Originally published October 3, 2008
On October 1, the Senate overwhelmingly approved bailout legislation, H.R. 1424, that included an expanded version of the "Emergency Economic Stabilization Act of 2008" (the "Act")1 as well as the tax extenders from previously passed H.R. 6049. On October 3, following intense negotiation, the House of Representatives gathered enough votes to approve the landmark bill,2 by a vote of 263 in favor to 171 opposed. The new bill, passed by the Senate and the House of Representatives, was immediately signed into law by the President. That new law provides long-awaited renewable energy tax credit extensions.
The following is a summary of the major renewable and alternative energy provisions contained in H.R. 1424:
Production Tax Credit
- Extends the production tax credit for one year for wind facilities. Wind facilities must therefore be placed in service before January 1, 2010.
- Extends the production tax credit for two years for other qualifying facilities. Those facilities must now be placed in service before January 1, 2011.
- Expands the definition of "trash combustion facility" to provide that such facilities must "use" municipal solid waste. Prior to such change, facilities were required to "burn" municipal solid waste. This provision applies to electricity produced and sold after October 3, 2008.
- Provides that an expansion of an open-loop or closed-loop biomass facility that qualified for the production tax credit will qualify if such expansion is placed in service on or after October 3, 2008 and before January 1, 2011. The production tax credit with respect to such an expansion is available to the extent of the increase in the amount of electricity produced at the facility as a result of the new unit. This provision applies to expansions placed in service after October 3, 2008.
- Extends the production tax credit to marine and hydrokinetic renewable energy. Such energy includes energy derived from: (i) waves, tides and currents in oceans, estuaries and tidal areas; (ii) free flowing water in rivers, lakes and streams; (iii) free flowing water in an irrigation system, canal, or other man-made channel, including projects that utilize non-mechanical structures to accelerate the flow of water for electric power production purposes; or (iv) differentials in ocean temperature.
Such facilities must have a nameplate capacity rating of at least 150 kilowatts and must be placed in service before January 1, 2012. Similar to the tax credit amount for qualifying facilities added to the Internal Revenue Code in 2004 and 2005, the amount of the tax credit (currently $0.01 per kwh) is half of the amount available for wind and closed-loop facilities.
Investment Tax Credit
- Extends the investment tax credit for solar energy property by 8 years. Solar equipment must be placed in service before January 1, 2017.
- Extends the investment tax credit for fuel cell property and microturbine property by 7 years. Such property must be placed in service before January 1, 2016.
- Adds an investment tax credit for combined heat and power system property. Combined heat and power system property includes property comprised of a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications).
Such a system must produce (i) at least 20 percent of its total useful energy in the form of thermal energy which is not used to produce electrical or mechanical power and (ii) at least 20 percent of its total useful energy in the form of electrical or mechanical power. The property must be placed in service before January 1, 2017.
The amount of the investment tax credit is reduced with respect to property with a capacity of greater than 15 megawatts or a mechanical energy capacity of more than 20,000 horsepower or an equivalent combination of electrical and mechanical energy capacities. Such property cannot have a capacity in excess of 50 megawatts or a mechanical energy capacity in excess of 67,000 horsepower or an equivalent combination of electrical and mechanical energy capacities.
This provision is effective as of October 3, 2008.
- Eliminates the prohibition on ownership by public utilities of property qualifying for the investment tax credit. Provision applies to periods after February 13, 2008.
Refined Coal
- Extends the tax credit for one year. Refined coal facilities must therefore be placed in service before January 1, 2010.
- Eliminates the requirement that refined coal have an increased market value of at least 50 percent, as compared to the value of the feedstock coal. Provision applies for coal produced and sold from facilities placed in service after December 31, 2008.
- Requires a reduction of 40 percent (as compared to the prior reduction requirement of 20 percent) of either sulfur dioxide or mercury released when burning the refined coal as compared to the emissions released when burning the feedstock coal or comparable coal. Provision applies to coal produced and sold from facilities placed in service after December 31, 2008.
Biofuels
- Extends the biodiesel and renewable diesel mixture credits for one year through December 31, 2009.
- Closes the so-called "splash and dash loophole" effective May 15, 2008. As enacted, all alcohol, biodiesel and renewable diesel that is imported into the United States, splash blended with gasoline, diesel or another taxable fuel, and then exported for consumption or use abroad is not eligible for the mixture credits as of May 15, 2008. Imported alcohol, biodiesel and renewable diesel that is blended with gasoline, diesel or another taxable fuel and then sold for use or consumption within the United States does remain eligible for the credit.3
- Eliminates the "agri-biodiesel" distinction in the biodiesel credits, making the $1 per gallon mixture credit and biodiesel credit feedstock-neutral.
- Extends bonus depreciation for celluosic biomass ethanol to celluosic biofuel.
- Qualifies renewable diesel for the $1 per gallon credit, provided it is produced entirely from biomass (renewable diesel derived from co-processing biomass with non-biomass feedstocks would qualify only for the $0.50 alternative fuels credit). The requirement that renewable diesel be produced via a thermal depolymerization process to be eligible for the $1 credit is eliminated.
Other Relevant Energy Provisions
- Provides for new clean renewable energy bonds.
- Increases the oil spill tax from $0.05 per barrel to $0.08 per barrel through December 31, 2016 and to $0.09 per barrel after that date. The effective date of the increase to $0.08 per barrel is January 1, 2009.
- Reduces by 3 percent the otherwise available deduction for domestic production activities (the section 199 deduction) for taxpayers with oil related qualified production activities income.
Footnotes
1 For a copy of our legal alert that discusses the bailout, please see: http://www.sutherland.com/files/upload/CORPAlertMovingForwardBailout10-3-08.pdf .
2 The final bill is the same as H.R. 1424 and the full text of the bill is available at http://financialservices.house.gov/
3 In any attempt to launch a challenge to the effective date, the IRS would likely assert that the industry has been on notice since May 15, 2008, when the adopted language was introduced, that Congress was intending to enact such a proposal. It is uncertain how the IRS will enforce the law with respect to claims for the mixture credit that have been filed (pending or accepted) since May 15, 2008. Any claims that have not yet been filed with respect to splash and dash transactions occurring after May 15 generally should not be filed.
© 2008 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.