II, “Transportation and Domestic Fuel Security Provisions, Credits for Biodiesel and Renewable Diesel,” Section 202 extends income and excise tax credits for biodiesel and renewable diesel to the end of 2009. The legislation also raises the credit from 50 cents per gallon to $1 per gallon for biodiesel and renewable diesel from recycled feedstock. It also removes the term “thermal depolymerization” from the definition of renewable diesel and replaces it with “or other equivalent standard,” allowing biomass-to-liquids (BTL) producers to obtain the $1 per gallon income tax credit. The legislation further specifies that the term “renewable diesel” shall include fuel derived from biomass that meets Defense Department specifications for military jet fuel or American Society for Testing and Materials specifications for aviation turbine fuel. These provisions are included in AEO2009. Section 204 extends the excise tax credit for alternative fuels under Section 6426 of the Internal Revenue Code through 2009. Beginning on October 1, 2009, qualified fuel derived from coal through gasification and liquefaction processes must be produced at a facility that separates and sequesters at least 50 percent of its CO2 emissions, increasing to 75 percent beginning in 2010. Section 204 also provides credits applicable to biomass gas versions of LPG, LNG, CNG, and aviation fuels. This provision is also included in AEO2009. Coal EIEA2008 Title I, Subtitle B, “Carbon Mitigation and Coal Provisions,” modifies the tax credits available to coal consumers who sequester CO2. In Section 111, an additional $1.25 billion is allocated to advanced coal-fired plants that separate and sequester a minimum of 65 percent of the plant’s CO2 emissions, bringing the aggregate ITC available for advanced coal projects to $2.55 billion. For this additional ITC, the allowable credit is equivalent to 30 percent of the project’s qualified investment cost. Qualified investments include any expenses for property that is part of the project. For example, expenses for equipment for coal handling and gas separation would be qualifying investments if they were required for the project. Section 112 provides an additional $250 million in ITCs for carbon sequestration equipment at qualified gasification projects, including plants producing transportation-grade liquid fuels. Eligible feedstocks for the projects include coal, petroleum residues, and biomass. To qualify for the ITC, a gasification facility must capture and sequester a minimum of 75 percent of its potential CO2 emissions. Section 115 of Subtitle B provides an additional tax credit for sequestration of CO2 that would otherwise be emitted into the atmosphere from industrial sources. Tax credits of $10 per ton for CO2 used in enhanced oil recovery and $20 per ton for other CO2 sequestered are available. The Section 115 tax credit is limited to a total of 75 million metric tons of CO2. In the AEO2009 reference case, Sections 111, 112, and 115 are modeled together, resulting in 1 gigawatt of advanced coal-fired capacity with CCS by 2017. Section 113 of Subtitle B extends the phaseout of payments by coal producers to the Black Lung Disability Trust Fund from 2013 to 2018. This provision also is modeled in the AEO2009 reference case. Other coal-related provisions of Subtitle B are not included in AEO2009, either because their effects on energy markets are minimal or nonexistent, or because they cannot be modeled directly in NEMS. They include: a provision that refunds payments to the Black Lung Disability Trust Fund for U.S. coal exports (Section 114); classification of income derived from industrial-source CO2 by publicly traded partnerships as qualifying income (Section 116); a request for a National Academy of Sciences review of GHG provisions in the IRS Tax Code (Section 117); and a tax credit for alternative liquid fuels that is valid only through the end of 2009 (Section 204). Renewable Energy EIEA2008 also contains several provisions that extend and modify key tax provisions for renewable energy that were scheduled to expire at the end of 2008. Section 101 extends the PTC for wind, geothermal, landfill gas, and certain biomass and hydroelectric facilities. Wind facilities that enter service before January 1, 2010, are eligible for a tax credit of 2 cents per kilowatthour, adjusted for inflation, on all generation sold for the first 10 years of plant operation. Other eligible plants will receive the tax credit if they are on line by December 31, 2010 (but biomass plants that do not use “closed-loop” fuels [5] will receive a credit of 1 cent per kilowatthour). Section 102 expands the suite of PTC-eligible technologies to include plants that use energy from offshore, tidal, or river currents (in-stream turbines), ocean waves, or ocean thermal gradients. Projects must have at least 150 kilowatts of capacity and must be on line by December 31, 2011. The PTC extension is included in AEO2009 for all eligible technologies, with the exception of marine technologies, which are not represented in NEMS. Section 103 extends the 30-percent ITC for business-owned solar facilities to plants entering service through December 31, 2016. The tax credit is valued at 30 percent of the initial investment cost for solar thermal and PV generating facilities that are owned by tax-paying businesses (residential owners can take advantage of tax credits discussed below; other forms of government assistance may be available to tax-exempt owners). Starting in 2017, eligible facilities will receive only a 10-percent ITC, which is not scheduled to expire. The extension through 2016 and the permanent 10-percent ITC are represented in AEO2009. Section 107 authorizes continuation of the Clean and Renewable Energy Bonds (CREB) program at a level of $800 million. CREBs are issued by tax-exempt project owners (municipals and cooperatives) to raise capital for the construction of renewable energy plants. Interest on the bonds is paid by the Federal Government in the form of tax credits to the bond holders, thus providing the bond issuer with interest-free financing for qualified projects. Because NEMS assumes that all new renewable generation capacity will come from independent power producers, this provision, which targets public utilities, is not included in AEO2009.
4. For complete text of the Emergency Economic Stabilization Act of 2008, including Division B, “Energy Improvement and Extension Act of 2008,” see web site http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?db name=110_cong_bills&docid=f:h1424enr.txt.pdf. 5. “Closed-loop” refers to fuels that are grown specifically for energy production, excluding wastes and residues from other activities, such as farming, landscaping, forestry, and woodworking.
Contact: Paul Holtberg
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