Markey Introduces "Investing in Climate Action and Protection Act," Calling it "Revolutionary"
Rep. Edward J. Markey (D-Mass.) introduced a revolutionary new global warming bill today that would reduce global warming pollution according to scientific targets, reinvest any revenue back to American workers and technology, and would re-establish America as a leader in solving the globe’s greatest challenge, climate change.At a speech at the Center for American Progress this morning, Rep. Markey, who is Chairman of the House Select Committee on Energy Independence and Global Warming, and a senior member of the Energy and Commerce and Natural Resources Committees, laid out his science- and consumer-based vision for climate legislation.
“I am here today because the chorus for change is deafening. The time for action is now,” said Rep. Markey in his prepared remarks. “We must cap pollution, we must invest in consumers, jobs and the technology of tomorrow, and America must lead the world in solving our greatest challenges, and we must start now.”
The bill is called the Investing in Climate Action and Protection Act, or iCAP for short, the small “i” a tip of the cap to the technological potential of clean energy. The bill also proffers a new paradigm in global warming legislation: the Cap-and-Invest system. The bill caps pollution at 85 percent below 2005 levels by 2050. It then uses an auction system that sets a price on carbon, and allows companies to compete for reductions, or buy or trade credits within the system.
The “Investing in Climate Action and Protection Act” (iCAP Act) amends the Clean Air Act to establish an economy-wide cap-auction-and-trade system that adheres to five core principles:
1. Reduce U.S. global warming pollution by 85 percent by 2050, the necessary U.S. contribution to stabilize atmospheric concentrations of heat-trapping gases and avoid dangerous global warming.
The iCAP Act’s cap-auction-and-trade program will cover 87 percent of U.S. greenhouse gas emissions and will reduce covered emissions to 2005 levels by 2012, to 20 percent below 2005 levels by 2020, and to 85 percent below 2005 levels by 2050.
The following “covered entities” will be regulated under the cap: (1) power plants and large industrial facilities; (2) entities that produce or import petroleum- or coal-based liquid or gaseous fuels; (3) entities that produce or import hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, or nitrogen trifluoride; (4) natural gas local distribution companies; and (5) geological carbon sequestration sites.
The iCAP Act will achieve 7 percent additional coverage (a total of 94 percent coverage) through (1) mandatory performance standards for coal mines, landfills, wastewater treatment operations, and large animal feeding operations; and (2) voluntary financial incentives to farmers and forest managers to reduce greenhouse gas emissions and increase carbon storage. The iCAP Act also sets mandatory performance standards for new coal-fired power plants, requiring them to capture and sequester 85 percent of their CO2 emissions within a set timeframe.
2. Auction pollution allowances, instead of giving them free-of-charge to polluters, to avoid windfall profits for polluters, ensure fairness and effectiveness, and reduce social costs.
The iCAP Act begins by auctioning 94 percent of allowances in 2012 and transitions to a 100 percent auction in 2020. The 6 percent of allowances not initially auctioned are distributed as transitional assistance to U.S. industries that are energy-intensive and exposed to international trade competition (e.g., iron and steel, aluminum, cement, glass, and paper). The iCAP Act permits any person to buy, sell, or transfer allowances or to “bank” them for future use. Covered entities also may borrow allowances from the allowance budget for future years, but these “loans” must be repaid within five years with interest. Covered entities can meet up to 15 percent of their annual obligations with EPA-approved domestic offset credits and up to an additional 15 percent with EPA-approved international emission allowances or offset credits. Domestic and international offset credits are subject to rigorous standards to ensure reductions in emissions or increases in sequestration are real, verifiable, additional, permanent, and enforceable. The Federal Energy Regulatory Commission will oversee the carbon market to prevent fraud and market manipulation.
3. Return over half of auction proceeds to low- and middle-income households to help compensate for any increase in energy costs as a result of climate legislation.
The iCAP Act returns over half of auction proceeds to low- and middle-income households through rebates and tax credits. This will compensate all increased energy costs due to climate legislation for all households earning under $70,000 (66 percent of U.S. households), and will provide benefits to all households earning up to $110,000 (over 80 percent of U.S. households).
4. Invest the remaining auction proceeds in programs that will further reduce the costs of climate policy, spur the development of advanced low-carbon technologies, grow the U.S. economy, and address unavoidable impacts of climate change.
The iCAP Act uses the remaining auction proceeds to fund:- clean energy technology research, development, demonstration and deployment;
- efficiency policies to reduce the costs and consumer impacts of climate policy;
- incentives to U.S. farmers and foresters to reduce greenhouse gas emissions and increase carbon storage in agricultural soils and forests;
- green jobs training and assistance for workers to transition into the new jobs of a low-carbon economy;
- reduction of deforestation and deployment of clean technologies in developing countries;
- programs to increase resilience to climate change impacts in the United States and in developing countries; and
- climate change education.
5. Include policies that will encourage major-emitting developing countries, like China and India, to take comparable action to reduce global warming pollution to protect the competitiveness of U.S. industry.
Under the iCAP Act, developing countries that take comparable action to reduce global warming pollution will have access to funding from the International Clean Technology Fund and will be allowed to sell “offset credits” into the U.S. market. Developing countries that carry out programs to reduce emissions from deforestation will be eligible for assistance from an International Forest Protection Fund. If a country fails to take comparable action by 2020, importers of energy-intensive primary goods (e.g., iron and steel, aluminum, cement, glass, and paper) from that country will have to purchase special reserve allowances to account for pollution generated in the production of such goods. Until 2020, U.S. manufacturers of competing primary goods will be given free allowances to prevent loss of jobs or “leakage” of emissions due to international competition.
SUBTITLE-BY-SUBTITLE SUMMARY
TITLE I – CAPPING GREENHOUSE GAS EMISSIONS
SECTION 101. AMENDMENT TO THE CLEAN AIR ACT
Section 101 of the bill adds a new Title VII to the Clean Air Act, the subtitles of which are summarized below.Subtitle A: Tracking Emissions
Subtitle A establishes a process through which EPA may designate substances as greenhouse gases for the purposes of this Act. It also directs EPA to determine (and periodically review) the quantity of each greenhouse gas that makes the same contribution to global warming as one metric ton of CO2. Subtitle A directs EPA to establish a national greenhouse gas registry to collect information on greenhouse gas emissions, on a regular basis, and make that information publicly available.Subtitle B: Reducing Emissions
Subtitle B directs EPA to establish a National Emission Allowance Account, composed of a separate quantity of emission allowances for each calendar year from 2012 through 2050. In a table, the subtitle identifies the number of emission allowances that will be issued for each year. EPA will create, at the inception of the program, all of the emission allowances that will exist over the life of the program. Each emission allowance will have a unique serial number that will include the calendar year for which it was created. The bill covers emissions of seven greenhouse gases – carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3) – plus any other anthropogenic gas that EPA designates as a greenhouse gas, based on a determination that such gas has a global warming potential equal to or greater than that of CO2. Each emission allowance is equal to one metric ton CO2-equivalent – the quantity of a greenhouse gas that makes the same contribution to global warming as one metric ton of CO2. The emissions “cap” will cover 87 percent of total U.S. greenhouse gas emissions. The size of the 2012 Emission Allowance Account is 6,098 allowances, which is equivalent to greenhouse gas emissions from sources covered by the “cap” in 2005. The size of the cap will decline each year, resulting in a reduction of U.S. emissions to 20 percent below 2005 levels in 2020 and 85 percent below 2005 levels in 2050. The bill requires the owner or operator of each “covered entity,” at the end of each calendar year beginning in 2012 and ending in 2050, to submit to EPA one emission allowance for each metric ton CO2-equivalent of greenhouse gases that they emitted or that was contained in the fuels or chemicals they put into commerce that year. Covered entities include:- Electric power and industrial facilities;
- Entities that produce or import petroleum- or coal-based liquid or gaseous fuels – including most fossil-based transportation fuels;
- Entities that produce or import HFCs, PFCs, SF6, or NF3;
- Natural gas local distribution companies – to cover emissions from natural gas combustion by residential and commercial facilities; and
- Geological carbon sequestration sites – to cover any leakage.
Entities that do not meet a 10,000 CO2-equivalent threshold will not be required to submit allowances. To avoid double-counting of emissions, (1) electric power and industrial facilities will not be required to submit allowances for any emissions resulting from the use of petroleumor coal-based liquid or gaseous fuels; (2) natural gas local distribution companies will not be required to submit allowances for emissions resulting from combustion of any natural gas delivered to an electric power or industrial facility that meets the 10,000 metric ton CO2- equivalent threshold; and (3) electric power and industrial facilities will not be required to submit allowances for emissions of HFCs, PFCs, SF6, or NF3. HFC producers will not be required to submit allowances between 2012 and 2019 in order to ensure U.S. success in meeting Montreal Protocol targets for stratospheric ozone-depleting substances and to allow adequate time for environmentally preferable substitutes for HFCs to come to market. A covered entity may submit domestic offset credits approved by EPA under subtitle E in lieu of emission allowances to satisfy up to 15 percent of its compliance requirement. A covered entity may also submit international emission allowances or offset credits approved by EPA under subtitle F to satisfy up to 15 percent of its compliance requirement. EPA will issue destruction credits to entities that convert a greenhouse gas (other than methane) to another gas with a lower global warming potential. The number of credits issued will be equal to the number of metric tons of CO2-equivalent of reduction in global warming potential achieved through such conversion. A covered entity may use these credits to satisfy up to 100 percent of its annual compliance requirements.
Subtitle C: Distribution of Allowances
Subtitle C directs EPA to auction virtually all of the emission allowances each year, beginning with 94 percent auction from 2012-2019 and transitioning to 100 percent auction in 2020. The remaining allowances will be provided to U.S. manufacturers of trade-exposed primary goods (such as iron and steel, cement, aluminum, bulk glass, and paper) as a transitional measure to avoid production shifting abroad and thus undermining the environmental objectives of this bill. Six percent of total allowances in 2012 through 2020 (with a cumulative value of $96 billion) will be allocated to manufacturers based upon the predicted adverse impact of direct and indirect costs of this Act.
To optimize market liquidity and stability, auctions will be held on a quarterly basis. Allowances for the current compliance year and for future compliance years (up to four years in the future) will be available at each auction. Auction proceeds will be used for a variety of public benefit purposes. Up to 0.5 percent of auction proceeds will be deposited in to the Climate Protection Management Fund to cover the costs associated with EPA and FERC administration of the Act. Fifty million dollars per year will be dedicated to climate change education programs and centers for excellence established under Subtitle H of Title III. All remaining proceeds will be divided among 10 separate funds which will fund the programs described in Title III and Title IV of this Act.
Subtitle D: Trading, Banking, and Borrowing
Subtitle D establishes rules for the trading, banking, and borrowing of emission allowances. Anyone may buy, sell, or transfer emission allowances, or submit them to EPA for retirement. Unlimited “banking” of allowances for future use is permitted. A covered entity may also borrow allowances from EPA (to be drawn from the emissions budget for future years) to meet up to 15 percent of its annual compliance obligation, but an allowance “loan” must be repaid within 5 years with 10 percent annual interest.
Subtitle E: Offsets
Subtitle E establishes a program to issue offset credits to entities that carry out projects in the United States that achieve real, verifiable, additional, permanent, and enforceable reductions in emissions or increases in storage of carbon in plants and soils. Four types of projects will be eligible to receive offset credits:- Reductions in (outside-the-cap) greenhouse gas emissions from oil and gas systems;
- Reductions in greenhouse gas emissions from livestock operations that are not covered by performance standards under subtitle H;
- Reductions in greenhouse gas emissions from abandoned coal mines; and
- Increases in biological carbon sequestration through afforestation and reforestation.
Activities covered by compliance obligations in subtitle B or performance standards in subtitle H, or receiving support under subtitle D of Title III are not eligible to earn offset credits. Subtitle E directs EPA to establish standardized monitoring, quantification, and accounting protocols and standards for approval of offset credits. Offset credits may be claimed for eligible projects annually by submitting verification reports certified by an accredited third party to EPA.
Subtitle F: International Emission Allowances and Offset Credits
Subtitle F directs EPA to establish regulations providing for approval of emission allowances from foreign greenhouse markets that impose mandatory absolute limits on emissions that are of comparable stringency to the program established by this bill, including comparable monitoring, compliance, and enforcement practices.
Subtitle F also directs EPA to establish regulations providing for approval of categories and subcategories of international offset credits that meet certain criteria. Only credits generated from projects in countries that have taken action on climate change comparable to that of the United States, or in countries that have very low emissions or are among the least developed of developing countries, are eligible for use under this title.
Subtitle G: Global Effort to Reduce Greenhouse Gas Emissions
Subtitle G encourages the President to work proactively under the United Nations Framework Convention on Climate Change and in other appropriate forums, to establish binding agreements committing all major greenhouse gas-emitting nations to contribute equitably to the reduction of global greenhouse gas emissions. Subtitle G also directs the President to determine whether each foreign country has taken action to reduce greenhouse gas emissions that is “comparable” to that of the United States, taking into account the level of economic development of each country. If, by 2020, any of our trading partners have not taken “comparable” action, the President is authorized to require importers of trade-exposed primary goods (e.g., iron and steel, cement, aluminum, bulk glass, and paper) from those countries to purchase special “international reserve allowances” to account for the greenhouse gas emissions from the production of the goods. Least-developed countries and countries with very low greenhouse gas emissions will be exempt from this requirement. The pool of international reserve allowances will be separate from the domestic emission allowance pool, so that the program will not affect domestic emission levels or the price of domestic emission allowances. Proceeds from the sale of international reserve allowances will provide supplemental funding for the International Clean Technology Fund described in subtitle B of Title IV.
Subtitle H: Standards for Coal-Fired Power Plants and Non-Covered Facilities
Subtitle H directs EPA to promulgate performance standards for certain sources not included under the cap – such as coal mines, landfills, wastewater treatment operations, and large animal feeding operations – that emit at least 10,000 metric tons CO2-equivalent per year. These standards will require such sources to apply best available control technologies or practices. Subtitle H also establishes mandatory performance standards for any new coal-fired power plant, requiring all plants on which construction begins after January 1, 2009, to achieve capture and geological sequestration of 85 percent of their CO2 emissions within a defined time frame.
SECTION 102: CONFORMING AMENDMENTS
Section 102 of the Act amends sections 113, 114, and 307 of the Clean Air Act to make the Act’s existing mechanisms for enforcement, inspections, administrative process, and judicial review applicable to the new Title VII of the Act.
SECTION 103: COMPLEMENTARY POLICIES FOR HYDROFLUOROCARBONS
To ensure proper use and disposal of HFCs and other fluorinated gases used as substitutes for ozone-depleting substances, this section amends sections 608 and 609 of the Clean Air Act to extend to these substances the requirements of the Clean Air Act that already apply to the sale, use, and disposal of chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs).
SECTION 104: WAIVER OF PREEMPTION FOR CALIFORNIA STANDARDS FOR VEHICLE GREENHOUSE GAS EMISSIONS
This section overrides EPA’s unfounded denial, in December 2007, of California’s petition for a waiver of preemption under the Clean Air Act of its greenhouse gas emissions standards for vehicles. This will permit California and the other States that have adopted the California standards to proceed with implementation of these standards.
SECTION 105: LOW-CARBON FUEL STANDARD
This section amends section 211 of the Clean Air Act to establish a Low-Carbon Fuel Standard (LCFS). The LCFS establishes a market-based system to incentivize reductions in the lifecycle greenhouse gas emissions associated with the production and use of transportation fuels, through deployment of advanced biofuels, plug-in hybrid vehicles, and hydrogen. The LCFS is integrated with the current Renewable Fuel Standard, promoting a long-term market for substitutes to petroleum.
TITLE II – CARBON MARKET OVERSIGHT
Title II creates a new Office of Carbon Market Oversight (“OCMO”) within FERC, which is charged with ensuring transparency, fairness, and stability in the market for emission allowances, offset credits, and derivatives thereof (referred to as “regulated instruments”). The OCMO will establish rules requiring registration of (1) self-regulated “registered carbon trading facilities” on which regulated instruments are traded, (2) “carbon clearing organizations” that provide clearing services to trading facilities, and (3) brokers and dealers trading in regulated instruments. Registered carbon trading facilities will publicize price and other trading data and enforce rules against fraud and market manipulation. Trading of regulated instruments generally will be limited to registered exchanges, except that, in order to provide greater flexibility and efficiency in hedging carbon risks, large institutions and high net-worth individuals are permitted to trade regulated derivatives off-exchange (in the over-the-counter market). To ensure market transparency, the OCMO will establish regulations providing for reporting of trading activity by large traders in regulated instruments. To prevent market participants from seeking to “corner” or otherwise manipulate the market, the OCMO may adopt position limits or position accountability requirements for regulated instruments.
Title II establishes rules against fraud and market manipulation, which OCMO is authorized to enforce through administrative procedures and penalties, civil enforcement actions in federal district court, or (in the case of knowing or willful violations) criminal prosecution. Finally, the OCMO will monitor the functioning of the carbon market and its effects on the U.S. economy and will provide quarterly reports to Congress.
TITLE III – INVESTING IN AMERICA’S LOW-CARBON FUTURE
Title III establishes a series of domestic programs funded by auction proceeds. A description of each program, along with an estimate of cumulative funding for the program over the life of the bill, is provided below.
Subtitle A: Climate Trust Tax Credits and Rebates
Under Subtitle A, $4.3 trillion (55 to 58.5 percent of auction proceeds) will be used for refundable tax credits and rebates for middle- and low-income households, to compensate for any increase in energy costs resulting from the bill. Tax credits will be used to reach middleincome wage earners and senior citizens, and cash rebates – distributed through the Electronic Benefits Transfer systems used for food stamps – will be used to reach low-income households. All households earning under $110,000 will be eligible. Virtually all costs from climate regulation will be covered for households earning under $70,000, with benefit levels phasing out gradually for households earning $70,000 to $110,000.
Subtitle B: Low-Carbon Technology Fund
Under Subtitle B, $963 billion (12.5 percent of auction proceeds) will be used to fund lowcarbon energy technology research, development, demonstration, and deployment programs administered by the Department of Energy (DOE). These include RD&D programs authorized under existing law in the areas of renewable electricity generation, carbon capture and sequestration, electric transmission and distribution efficiency (including smart grid technologies), low-carbon renewable fuels, low-emission vehicles, building efficiency, industrial efficiency, energy storage technologies, and the Advanced Research Projects Agency-Energy (“ARPA-E”). In addition, Subtitle B establishes two new programs to promote the deployment of renewable electricity generation – the first awards production payments through a reverse auction and the second provides rebates for the purchase and installation of distributed generation technologies such as solar panels. From 2010-2020, cost-sharing grants are authorized to cover the incremental costs of implementing carbon capture and sequestration technology at coal-fired power plants.
Subtitle C: National Energy Efficiency Fund
Under Subtitle C, $963 billion (12.5 percent of auction proceeds) will be used to fund a broad array of efficiency programs. These include: (1) a program to award incentive payments to States based on the magnitude of energy savings each State achieves each year through consumer efficiency programs; (2) programs to award grants to states that adopt and implement building efficiency and recycling policies; (3) funding for the Weatherization Assistance Program for low-income persons and the Low Income Home Energy Assistance Program; and (4) grants to support state and local mass transit and “smart growth” projects that will reduce vehicle miles traveled.
Subtitle D: Agriculture and Forestry Carbon Fund
Under Subtitle D, $378 billion (4.5 to 5 percent of auction proceeds) will be used to fund a program, administered by the Department of Agriculture, to support projects by U.S. farmers and foresters that increase biological sequestration of carbon and reduce greenhouse gas emissions through improved agricultural soil management and forest management practices (not including afforestation and reforestation). USDA is also directed to undertake a complementary program of research, education, and outreach on agriculture and forestry greenhouse gas management.
Subtitle E: Worker Transition Assistance and Green Jobs Training
Under Subtitle E, $147 billion (1.5 to 2 percent of auction proceeds) will be used to fund the green jobs training programs established under the Energy Independence and Security Act of 2007, and a program, administered by the Department of Labor, which will provide training, income support, and tax credits for health care insurance for up to two years to any workers affected by the transition to a new low-carbon economy.
Subtitle F: National Climate Change Adaptation Program
Under Subtitle F, $185 billion (2 to 2.5 percent of auction proceeds) will be used to support a comprehensive program to increase America’s resilience to the impacts of climate change. Under this program, the National Oceanic and Atmospheric Administration will (1) develop periodic regional and national assessments of America’s vulnerability to climate change impacts; and (2) establish a National Climate Service to provide research products and decision tools, based upon robust monitoring and observational capabilities, to federal, state, local, and tribal decision makers to assist with developing adaptation strategies. Subtitle F also requires federal agencies to develop and implement plans to address climate change impacts within their respective jurisdictions and directs the President, pursuant to a detailed plan submitted for congressional review, to fund state, local, and tribal government programs and projects to reduce vulnerability to climate change impacts.
Subtitle G: Natural Resource Conservation Fund
Under Subtitle G, $147 billion (1.5 to 2 percent of auction proceeds) will be used to support measures, implemented by federal land and natural resource management agencies and the States, to protect U.S. natural resources, wildlife, and fisheries against adverse impacts from climate change. Federally administered funds must be used in accord with a national strategy developed by the President, with advice from a science advisory committee, and state-administered funds must be used in accord with federally approved state strategies.
Subtitle H: Climate Change Education and Centers for Excellence
Under Subtitle H, $2 billion (up to $50 million per year) will be used to provide support, through the National Science Foundation and EPA, for the development and implementation of climate change education programs and to provide cost-sharing grants supporting the establishment, at colleges, universities, and non-profit organizations, of national centers for excellence on climate change science, technology, and policy.
TITLE IV – ENCOURAGING GLOBAL ACTION
Title IV establishes three international programs, funded by auction proceeds, to encourage global action to combat climate change.
Subtitle A: International Forest Protection Fund
Under Subtitle A, $147 billion (1.5 to 2 percent of auction proceeds) will be used to support policies in qualifying developing countries that reduce emissions from deforestation and forest degradation or increase biological carbon sequestration through restoration of forests and degraded lands, afforestation, and improved forest management. Countries that do not initially qualify for inclusion in the incentive program are eligible for grants to build their capacity to reduce emissions from deforestation and degradation and increase carbon storage in forests.
Subtitle B: International Clean Technology Fund
Under Subtitle B, $301 billion (3.5 to 4 percent of auction proceeds) will be used to support an international clean technology fund. This fund will provide support for the adoption of clean energy and efficiency technologies by major-emitting developing countries that the President certifies, under Title I, as having taken “comparable action” to combat climate change, taking into account the country’s level of economic development.
Subtitle C: International Climate Change Adaptation Fund
Under Subtitle C, $185 billion (2 to 2.5 percent of auction proceeds) will be used to support an international adaptation program, to be administered by the U.S. Agency for International Development, which will fund projects to assist the most vulnerable developing countries in adapting to the impacts of climate change.
TITLE V – LEGAL FRAMEWORK FOR GEOLOGICAL SEQUESTRATION OF CARBON DIOXIDE
Title V amends the Safe Drinking Water Act to require EPA to develop comprehensive regulatory standards for underground injection of carbon dioxide. Representative Edward J. Markey Investing in Climate Action 9 and Protection Act Title V also directs EPA to establish a task force charged with providing Congress with recommendations regarding the legal framework to govern liability with respect to closed geological storage sites. Finally, the Secretary of Energy is directed to undertake a feasibility study regarding construction of carbon dioxide pipelines and geological sequestration facilities.
TITLE VI – BUILDING EFFICIENCY STANDARDS
Title VI incorporates provisions from the House-passed version of the energy bill from 2007, requiring the Department of Energy to develop model building efficiency codes that States are required to adopt and enforce. States that do so become eligible for funding from the National Energy Efficiency Fund (described in subtitle C of Title III).
TITLE VII – REVIEWS AND RECOMMENDATIONS
Title VII establishes a comprehensive framework for periodic review and reports to Congress, by the National Academy of Sciences (NAS), the Government Accountability Office (GAO), and relevant federal agencies, of all major aspects of the bill. The NAS is directed to report every five years on the latest scientific information relevant to greenhouse gas emissions and climate change impacts and the bill’s performance in reducing emissions. The GAO is directed to report every three years on Federal agencies’ administration of, and performance of, the programs established under titles III and IV of the bill. Every five years, an interagency body will make recommendations to the President, and the President will in turn make recommendations to Congress, on changes to the framework established by the bill based on the NAS’s and GAO’s most recent findings and recommendations. Title VI also provides for expedited Congressional consideration of a presidential recommendation to tighten the bill’s emissions cap if the NAS’s scientific findings indicate such action is necessary.
Snowe Announces Support for Lieberman-Warner
On Wednesday, Sen. Olympia Snowe (R-Maine) announced her support for S. 3036, saying it “mirrors closely” the Kerry-Snowe Global Reduction Act (S. 485), which calls for a 65 percent reduction from 2000 levels of greenhouse gases by 2050. Snowe also noted that language from the Feinstein-Snowe Emission Allowance Market Transparency Act (S. 2423) was included in the manager’s mark.
Unlike Lieberman-Warner, Kerry-Snowe also sets a goal of achieving a greenhouse gas stabilization target of 450 ppm, and calls for the establishment of vehicle emissions standards. In Snowe’s press release, she states that Lieberman-Warner “would reduce greenhouse gas emissions by at least 66 percent by 2050,” although NRDC analysis of the bill finds that Lieberman-Warner would only achieve reductions between 60 to 65 percent from 2000 levels.
Reid Takes Steps To Begin Floor Debate On Lieberman-Warner 1
On Wednesday, Senate Majority Leader Harry Reid (D-Nev.) introduced Sen. Barbara Boxer’s (D-Calif.) manager’s mark of the Lieberman-Warner Climate Security Act (S. 2191) as a new bill, numbered S. 3036. S. 3036 will be the vehicle for the floor debate of the cap-and-trade legislation. On Thursday, Reid filed for cloture on a motion to proceed onto the bill, setting the stage for a 5:30 p.m. vote on June 2, one week from Monday. According to E&E News, “Few expect the vote to be contentious.”
“It may even end up being 99-0,” said Andrew Wheeler, staff director for Senate Environment and Public Works Committee ranking member James Inhofe (R-Okla.). Inhofe plans to back this procedural step as a gateway to a bigger debate over the merits of the legislation, Wheeler said.
Reid, Boxer, and the bill’s co-sponsors, Joe Lieberman (I-Conn.) and John Warner (R-Va.), have not determined what terms they will seek for the debate and amendment process. Reid has the option of exerting privilege to block unwanted amendments by “filling the tree” with his own.
Text of Boxer's Manager Amendment to Lieberman-Warner Climate Security Act
Download the Full document. Titles are after the break.
Title I Immediate Action
- Subtitle A Tracking Greenhouse‐Gas Emissions
- Subtitle B Early Clean Technology Deployment
- Subtitle C Research
Title II Capping Greenhouse‐Gas Emissions
Title III Reducing Emissions Through Offsets and International Allowances
- Subtitle A Offsets in the United States
- Subtitle B Offsets and Emission Allowances From Other Nations
- Subtitle C Agriculture and Forestry Program in the United States
Title IV Establishing a Greenhouse‐Gas Emissions Trading Market
- Subtitle A Trading
- Subtitle B Market Oversight and Enforcement
- Subtitle C Carbon Market Efficiency Board
- Subtitle D Climate Change Technology Board
- Subtitle E Auction on Consignment
Title V Federal Program to Prevent Economic Hardship
- Subtitle A Banking
- Subtitle H Transition Assistance for Natural‐Gas Processors
- Subtitle I Federal Program for Consumers
Title VI Partnerships with States, Localities and Indian Tribes
- Subtitle A Partnerships with State Governments to Prevent Economic Hardship While Promoting Efficiency
- Subtitle B Partnerships with States, Localities, and Indian Tribes to Reduce Emissions
- Subtitle C Partnerships with States and Indian Tribes to Adapt to Climate Change
- Subtitle D Partnerships with States, Localities, and Indian Tribes to Protect Natural Resources
Title VII Recognizing Early Action
Title VIII Efficiency and Renewable Energy
- Subtitle A Efficient Buildings
- Subtitle B Efficient Equipment and Appliances
- Subtitle C Efficient Manufacturing
- Subtitle D Renewable Energy
Title IX Low‐Carbon Electricity and Advanced Research
- Subtitle A Low‐ and Zero‐Carbon Electricity Technology
- Subtitle B Advanced Research
Title X Future of Coal
- Subtitle A Kick‐Start for Carbon Capture and Sequestration
- Subtitle B Long‐Term Carbon Capture and Sequestration Incentives
- Subtitle C Legal Framework
Title XI Future of Transportation
- Subtitle A Kick‐Start for Clean Commercial Fleets 3
- Subtitle B Advanced Vehicle Manufacturers
- Subtitle C Cellulosic Biofuel
- Subtitle D Low‐Carbon Fuel Standard
Title XII Federal Program to Protect Natural Resources
- Subtitle A Funds
- Subtitle B Bureau of Land Management Emergency Firefighting Program
- Subtitle C Forest Service Emergency Firefighting Program
- Subtitle D National Wildlife Adaptation Strategy
- Subtitle E National Wildlife Adaptation Program
Title XIII International Partnerships to Reduce Emissions and Adapt
- Subtitle A Promoting Fairness While Reducing Emissions
- Subtitle B International Partnerships to Reduce Deforestation and Forest Degradation
- Subtitle C International Partnerships to Deploy Clean Technology
- Subtitle D International Partnerships to Adapt to Climate Change and Protect National Security
Title XIV Reducing the Deficit
Title XV Capping Hydrofluorocarbon Emissions
Title XVI Periodic Reviews and Recommendations
Title XVII Miscellaneous
- Subtitle A Climate Security Act Administrative Fund
- Subtitle B Paramount Interest Waiver
- Subtitle C Administrative Procedure and Judicial Review
- Subtitle D State Authority
- Subtitle E Tribal Authority
- Subtitle F Retail Carbon Offsets
- Subtitle G Clean Air Act
- Subtitle H Study on State‐Federal Program Interaction
Boxer Releases Preview of Lieberman-Warner Manager's Amendment
Sen. Barbara Boxer (D-Calif.) has released an overview of the “global warming substitute amendment” to the Lieberman-Warner Climate Security Act (S. 2191) that will be the subject of debate during the first week of June.
Changes from the version of Lieberman-Warner that was passed out of the Committee on Environment and Public Works last year include:- Title V, Subtitle C: Emergency Off-Ramps. “If the price of carbon allowances reaches a certain price range, there is a mechanism that will automatically release additional emission allowances onto the market to lower the price. The additional allowances are borrowed so that the environmental integrity of the caps over the long term is protected.”
- Title V, Subtitle I: Financial Relief for Consumers. “The bill sets aside a nearly $800 billion tax relief fund through 2050, which will help consumers in need of assistance related to energy costs. The precise details of the relief will be developed by the Finance committee.”
- Title XIV: Deficit Neutrality. “This section auctions allowances and transfers the proceeds to the Treasury to ensure that the bill is deficit-neutral.”
Markup of H.R. 6049, the Energy and Tax Extenders Act of 2008
The House Committee on Ways and Means today passed bipartisan legislation to extend vital tax relief to millions of families, strengthen investment opportunities for American businesses and encourage the production and use of renewable energy. The legislation, H.R. 6049, the Energy and Tax Extenders Act of 2008, was introduced by Committee Chairman Charles B. Rangel (D-NY) and could be considered by the full House of Representatives as early as next week. H.R. 6049 passed the Committee by a vote of 25-12.
H.R. 6049 Energy and Tax Extenders Act of 2008
Summary: H.R. 6049, the Energy and Tax Extenders Act of 2008, will provide almost $20 billion of tax incentives for investment in renewable energy, carbon capture and sequestration demonstration projects, energy efficiency and conservation. The bill will also extends $27 billion of expiring temporary tax provisions, including the research and development credit, special rules for active financing income, the State and local sales tax deduction, the deduction for out-of-pocket expenses for teachers, and the deduction for qualified tuition expenses. In addition, the bill provides almost $10 billion of additional tax relief for individuals through an expansion of the refundable child tax credit and a new standard deduction for property taxes. The bill would be primarily offset by closing a tax loophole that allows individuals that work for certain offshore corporations, such as hedge fund managers, to defer tax on their compensation and would delay the effective date of a tax benefit that has not yet taken effect for multinational corporations operating overseas.
ENERGY TAX INCENTIVES
I. ENERGY PRODUCTION INCENTIVES
Renewable Energy Incentives
Long-term extension and modification of renewable energy production tax credit. The bill extends the placed-in-service date for wind facilities for one year (through December 31, 2009). The bill would also extend the placed-in-service date for three years (through December 31, 2011) for certain other qualifying facilities: closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; and trash combustion facilities. The bill also includes a new category of qualifying facilities that will benefit from the longer December 31, 2011 placed-in-service date—facilities that generate electricity from marine renewables (e.g., waves and tides). The bill would cap the aggregate amount of tax credits that can be earned for these qualifying facilities placed in service after December 31, 2009 to an amount that has a present value equal to 35% of the facility’s cost. The bill clarifies the availability of the production tax credit with respect to certain sales of electricity to regulated public utilities and updates the definition of an open-loop biomass facility, the definition of a trash combustion facility, and the definition of a nonhydroelectric dam. This proposal is estimated to cost $7.046 billion over ten years.
Long-term extension and modification of solar energy and fuel cell investment tax credit. The bill extends the 30% investment tax credit for solar energy property and qualified fuel cell property and the 10% investment tax credit for microturbines for six years (through the end of 2014). It also increases the $500 per half kilowatt of capacity cap for qualified fuel cells to $1,500 per half kilowatt of capacity. The bill removes an existing limitation that prevents public utilities from claiming the investment tax credit. The bill would also provide a new 10% investment tax credit for combined heat and power systems. The bill also allows these credits to be used to offset alternative minimum tax (AMT). This proposal is estimated to cost $1.376 billion over 10 years.
Long-term extension and modification of the residential energy-efficient property credit. The bill would extend the credit for residential solar property for six years (through the end of 2014). The bill would also increase the annual credit cap (currently capped at $2,000) to $4,000. The bill would include residential small wind equipment and geothermal heat pumps as property qualifying for this credit. The bill also allows the credit to be used to offset alternative minimum tax (AMT). This proposal is estimated to cost approximately $666 million over ten years.
Sales of electric transmission property. The bill extends the present-law deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC-approved independent transmission companies. Rather than recognizing the full amount of gain in the year of sale, this provision allows gain on such sales to be recognized ratably over an 8-year period. The rule applies to sales before January 1, 2010. This proposal is revenue neutral over 10 years.
New Clean Renewable Energy Bonds (“CREBs”). The bill authorizes $2 billion of new clean renewable energy bonds to finance facilities that generate electricity from the following resources: wind; closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; marine renewable; and trash combustion facilities. This $2 billion authorization will be subdivided into thirds: 1/3 will be available for qualifying projects of State/local/tribal governments; 1/3 for qualifying projects of public power providers; and 1/3 for qualifying projects of electric cooperatives. This proposal is estimated to cost $548 million over 10 years.
Carbon Mitigation Provisions
Carbon capture and sequestration (CCS) demonstration projects. The bill would provide $1.5 billion of tax credits for the creation of advanced coal electricity projects and certain coal gasification projects that demonstrate the greatest potential for carbon capture and sequestration (CCS) technology. Of these $1.5 billion of incentives, $1.25 billion would be awarded to advanced coal electricity projects and $250 million would be awarded to certain coal gasification projects. These tax credits would be awarded by Treasury through an application process, with the applicants that demonstrate the greatest carbon capture and sequestration percentage of total CO2 emissions receiving the highest priority. Applications will not be considered unless applicants can demonstrate that either their advanced coal electricity project would capture and sequester at least 65% of the facility’s carbon dioxide emissions or that their coal gasification project would capture and sequester at least 75% of the facility’s carbon dioxide emissions. Once these credits are awarded, recipients that fail to meet these minimum levels of carbon capture and sequestration would forfeit these tax credits. This proposal is estimated to cost $1.422 billion over 10 years.
Refund of certain coal excise taxes unconstitutionally collected from exporters. The Courts have determined that the Export Clause of the U.S. Constitution prevents the imposition of the coal excise tax on exported coal and, therefore, taxes collected on such exported coal are subject to a claim for refund. The bill would create a new procedure under which certain coal producers and exporters may claim a refund of these excise taxes that were imposed on coal exported from the United States. Under this procedure, coal producers or exporters that exported coal during the period beginning on or after October 1, 1990 and ending on or before the date of enactment of the bill, may obtain a refund (plus interest) from the Treasury of excise taxes paid on such exported coal and any interest accrued from the date of overpayment. _This proposal is estimated to cost $199 million over 10 years._
Solvency for the Black Lung Disability Trust Fund. The bill would enact the President’s proposal to bring the Black Lung Disability Trust Fund out of debt. Under current law, an excise tax is imposed on coal at a rate of $1.10 per ton for coal from underground mines and $0.55 per ton for coal from surface mines (aggregate tax per ton capped at 4.4 percent of the amount sold by the producer). Receipts from this tax are deposited in the Black Lung Disability Trust Fund, which is used to pay compensation, medical and survivor benefits to eligible miners and their survivors and to cover costs of program administration. The Trust Fund is permitted to borrow from the general fund any amounts necessary to make authorized expenditures if excise tax receipts do not provide sufficient funding. Reduced rates of excise tax apply after the earlier of December 31, 2013 or the date on which the Black Lung Disability Trust Fund has repaid, with interest, all amounts borrowed from the general fund of the Treasury. The President’s Budget proposes that the current excise tax rate should continue to apply beyond 2013 until all amounts borrowed from the general fund of the Treasury have been repaid with interest. After repayment, the reduced excise tax rates of $0.50 per ton for coal from underground mines and $0.25 per ton for coal from surface mines would apply (aggregate tax per ton capped at 2 percent of the amount sold by the producer). The bill would enact the President’s proposal. This proposal is estimated to raise $1.287 billion over 10 years.
Carbon audit of the tax code. The bill directs the Secretary of the Treasury to request that the National Academy of Sciences undertake a comprehensive review of the tax code to identify the types of specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects. This proposal has no revenue effect.
II. TRANSPORTATION AND DOMESTIC FUEL SECURITY
Creates a new tax credit for cellulosic biofuels. The bill would create a new $1.01 per gallon tax credit for the production of cellulosic biofuels. This tax credit will be available through 2015. This proposal is estimated to cost $1.145 billion over ten years. Expansion of allowance for property to produce cellulosic alcohol. Under current law, taxpayers are allowed to immediately write off 50% of the cost of facilities that produce cellulosic ethanol if such facilities are placed in service before January 1, 2013. Consistent with other provisions in the bill that seek to be technology neutral, the bill would allow this write off to be available for the production of other cellulosic biofuels in addition to cellulosic ethanol. This proposal is estimated to be revenue neutral over 10 years.Extension of biodiesel production tax credit; extension and modification of renewable diesel tax credit. The bill extends for one year (through December 31, 2009) the $1.00 per gallon production tax credits for biodiesel and the small biodiesel producer credit of 10 cents per gallon. The bill also extends for one year (through December 31, 2009) the $1.00 per gallon production tax credit for diesel fuel created from biomass. The bill eliminates the current-law disparity in credit for biodiesel and agri-biodiesel and eliminates the requirement that renewable diesel fuel must be produced using a thermal depolymerization process. As a result, the credit will be available for any diesel fuel created from biomass without regard to the process used so long as the fuel is usable as home heating oil, as a fuel in vehicles, or as aviation jet fuel. The bill also clarifies that the $1 per gallon production credit for renewable diesel is limited to diesel fuel that is produced solely from biomass. Diesel fuel that is created by co-processing biomass with other feedstocks (e.g., petroleum) will be eligible for the 50 cent per gallon tax credit for alternative fuels. This proposal is estimated to cost $456 million over 10 years.
Reduces and modifies the ethanol tax credit. The bill reduces the current-law ethanol tax credit by more than 10% from 51 cents per gallon to 45 cents per gallon. In addition to this change, the bill would also limit the extent to which denaturants (i.e., chemicals added to ethanol and other alcohol fuels to make them undrinkable) may be counted in calculating the available credit. This proposal is estimated to raise $1.327 billion over 10 years.
Plug-in electric drive vehicle credit. The bill establishes a new credit for each qualified plug-in electric drive vehicle placed in service during each taxable year by a taxpayer. The base amount of the credit is $3,000. If the qualified vehicle draws propulsion from a battery with at least 5 kilowatt hours of capacity, the credit amount is increased by $200, plus another $200 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours up to 15 kilowatt hours. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records 60,000 sales. The credit is reduced in following calendar quarters. The credit is available against the alternative minimum tax (AMT). This proposal is estimated to cost $1.056 billion over 10 years.
Incentives for idling reduction units and advanced insulation for heavy trucks. The bill provides an exemption from the heavy vehicle excise tax for the cost of idling reduction units, such as auxiliary power units (APUs), which are designed to eliminate the need for truck engine idling (e.g., to provide heating, air conditioning, or electricity) at vehicle rest stops or other temporary parking locations. The bill would also exempt the installation of advanced insulation, which can reduce the need for energy consumption by transportation vehicles carrying refrigerated cargo. Both of these exemptions are intended to reduce carbon emissions in the transportation sector. This proposal is estimated to cost $96 million over 10 years.
Restructuring of New York Liberty Zone tax credits. The bill would implement a proposal included in the President’s FY 2009 Budget to provide the City of New York and the State of New York with tax credits for expenditures made for transportation infrastructure projects connecting with the New York Liberty Zone. This proposal is estimated to cost $1.117 billion over 10 years.
Fringe benefit for bicycle commuters. The bill allows employers to provide employees that commute to work using a bicycle limited fringe benefits to offset the costs of such commuting (e.g., bicycle storage). This proposal is estimated to cost $10 million over 10 years.
Extension and increase of alternative refueling stations tax credit. The bill increases the 30% alternative refueling property credit (capped at $30,000) to 50% (capped at $50,000). The credit provides a tax credit to businesses (e.g., gas stations) that install alternative fuel pumps, such as fuel pumps that dispense E85 fuel. The bill also extends this credit through the end of 2010. This proposal is estimated to cost $156 million over ten years.
Comprehensive study of biofuels. The bill directs the Secretary of the Treasury, in consultation with the Secretary of Agriculture and the Secretary of Energy and the Administrator of the Environmental Protection Agency, to request that the National Academy of Sciences produce an analysis of current scientific findings relating to the future production of biofuels and the domestic effects of a dramatic increase in the production of biofuels. This proposal has no revenue effect.
III. ENERGY CONSERVATION AND EFFICIENCY
Qualified Energy Conservation Bonds. The bill creates a new category of tax credit bonds to finance State and local government programs and initiatives designed to reduce greenhouse gas emissions. There is a national limitation of $3 billion which is allocated to States, municipalities and tribal governments. This proposal is estimated to cost $1.027 billion over 10 years.
Extension and modification of credit for energy-efficiency improvements to existing homes. The bill extends the tax credits for energy-efficient existing homes for one year (through December 31, 2008) and includes energy-efficient biomass fuel stoves as a new class of energy-efficient property eligible for a consumer tax credit of $300. This proposal is estimated to cost $1.061 billion over 10 years.
Extension of energy-efficient commercial buildings. The bill extends the energy-efficient commercial buildings deduction for five years (through December 31, 2013). This proposal is estimated to cost $891 million over 10 years.
Modification and extension of energy-efficient appliance credit. The bill would modify the existing energy-efficient appliance credit and extend this credit for three years (through the end of 2010). This proposal is estimated to cost $323 million over 10 years.
Accelerated depreciation for smart meters and smart grid systems. The bill would provide accelerated depreciation for smart electric meters and smart electric grid systems. Under current law, taxpayers are generally able to recover the cost of this property over the course of 20 years. The bill would cut the cost recovery time in half by allowing taxpayers to recover the cost of this property over a 10-year period. This proposal is estimated to cost $921 million over 10 years.
Extension and modification of qualified green building and sustainable design project bond. The bill would extend the authority to issue qualified green building and sustainable design project bonds through the end of 2012. Authority to issues these bonds is currently set to expire on September 30, 2009. The bill would also clarify the application of the reserve account rules to multiple bond issuances. This proposal is estimated to cost $45 million over 10 years.
EXTENSION OF TEMPORARY TAX PROVISIONS
I. EXTENDERS PRIMARILY AFFECTING INDIVIDUALS
Extension of the deduction of State and local general sales taxes. The bill extends for one year (through 2008) the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes. This proposal is estimated to cost $1.742 billion over 10 years.
Extension of above-the-line deduction for qualified tuition and related expenses. The bill extends the above-the-line tax deduction for qualified education expenses for one year (through 2008). For tax year 2007, the maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns). This proposal is estimated to cost $2.603 billion over 10 years.
Extension of special rules for regulated investment companies. The bill would for one year (through 2008) extend the tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated nvestment companies. This proposal is estimated to cost $81 million over 10 years.
Extension of provision encouraging contributions of capital gain real property made for conservation purposes. The bill would extend for one year (through 2008) the increased contribution limits and carryforward period for amounts in excess of these limits for contributions of appreciated real property (including partial interests in real property) for conservation purposes. This proposal is estimated to cost $54 million over 10 years.
Extension of tax-free distributions from individual retirement plans for charitable purposes. The bill would extend for one year (through 2008) the provision that permits tax-free charitable contributions from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per taxable year. This proposal is estimated to cost $465 million over 10 years.
Extension of above-the-line deduction for certain expenses of elementary and secondary school teachers. The bill extends for one year the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education, computer equipment (including related software and services), other equipment, and supplementary materials used by the educator in the classroom for one year (i.e., to expenses paid or incurred in 2008). This proposal is estimated to cost $204 million over 10 years.
Extension of election to include combat pay in earned income for purposes of the earned income credit. The bill extends for one year (through 2008) the special rules that allow members of the armed services to include their combat pay in their earned income in order to qualify for the earned income tax credit. This proposal is estimated to cost $20 million over 10 years.
Extension of special rules for qualified mortgage bonds for veterans. The bill extends for one year (through 2008) the special rules that allows veterans to qualify for State-operated, tax-exempt mortgage revenue bond programs to provide lower-income individuals with access to mortgages with lower interest costs without regard to first-time home buyer requirement. This proposal is estimated to cost $158 million over 10 years.
Extension of special rules for distributions from retirement plans to individuals called to active duty. The bill extends for one year (through 2008) special rules that permit active duty reservists to make penalty-free withdrawals from retirement plans. This proposal is estimated to cost less than $500,000 over 10 years.
Reinstate the exclusion of amounts received under qualified group legal services plans. The bill reinstates for one year (through 2008) a provision that allows individuals to exclude certain amounts received under qualified group legal services plans from income. This proposal is estimated to cost $40 million over 10 years.
II. EXTENDERS PRIMARILY AFFECTING BUSINESSES
Extension of R&D credit. The bill extends the research credit for one year (through 2008). This proposal is estimated to cost $8.761 billion over 10 years.Extension of Indian employment credit. The bill extends for one year (through 2008) the business tax credit for employers of qualified employees that work and live on or near an Indian reservation. The credit is for wages and health insurance costs paid to qualified employees (up to $20,000) in the current year over the amount paid in 1993. Wages for which the work opportunity tax credit is available are not qualified wages for the Indian employment tax credit. This proposal is estimated to cost $59 million over 10 years.
Extension of New Markets Tax Credit. The bill extends for one year (through 2009) the new markets tax credit, permitting a $3.5 billion maximum annual amount of qualified equity investments. This proposal is estimated to cost $1.315 billion over 10 years.
Extension of railroad track maintenance credit. The bill extends for one year (through 2008) the railroad track maintenance credit. The railroad track maintenance credit provides Class II and Class III railroads (e.g., short-line railroads) with a tax credit equal to 50 percent of gross expenditures for maintaining railroad tracks that they own or lease. This proposal is estimated to cost $165 million over 10 years.
Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements. The bill would extend for one year (through 2008) the special 15-year cost recovery period for certain leasehold and qualified restaurant improvements. Absent an extension of this provision, the cost recovery period for these facilities would be 39 years. This proposal is estimated to cost $5.399 billion over 10 years.
Extension of 7-year straight-line cost recovery period for motorsports entertainment complexes. The bill would extend for one year (through 2008) the special 7-year cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes. Absent an extension of this provision, the cost recovery period for these facilities would be 15 years. This proposal is estimated to cost $48 million over 10 years.
Extension of accelerated depreciation for business property on an Indian reservation. The bill would extend for one year (through 2008) the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property. In general, qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation, which is not used outside the reservation on a regular basis and was not acquired from a related person. _ This proposal is estimated to cost $152 million over 10 years.
Extension of expensing of “brownfields” environmental remediation costs. The bill would extend for one year (through 2008) the provision that allows for the expensing of costs associated with cleaning up hazardous (“brownfield”) sites. This proposal is estimated to cost $178 million over 10 years.
Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. The bill would extend for one year (through 2008) the provision extending the section 199 domestic production activities deduction to activities in Puerto Rico. This proposal is estimated to cost $116 million over 10 years.
Extension of special tax treatment of certain payments to controlling exempt organizations. The bill would extend for one year (through 2008) the special rules for interest, rents, royalties and annuities received by a tax exempt entity from a controlled entity. This proposal is estimated to cost $35 million over 10 years.
Reauthorization of Qualified Zone Academy Bonds (QZABs). The bill allows an additional $400,000,000 of QZAB issuing authority to State and local governments, which can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy. In general, a qualified zone academy is any public school (or academic program within a public school) below college level that is located in an empowerment zone or enterprise community and is designed to cooperate with businesses to enhance the academic curriculum and increase graduation and employment rates. QZABs are a form of tax credit bonds which offer the holder a Federal tax credit instead of interest. The bill would improve the marketability of these bonds by modifying the current-law arbitrage restrictions. This proposal is estimated to cost $202 million over 10 years.
Extension of tax incentives for investment in the District of Columbia. The bill extends the designation of certain economically depressed census tracts within the District of Columbia as the District of Columbia Enterprise Zone. Businesses and individual residents within this enterprise zone are eligible for special tax incentives. The bill would also extend the $5,000 first-time homebuyer credit for the District of Columbia. The bill would extend both of these provisions for one year (through 2008). This proposal is estimated to cost $129 million over 10 years.
Extension of American Samoa economic development credit. The bill extends for one year (through 2008) the American Samoa economic development credit. In general, this credit provides certain domestic corporations operating in American Samoa with a possessions tax credit to offset their U.S. tax liability on income earned in American Samoa from active business operations, sales of assets used in a business, or certain investments in American Samoa. This proposal is estimated to cost $16 million over 10 years.
Extension of enhanced charitable deduction for contributions of food inventory. The bill would extend for one year (through 2008) the provision allowing businesses to claim an enhanced deduction for the contribution of food inventory. This proposal is estimated to cost $71 million over 10 years.
Enhanced charitable deduction for contributions of book inventories to public schools. The bill would extend for one year (through 2008) the provision allowing C corporations to claim an enhanced deduction for contributions of book inventory to public schools (kindergarten through grade 12). This proposal is estimated to cost $31 million over 10 years.
Extension of enhanced deduction for corporate contributions of computer equipment for educational purposes. The bill would extend for one year (through 2008) a provision that encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions. This proposal is estimated to cost $260 million over 10 years.
Extension of special rule for S corporations making charitable contributions of property. The bill would extend for one year (through 2008) the provision allowing S corporation shareholders to take into account their pro rata share of charitable deductions even if such deductions would exceed such shareholder’s adjusted basis in the S corporation. The bill would also make a technical correction clarifying the application of this provision. This proposal is estimated to cost $62 million over 10 years.
Extension of work opportunity tax credit for Hurricane Katrina employees. The bill would extend for one year (through 2008) the provision that expired in August of 2007 which allowed employers to claim the work opportunity tax credit for hiring employees who were affected by Hurricane Katrina. This proposal is estimated to cost $16 million over 10 years.
Extension of active financing exception. The bill extends the active financing exception from Subpart F of the tax code for one year (through 2009). This proposal is estimated to cost $3.970 billion over 10 years.
Extend look-through treatment of payments between related controlled foreign corporations. The bill extends the current law look-through treatment of payments between related controlled foreign corporations for one year (through 2009). This proposal is estimated to cost $611 million over 10 years.
Extend special expensing rules for certain film and television productions. The bill would extend the current law special expensing rules for U.S. film and television productions for one year (through 2009). This proposal is estimated to cost $10 million over 10 years.
III. OTHER EXTENDERS
Extension of disclosures of certain tax return information. The bill would permanently extend the current-law terrorist activity disclosure provisions and the authority for purposes of coordination with the Department of Veterans Affairs. This proposal estimated to have no revenue effect.Extension of authority for undercover operations. The bill would permanently extend the authorization for the IRS to engage in certain activities related to undercover operations, such as purchasing property, organizing business entities and use the proceeds from an undercover operation to pay additional expenses incurred in the undercover operation. This proposal is estimated to have a negligible revenue effect.
Extension of temporary increase in limit on cover over of run excise tax revenues to Puerto Rico and the Virgin islands. The bill extends for one year the provision providing for payment of $13.25 per gallon to cover over a $13.50 per proof gallon excise tax on distilled spirits produced in or imported into the United States. This proposal is estimated to cost $96 million over 10 years.
Extension of tax on failure to comply with mental health parity requirements applicable to group health plans. The bill extends on a prospective basis through the end of 2008 the $100 per day excise tax on group health plans that impose limits on mental health benefits that are not imposed on medical and surgical benefits. _This proposal is estimated to cost $25 million over 10 years._
ADDITIONAL TAX RELIEF
I. INDIVIDUAL TAX RELIEF
Additional standard deduction for real property taxes. The bill would provide an additional standard deduction for State and local real property taxes paid or accrued by taxpayers who claim the regular standard deduction. The maximum amount that may be claimed under this provision is $700 for joint filers and $350 for individuals. This proposal applies only for 2008. This proposal is estimated to cost $1.174 billion over 10 years.Change in refundable child credit. The bill would increase the eligibility for the refundable child tax credit in 2008. The child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of approximately $12,050 as a result of inflation adjustments to the original floor of $10,000. The bill would reduce this floor to $8,500 for 2008. This proposal is estimated to cost $3.129 billion over 10 years.
Extension and modification of AMT credit allowance against incentive stock options (ISOs). Exercise of an ISO is a preference in the individual minimum tax. The amount of the preference is the difference between the market price on the date of exercise and the option price. In the past, many individuals exercised these options and there were dramatic reductions in the value of the stock after exercise. These individuals found that their minimum tax liability far exceeded any gain from the exercise of the option. The bill would waive past underpayments and would guarantee that minimum tax actually paid on the exercise of these options would be returned to the taxpayer. This proposal is estimated to cost $2.291 billion over 10 years.
II. BUSINESS-RELATED PROVISIONS
Uniform treatment of attorney-advanced expenses and court costs in contingency fee cases. Under current law, the tax treatment of attorney-advanced expenses and court costs in contingency fee cases depends on whether the contingency fee is structured as a “net” fee (i.e., the attorney’s compensation is based on a percentage of the gross recovery in the litigation net of the advanced litigation costs) or as a “gross” fee (i.e., the attorney’s compensation is based on a percantage of the gross recovery without regard to the amount of advanced litigation costs). Where the contingency fee is structured as a “gross” fee, the attorney is allowed to take a current deduction for advanced litigation costs as they are paid. Where the contingency fee is structured as a “net” fee, the attorney is not allowed to take a current deduction for advanced litigation costs. The bill would conform the tax treatment of “net” fee arrangements to the tax treatment of “gross” fee arrangements by allowing all advanced litigation costs to be deducted currently by the attorney. This proposal is estimated to cost $1.572 billion over 10 years.Provisions related to film and television productions. Under current law, taxpayers have not been able to take full advantage of tax incentives that are intended to encourage film and television companies to produce films here in the United States rather than overseas because of a number of technical issues. The bill would fix these issues. This proposal is estimated to cost $468 million over 10 years.
Modification of penalty on understatement of taxpayer’s liability by tax return preparer. The bill would conform the penalty standards for return preparers with the standards for taxpayers. For undisclosed positions, the penalty standard for return preparers is reduced to substantial authority. For disclosed positions, a return preparer generally must have a reasonable basis for the position. For positions involving tax shelters and certain reportable transactions, a return preparer must have a reasonable belief that the position would more likely than not be sustained on the merits. This proposal is estimated to cost $22 million over ten years.
III. EXTENSION AND EXPANSION OF CERTAIN GO ZONE INCENTIVES
Extension and Expansion of Certain Gulf Opportunity (GO) Zone Incentives. The bill would allow taxpayers in affected GO Zone areas to amend prior returns to take into account receipt of hurricane-related recovery grants, waive the start-construction deadline for certain property eligible for bonus deprecation in the GO Zone, and allow projects in two additional counties in Alabama to qualify for tax-exempt bond financing. This provision is estimated to cost $1.333 billion over ten years.REVENUE PROVISIONS
Current inclusion of deferred compensation paid by certain tax indifferent parties. *The bill would tax individuals on a current basis if such individuals receive deferred compensation from a tax indifferent party. Current law generally allows executives and other employees to defer paying tax on compensation until the compensation is paid. This deferral is made possible by rules that require the corporation paying the deferred compensation to defer the deduction that relates to this compensation until the compensation is paid. Matching the timing of the deduction with the income inclusion ensures that the executive is not able to achieve the tax benefits of deferred compensation at the expense of the Treasury. Instead, the corporation paying the compensation bears the expense of paying deferred compensation as a result of the deferred deduction. Where an individual is paid deferred compensation by a tax indifferent party (such as an offshore corporation in a tax haven jurisdiction), there is no offsetting deduction that can be deferred. As a result, individuals receiving deferred compensation from a tax indifferent party are able to achieve the tax benefits of deferred compensation at the expense of the Treasury. This proposal is estimated to raise $24.289 billion over 10 years.
Delay implementation of worldwide allocation of interest.* In 2004, Congress provided taxpayers with an election to take advantage of a liberalized rule for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation. Although enacted in 2004, this election is not available to taxpayers until taxable years beginning after 2008. The bill would delay the phase-in of this new liberalized rule for ten years (for taxable years beginning after 2018). This proposal is estimated to raise $29.962 billion over 10 years.
Democratic Leadership Struggling to Move Forward with Renewable Tax Package
The House Ways and Means Committee will likely take up the new package next week and will bring it to the floor sometime before Memorial Day, Chairman Charles Rangel (D-N.Y.) told reporters yesterday. The renewable energy package will be part of a broader multibillion dollar package of “tax extenders” for various items that are set to expire this year.“Before the Memorial Day break, we will be bringing to the floor a comprehensive energy tax package that promotes research and development and promotes efficiency,” House Speaker Nancy Pelosi (D-Calif.) said yesterday. “The resources are there, the motivation is real, and I think they have reached some level of agreement with the Senate,” she added.
Sen. Max Baucus, chair of the Senate Finance Committee, has included the renewable tax credits with a package that would also extend tax credits against the Alternative Minimum Tax, the Alternative Minimum Tax and Extenders Tax Relief Act of 2008 (S. 2886).
Neither effort provides funding mechanisms.
Responses to Voinovich Climate Bill 1
Responses to Sen. George Voinovich (R-Ohio)’s draft climate legislation.
As E&E News reports, Sen. Voinovich is designing his bill “with input from several industry groups, including the Alliance for Energy and Economic Growth, the National Manufacturers Association, the Edison Electric Institute and the American Chemistry Council.”The Washington office of Bracewell & Giuliani, a law firm that includes President Bush’s first-term U.S. EPA air pollution chief, Jeff Holmstead, and Scott Segal, director of the Electric Reliability Coordinating Council, also helped write the legislation.
EDF:
Ohio Senator George Voinovich today proposed to address the rapidly escalating threat of climate change by delaying meaningful federal action to control greenhouse gas emissions, obstructing existing state programs, and allowing U.S. global warming pollution to increase for decades to come.Jeremy Symons of the National Wildlife Federation:“This proposal can be summed up in one word: bankrupt,” said Steve Cochran, national climate campaign director at Environmental Defense Fund. “It’s a detailed prescription for doing nothing. If you think climate change is a hoax, this is your bill.”
The bill to nowhere.
This phony bill would not require mandatory reductions in global warming pollution. It’s Bush reincarnated—a repeat of the do-nothing policies of the last eight years, and an attempt to provide pollution-supporting senators a way to appear as though they are addressing global warming without actually doing so. Global warming threatens to create unprecedented food and water shortages in the coming decades, causing massive loss of life and social and political instability around the world. Any attempt, such as this, to block progress in this fight and prevent America from being a clean energy leader is repugnant and immoral. Voters are not going to be fooled. Any senator who votes for such sham legislation will answer for it at the ballot box.
Farm Bill conference meeting
With an agreement among key farm bill negotiators finally in hand, the conference committee is expected to make swift work this week on the reauthorization of the five-year bill overseeing agriculture, conservation, energy and nutrition programs.The committee will hold a formal conference meeting this evening, where they are expected to approve a new framework for funding and offsets for the bill that key House-Senate negotiators from the tax and agriculture panels agreed to late Friday.
Energy Harvest: Power From the Farm—An E&E Special Report
The new framework for the bill includes a $4 billion boost above the current baseline for conservation programs and $10.3 billion in new spending on nutrition.
Crop subsidies and reductions to a proposed disaster relief program took the brunt of the spending cuts to offset the new spending, lawmakers said.
The framework also includes a pared-down version of the Senate’s tax package that would roll back tax cuts for corn-based ethanol and give new tax breaks for the cellulosic ethanol and timber industries.
The leaders of the House and Senate Agriculture committees reached the agreement Friday after several days of intense closed-door negotiations in the Capitol. Lawmakers still have to work out some details of the $300 billion, five-year measure, but they said they expect a swift resolution of the conference this week.
“There were some tough spots, but we were able to get by all of that,” House Agriculture Chairman Collin Peterson (D-Minn.) said after meetings Friday. “Any member can offer any amendment [in the conference committee], but I don’t see a need for any votes—I think we’ve got this so it won’t require any of that.”
The agreement still must reach approval of the conference committee and the full House and Senate, as well as the White House. President Bush has held a hard line with the farm bill, threatening to veto it unless it reforms crop subsidies and avoid tax increases.
Bush administration officials were not present for the negotiations last week. A White House spokesman said they are reserving judgment until they can review the entire package.
“As we’ve said in the past, the president believes that a new farm bill should include important reforms, not raise taxes and be fiscally responsible,” said White House spokesman Scott Stanzel.
The leaders of the House and Senate tax panel agreed to rely on customs-users fees to offset much of the $10 billion in new spending for the bill. The fees, most of which would come from importers, do not classify as a tax and have not raised a red flag with the White House.
But other advocates for overhauling the farm bill are hopeful the White House will continue to press for more changes to the measure. Rep. Ron Kind (D-Wis.) said he hopes Bush “will stand firm in his commitment to a better bill.” Kind is one of the leaders of a group of House members pushing to throw out much of the current subsidy program.
“Negotiators managed to avoid every opportunity to reform wasteful, outdated subsidies while piling on additional layers of unnecessary spending,” said Kind. “It looks as though nothing has been done to address the waste and abuse that has been well documented over the last year.” No limits for farmers
One of the outstanding issues for the bill is limitations on crop subsidies—a controversial area where reformers like Kind would like to see more change.
Lawmakers said they are still working out a deal on income limits for crop subsidy recipients. Peterson said it would likely lower the cap for people who make most of their income off the farm, but have no limitation for on-farm income.
“The people who are going to take a big hit in the bill are non-farmers,” said Peterson.
Advocates for farm bill reform want to place more stringent limits on how much money landowners can receive in federal subsidies—regardless of where their income comes from.
The Bush administration proposed barring anyone who makes more than $200,000 per year from farm supports.
The Senate’s version of the farm bill, approved in December, would stop payments to non-farmers who make more than $750,000 a year. It had no income caps for farmers. The House bill would cut off farm payments for millionaire farmers or non-farmers who make more than $500,000. Both prompted veto threats from Bush. Corn gives way to cellulosic subsidies
The agreement also includes a package of tax incentives that totals close to $1.5 billion, according to members of the Finance Committee.
The package includes extensions and reductions of the ethanol tax credits and tariffs, said Sen. Charles Grassley (R-Iowa). The move is a step toward gradually transitioning the corn-ethanol industry to standing on its own. The package instead favors supports for cellulosic ethanol.
“It is a signal we are ready to shift to other less disruptive forms of ethanol production,” Senate Finance Chairman Max Baucus (D-Mont.) said of the package.
Corn-ethanol subsidies would see an almost 12 percent hit. The current 51-cent-a-gallon tax credit for corn-based ethanol would drop to 45 cents. In conjunction with that, it would also reduce the tariff on imported ethanol, Grassley said.
The winner in the tax package is cellulosic ethanol—made from corn stalks, woody plants or grasses. It would get a $1-per-gallon subsidy.
The move marks a significant shift for the farm-state lawmakers, who have been some of the biggest advocates for ethanol supports, and the booming grain and refinery industries that have come with them.
“This is a signal to the country that we’re starting to move away from corn to cellulose,” Peterson said. Sodsaver exemptions
The agreement includes protections for virgin prairie, long-sought from environmental groups, but has loopholes to allow some states to ignore them.
Conservation advocates have been pushing for years for a sodsaver program to bar federal subsidies for farmers who plow up native prairie.
The Senate sodsaver language, favored by conservation groups, would block crop insurance and disaster payments for farmers who plant on native prairie. The House bill limits the crop insurance ineligibility to four years.
The conference agreement has an “amalgam” of the House and Senate sodsaver provisions, Senate Agriculture Chairman Tom Harkin (D-Iowa) said Friday. All of the prairie pothole states would have to comply, but Montana and North Dakota would only opt in at their governors’ discretion.
Sodsaver is intended to address what conservation groups say is a backward system in current farm policy. The 2002 farm bill offers landowners conservation payments to conserve grasslands, but also gives crop insurance and crop subsidies that encourage plowing them up.
The Government Accountability Office issued a report this fall calling federal subsidies an “important factor” in encouraging the conversion of millions of acres of grasslands to row crops. The United States lost almost 25 million acres of privately owned grasslands between 1982 and 2003, GAO said. Conservation
The $4 billion increase for conservation trails the numbers negotiators had previously discussed, but still would give a significant boost to most farmland conservation programs.
Much of the conservation money would go to restore funding for programs that would otherwise expire under current law. The expiring Wetlands Reserve Program would get $1.3 billion above the 10-year baseline and the Grasslands Reserve Program would get $300 million.
The framework shifts almost $2.5 billion from the Conservation Reserve Program to other conservation programs—cutting down the Agriculture Department’s largest conservation program but infusing other working-lands programs with some of the money in its budget.
Lawmakers said it lowers the acreage cap for CRP to more closely reflect the reality of the program, which pays farmers to idle land.
The framework allots for 32 million acres in CRP. That total is less than the current limit of 39 million acres but still more land than most USDA officials expect to see in the program in the next several years. Enticed by high commodity prices, farmers have been taking some land out of the program, and USDA has held off on new open enrollments.
Other conservation programs would see a boost under the framework. The Environmental Quality Incentives Program would see a $2.4 billion increase over baseline levels, the Conservation Stewardship Program gets $1.1 billion, and the Farm and Ranch Land Protection Program gets $560 million. A new program for the Chesapeake Bay comes in at $372 million.