Energy Policy Act of 2005

Sec. 1342, Sec. 30B. Establishes Tax Credits for Alternative Fuel Automobiles

Legislation

By: United States Congress

Date: 2005

Source: U.S. Congress. "Energy Policy Act of 2005." Sec. 1342, Sec. 30B. Washington, D.C.: 2005.

About the Author: The Congress of the United States was established by Article 1 of the U.S. Constitution of 1787. It is the legislative arm of the U.S. Federal Government.

INTRODUCTION

Public Law 109-58, commonly known as the Energy Policy Act of 2005, consists of an introduction and sixteen sections, known as titles, that occupy more than 1,700 pages of text and cover a broad range of energy issues during the early years of the twenty-first century. Its full title is "An Act to Ensure Jobs for Our Future with Secure, Affordable, and Reliable Energy." The act includes provisions such as incentives to increase domestic oil and gas exploration, the promotion of nuclear power and hydropower, advanced research and development, tax credits to encourage hybrid automobiles, and bureaucratic maneuvering such as the authorization of an additional Assistant Secretary of Energy.

The Energy Policy Act of 2005 is also notable for controversial items that were originally included but later removed. One of those items was a provision that would have eliminated liabilities for manufacturers of methyl tertiary butyl ether (MTBE), a chemical that increases the oxygen content of gasoline to help it burn more completely and reduce automotive emissions. MTBE in low concentrations can render groundwater undrinkable by adding an unpleasant odor and taste. Although the Environmental Protection Agency (EPA) has not yet established a safe level for MTBE in drinking water, there is some evidence to suggest that it may be a carcinogen in high concentrations. A second controversial provision would have allowed oil exploration in a portion of the Artic National Wildlife Refuge along the northern coast of Alaska. Some estimates suggest that the area, which is near the active oilfields of Prudhoe Bay and the Alaskan North Slope, may contain significant amounts of oil and gas. Opponents of drilling, however, maintain that oil exploration and production has the potential to cause significant environmental damage to a nearly pristine and intact ecosystem.

The Congressional Budget Office (CBO) estimated that the act would increase federal spending between 2006 and 2015 by $1.6 billion. At the same time, the CBO estimated that tax revenues over the same period would fall by about $12 billion.

Title I of the act mandates energy conservation in Federal buildings, the installation of meters on Federal buildings, and increased procurement of energy-efficient products for government use, specifying a 20 percent reduction in government agency energy consumption by the year 2015. This portion of the act also authorizes energy and home weatherization assistance for low-income residents, and extends daylight savings time to begin the second Sunday in March and end the first Sunday in November.

Title II concerns renewable energy, including increased use of solar cells on federal buildings, grants to increase the use of forest products for energy generation, leasing of public lands for geothermal energy production, and the installation of fish passages in hydroelectric dams.

Titles III through V involve fossil fuels. This portion of the act authorizes an increase the national Strategic Petroleum Reserve, exempts oil and gas producers from some provisions of the Clean Water Act, authorizes expenditures to develop environmentally clean methods of coal use such as coal gasification, and streamlines the procedures for energy exploration and development on tribal lands.

Title VI is devoted to nuclear energy, including an extension of the Price-Anderson Act to provide compensation to victims of nuclear power plant accidents, subsidizes the owners of new nuclear power plants, prohibits the export of nuclear materials to countries that support terrorism, and instructs the Nuclear Regulatory Commission to evaluate the security of licensed nuclear facilities. It also extends the protection of so-called whistleblowers who report problems within the Department of Energy and the Nuclear Regulatory Commission.

Title VII pertains to automobiles and their fuels. It modifies a previous federal law to include federal agency purchasing guidelines for alternative fuel and hybrid vehicles. Perhaps more significantly with regard to the public, it revises the Corporate Average Fuel Economy (CAFE) standards that automobile manufacturers must achieve across their lines of products.

Title XII of the act pertains to electricity. It creates an independent board to improve the reliability of the electrical transmission infrastructure and promulgate standards, adopts new procedures for electric power line location, authorizes punishment of those who manipulate electricity markets (including specific provisions for the termination of contracts with the bankrupt energy company Enron), and specifies a new procedure for the relicensing of hydroelectric dams.

Title XV is also related to automobiles. It mandates the increased use of ethanol derived from agricultural products and strengthens underground fuel storage tank inspection requirements (leaking underground storage tanks have historically been a significant source of groundwater contamination). Title XV also bans the use of the fuel additive methyl tertiary-butyl ether (commonly known as MTBE) after 2014 and commissions the National Academy of Sciences to prepare a report on MTBE by 2013.

Other sections (titles) of the act include tax incentives for energy-saving activities, training programs for energy company employees, encouragement of minority students to pursue technical careers, and revision of royalty payments for offshore oil and gas leases.

PRIMARY SOURCE

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 advanced lean burn technology motor vehicle credit determined under subsection (c),

(3) the new qualified hybrid motor vehicle credit determined under subsection (d), and

(4) the new qualified alternative fuel motor vehicle credit determined under subsection (e).

(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) $8,000 ($4,000 in the case of a vehicle placed in service after December 31, 2009), 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.

(3) NEW QUALIFIED FUEL CELL MOTOR VEHICLE—For purposes of this subsection, the term 'new qualified fuel cell motor vehicle' means motor vehicle—

(A) which is propelled by power derived from 1 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, has received on or after the date of the enactment of this section 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.

New Advanced Lean Burn Technology Motor Vehicle Credit—

(1) IN GENERAL—For purposes of subsection (a), the new advanced lean burn technology motor vehicle credit determined under this subsection for the taxable year is the credit amount determined under paragraph (2) with respect to a new advanced lean burn technology motor vehicle placed in service by the taxpayer during the taxable year.

(2) CREDIT AMOUNT—

(A) FUEL ECONOMY—

(i) IN GENERAL—The credit amount determined under this paragraph shall be determined in accordance with the following table:

In the case of a vehicle which achieves a fuel economy of (expressed as a percentage of the 2002 model year city fuel economy) the credit amount is—

At least 125 percent but less than 150 percent: $400

At least 150 percent but less than 175 percent: $800

At least 175 percent but less than 200 percent: $1,200

At least 200 percent but less than 225 percent: $1,600

At least 225 percent but less than 250 percent: $2,000

At least 250 percent: $2,400.

(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 on a gasoline gallon equivalent basis as determined by the Administrator of the Environmental Protection Agency using the tables provided in subsection (b)(2)(B) with respect to such vehicle.

(B) CONSERVATION CREDIT—The amount determined under subparagraph (A) with respect to a new advanced lean burn technology motor vehicle shall be increased by the conservation credit amount determined in accordance with the following table:

In the case of a vehicle which achieves a lifetime fuel savings of (expressed in gallons of gasoline) the conservation credit amount is—

At least 1,200 but less than 1,800: $250

At least 1,800 but less than 2,400: $500

At least 2,400 but less than 3,000: $750

At least 3,000: $1,000.

(3) NEW ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE—For purposes of this subsection, the term 'new advanced lean burn technology motor vehicle' means a passenger automobile or a light truck—

(A) with an internal combustion engine which—(i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel, (ii) incorporates direct injection, (iii) achieves at least 125 percent of the 2002 model year city fuel economy, (iv) for 2004 and later model vehicles, has received a certificate that such vehicle meets or exceeds—

(I) in the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, the Bin 5 Tier II emission standard 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, and

(II) in the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds but not more than 8,500 pounds, the Bin 8 Tier II emission standard which is so established,

(B) the original use of which commences with the taxpayer,

(C) which is acquired for use or lease by the taxpayer and not for resale, and

(D) which is made by a manufacturer.

(4) LIFETIME FUEL SAVINGS—For purposes of this subsection, the term 'lifetime fuel savings' means, in the case of any new advanced lean burn technology motor vehicle, an amount equal to the excess (if any) of—

(A) 120,000 divided by the 2002 model year city fuel economy for the vehicle inertia weight class, over

(B) 120,000 divided by the city fuel economy for such vehicle.

(d) 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 for the taxable year is the credit amount determined under paragraph (2) with respect to a new qualified hybrid motor vehicle placed in service by the taxpayer during the taxable year.

(2) CREDIT AMOUNT—

(A) CREDIT AMOUNT FOR PASSENGER AUTOMOBILES AND LIGHT TRUCKS—In the case of a new qualified hybrid motor vehicle which is a passenger automobile or light truck and which has a gross vehicle weight rating of not more than 8,500 pounds, the amount determined under this paragraph is the sum of the amounts determined under clauses (i) and (ii).

(i) FUEL ECONOMY—The amount determined under this clause is the amount which would be determined under subsection (c)(2)(A) if such vehicle were a vehicle referred to in such subsection.

(ii) CONSERVATION CREDIT—The amount determined under this clause is the amount which would be determined under subsection (c)(2)(B) if such vehicle were a vehicle referred to in such subsection.

(B) CREDIT AMOUNT FOR OTHER MOTOR VEHICLES—

(i) IN GENERAL—In the case of any new qualified hybrid motor vehicle to which subparagraph (A) does not apply, the amount determined under this paragraph is the amount equal to the applicable percentage of the qualified incremental hybrid cost of the vehicle as certified under clause (v).

(ii) APPLICABLE PERCENTAGE—For purposes of clause (i), the applicable percentage is—(I) 20 percent if the vehicle achieves an increase in city fuel economy relative to a comparable vehicle of at least 30 percent but less than 40 percent, (II) 30 percent if the vehicle achieves such an increase of at least 40 percent but less than 50 percent, and (III) 40 percent if the vehicle achieves such an increase of at least 50 percent.

(iii) QUALIFIED INCREMENTAL HYBRID COST—For purposes of this subparagraph, the qualified incremental hybrid cost of any vehicle is equal to the amount of the excess of the manufacturer's suggested retail price for such vehicle over such price for a comparable vehicle, to the extent such amount does not exceed—(I) $7,500, if such vehicle has a gross vehicle weight rating of not more than 14,000 pounds, (II) $15,000, if such vehicle has a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and (III) $30,000, if such vehicle has a gross vehicle weight rating of more than 26,000 pounds.

(3) NEW QUALIFIED HYBRID MOTOR VEHICLE—For purposes of this subsection—

(A) IN GENERAL—The term 'new qualified hybrid motor vehicle' means a motor vehicle—

(i) which draws propulsion energy from onboard sources of stored energy which are both—(I) an internal combustion or heat engine using consumable fuel, and (II) a rechargeable energy storage system,

(ii) which, in the case of a vehicle to which paragraph (2)(A) applies, 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 (I) in the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, the Bin 5 Tier II emission standard 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, and (II) in the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds but not more than 8,500 pounds, the Bin 8 Tier II emission standard which is so established,

(iii) which has a maximum available power of at least—(I) 4 percent in the case of a vehicle to which paragraph (2)(A) applies, (II) 10 percent in the case of a vehicle which has a gross vehicle weight rating of more than 8,500 pounds and not more than 14,000 pounds, and (III) 15 percent in the case of a vehicle in excess of 14,000 pounds,

(iv) which, in the case of a vehicle to which paragraph (2)(B) applies, has an internal combustion or heat engine which has received a certificate of conformity under the Clean Air Act as meeting the emission standards set in the regulations prescribed by the Administrator of the Environmental Protection Agency for 2004 through 2007 model year diesel heavy duty engines or ottocycle heavy duty engines, as applicable,

(v) the original use of which commences with the taxpayer,

(vi) which is acquired for use or lease by the taxpayer and not for resale, and

(vii) which is made by a manufacturer.

SIGNIFICANCE

The Energy Policy Act of 2005 is a wide-ranging and controversial piece of legislation that is intended to provide long-term guidance for national energy policy decisions. It contains a mixture of provisions that promote innovative technologies such as hybrid automobiles and hydrogen fuel cells as well as subsidies for those producing traditional forms of energy such as oil and nuclear power.

FURTHER RESOURCES

Web sites

Axtman, Kris. "How Much New U.S. Oil? Not a Lot." Christian Science Monitor (August 8, 2005). 〈http://www.csmonitor.com/2005/0808/p01s01-uspo.htm〉 (accessed March 8, 2006).

"The Energy Policy Act of 2005: What the Energy Bill Means to You." U.S. Department of Energy. 〈http://www.energy.gov/taxbreaks.htm〉 (accessed March 8, 2006).

"To Ensure Jobs for Our Future with Secure, Affordable, and Reliable Energy." Library of Congress. 〈http://thomas.loc.gov/cgi-bin/bdquery/z?d109:h.r.00006:〉 (accessed March 8, 2006).