Yesterday, the House of Representatives passed, by a vote of 235-181, an energy bill that would extend and modify various energy tax credits, including the section 48A tax credit for advanced coal-based generation projects and the section 48B tax credit for certain gasification projects. The provisions are substantially similar to the proposed contained in the Senate energy tax bill (S.A.1704), but certain revisions have been made to the provisions.

However, today, the Senate rejected a motion to limit debate on the bill and thus, failed to consider the House energy bill. Accordingly, the prospects for passage of an energy bill with a tax title remains highly uncertain. In addition, President Bush has threatened to veto the bill in its current form. A copy of the Statement of Administration Policy is available by clicking here.

Clean Renewable Energy and Conservation Tax Act of 2007 (House Version)

The section 48A tax credit for qualified advanced coal projects would be increased from (a) 15% (for IGCC projects) or (b) 20% (for other advanced coal-based generation projects other than IGCC), to 30% of the qualified investment for the taxable year. The amount of aggregate credits permitted would be increased by $1.0 billion for IGCC projects and $500 million for advanced coal-based generation projects other than IGCC for projects the application for which is submitted “during the three-year period beginning at the earlier of (a) February 21, 2009 or (b) or the date prescribed by the Secretary.

The bill would also add a new requirement for the additional allocation of $1.5 billion for other advanced coal-based generation technology projects: the project must include equipment to separate and sequester 65% (70% in the case of an application for reallocated credits) of the project’s total carbon dioxide emissions. If a project receives an allocation of section 48A tax credits and fails to attain or maintain the required separation and sequestration of carbon dioxide, the credits will be subject to recapture under rules to be provided by the Secretary of Treasury. In addition, the bill provides that the highest priority for an allocation of tax credits will be given to projects with the greatest separation and sequestration percentage of total carbon dioxide emissions, and also provides an additional priority category for applicants who have a research partnership with certain educational institutions.

The bill would increase the section 48B tax credit for qualifying gasification projects from 20% to 30% of the qualified investment for the taxable year. In addition, the list of eligible entities for the credit would be expanded to include projects that employ domestic gasification applications related to transportation grade liquid fuels. Finally, the total amount of tax credits that may be allocated under the program would be increased by $500 million which would only be available for qualifying gasification projects that include equipment to separate and sequester 75% of the project’s total carbon dioxide emissions. Similar to the proposed amendments to Section 48A described above, if a project fails to attain or maintain the required separation and sequestration of carbon dioxide, the credits will be subject to recapture under rules to be provided by the Secretary of Treasury. In addition, the bill provides that the highest priority for an allocation of tax credits will be given to projects with the greatest separation and sequestration percentage of total carbon dioxide emissions, and also provides an additional priority category for applicants who have a research partnership with certain educational institutions.

Finally, the bill provides that the Secretary of Treasury is directed to modify the terms of any competitive certification award and any associated closing agreement under section 48A or 48B (in consultation with the other relevant Federal agencies, including the Department of Energy) where the modification: (a) is consistent with the objectives of this provision, (b) is requested by the taxpayer, and (c) involves moving the project site to improve the potential to capture and sequester carbon dioxide emissions, reduce costs of transporting feedstock, and serve a broader customer base, unless the Secretary determines that (y) the dollar amount of tax credits available to the taxpayer would increase or (z) the modification would result in the project not being originally certified.

DOE Provides Information Regarding Second Round Section 48A and 48B Tax Credit Applications

On December 5, 2007, the Department of Energy issued a News Release which stated that it had received five applications for the second round of Section 48A and 48B tax credits before the October 31, 2007 deadline. Two applications were received requesting a total of $258 million in Section 48A tax credits. Information regarding the type of projects (IGCC or other than IGCC) and the primary coal feedstock were not provided. Three applications were received requesting a total of $390 million in Section 48B tax credits. Click here for a link to the DOE News Release.