To require that diesel fuel sold in the United States meet specifications designed to facilitate the widespread introduction of clean diesel vehicles in the United States, and for other purposes.

May 22, 2003

Mr. DINGELL introduced the following bill; which was referred to the Committee on Energy and Commerce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To require that diesel fuel sold in the United States meet specifications designed to facilitate the widespread introduction of clean diesel vehicles in the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Clean Diesel Act of 2003'.

SEC. 2. FINDINGS.

The Congress finds the following:

(1) Sulfur in diesel fuel is a source of air pollution.

(2) Clean burning diesel technology is capable of high fuel economy (exceeding 125 percent of model year 2002 fuel economy).

(3) Dependence on foreign oil is an issue of national security.

(4) The fuel economy benefits of diesel vehicles can be seen in Europe, where diesel powered vehicles are widely available.

(5) The introduction of clean burning diesel vehicles would be facilitated greatly by the introduction of diesel fuel with the lowest feasible sulfur level and would result in significant fuel economy benefits for the United States.

(6) It is in the national interest that American manufacturing and American workers are well positioned to meet the rising consumer demand for advanced technology vehicles.

(7) In subpart I of part 80, title 40, Code of Federal Regulations, the Environmental Protection Agency requires that, beginning June 1, 2006, motor vehicle diesel fuel may not contain more than 15 parts per million of sulfur, subject to certain limited exceptions ending on December 1, 2010.

SEC. 3. DEFINITIONS.

For purposes of this Act:

(1) The term ` Administrator' means the Administrator of the Environmental Protection Agency.

(2) The term `Secretary' means the Secretary of Energy.

TITLE I--CLEAN MOTOR VEHICLE DIESEL FUEL STANDARDS

SEC. 101. DEFINITIONS.

For purposes of this title:

(1) IN GENERAL- The terms `import', `importer', `ppm', `produce', `refiner', `refinery', and `motor vehicle diesel fuel' have the meanings given to those terms in regulations of the Administrator relating to motor vehicle diesel fuel.

(2) CLEAN DIESEL FUEL- The term `clean diesel fuel' means motor vehicle diesel fuel subject to the standards of section 102(c).

SEC. 102. STANDARDS.

(a) EFFECTIVE DATE- The standards and requirements of this title apply to any motor vehicle diesel fuel produced or imported by any refiner or importer beginning on January 1, 2011.

(b) EXCLUDED FUEL- The provisions of this title do not apply to motor vehicle diesel fuel that is designated for export outside the United States, and identified for export by a transfer document as required under regulations of the Administrator.

(c) STANDARDS- Except as otherwise provided in this title, all motor vehicle diesel fuel is subject to the following per gallon standards:

(1) SULFUR CONTENT- A sulfur content as low as feasible, as determined by the Administrator taking into consideration costs, but not higher than 10 ppm. Not less than every 5 years, the Administrator shall review and, as appropriate, revise the determination made under this paragraph.

(2) CETANE NUMBER- A minimum cetane number of 55.

(3) AROMATIC CONTENT- A maximum aromatic content of 15 volume percent.

(4) LUBRICITY LEVEL- A maximum high-frequency reciprocating rig wear scar diameter of 400 microns.

(d) REGULATIONS- Not later than January 1, 2006, the Administrator shall promulgate regulations to implement this title. Such regulations shall--

(1) require measures to minimize the extent of sulfur contamination in the motor vehicle diesel fuel distribution system;

(2) ensure that motor vehicle diesel fuel sold as clean diesel fuel at retail outlets or wholesale purchaser-consumer facilities does not exceed the per gallon standards set forth in subsection (c); and

(3) evaluate and, as necessary, promulgate requirements to ensure the compatibility of motor oil intended for use in motor vehicle engines consistent with the purposes and requirements of this Act.

(e) SAVINGS- Nothing in this title shall be construed to relieve any person of any emission control requirement or obligation under the Clean Air Act.

SEC. 103. WAIVERS; EXEMPTION.

(a) WAIVER ON PETITION OF STATE-

(1) IN GENERAL- On petition by 1 or more States, the Administrator, in consultation with the Secretary, may, in whole or in part, waive the requirements of section 102 relating to clean diesel fuel by reducing the amount of clean diesel fuel required under such section, if the Administrator determines, after public notice and opportunity for comment, that implementation of such requirements, without an appropriate waiver, would severely harm the economy of a State or region due to inadequate supply or distribution capacity sufficient to meet such requirements.

(2) DURATION; RENEWAL- A waiver under this subsection shall terminate after 180 days and may be renewed by the Administrator for not more than 1 additional period of 180 days after consultation with the Secretary.

(3) EXPIRATION OF AUTHORITY- No waiver may be granted under this subsection after December 31, 2010.

(b) ECONOMIC HARDSHIP EXEMPTION-

(1) EXEMPTION- A small business refiner may petition the Administrator for an exemption from the requirements of section 102 for the reason of disproportionate economic hardship. If the Administrator fails to act on such a petition within 120 days after receipt of the petition, the petition shall be deemed granted.

(2) DEFINITIONS- For purposes of this subsection:

(A) The term `disproportionate economic hardship' means economic impact resulting in substantial economic losses that threaten the viability of the entity in question, as determined by the Administrator in consultation with the Secretary.

(B) The term `small business refiner' means, with respect to any calendar year, a refiner of crude oil with respect to which not more than 1,500 persons are engaged in the refinery operations of the business on any day during such calendar year and whose average daily domestic refinery run for such calendar year did not exceed 205,000 barrels.

SEC. 104. MISFUELING.

(a) PROHIBITION- After December 31, 2010, no person shall knowingly introduce, or cause or allow the introduction of, fuel other than clean diesel fuel into any motor vehicle that is designed to operate with diesel fuel.

(b) PENALTY- Any person that violates this section shall be subject to the same penalties applicable to a person that violates section 211(g) of the Clean Air Act (42 U.S.C. 7545(g)).

SEC. 105. PENALTIES AND INJUNCTIONS.

(a) CIVIL PENALTIES- Subject to penalties applicable to misfueling under section 104, any person who violates any provision of this title or the regulations prescribed under this title or who fails to furnish any information or conduct any tests required by the Administrator under regulations under this title shall be liable to the United States for a civil penalty of not more than the sum of $25,000 for every day of such violation and the amount of economic benefit or savings resulting from the violation.

(b) INJUNCTIVE AUTHORITY- The district courts of the United States shall have jurisdiction to restrain violations of this title and of the regulations prescribed under this title, to award other appropriate relief, and to compel the furnishing of information and the conduct of tests required by the Administrator under regulations under this title. Actions to restrain such violations and compel such actions shall be brought by and in the name of the United States. In any such action, subpoenas for witnesses who are required to attend a district court in any district may run into any other district.

TITLE II--INCENTIVES TO ENCOURAGE CLEAN DIESEL MOTOR VEHICLES

SEC. 201. DETERMINATION OF CREDIT AMOUNTS FOR CLEAN DIESEL MOTOR VEHICLE CREDIT AND LIFETIME FUEL SAVINGS CREDIT.

(a) IN GENERAL- Not later than 120 days after the date of the enactment of this Act, the Secretary of Energy shall determine credit amounts for the clean diesel motor vehicle credit under section 30B, and the lifetime fuel savings credit under section 30C, of the Internal Revenue Code of 1986 in amounts which the Secretary determines will provide appropriate incentives to encourage the widespread consumer acceptance of clean diesel motor vehicles. In making determinations under the preceding sentence, the Secretary--

(1) may not increase or decrease the credit amount specified for a category in the table in subsection (b) by more than $500;

(2) may not increase the maximum fuel economy for a category above the maximum fuel economy specified for that category in the table in subsection (b);

(3) may not increase or decrease the lifetime fuel savings amount specified for a category in the table in subsection (c) by more than $500; and

(4) may not increase the number of gallons for the category of lifetime fuel savings in the table in subsection (c).

(b) ALTERNATIVE CREDIT AMOUNT FOR CLEAN DIESEL MOTOR VEHICLE CREDIT- In the case that the Secretary of Energy does not meet the 120-day period specified in subsection (a), the credit amounts for the clean diesel motor vehicle credit under section 30B of the Internal Revenue Code of 1986 shall be determined in accordance with the following table:

---------------------------------------------------------------------------------------------------------

Category Fuel economy based onpercentage of 2002 model yearcity fuel economy               Credit amount 

                                                                    At least but less than               

---------------------------------------------------------------------------------------------------------

      1                                                                 125%          150%        $1,500 

      2                                                                 150%          175%        $2,000 

      3                                                                 175%          200%        $2,500 

      4                                                                 200%          225%        $3,000 

---------------------------------------------------------------------------------------------------------

(c) ALTERNATIVE CREDIT AMOUNT FOR LIFETIME FUEL SAVINGS CREDIT- In the case that the Secretary of Energy does not meet the 120-day period specified in subsection (a), the credit amounts for the lifetime fuel savings credit under section 30C of the Internal Revenue Code of 1986 shall be determined in accordance with the following table:

Credit

Amount:

1,200

$1,500

1,800

$2,000

2,400

$2,500

3,000

$3,000.

(d) OPTION TO USE LIKE VEHICLE- At the option of the vehicle manufacturer, the increase for fuel economy and lifetime fuel savings may be calculated by comparing the new clean diesel motor vehicle to a like vehicle.

(e) DEFINITIONS- For purposes of this section:

(1) CLEAN DIESEL MOTOR VEHICLE- The term `clean diesel motor vehicle' means a motor vehicle with an internal combustion engine that--

(A) is designed to operate primarily using more air than is necessary for complete combustion of the fuel;

(B) incorporates direct injection;

(C) achieves at least 125 percent of the 2002 model year city fuel economy; and

(D) for 2004 and later model vehicles, has received a certificate that such vehicle meets or exceeds the Bin 5, Tier 2 emission levels (for passenger vehicles) or Bin 8, Tier 2 emission levels (for light trucks) established in regulations prescribed by the Administrator under section 202(i) of the Clean Air Act for that make and model year vehicle.

(2) LIFETIME FUEL SAVINGS- The lifetime fuel savings shall be calculated by dividing 120,000 by the difference between the 2002 model year city fuel economy for the vehicle inertia weight class and the city fuel economy for the new clean diesel motor vehicle.

(3) LIKE VEHICLE- The term `like vehicle' for a clean diesel motor vehicle derived from a conventional production vehicle produced in the same model year means a model that is equivalent in the following areas:

(A) Body style (2-door or 4-door).

(B) Transmission (automatic or manual).

(C) Acceleration performance ( 0.05 seconds).

(D) Drivetrain (2-wheel drive or 4-wheel drive).

(E) Certification by the Administrator.

(4) 2002 MODEL YEAR CITY FUEL ECONOMY- The 2002 model year city fuel economy with respect to a vehicle shall be determined in accordance with the following tables:

(A) In the case of a passenger automobile:

The 2002 model year

city fuel economy is:

1,500 or 1,750 lbs

--45.2 mpg

2,000 lbs

--39.6 mpg

2,250 lbs

--35.2 mpg

2,500 lbs

--31.7 mpg

2,750 lbs

--28.8 mpg

3,000 lbs

--26.4 mpg

3,500 lbs

--22.6 mpg

4,000 lbs

--19.8 mpg

4,500 lbs

--17.6 mpg

5,000 lbs

--15.9 mpg

5,500 lbs

--14.4 mpg

6,000 lbs

--13.2 mpg

6,500 lbs

--12.2 mpg

7,000 or 8,500 lbs

--11.3 mpg.

(B) In the case of a light truck:

The 2002 model year

city fuel economy is:

1,500 or 1,750 lbs

--39.4 mpg

2,000 lbs

--35.2 mpg

2,250 lbs

--31.8 mpg

2,500 lbs

--29.0 mpg

2,750 lbs

--26.8 mpg

3,000 lbs

--24.9 mpg

3,500 lbs

--21.8 mpg

4,000 lbs

--19.4 mpg

4,500 lbs

--17.6 mpg

5,000 lbs

--16.1 mpg

5,500 lbs

--14.8 mpg

6,000 lbs

--13.7 mpg

6,500 lbs

--12.8 mpg

7,000 or 8,500 lbs

--12.1 mpg.

(5) VEHICLE INERTIA WEIGHT CLASS- The term `vehicle inertia weight class' has the same meaning as when defined in regulations prescribed by the Administrator for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.).

(6) MOTOR VEHICLE- The term `motor vehicle' means any vehicle which is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails) and which has at least 4 wheels.

(7) OTHER TERMS- The terms `automobile', `passenger automobile', `light truck', and `manufacturer' have the meanings given such terms in regulations prescribed by the Administrator for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.).

SEC. 202. CLEAN DIESEL MOTOR VEHICLE CREDIT.

(a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to foreign tax credit, etc.) is amended by adding at the end the following:

`SEC. 30B. CLEAN DIESEL MOTOR VEHICLE CREDIT.

`(a) ALLOWANCE OF CREDIT- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the clean diesel motor vehicle credit determined under subsection (b).

`(b) CLEAN DIESEL MOTOR VEHICLE CREDIT- For purposes of subsection (a), the clean diesel motor vehicle credit is the credit amount determined under section 201(b) of the Clean Diesel Act of 2003 with respect to a new qualified clean diesel motor vehicle placed in service by the taxpayer during the taxable year.

`(c) CLEAN DIESEL MOTOR VEHICLE- The term `clean diesel motor vehicle' has the meaning given to such term by section 201(e)(1) of the Clean Diesel Act of 2003.

`(d) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

`(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

`(2) the sum of the credits allowable under subpart A and sections 27, 29, and 30A for the taxable year.

`(e) SPECIAL RULES- For purposes of this section--

`(1) REDUCTION IN BASIS- For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed.

`(2) PROPERTY USED BY TAX-EXEMPT ENTITIES- In the case of a credit amount which is allowable with respect to a motor vehicle which is acquired by an entity exempt from tax under this chapter, the person which sells or leases such vehicle to the entity shall be treated as the taxpayer with respect to the vehicle for purposes of this section and the credit shall be allowed to such person, but only if the person clearly discloses to the entity in any sale or lease document the specific amount of any credit otherwise allowable to the entity under this section.

`(3) RECAPTURE- The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit (including recapture in the case of a lease period of less than the economic life of a vehicle).

`(4) PROPERTY USED OUTSIDE UNITED STATES, ETC., NOT QUALIFIED- No credit shall be allowed under subsection (a) with respect to any property referred to in section 50(b) or with respect to the portion of the cost of any property taken into account under section 179.

`(5) ELECTION TO NOT TAKE CREDIT- No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.

`(6) CARRYOVERS ALLOWED-

`(A) IN GENERAL- If the credit amount allowable under subsection (a) for a taxable year exceeds the amount of the limitation under subsection (d) for such taxable year (referred to as the `unused credit year' in this paragraph), such excess shall be allowed as a credit carryforward for each of the 20 taxable years following the unused credit year and a carryback for each of the 3 preceding years.

`(B) RULES- Rules similar to the rules of section 39 shall apply with respect to the credit carryforward under subparagraph (A).

`(f) TERMINATION- This section shall not apply to any property placed in service after December 31, 2010.'.

(b) CONFORMING AMENDMENTS-

(1) Section 1016(a) of such Code is amended by striking `and' at the end of paragraph (29), by striking the period at the end of paragraph (30) and inserting `, and', and by adding at the end the following:

`(31) to the extent provided in section 30B(e)(1).'.

(2) Section 6501(m) of such Code is amended by inserting `30B(e)(5),' after `30(d)(4),'.

(3) The table of sections for subpart B of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 30A the following:

`Sec. 30B. Clean diesel motor vehicle credit.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2004, in taxable years beginning after such date.

SEC. 203. LIFETIME FUEL SAVINGS CREDIT.

(a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to foreign tax credit, etc.) is amended by adding at the end the following:

`SEC. 30C. LIFETIME FUEL SAVINGS CREDIT.

`(a) ALLOWANCE OF CREDIT- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the lifetime fuel savings credit determined under subsection (b).

`(b) LIFETIME FUEL SAVINGS CREDIT- For purposes of subsection (a), the lifetime fuel savings credit is the credit amount determined under section 201(c) of the Clean Diesel Act of 2003 with respect to a new qualified clean diesel motor vehicle placed in service by the taxpayer during the taxable year.

`(c) CLEAN DIESEL MOTOR VEHICLE- The term `clean diesel motor vehicle' has the meaning given to such term by section 201(e)(1) of the Clean Diesel Act of 2003.

`(d) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--

`(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

`(2) the sum of the credits allowable under subpart A and sections 27, 29, 30A, and 30B for the taxable year.

`(e) SPECIAL RULES- For purposes of this section--

`(1) REDUCTION IN BASIS- For purposes of this subtitle, the basis of any property for which a credit is allowable under subsection (a) shall be reduced by the amount of such credit so allowed.

`(2) PROPERTY USED BY TAX-EXEMPT ENTITIES- In the case of a credit amount which is allowable with respect to a motor vehicle which is acquired by an entity exempt from tax under this chapter, the person which sells or leases such vehicle to the entity shall be treated as the taxpayer with respect to the vehicle for purposes of this section and the credit shall be allowed to such person, but only if the person clearly discloses to the entity in any sale or lease document the specific amount of

any credit otherwise allowable to the entity under this section.

`(3) RECAPTURE- The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any property which ceases to be property eligible for such credit (including recapture in the case of a lease period of less than the economic life of a vehicle).

`(4) PROPERTY USED OUTSIDE UNITED STATES, ETC., NOT QUALIFIED- No credit shall be allowed under subsection (a) with respect to any property referred to in section 50(b) or with respect to the portion of the cost of any property taken into account under section 179.

`(5) ELECTION TO NOT TAKE CREDIT- No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.

`(6) CARRYOVERS ALLOWED-

`(A) IN GENERAL- If the credit amount allowable under subsection (a) for a taxable year exceeds the amount of the limitation under subsection (d) for such taxable year (referred to as the `unused credit year' in this paragraph), such excess shall be allowed as a credit carryforward for each of the 20 taxable years following the unused credit year and a carryback for each of the 3 preceding years.

`(B) RULES- Rules similar to the rules of section 39 shall apply with respect to the credit carryforward under subparagraph (A).

`(f) TERMINATION- This section shall not apply to any property placed in service after December 31, 2010.'.

(b) CONFORMING AMENDMENTS-

(1) Section 1016(a) of such Code is amended by striking `and' at the end of paragraph (30), by striking the period at the end of paragraph (31) and inserting `, and', and by adding at the end the following:

`(32) to the extent provided in section 30C(e)(1).'.

(2) Section 6501(m) of such Code is amended by inserting `30C(e)(5),' after `30B(e)(5),'.

(3) The table of sections for subpart B of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 30B the following:

`Sec. 30C. Lifetime fuel savings credit.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2004, in taxable years beginning after such date.

SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

(a) IN GENERAL- Section 179(b) of the Internal Revenue Code of 1986 (relating to election to expense certain depreciable business assets) is amended by adding at the end the following new paragraph:

`(5) LIMITATION FOR REFINERS-

`(A) IN GENERAL- In the case of a taxpayer electing to expense qualified costs, in lieu of the dollar limitations in paragraph (1), the limitation on the aggregate costs which may be taken into account under subsection (a) for any taxable year shall not exceed 75 percent of the qualified costs.

`(B) QUALIFIED COSTS- For purposes of this paragraph, the term `qualified costs' means, with respect to any facility, those costs paid or incurred for purposes of--

`(i) complying with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency, as determined by the Administrator of the Environmental Protection Agency in consultation with the Secretary; or

`(ii) meeting the standards for sulfur content specified in section 102(c)(1) of the Clean Diesel Act of 2003, as determined by the Administrator of the Environmental Protection Agency in consultation with the Secretary.

Such costs shall include expenditures for the construction of new process operation units or the dismantling and reconstruction of existing process units to be used in the production of clean diesel fuel (as defined in section 101(2) of the Clean Diesel Fuel Act of 2003, associated adjacent or offsite equipment (including tankage, catalyst, and power supply), engineering, construction period interest, and sitework.'.

(b) DETERMINATION BY ADMINISTRATOR OF ENVIRONMENTAL PROTECTION AGENCY- For purposes of paragraph (5) of section 179(b) of the Internal Revenue Code of 1986, as added by subsection (a), the Administrator of Environmental Protection Agency shall, by regulation, identify those costs which are eligible for expensing under such section for purposes of complying with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency and meeting the standards for sulfur content specified in section 102(c)(1) of this Act.

(c) EFFECTIVE DATE- The amendment made by this section shall apply to expenses paid or incurred after the date of the enactment of this Act.

SEC. 205. CREDIT FOR PRODUCING LOW SULFUR CONTENT DIESEL FUEL.

(a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to other credits) is amended by inserting after section 30C the following new section:

`SEC. 30D. CREDIT FOR PRODUCING CLEAN DIESEL FUEL.

`(a) ALLOWANCE OF CREDIT- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to--

`(1) $2.52, multiplied by

`(2) the barrel-of-oil equivalent of clean diesel fuel--

`(A) sold by the taxpayer to an unrelated person during the taxable year; and

`(B) the production of which is attributable to the taxpayer.

`(b) LIMITATIONS AND ADJUSTMENTS-

`(1) CREDIT REDUCED FOR GRANTS, TAX-EXEMPT BONDS, AND SUBSIDIZED ENERGY FINANCING-

`(A) IN GENERAL- The amount of the credit allowable under subsection (a) with respect to any project for any taxable year shall be reduced by the amount which is the product of the amount so determined for such year and a fraction--

`(i) the numerator of which is the sum, for the taxable year and all prior taxable years, of--

`(I) grants provided by the United States, a State, or a political subdivision of a State for use in connection with the project;

`(II) proceeds of any issue of State or local government obligations used to provide financing for the project the interest on which is exempt from tax under section 103; and

`(III) the aggregate amount of subsidized energy financing (within the meaning of section 48(a)(4)(C)) provided in connection with the project; and

`(ii) the denominator of which is the aggregate amount of additions to the capital account for the project for the taxable year and all prior taxable years.

`(B) AMOUNTS DETERMINED AT CLOSE OF YEAR- The amounts under subparagraph (A) for any taxable year shall be determined as of the close of the taxable year.

`(2) CREDIT REDUCED FOR ENHANCED OIL RECOVERY CREDIT- The amount allowable as a credit under subsection (a) with respect to any project for any taxable year (determined after application of paragraphs (1) and (2)) shall be reduced by the excess (if any) of--

`(A) the aggregate amount allowed under section 38 for the taxable year and any prior taxable year by reason of any enhanced oil recovery credit determined under section 43 with respect to such project, over

`(B) the aggregate amount recaptured with respect to the amount described in subparagraph (A) under this paragraph for any prior taxable year.

`(3) APPLICATION WITH OTHER CREDITS- The credit allowed by subsection (a) for any taxable year shall not exceed the excess (if any) of--

`(A) the regular tax for the taxable year reduced by the sum of the credits allowable under subpart A and this subpart (other than this section), over

`(B) the tentative minimum tax for the taxable year.

`(c) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

`(1) CLEAN DIESEL FUEL- The term `clean diesel fuel' has the meaning given such term by section 101(2) of the Clean Diesel Act of 2003.

`(2) ONLY PRODUCTION WITHIN THE UNITED STATES TAKEN INTO ACCOUNT- Sales shall be taken into account under this section only with respect to diesel fuel the production of which is within--

`(A) the United States (within the meaning of section 638(1)); or

`(B) a possession of the United States (within the meaning of section 638(2)).

`(3) PRODUCTION ATTRIBUTABLE TO THE TAXPAYER- In the case of a property or facility in which more than 1 person has an interest, except to the extent provided in regulations prescribed by the Secretary, production from the property or facility (as the case may be) shall be allocated among such persons in proportion to their respective interests in the gross sales from such property or facility.

`(4) BARREL-OF-OIL EQUIVALENT- The term `barrel-of-oil equivalent' with respect to any fuel means that amount of such fuel which has a Btu content of 5.8 million.

`(5) BARREL DEFINED- The term `barrel' means 42 United States gallons.

`(6) RELATED PERSONS- Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b). In the case of a corporation which is a member of an affiliated group of corporations filing a consolidated return, such corporation shall be treated as selling clean diesel fuel to an unrelated person if such fuel is sold to such a person by another member of such group.

`(7) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS- Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

`(e) APPLICATION OF SECTION- This section shall apply with respect to clean diesel fuel which is sold at retail before January 1, 2007.'.

(b) CONFORMING AMENDMENTS-

(1) Section 53(d)(1)(B)(iii) of such Code is amended by striking `or' and inserting before the period at the end the following: `, or under section 30D solely by reason of the application of section 30D(b)(4)'.

(2) Section 55(c)(2) of such Code is amended by inserting `, 30D(b)(4),' after `30(b)(3)'.

(3) Section 772 of such Code is amended--

(A) in subsection (a) by striking `and' at the end of paragraph (10), by redesignating paragraph (11) as paragraph (12), and by inserting after paragraph (10) the following new paragraph:

`(11) the credit allowable under section 30D, and'; and

(B) in subsection (d)(5), by striking `and', and by inserting before the period the following: `, and the credit allowable under section 30D'.

(4) The table of sections for subpart B of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 30C the following:

`Sec. 30D. Credit for producing clean diesel fuel.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to sales after December 31, 2002, in taxable years beginning after such date.

TITLE III--GRANTS TO INCREASE PRODUCTION OF CLEAN DIESEL MOTOR VEHICLES

SEC. 301. GRANTS TO INCREASE PRODUCTION OF CLEAN DIESEL MOTOR VEHICLES.

(a) GRANTS- The Secretary of Commerce (in this section referred to as the `Secretary') may award grants to States and cities for the purpose of converting old plants to produce clean diesel motor vehicles.

(b) USE OF FUNDS- The Secretary may not award a grant to a State or city under this section unless the State or city agrees to use the grant--

(1) to convert an old plant to produce clean diesel motor vehicles; or

(2) to improve infrastructure related to any such plant.

(c) APPLICATION- To seek a grant under this section, a State or city shall submit an application to the Secretary at such time, in such manner, and containing such information as the Secretary may reasonably require.

(d) CLEAN DIESEL MOTOR VEHICLE- For purposes of this section, the term `clean diesel motor vehicle' has the meaning given to that term in section 201(e)(1).

(e) AUTHORIZATION OF APPROPRIATIONS- There is authorized to be appropriated such sums as may be necessary to carry out this section.

END