Energy Tax Provisions Expiring in 2020, 2021, 2022, and 2023 (“Tax Extenders”)

Energy Tax Provisions Expiring in 2020, 2021,
July 14, 2020
2022, and 2023 (“Tax Extenders”)
Molly F. Sherlock
This report briefly summarizes and discusses the economic impact of the energy-related tax
Specialist in Public Finance
provisions that are scheduled to expire in 2020, 2021, 2022, or 2023. Fourteen temporary energy

tax provisions are scheduled to expire at the end of 2020. Five other temporary business tax
Margot L. Crandall-Hollick
provisions are scheduled to expire in 2021, 2022, or 2023. In the past, Congress has regularly
Acting Section Research
acted to extend expired or expiring temporary tax provisions. Collectively, these temporary tax
Manager
provisions are often referred to as “tax extenders.” The provisions discussed in this report are

listed below, grouped by type and scheduled year of expiration.
Donald J. Marples
Renewable electricity provisions scheduled to expire in 2020:
Specialist in Public Finance

 Production Tax Credit (PTC)

Alternative and renewable fuels provisions scheduled to expire in 2020:
 Second Generation (Cellulosic) Biofuel Producer Credit
 Special Depreciation Allowance for Second Generation (Cellulosic) Biofuel Plant Property
 Incentives for Alternative Fuel and Alternative Fuel Mixtures
Vehicles and vehicle refueling property provisions scheduled to expire in 2020:
 Alternative Motor Vehicle Credit for Qualified Fuel Cell Vehicles
 Alternative Fuel Vehicle Refueling Property
 Credit for Two-Wheeled Plug-In Electric Vehicles
Building energy-efficiency provisions scheduled to expire in 2020:
 Credit for Section 25C Nonbusiness Energy Property
 Credit for Construction of Energy-Efficient New Homes
 Energy-Efficient Commercial Building Deduction
Trust fund dedicated excise taxes scheduled to expire in 2020:
 Black Lung Disability Trust Fund: Increase in Amount of Excise Tax on Coal
 Oil Spill Liability Trust Fund Financing Rate
Other Expiring Energy Tax Provisions scheduled to expire in 2020:
 Credit for Production of Indian Coal
 Special Rule to Implement Electric Transmission Restructuring
Provisions expiring in 2021, 2022, or 2023:
 Credit for Residential Energy Property
 Investment Tax Credit (ITC)
 Five-Year Recovery Period for Certain Energy Property
 Incentives for Biodiesel and Renewable Diesel
 Credit for Carbon Oxide Sequestration
Most of these energy-related provisions were past tax extenders legislation. Most recently, energy tax extenders were
extended in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as Division Q of the Further Consolidated
Appropriations Act, 2020 (P.L. 116-94). Most of the energy tax provisions extended in this legislation had expired at the end
of 2017, and were retroactively extended through 2020.
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Energy Tax Provisions Expiring in 2020, 2021, 2022, and 2023 (“Tax Extenders”)

This report does not include provisions that in the past have been classified as individual or business-related. Information on
these provisions can be found in CRS Report R46243, Individual Tax Provisions (“Tax Extenders”) Expiring in 2020: In
Brief
, coordinated by Molly F. Sherlock; and CRS Report R46271, Business Tax Provisions Expiring in 2020, 2021, and
2022 (“Tax Extenders”), coordinated by Molly F. Sherlock.

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Contents
Introduction ................................................................................................................... 1
Provisions Expiring in 2020.............................................................................................. 3
Renewable Electricity ................................................................................................ 3
Production Tax Credit ........................................................................................... 3
Alternative and Renewable Fuels ................................................................................. 4
Second Generation (Cel ulosic) Biofuel Producer Credit ............................................ 4
Special Depreciation Al owance for Second Generation (Cel ulosic) Biofuel Plant
Property ........................................................................................................... 5
Incentives for Alternative Fuel and Alternative Fuel Mixtures ..................................... 5
Vehicles and Vehicle Refueling Property ....................................................................... 6
Alternative Motor Vehicle Credit for Qualified Fuel Cell Vehicles ............................... 6
Alternative Fuel Vehicle Refueling Property ............................................................. 7
Credit for Two-Wheeled Plug-In Electric Vehicles ..................................................... 7
Building Energy Efficiency ......................................................................................... 8
Credit for Section 25C Nonbusiness Energy Property................................................. 8
Credit for Construction of Energy-Efficient New Homes ............................................ 9
Energy-Efficient Commercial Building Deduction................................................... 10
Trust Fund-Dedicated Excise Taxes ............................................................................ 11
Black Lung Disability Trust Fund: Increase in Amount of Excise Tax on Coal ............. 11
Oil Spill Liability Trust Fund Financing Rate.......................................................... 12
Other Expiring Energy Tax Provisions ........................................................................ 13
Credit for Production of Indian Coal...................................................................... 13
Special Rule to Implement Electric Transmission Restructuring................................. 14
Provisions Expiring in 2021, 2022, or 2023 ....................................................................... 15
Provisions Expiring in 2021 ...................................................................................... 15
Credit for Residential Energy Property .................................................................. 15
Investment Tax Credit ......................................................................................... 15
Five-Year Recovery Period for Certain Energy Property ........................................... 17
Provisions Expiring in 2022 ...................................................................................... 17
Incentives for Biodiesel and Renewable Diesel ....................................................... 17
Provisions Expiring in 2023 ...................................................................................... 18
Credit for Carbon Oxide Sequestration .................................................................. 18

Tables
Table 1. Temporary Energy Tax Provisions: Cost of Recent Extension..................................... 2
Table 2. Energy Credit: Summary of Current Law .............................................................. 16

Contacts
Author Information ....................................................................................................... 20


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Introduction
In the past, Congress has regularly acted to extend expired or expiring temporary tax provisions.1
Collectively, these temporary tax provisions are often referred to as “tax extenders.” This report
briefly summarizes and discusses the economic impact of the energy-related tax provisions that
are scheduled to expire before 2025.2
There are 14 energy-related temporary tax provisions scheduled to expire at the end of 2020.
Most of these energy-related provisions were included in past tax extenders legislation. Most
recently, energy tax extenders were extended in the Taxpayer Certainty and Disaster Tax Relief
Act of 2019, enacted as Division Q of the Further Consolidated Appropriations Act, 2020 (P.L.
116-94). Most of the energy tax provisions that were extended in this legislation had expired at
the end of 2017, and were retroactively extended through 2020.3
Several provisions are scheduled to expire after 2020 because they were previously granted
longer-term extensions. For example, in 2015, Division P of the Consolidated Appropriations Act,
2016 (P.L. 114-113) included longer-term extensions of the investment tax credit (ITC) for solar
energy as wel tax credits for residential solar. The 30% ITC for solar was extended through 2019,
with the credit rate reduced to 26% for facilities beginning construction in 2020 and 22% for
facilities beginning construction in 2021.4 The Bipartisan Budget Act of 2018 (BBA18; P.L. 115-
123) extended and modified the ITC for nonsolar technologies to match what had been
established for solar in P.L. 114-113. Five-year cost recovery that is general y available to ITC-
eligible property, as wel as wind property, was also extended through 2021. The tax credit for
residential energy-efficient property was also extended through 2021 for nonsolar technologies,
with a phaseout in 2020 and 2021. Whereas P.L. 116-44 extended most temporary energy tax
provisions through 2020, it extended tax incentives for biodiesel and renewable diesel through
2022.
There are several options for Congress to consider regarding temporary provisions. Expiring
provisions could be extended. When provisions are extended, they may or may not be otherwise
modified. The extensions could be short term or long term, or temporary provisions could be
made permanent. Another option would be to al ow expired provisions to remain expired.
Table 1 provides information on the cost of extending temporary energy tax provisions. For most
provisions, the most recent extension was in P.L. 116-94.

1 CRS Report R45347, Tax Provisions That Expired in 2017 (“Tax Extenders”), by Molly F. Sherlock.
2 T here are no temporary energy-related tax provisions scheduled to expire in 2024.
3 CRS Report R44990, Energy Tax Provisions That Expired in 2017 (“Tax Extenders”), by Molly F. Sherlock, Donald
J. Marples, and Margot L. Crandall-Hollick.
4 T he business solar IT C is scheduled to return to its permanent rate of 10% in 2022. T he credit for residential solar is
scheduled to expire after 2021.
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Table 1. Temporary Energy Tax Provisions: Cost of Recent Extension
10-Year Cost
of 3-Year
Extension in
P.L. 116-94
Provision
(billions)
Renewable Electricity


Production Tax Credit (PTC)
$2.1a
Alternative and Renewable Fuels


Second Generation (Cel ulosic) Biofuel Producer Credit
(i)

Special Depreciation Al owance for Second Generation (Cel ulosic) Biofuel Plant Property
(i )

Incentives for Alternative Fuel and Alternative Fuel Mixtures
$2.0
Vehicles and Vehicle Refueling Property


Alternative Motor Vehicle Credit for Qualified Fuel Cel Vehicles
(i)

Alternative Fuel Vehicle Refueling Property
$0.3

Credit for Two-Wheeled Plug-In Electric Vehicles
(i)
Building Energy Efficiency


Credit for Section 25C Nonbusiness Energy Property
$0.8

Credit for Construction of Energy-Efficient New Homes
$0.8

Energy-Efficient Commercial Building Deduction
$0.2
Trust Fund Dedicated Excise Taxes


Black Lung Disability Trust Fund: Increase in Amount of Excise Tax on Coal
-$0.2b

Oil Spil Liability Trust Fund Financing Rate
nonec
Other Expiring Energy Tax Provisions


Credit for Production of Indian Coal
$0.1

Special Rule to Implement Electric Transmission Restructuring
noned
Provisions Expiring in 2021, 2022, or 2023


Credit for Residential Energy Property
not extended in
P.L. 116-94

Investment Tax Credit (ITC)
not extended in
P.L. 116-94

Five-Year Recovery Period for Certain Energy Property
not extended in
P.L. 116-94

Incentives for Biodiesel and Renewable Diesel
$15.2e

Credit for Carbon Oxide Sequestration
not extended in
P.L. 116-94
Source: Joint Committee on Taxation, Estimated Budget Effects of the Revenue Provisions Contained in the House
Amendment to the Senate Amendment to H.R. 1865, the Further Consolidated Appropriations Act 2020 (Rules
Committee Print 116-44),
JCX-54-19R, December 17, 2019; and Joint Committee on Taxation, List of Expiring
Federal Tax Provisions 2020 – 2029
, JCX-1-20, January 16, 2020.
Notes: An (i) indicates a revenue loss of less than $50 mil ion. An (i ) indicates a negligible revenue effect.
a. The PTC for nonwind technologies was extended for three years, though 2020. The PTC was also made
available for wind facilities starting construction in 2020, at 60% of the ful credit amount. This change
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effectively extended the wind PTC for one year, although at a higher rate than was available for projects
starting construction in 2019.
b. The increased amount was extended for one year, 2020.
c. An extension of the oil spil liability trust fund financing rate does not generate additional revenue because
the Congressional Budget Office (CBO) baseline assumes expiring excise taxes are extended.
d. The estimated revenue loss in 2020 is offset by revenue gains in later years.
e. The tax incentives for biodiesel and renewable diesel were extended for five years, through 2022.
Provisions Expiring in 2020
Renewable Electricity
Production Tax Credit5
The renewable electricity production tax credit (PTC) is a per-kilowatt-hour (kWh) credit for
electricity produced by a qualified energy resource. Under current law, facilities must begin
construction before January 1, 2021, to be eligible for the tax credit. Eligible facilities can claim
the tax credit for the first 10 years of qualified production. Resources that qualify for the full
credit amount, 2.5 cents per kWh in 2020, include closed-loop biomass and geothermal. Wind
facilities that began construction before January 1, 2017, are also eligible for the full credit
amount. The credit is reduced by 20% for wind facilities that began construction in 2017, reduced
by 40% for facilities that began construction in 2018, reduced by 60% for facilities that began
construction in 2019, and reduced by 40% for wind facilities that begin construction in 2020.
Other resources—including open-loop biomass, smal irrigation power, municipal solid waste,
qualified hydropower, and marine and hydrokinetic resources—are eligible for a half credit
amount.
The PTC was enacted in 1992 as part of the Energy Policy Act (EPACT92; P.L. 102-486). When
first enacted, the PTC was available for electricity generated using wind or closed-loop biomass
systems. The credit was initial y set to expire on June 30, 1999. Since 1999, the PTC has
regularly been extended, often as part of tax extenders legislation. The credit has also been
expanded to include additional qualifying resources. At several points in time, the PTC was
al owed to lapse before a retroactive extension was enacted.
The PTC was enacted in 1992 to promote the “development and utilization of certain renewable
energy sources.”6 The 1999 sunset was included to provide an “opportunity to assess the
effectiveness of the credit.”7 When the PTC was extended as part of a tax extenders package in
1999, Congress noted that the PTC had been important to the development of environmental y
friendly renewable power, and extended the credit to promote further development of wind (and
other) resources.8 Subsequent extensions of the PTC reflected a belief that the tax incentive

5 Internal Revenue Code (IRC) §45. IRC §48(a)(5) for the investment tax credit (IT C) in lieu of PT C option.
6 U.S. Congress, House Committee on Ways and Means, Comprehensive National Energy Policy Act, committee print,
102nd Cong., 2nd sess., May 5, 1992, H.Rept. 102-474, pp. 41-42.
7 Ibid.
8 U.S. Congress, Joint Committee on T axation, General Explanation of Tax Legislation Enacted in the 106 th Congress,
committee print, April 19, 2001, JCS-2-01, p. 25.
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contributed to the development of renewable-energy infrastructure, which advanced
environmental and energy policy goals.9
Most recently, the Further Consolidated Appropriations Act of 2020 (P.L. 116-94) retroactively
extended the PTC for 2018 and 2019 for nonwind technologies, and extended the credits forward
through 2020 for al technologies. P.L. 116-94 extended the PTC for wind facilities starting
construction in 2020 at a rate of 60% of the full credit. The PTC for wind facilities that began
construction in 2019 remained at 40% of the full credit amount. Previously, the PTC was
extended for one year for qualifying nonwind technologies, from 2016 through 2017, in BBA18.
A two-year extension of the PTC for nonwind technologies was included in the Protecting
Americans from Tax Hikes (PATH) Act of 2015, enacted as Division Q of the Consolidated
Appropriations Act, 2016 (P.L. 114-113). Division P of P.L. 114-113 included a two-year
extension of the PTC for wind (through 2016). The PTC for wind was also extended beyond
2016, through 2019, at reduced rates.
Taxpayers can elect to receive a 30% investment tax credit in lieu of the PTC. The ITC in lieu of
PTC election was enacted in 2009 alongside the Section 1603 grants in lieu of tax credits that
expired at the end of 2011.10 In recent years, the option to elect the ITC in lieu of the PTC has
been extended alongside the PTC in tax extenders legislation.
One policy rationale for supporting renewable electricity resources is to promote development of
renewable-energy infrastructure that may not be technological y mature. With this policy
rationale in mind, one question is when technologies have reached the point of maturity such that
tax-related federal financial support can be eliminated.
Environmental considerations provide another policy rationale often used to support tax
incentives for renewable electricity production. Some suggest that ongoing support for
renewables can help address inefficiencies and market failures in energy production markets,
where fossil-fuels-based electricity production and the associated pollution effects generate
negative externalities. A more direct approach, however, would be to impose a price on pollution,
as opposed to subsidizing a nonpolluting alternative.
For more information, see CRS Report R43453, The Renewable Electricity Production Tax
Credit: In Brief, by Molly F. Sherlock.
Alternative and Renewable Fuels
Second Generation (Cellulosic) Biofuel Producer Credit11
The second generation biofuels producer credit is a nonrefundable income tax credit for each
gal on of qualified second generation biofuel production. The amount of the credit per gal on is
general y $1.01. Qualified second generation biofuel production is second generation biofuel
produced by the taxpayer and sold by the taxpayer to another person for use (1) in the production
of a qualified biofuel fuel mixture in such person’s trade or business (other than casual off-farm
production), (2) as a fuel in a trade or business, or (3) as biofuel sold at retail to another person
and placed in the fuel tank of such other person. Fuel must be produced and used in the United
States to qualify for the credit. Cel ulosic biofuel is produced using lignocel ulosic or

9 U.S. Congress, Joint Committee on T axation, General Explanation of Tax Legislation Enacted in the 112th Congress,
committee print, February 2013, JCS-2-13, pp. 212-213.
10 CRS Report R41635, ARRA Section 1603 Grants in Lieu of Tax Credits for Renewable Energy: Overview, Analysis,
and Policy Options
, by Phillip Brown and Molly F. Sherlock.
11 IRC §40(b)(6).
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hemicel ulosic matter (cel ulosic feedstock) available on a renewable or recurring basis. Qualified
feedstocks for second generation biofuels include cultivated algae, cyanobacteria, or lemna.
The second generation biofuel producer credit was cal ed the cel ulosic biofuel producer credit
when it was established in the Food, Conservation, and Energy Act of 2008 (P.L. 110-246), which
scheduled the credit to expire on December 31, 2012. The American Taxpayer Relief Act of 2012
(ATRA; P.L. 112-240) modified the provision to algae-based fuels and changed the incentive’s
title to its current form, the second generation biofuel producer credit. It has subsequently been
extended as part of tax extenders legislation. Most recently, the incentive was extended through
the end of 2020 in P.L. 116-94.
Tax credits for second generation biofuels are motivated by a desire to reduce dependence on
petroleum imports (i.e., enhance national energy security), address environmental concerns, and
maintain farm incomes. Renewable fuel standards and blend mandates requiring certain amounts
of biofuels may be boosting domestic production, but until recently second generation cel ulosic
biofuels were not economical y competitive with other renewable fuel standards options.12
Special Depreciation Allowance for Second Generation (Cellulosic) Biofuel
Plant Property
13
Second generation biofuel plant property al ows for the immediate first-year bonus depreciation
of 50% of the cost of facilities that produce eligible biofuels. Previous federal tax law limited the
eligibility for first-year bonus depreciation of cel ulosic biofuels to facilities producing ethanol;
those producing nonethanol fuels from cel ulosic feedstocks did not qualify for the al owance.
The special depreciation al owance for second generation biofuel plant property was introduced
by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). Most recently, the incentive was
extended through the end of 2020 in P.L. 116-94. Al owing half the cost to be expensed when
incurred provides a benefit because a tax deduction today is worth more than a tax deduction in
the future, due to the time value of money (interest). From an economic perspective, al owing a
special depreciation al owance for selected technologies can distort the al ocation of resources,
and may create economic inefficiencies. However, this incentive may also increase economic
efficiency to the extent it addresses a market failure.
Incentives for Alternative Fuel and Alternative Fuel Mixtures14
The tax code provides tax credits for alternative fuels and alternative fuel mixtures. Specifical y,
there is a 50-cents-per-gal on excise tax credit for certain alternative fuels used as fuel in a motor
vehicle, motor boat, or airplane and a 50-cents-per-gal on credit for alternative fuels mixed with a
traditional fuel (gasoline, diesel, or kerosene) for use as a fuel. Qualifying fuels include liquefied
petroleum gas; P Series fuels (certain renewable, nonpetroleum, liquid fuels); compressed or
liquefied natural gas (CNG or LNG); any liquefied fuel derived from coal or peat through the
Fischer-Tropsch process that meets certain carbon-capture requirements; liquefied hydrocarbons
derived from biomass; and liquefied hydrogen. For propane, CNG, and LNG sold after December
31, 2015, the tax credit is based on gasoline-gal on or diesel-gal on equivalent. No fuel produced
outside of the United States is eligible for the alternative fuels tax incentives.

12 CRS Report R43325, The Renewable Fuel Standard (RFS): An Overview, by Kelsi Bracmort.
13 IRC §168(l).
14 IRC §§6426(d), 6427(e), and 6426(e).
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The incentives of alternative fuel and alternative fuel mixtures were introduced under the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU;
P.L. 109-59). Initial y, the credits were to be available through September 30, 2009 (September
30, 2014, for hydrogen). The credit, however, has subsequently been extended. Most recently, the
incentives were extended through the end of 2020 in P.L. 116-94.
Tax credits for alternative fuels are motivated by a desire to reduce dependence on petroleum
imports (enhance national energy security), address environmental concerns, and maintain farm
incomes.
Vehicles and Vehicle Refueling Property
Alternative Motor Vehicle Credit for Qualified Fuel Cell Vehicles15
Fuel cel vehicles (vehicles propel ed by chemical y combining oxygen with hydrogen to create
electricity) may qualify for a federal tax credit. The credit is based on vehicle weight, with a base
credit amount of $4,000 for vehicles weighing 8,500 pounds or less. Heavier vehicles may be
eligible for larger credits, with the highest credit amount being $40,000 for vehicles weighing
more than 26,000 pounds. Cars and light trucks can qualify for an additional tax credit of $1,000
to $2,000 per vehicle depending on fuel economy.
The alternative technology vehicle tax credit was enacted as part of the Energy Policy Act of
2005 (P.L. 109-58). The credit replaced a previously available clean-fuel-vehicle deduction (IRC
§179A). When enacted, the tax credit for fuel cel vehicles was available for vehicles placed in
service during 2006 through 2014. Alternative technology vehicle tax credits were available for
hybrid, advanced lean-burn technology, and alternative fuel vehicles. The credits general y
expired in 2009 or 2010 for vehicles other than fuel cel vehicles. After 2014, the credit for fuel
cel vehicles has been extended as part of tax extenders. Most recently, the provision was
extended through 2020 in P.L. 116-94.
Tax incentives for fuel cel vehicles may help address market failures in automobile markets.
Specifical y, if consumers fail to consider the negative environmental and potential energy
security concerns associated with conventional gasoline- and diesel-fueled vehicles, the market
may provide an inefficiently high level of such products. One way to address those “negative
externalities” associated with fuel consumption through automobile use is to reduce the price of
alternative technology vehicles.
A tax credit might address other barriers to adoption of alternative-technology vehicles. These
include, for example, (1) the high up-front cost associated with alternative-technology vehicles,
(2) the volatility of fuel prices, (3) technology risks associated with new, unfamiliar, or unproven
technologies, and (4) a lack of complementary infrastructure (such as hydrogen fueling stations).
Because tax credits for fuel cel vehicles reduce the price of such vehicles relative to gasoline-
and diesel-powered alternatives, such tax credits are intended to address the previously noted
market failures and market barriers. A tax credit approach, however, may not be the most
economical y efficient mechanism for addressing the negative externalities associated with
gasoline consumption and market barriers to fuel cel vehicle adoption. Relative to tax credits,
rising gas prices have played a larger role in increasing consumer demand for alternative
technology vehicles. Taxing gasoline directly—the activity associated with the negative

15 IRC §30B.
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externality—is arguably more economical y efficient than subsidizing the purchase of select
vehicles.
Alternative Fuel Vehicle Refueling Property16
A 30% tax credit is provided for the cost of any qualified alternative fuel vehic le refueling
property instal ed by a business or at a taxpayer’s principal residence. The credit is limited to
$30,000 for businesses at each separate location with qualifying property, and $1,000 for
residences.
Clean fuel refueling property is general y any tangible equipment (such as a pump) used to
dispense a fuel into a vehicle’s tank. Qualifying property includes fuel storage and dispensing
units and electric vehicle recharging equipment. A clean fuel is defined as any fuel at least 85% of
the volume of which consists of ethanol (E85) or methanol (M85), natural gas, CNG, LNG,
liquefied petroleum gas, or hydrogen, or any mixture of biodiesel and diesel fuel, determined
without regard to any use of kerosene and containing at least 20% biodiesel. For the purposes of
the credit, electricity is also considered a clean fuel.
For business taxpayers, the taxpayer’s basis in the property is reduced by the amount of the credit.
The credit for business property is treated as a portion of the general business credit. As part of
the general business credit, unused credits may be carried back for one year or carried forward for
20 years. For nonbusiness property, the credit cannot exceed the excess of an individual’s income
tax liability over the sum of nonrefundable personal credits and the foreign tax credit over the
taxpayer’s tentative minimum tax. No credit is available for property used outside the United
States. For property sold to a tax-exempt entity, the sel er of the property may be able to claim the
credit.
The credit for alternative fuel vehicle refueling property was introduced under the Energy Policy
Act of 2005 (EPACT05; P.L. 109-58). The credit replaced a previously available deduction for
business investment in clean fuel refueling property. The credit has been extended multiple times
since being enacted in 2005; most recently, the incentives were extended through the end of 2020
in P.L. 116-94.
Tax credits for alternative fuel vehicle refueling property reduce after-tax capital costs to attract
investment. Additional y, nontax federal incentives may also promote investment in alternative
fuel vehicle refueling property. From an economic perspective, al owing special tax credits for
selected technologies can distort the al ocation of resources, and may create economic
inefficiencies by encouraging investments in high-cost technologies, ones that would not
otherwise be economical at current and expected prices and rates of return. However, the
incentive may improve the al ocation of resources, if it corrects a market failure.
Credit for Two-Wheeled Plug-In Electric Vehicles17
A tax credit is available for two-wheeled plug-in vehicles acquired before January 1, 2021. The
credit is equal to 10% of the vehicle’s cost, up to $2,500. To be eligible for the tax credit, vehicles
must have a weight rating of less than 14,000 pounds; be propel ed by a battery-powered electric
motor with a battery capacity of at least 2.5 kilowatt hours; be manufactured for use on streets,
roads, and highways; and be capable of achieving a speed of at least 45 miles per hour.

16 IRC §30C.
17 IRC §30D(g).
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The American Recovery and Reinvestment Act (ARRA; P.L. 111-5) provided a tax credit for two-
or three-wheeled vehicles, as wel as low-speed four-wheeled vehicles. When enacted, the
provision was scheduled to expire at the end of 2011. In ATRA, the provision was extended
through 2013 for two- and three-wheeled vehicles, but not low-speed vehicles. No credit was
available in 2014. The provision was reinstated for two-wheeled vehicles in the PATH Act of
2015 (Division Q of P.L. 114-113), extended through 2017 in BBA2018, and extended through
2020 in P.L. 116-94.
Credits for two-wheeled plug-in electric vehicles were enacted as a unique provision, because
such vehicles do not qualify for other plug-in electric vehicle tax credits.18 Tax credits for such
vehicles can support emerging technologies, or encourage consumers to purchase vehicles that
might be more energy efficient than conventional alternatives. There may be concerns regarding
the equity of vehicles tax benefits, if tax credits tend to be largely claimed by high-income
taxpayers.19 If these taxpayers would have bought qualifying vehicles absent tax benefits, then the
tax incentives are not leading to additional purchases and are providing a windfal benefit to
purchasers.
Building Energy Efficiency
Credit for Section 25C Nonbusiness Energy Property20
The nonbusiness energy property tax credit provides homeowners with a nonrefundable21 tax
credit for investments in both high-efficiency energy property (e.g., heating, cooling, and water-
heating appliances) and investments in certain energy-efficiency improvements (e.g., energy-
efficient insulation, windows, and doors).
For instal ations made during 2011 through 2020, the amount of the credit is calculated as 10% of
expenditures on building-envelope improvements plus the cost of each energy-efficient property
capped at a specific amount (ranging from $50 to $300), excluding labor and instal ation costs.22
Given the price of high-efficiency heating, cooling, and water-heating appliances, taxpayers
general y claim the maximum amount of the credit for energy-efficient property. In addition, the
credit is subject to a lifetime cap of $500 per taxpayer.
Residential energy-efficiency tax credits were first introduced in the late 1970s, but were al owed
to expire in 1985. EPACT05 (P.L. 109-58) enacted the Section 25C credit as a temporary
provision in effect for 2006 and 2007. This nonrefundable tax credit was equal to 10% of
qualified expenditures, subject to certain limitations for specific types of property and a $500
lifetime limitation per taxpayer. The Section 25C credit expired at the end of 2007. In 2008, the
Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343) reinstated and modified
the Section 25C credit for the 2009 tax year. The American Recovery and Reinvestment Act of
2009 (ARRA; P.L. 111-5) further extended the credit for two years (2009 and 2010) and
expanded it. Under ARRA, the credit equaled 30% of qualified expenditures for energy-efficiency

18 See the new qualified plug-in electric-drive vehicle credit, IRC §30D.
19 T he tax credit for plug-in electric vehicles tends to be claimed by higher-income taxpayers. See CRS In Focus
IF11017, The Plug-In Electric Vehicle Tax Credit, by Molly F. Sherlock.
20 IRC §25C.
21 Nonrefundable tax credits cannot exceed a taxpayer’s income tax liability, meaning those taxpayers with little to no
tax liability generally cannot claim these tax benefits.
22 For more information on energy related caps, see CRS Report R42089, Residential Energy Tax Credits: Overview
and Analysis
, by Margot L. Crandall-Hollick and Molly F. Sherlock.
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Energy Tax Provisions Expiring in 2020, 2021, 2022, and 2023 (“Tax Extenders”)

improvements and energy property, eliminating the technology-specific credit amounts.23 In
addition, the lifetime credit cap was lifted from $500 to $1,500 for 2009 and 2010. These changes
expired at the end of 2010, and the credit as structured before ARRA (10% of expenditures subject
to a $500 lifetime cap) was subsequently extended several times on a temporary basis. The 25C
credit was extended for two years—2015 and 2016—by the PATH Act of 2015 (Division Q of
P.L. 114-113) and extended through 2017 in BBA2018. Most recently, the credit was extended
through 2020 in P.L. 116-94.
The amount of the investment resulting from the Section 25C credit is unclear. Some researchers
found that tax incentives that reduced the price of energy-efficiency property would lead to
additional investment.24 Others found that the tax credits were instead more likely associated with
windfal gains to credit recipients as opposed to additional energy-efficiency investment.25
Further, the fact that the incentive is delivered as a nonrefundable credit limits the provision’s
ability to motivate investment for low- and middle-income taxpayers with limited tax liability.
The administration of residential energy-efficiency tax credits has also had compliance issues, as
identified in a Treasury Department Inspector General for Tax Administration (TIGTA) report.26
Credit for Construction of Energy-Efficient New Homes27
Contractors building energy-efficient homes and producers of manufactured energy-efficient
homes are eligible for a tax credit for each qualifying new home they build that is purchased
before 2021. The amount of the credit is equal to $2,000 per home for homes built by contractors
and $1,000 per manufactured home.
To be eligible, an energy-efficient new home is required to have annual heating and cooling
consumption that is at least 50% (30% in the case of manufactured homes) below a comparable
unit. The home is also required to be in accordance with the standards of the 2006 International
Energy Conservations Code.28 Contractors and manufacturers claiming this credit are required to
submit certification to an eligible certifier before claiming the credit. This credit is part of the
general business credit and hence can be carried back one year and carried forward 20 years.
The tax credit for energy-efficient new homes was introduced under the Energy Policy Act of
2005 (EPACT05; P.L. 109-58). Initial y, the credit was set to expire at the end of 2007. It was

23 T he changes that ARRA made to the Section 25C credit in 2009 superseded the 2009 changes that had been made to
the credit by EESA.
24 See Kevin A. Hassett and Gilbert E. Metcalf, “Energy T ax Credits and Residen tial Conservation Investment:
Evidence from Panel Data,” Journal of Public Economics, vol. 57, no. 2 (June 1995), pp. 201-217.
25 See Michael J. Walsh, “Energy T ax Credits and Housing Improvement,” Energy Economics, vol. 11, no. 4 (October
1989), pp. 275-284; and Jeffery A. Dubin and Steven E. Henson, “ T he Distributional Effects of the Federal Energy T ax
Act,” Resources and Energy, vol. 10, no. 3 (1988), pp. 191-212.
26 T reasury Inspector General For T ax Administration, Processes Were Not Established to Verify Eligibility for
Residential Energy Credits
, Reference Number: 2011-41-038, April 19, 2011, at http://www.treasury.gov/tigta/
auditreports/2011reports/201141038fr.pdf.
27 IRC §45L.
28 In addition, heating and cooling equipment efficiency must correspond to the minimum allowed under the
regulations established by the Department of Energy pursuant to the National Appliance Energy Conservation Act of
1987 (P.L. 100-12) in effect at the time construction is completed. Qualified homes must be constructed such that
building-envelope components contribute at least one-fifth of the 50% in required energy consumption reduction (one-
third of 30% in required energy consumption reduction in the case of manufactured homes). Energy Star -labeled homes
may qualify for the tax credit.
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Energy Tax Provisions Expiring in 2020, 2021, 2022, and 2023 (“Tax Extenders”)

subsequently extended several times.29 Most recently, the credit was extended through the end of
2020 in P.L. 116-94.
The tax credit is designed to encourage builders to instal energy-efficient technologies in new
homes. Energy-efficient new homes tend to have higher up-front costs, and it is not clear if
market prices accurately reflect or capitalize the value of energy-efficient improvements. If
energy efficiency is not accurately reflected in housing prices, builders may underinvest in
efficiency technologies absent the credit. On the other hand, if market prices do reflect the cost
associated with these technologies, the credit may be a windfal gain to the builder.
Energy-Efficient Commercial Building Deduction30
A deduction is al owed for certain energy-saving property used in domestic commercial
buildings.31 Qualifying energy-efficient commercial building property includes property instal ed
as part of (1) the interior lighting system; (2) the heating, cooling, ventilation, or hot water
system; or (3) the building envelope. To be deductible, property must reduce a building’s annual
energy and power costs by 50% or more as compared to a similar reference building meeting the
minimum energy standards described in Standard 90.1-2007 of ASHRAE/IESNA.32 The
maximum deduction al owed is $1.80 per square foot. A reduced deduction may be available if a
single system is upgraded (lighting, heating and cooling, or building envelope) and the 50%
reduction threshold is not met. Separate energy cost reduction percentage thresholds are specified
for single-system upgrades. The maximum deduction for a single-system improvement is $0.60
per square foot. Government entities making energy-efficiency upgrades to public buildings, such
as schools, can al ocate the Section 179D deduction to designers of energy-efficient commercial
building property.
The deduction for energy-efficient commercial building property was enacted in EPACT05 (P.L.
109-58). When first enacted, the deduction was scheduled to be available for the 2006 and 2007
tax years. The deduction was extended for one year, through 2008, in tax extenders legislation
enacted late in 2006 (Tax Relief and Health Care Act of 2006; P.L. 109-432). A longer-term (five-
year) extension was enacted in the Emergency Economic Stabilization Act (P.L. 110-343). A
stated rationale claimed
[t]he Congress recognizes that a substantial portion of U.S. energy consumption is
attributable to commercial buildings, and that the design and construction of commercial
buildings is a multi-year process. Hence, the Congress believes that a long-term extension
of the deduction for energy efficient commercial buildings is necessary to ensure that
buildings currently in the design phase will be able to claim the deduction.33

29 T he T ax Relief and Health Care Act of 2006 (P.L. 109-432) extended the credit through December 31, 2008. T he
Emergency Economic Stabilization Act of 2009 (EESA; P.L. 110-343) extended the credit through December 31, 2009.
T he T ax Relief, Unemployment Insurance Reauthorization , and Job Creation Act of 2010 (P.L. 111-312) extended the
credit through December 31, 2011. T he American T axpayer Relief Act of 2012 (P.L. 112-240) extended the credit until
December 31, 2013, and adopted the 2006 International Energy Conservation Code.
30 IRC §179D.
31 For a more detailed overview, see CRS Committee Print CP10003, T ax Expenditures: Compendium of Background
Material on Individual Provisions—A Committee Print Prepared for the Senate Committee on the Budget, 2018 , by
Jane G. Gravelle et al., pp. 107-113.
32 American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering
Society of North America standards.
33 U.S. Congress, Joint Committee on T axation, General Explanation of Tax Legislation Enacted in the 110th Congress,
committee print, March 2009, JCS-1-09, p. 344.
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Since 2014, short-term extensions of the deduction for energy-efficient commercial building
property have been included in tax extenders legislation. Most recently, the provision was
extended through 2020 in P.L. 116-94.
The business profit-maximizing (average cost-minimizing) objective should, in theory, promote
an economical y efficient level of investment in energy-saving property. However, market
outcomes may lead to less investment in building energy efficiency than is social y desirable if
(1) consumption of energy has negative external costs, such as pollution, that are not considered
when building owners make energy property decisions (i.e., there are negative externalities
associated with building energy consumption); or (2) if the person choosing the energy equipment
is not the same person responsible for paying the energy bil s (i.e., there is a “principal-agent”
issue), and energy-savings investments cannot be recouped via higher rents or appreciated asset
value. In these circumstances, federal financial assistance, through a tax incentive, for example,
may improve upon market outcomes. The tax deduction may not be the most economical y
efficient way to address market inefficiency. If building energy consumption is associated with
pollution-related negative externalities, a direct price on pollution would arguably be a more
economical y efficient policy.
There are also some considerations related to the specifics of the deduction for energy-efficient
commercial property. Most of the deduction is claimed by taxpayers constructing new buildings,
because the energy-efficiency threshold is tied to recent efficiency standards. For older buildings,
it can be more difficult to complete retrofits that meet energy-savings targets tied to recent
building standards. Meeting certification requirements can also be costly and burdensome,
potential y preventing certain taxpayers from claiming the deduction. Conversely, stringent
certification requirements can help prevent fraudulent deduction claims.
Trust Fund-Dedicated Excise Taxes
Black Lung Disability Trust Fund: Increase in Amount of Excise Tax on Coal34
Internal Revenue Code (IRC) Section 4121 imposes the black lung excise tax (BLET) on sales or
use of domestical y mined coal. General y, a producer that sel s the coal is liable for the tax.
Producers that use their own domestical y mined coal, such as integrated utilities or steel
companies, are also liable for the tax. The tax is imposed on “coal from mines located in the
United States” and does not apply to imported coal (very little domestical y consumed coal is
imported).35 The BLET does not apply to exported coal under the Export Clause of the U.S.
Constitution. A credit or refund can be claimed if coal is taxed before it is exported. The tax is
designed to support the Black Lung Disability Trust Fund for domestic miners.
The tax rate depends on how coal is mined. Effective January 1, 2021, the tax on underground-
mined coal wil be the lesser of (1) 50 cents per ton, or (2) 2% of the sale price. The tax on
surface-mined coal wil be the lesser of (1) 25 cents per ton, or (2) 2% of the sales price.
Currently, through 2020, the tax rates are $1.10 per ton for coal from underground mines or 55
cents per ton for coal from surface mines, with the tax being no more than 4.4% of the sale price.
The Black Lung Benefits Revenue Act of 1977 (P.L. 95-227) first imposed the Section 4121
excise tax on coal. When enacted, the tax was 50 cents per ton for coal from underground mines,

34 IRC §4121.
35 In 2019, U.S. coal consumption was 587.3 million short tons. Coal imports were 6.7 million short tons that same
year. See U.S. Energy Information Administration, Monthly Energy Review-T able 6.1: Coal Overview, June 25, 2020,
available at https://www.eia.gov/totalenergy/data/monthly/.
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and 25 cents per ton for coal from surface mines. The tax was limited to 2% of the sales price.
The tax was effective for sales after March 31, 1978.
The Black Lung Benefits Revenue Act of 1981 (P.L. 97-119) doubled the excise tax rates to $1.00
per ton for coal from underground mines, and 50 cents per ton for coal from surface mines, not to
exceed 4% of the sales price. The higher rates were effective January 1, 1982. The doubled rates
were temporary, and scheduled to revert to the previous rates on January 1, 1996. Before the
increased rates could expire, the Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L.
99-272) again increased the BLET rates to $1.10 for underground-mined coal, and 55 cents for
surface-mined coal, not to exceed 4.4% of the sales price. The Omnibus Budget Reconciliation
Act of 1987 (P.L. 100-203) extended these rates through 2013. Increased excise tax rates on coal
were again extended in 2008. The Emergency Economic Stabilization Act of 2008 (EESA; P.L.
110-343) extended the higher excise tax rates through 2018. The higher excise tax rates expired at
the end of 2018, but were then reinstated, effective through December 31, 2020, in P.L. 116-94.
The Black Lung Disability Trust Fund continues to have expenses in excess of revenues,
especial y when legacy debt and the associated payments of principal and interest are
considered.36 At the higher excise tax rates, excise tax revenues exceed benefit payments and
administrative costs, al owing debts accumulated within the trust fund to be repaid. Reduced coal
excise tax rates generate revenue that is less than benefit payments and administrative expenses.
When outlays from the Black Lung Disability Trust fund exceed revenues, the trust fund borrows
from the general fund. This can be viewed as shifting the burden of paying for Black Lung
Disability benefits from the coal industry to taxpayers general y. If Black Lung Disability benefits
continue to be paid out of the trust fund, at current levels, choices about extending the increased
excise tax rates on coal might be viewed as a choice regarding who pays for these benefits and the
debt associated with past benefits paid: the coal industry or taxpayers. An alternative option
would be to reduce Black Lung Disability benefit payments.
For more information, see CRS Report R45261, The Black Lung Program, the Black Lung
Disability Trust Fund, and the Excise Tax on Coal: Background and Policy Options
, by Scott D.
Szymendera and Molly F. Sherlock.
Oil Spill Liability Trust Fund Financing Rate37
Through December 31, 2020, there is a 9 cents per barrel excise tax on domestic crude oil and
imported petroleum products. The tax is general y paid by refinery operators, for crude oil
received at a refinery, or by the person importing petroleum products. Revenues from the tax
finance the Oil Spil Liability Trust Fund (OSLTF). The OSLTF is used to pay for damages
resulting from oil spil s or threats of oil spil s.
The OSLTF was established in 1986 in the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-
509). Although Congress initially established the fund in 1986, it did not immediately authorize
the fund’s use or provide funding. In 1990, a 5 cents per-barrel tax on oil took effect to support
the fund. The tax was to be suspended if fund balances exceeded $1 billion. The 5 cents per-
barrel tax on oil was allowed to expire at the end of 1994. Congress reinstated the tax in 2006 in
the Energy Policy Act of 2005 (P.L. 109-58). This act also increased the maximum fund balance
to $2.7 billion. In 2008, the Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-
343) increased the tax rate to 8 cents per barrel through 2016; in 2017, the rate increased to 9

36 See Department of the Treasury, Bureau of Fiscal Service, “T reasury Bulletin,” March 2020, pp. 88-89, available at
https://www.fiscal.treasury.gov/files/reports-statements/treasury-bulletin/b2020-1.pdf.
37 IRC §4611.
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cents per barrel. In addition to increasing the tax rate, EESA repealed the requirement that the tax
be suspended if the fund’s unobligated balance exceeded $2.7 billion. The Bipartisan Budget Act
of 2018 (P.L. 115-123) extended the 9 cents per-barrel excise tax on oil through December 31,
2018. The tax lapsed after 2018, and thus was not in effect for 2019, before being reinstated for
2020 at the 9 cents per-barrel rate in P.L. 116-94.
The OSLTF provides an immediate source of funds for federal responses to oil spills and
compensation for certain damages. Historically, the per-barrel oil excise tax has been the primary
source of financing for the trust fund. At the start of FY2020, the OSLTF had a balance of $6.8
billion.38 The OSLTF balance is expected to increase to $10.7 billion by the end of FY2024, as
fund receipts, including investment income, are expected to exceed fund expenses over the next
several years.
For more information, see CRS In Focus IF11160, The Oil Spill Liability Trust Fund Tax:
Background and Reauthorization Issues in the 116th Congress, by Jonathan L. Ramseur.
Other Expiring Energy Tax Provisions
Credit for Production of Indian Coal39
The credit for Indian coal production provides a tax credit for Indian coal produced from reserves
that were owned by an Indian tribe or held in trust by the United States for a tribe on June 14,
2005. The amount of the credit is $2.00 per ton (adjusted for inflation; $2.525 per ton in 2019).
The credit is available for coal sold after December 31, 2005, and before January 1, 2021. The
coal does not need to be sold for the production of electricity or any specific purpose. Before
2015, the credit was only available for Indian coal produced at facilities that were placed in
service before January 1, 2009.
Indian coal was added to the production tax credit (PTC) as a new qualifying resource by the
Energy Policy Act of 2005 (P.L. 109-58). When enacted, the credit was available for coal sold to
an unrelated third party during the seven-year period beginning after December 31, 2005, and
ending before January 1, 2013. The credit was $1.50 per ton of coal sold during the first four
years of the period, and $2.00 per ton for coal sold during the last three years of the period.
Congress extended the credit for Indian coal for one year in ATRA, reasoning such an extension
would “encourage continued mining of coal resources on Indian lands.”40 The credit has
subsequently been extended as part of tax extenders. In addition to extending the credit through
2016, the PATH Act modified the provision, removing the January 1, 2009, placed-in-service
requirement and modifying the third party sale requirement. The PATH Act also exempts the
credit from the alternative minimum tax (AMT). The credit for the production of Indian coal was
extended through 2017 in BBA2018 and through 2020 in P.L. 116-94.
Proponents of the Indian coal PTC have argued the credit helps compensate Indian coal producers
for more restrictive regulatory requirements faced by coal producers on Indian lands, and

38 See Department of the Treasury, Bureau of Fiscal Service, “T reasury Bulletin,” March 2020, pp. 107 -108, available
at https://www.fiscal.treasury.gov/files/reports-statements/treasury-bulletin/b2020-1.pdf.
39 IRC §45.
40 U.S. Congress, Joint Committee on T axation, General Explanation of Tax Legislation Enacted in the 112 th Congress,
committee print, February 2013, JCS-2-13, p. 211.
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encourages investment and jobs on Indian lands.41 Concerns related to the credit include
environmental and social considerations related to the use of coal-fired power.42
Special Rule to Implement Electric Transmission Restructuring43
IRC Section 451(k) permits taxpayers to elect to recognize any capital gain from the sale of
qualifying electricity transmission property to an independent transmission company, pursuant to
a Federal Energy Regulatory Commission (FERC) restructuring policy, evenly over eight years
beginning with the year of the sale. The sale proceeds must be reinvested in other electricity
assets within four years. This special tax incentive is available for sales made through December
31, 2020.
General y, any gain realized from a sale or disposition of a capital asset is recognized in the tax
year in which the gain was realized, unless there is a specific exemption or deferral. The
recognition of gain over eight years, rather than in the year of sale, is a deferral, rather than a
complete forgiveness, of tax liability. The economic benefit derives from the reduction in the
present value of the tax owed below what the tax would otherwise be if it were required to be
recognized in the year of sale.
The deferral of gain on the sale of transmission assets was enacted on a temporary basis as part of
the American Jobs Creation Act of 2004 (P.L. 108-357), with the goal of encouraging energy
transmission infrastructure reinvestment and assisting those in the industry who are restructuring.
It is intended to foster a more competitive industry by facilitating the unbundling of transmission
assets held by vertical y integrated utilities. Under restructuring, states and Congress have
considered rules requiring the separate ownership of generation and distribution and transmission
assets. However, vertical y integrated electric utilities stil own a large segment of the nation’s
transmission infrastructure. The tax provision encourages the sale of transmission assets by
vertical y integrated electric utilities—the unbundling of electricity assets—to independent
system operators or regional transmission organizations, who would own and operate the
transmission lines. The provision is intended to improve transmission management and service,
and facilitate the formation of competitive electricity markets. In recent years, this provision has
been extended as part of tax extenders legislation. Most recently, the provision was extended
through 2020 in P.L. 116-94.
The restructuring of the electric power industry has resulted in significant reorganization of
power assets in recent years. In particular, it may result in a significant disposition of transmission
assets and possibly, depending on the nature of the transaction, trigger an income tax liability and
interfere with industry restructuring. Under an income tax system, the sale for cash of business
assets subject to depreciation deductions triggers a tax on taxable income in the year of sale to the
extent of any gain. Corporations pay capital gains on sales of capital assets, such as shares of
other corporations. But gains on the sale of depreciable assets involve other rules. For example,
sales of personal property, such as machinery, are taxed partly as capital gains and partly as
ordinary income. The overal taxable amount is the difference between the sales price and basis,
which is general y the original cost minus accumulated depreciation. That amount is taxed as
ordinary income to the extent of previous depreciation al owances (depreciation is “recaptured”).

41 Adam Lidgett, “Mont. Sens. Float Bill T o Extend Indian Coal T ax Credit,” Law360, April 28, 2017, available at
https://www.law360.com/articles/918463/mont-sens-float-bill-to-extend-indian-coal-tax-credit .
42 Valerie Volcovici, “In Montana’s Indian country, tribes take opposite sides on coal,” Reuters, August 21, 2017,
available at http://www.reuters.com/article/us-usa-trump-energy-tribes-insight/in-montanas-indian-country-tribes-take-
opposite-sides-on-coal-idUSKCN1B10D3.
43 IRC §451(k).
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Provisions Expiring in 2021, 2022, or 2023
Provisions Expiring in 2021
Credit for Residential Energy Property44
The residential energy-efficient property tax credit al ows taxpayers to claim a tax credit for
properties instal ed on their residence that generate renewable energy (e.g., solar panels,
geothermal heat pumps, smal wind energy, fuel cel s). The amount of the credit is calculated as a
percentage of expenditures on technologies that generate renewable energy, including labor and
instal ation costs. Through 2019, the credit rate was 30%. The credit rate is 26% in 2020 and is
scheduled to be reduced to 22% in 2021. The credit is scheduled to expire December 31, 2021.
The residential energy-efficient property credit was enacted for two years, 2006 and 2007, as part
of the Energy Policy Act of 2005 (EPACT05; P.L. 109-58). The credit was extended for the 2008
tax year by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). The Emergency Economic
Stabilization Act of 2008 (EESA; P.L. 110-343) extended the tax credit for eight years, through
2016. Division P of P.L. 114-113 extended the Section 25D credit for solar technologies through
2021, with the full 30% credit rate available through 2019, with the credit rate reduced to 26% in
2020 and 22% in 2021. The Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123) extended the
credit for eligible nonsolar technologies—fuel cel plants, smal wind energy property, and
geothermal heat pump property—through 2021 and harmonized the credit rates for solar and
nonsolar technologies. Under BBA18, the credit rates for nonsolar technologies was 30% for
property placed in service before the end of 2019, fal ing to 26% in 2020 and 22% in 2021.
The goal of the residential energy-efficiency tax credit is to promote investment in energy-
efficient and renewable-energy property. Investment in residential energy efficiency and
renewable on-site generation may be below the social y optimal level because market failures in
the production and consumption of electricity lead consumers to consume more electricity
derived from pollution-generating energy resources than they would otherwise. In recent years,
increased instal ations of residential renewable-energy property—of solar property in particular—
can be attributed to declining costs as wel as various forms of financial incentives, including the
federal tax credits.
Investment Tax Credit45
The energy investment tax credit (ITC) is a credit against the cost of investments in qualified
renewable-energy property. There is a permanent ITC for solar and geothermal technologies equal
to 10% of the cost basis of the investment. Temporarily, the credit rate for solar is 30% through
2019, before being reduced to 26% in 2020 and 22% in 2021. Investments in smal wind property
(i.e., a wind turbine with 100 kilowatts of capacity or less) may qualify for a 30% ITC through
2019, with the credit rate reduced to 26% in 2020 and 22% in 2021. Investments in fuel cel
power plants and fiber-optic solar may qualify for the ITC at these same rates. The credit for fuel
cel s is limited to $1,500 per 0.5 kilowatts in capacity. Investments in microturbines, combined
heat and power (CHP) systems, and geothermal heat pumps qualify for a 10% ITC through 2021.

44 IRC §25D.
45 IRC §48.
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The expiration dates for the ITC are commence-construction deadlines. In other words,
construction must have begun on the property by the deadline for the property to be tax credit
eligible.46 The energy credit is part of the general business credit, and as such unused credits may
be carried back for one year and carried forward for up to 20 years. The taxpayer’s basis in
property eligible for the ITC must be reduced by one-half of the credit amount. For construction
projects with durations of two or more years, credits may be claimed as construction progresses
rather than at the time the property is placed in service.
The energy tax credit was established as part of the Energy Tax Act of 1978 (P.L. 95-618), which
created a refundable, temporary, 10% tax credit for alternative and renewable-energy property.
The rationale behind the credits at the time of enactment was primarily to reduce U.S.
consumption of oil and natural gas by encouraging the commercialization of renewable-energy
technologies. Subsequent legislation extended and modified the renewable-energy ITC, including
converting the ITC to a nonrefundable credit in 1980 (P.L. 96-223) and making the 10% credit for
solar and geothermal permanent in 1992 (P.L. 102-486).
From 1992 until the Energy Policy Act of 2005 (EPACT05; P.L. 109-58), the permanent solar and
geothermal credits were the only renewable-energy ITCs. EPACT05 temporarily increased the
solar ITC to 30% and expanded the eligible technologies to include fiber-optic, microturbine, and
fuel cel technologies. The Emergency Economic Stabilization Act of 2008 (P.L. 110-343)
provided a long-term extension of the temporary components of the energy credit and expanded
the credit to include geothermal heat pump, qualified smal wind energy, and CHP technologies.
In 2015, the Consolidated Appropriations Act, 2016 (P.L. 114-113) further extended the credit.
The 30% credit rate for solar electric or heating property (but not fiber-optic solar) was extended
through 2019. Further, the termination date was changed from a placed-in-service deadline to a
construction start date. The credit was set at 26% for property beginning construction in 2020,
and 22% for property beginning construction in 2021. To qualify for a rate in excess of 10%,
property must be placed in service by December 31, 2023.
The Bipartisan Budget Act of 2018 (P.L. 115-123) extended the ITC for five years for fiber-optic
solar, fuel cel , smal wind, microturbine, CHP, and geothermal heat pump property. For property
eligible for a 30% credit through 2019, the credit rate is reduced following the reduction schedule
for solar enacted in P.L. 114-113. Al termination dates were changed to construction start
deadlines. Current law for the energy credit is summarized in Table 2.
Table 2. Energy Credit: Summary of Current Law
Eligible Technology
Credit Rate
Expiration Date (End of Year)
Solar, Fiber Optic Solar, Fuel Cel s, Smal Wind
30%
2019

26%
2020

22%
2021
Microturbines, Combined Heat and Power, Geothermal
10%
2021
Heat Pump
Solar, Geothermal Energy
10%
Permanent
Notes: Credit expiration dates are start-of-construction deadlines. For nonpermanent credits, property
general y must be placed in service by December 31, 2023. Wind property may be eligible for the Section 45
production tax credit (PTC), and elect to receive the ITC in lieu of PTC through 2020.

46 T his is in contrast to a placed-in-service deadline, where the property must be available for use by the deadline.
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The energy credit reduces the cost of instal ing renewable-energy equipment and increases the
rate of return on renewable-energy system investments. Effective tax rates for ITC-eligible energy
investments are lower than effective tax rates for investments in other forms of energy capital,
which has likely increased investment in eligible technologies. Research also indicates that the
ITC contributes to reduced CO2 emissions, although the magnitude of the effect is estimated to
be smal .47
Many factors influence decisions to invest in renewable-energy capacity. Fal ing costs for solar
property in recent years have led to increased investment. Further, state-level policies, including
renewable portfolio standards, have also been credited with increasing renewable-energy
capacity.48 Thus, it is difficult to isolate the effects of tax credits.
For more information, see CRS In Focus IF10479, The Energy Credit: An Investment Tax Credit
for Renewable Energy, by Molly F. Sherlock.
Five-Year Recovery Period for Certain Energy Property49
The cost of assets that provide services over an extended period of time is deducted over a period
of years as depreciation. Aside from the desire for economic stimulus, traditional economic
theories suggest that tax depreciation should match economic (physical) depreciation of assets.
Depreciation provisions that al ow earlier deductions for depreciation are valuable because of the
time value of money. Most electric generating capacity is depreciated over 20 years. The recovery
period for certain renewable-energy equipment, including ITC-eligible technologies and wind
energy property, is five years. Solar il umination, fuel cel , microturbine, CHP, and smal wind
property is eligible for five-year cost recovery if construction begins before January 1, 2022.
Accelerated depreciation deductions may be especial y helpful for certain energy industries,
where there are substantial up-front costs associated with capital-intensive activities. Deferring
income taxes until later in an asset’s life reduces the after-tax cost of investing in certain energy
property. Currently, full and immediate expensing (100% bonus depreciation) for equipment
available through 2022—provided by the 2017 tax revision (P.L. 115-97)—restricts the
applicability of any acceleration in cost recovery provided through special provisions for energy-
related equipment to a narrow set of taxpayers.50
Provisions Expiring in 2022
Incentives for Biodiesel and Renewable Diesel51
There are three tax credits for biodiesel: the biodiesel mixture credit, the biodiesel credit, and the
smal agri-biodiesel producer credit. Each gal on of biodiesel, including agri-biodiesel (biodiesel

47 Brian C. Murray et al., “How Effective are US Renewable Energy Subsidies in Cutting Greenhouse Gas Emissions?”
Am erican Econom ic Review: Papers & Proceedings, vol. 105, May 2014, pp. 569-574; and William D. Nordhaus,
Stephen A. Merrill, and Paul T . Beaton, eds., Effects of U.S. Tax Policy on Greenhouse Gas Em issions, (Washington,
DC: T he National Academies Press), 2013.
48 Christine L. Crago and Eric Koegler, “Drivers of Growth in Commercial-Scale Solar PV Capacity,” Energy Policy,
vol. 120, September 2018, pp. 481-491.
49 IRC §§168(e)(3)(B)(vi)(I) and 48(a)(3)(A).
50 T he five-year recovery period applies to certain taxpayers that are excluded from utilizing the temporary 100% bonus
depreciation. T hese taxpayers furnish electricity for sale at rates set through a federal, state, or local government
agency; a public service or public utility commission; or an electric cooperative.
51 IRC §§40A, 6426(c) and 6427(e).
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made from virgin oils), may be eligible for a $1.00 tax credit. The mixtures tax credit may be
claimed as an instant excise tax credit against the blender’s motor and aviation fuels excise taxes.
Credits in excess of excise tax liability may be refunded. The biodiesel and smal agri-biodiesel
credits may be claimed as income tax credits. The mixtures credit is proportionate to the fraction
of biodiesel in the mixture—a blend of 80% diesel with 20% virgin biodiesel would qualify for a
20-cent-per-gal on tax credit. The tax credits for biodiesel expire on December 31, 2022.
Additional y, an eligible smal agri-biodiesel producer credit of 10 cents is available for each
gal on of “qualified agri-biodiesel production.” An eligible “smal agri-biodiesel producer” is
defined as any person who, at al times during the taxable year, has annual productive capacity for
agri-biodiesel not in excess of 60 mil ion gal ons. The number of gal ons that may be taken into
account for the smal agri-biodiesel producer credit may not exceed 15 mil ion. The eligible smal
agri-biodiesel producer credit is effective for taxable years ending after August 8, 2005, and
sunsets after December 31, 2022.
The tax code general y treats renewable diesel fuel like biodiesel for the purposes of the biodiesel
fuels credit. Thus, renewable diesel sold or used after December 31, 2005, is eligible for a $1.00
per gal on tax credit. Renewable diesel cannot qualify as agri-biodiesel.
The biodiesel tax incentives were introduced under the American Jobs Creation Act of 2004 (P.L.
108-357) and modified and extended by the Energy Policy Act of 2005 (P.L. 109-58).
Subsequently, the credits have been extended, most recently through the end of 2022 in the
Further Consolidated Appropriations Act of 2020 (P.L. 116-94).
Tax credits for biofuels are motivated by a desire to reduce dependence on petroleum imports
(enhance national energy security), address environmental concerns, and maintain farm incomes.
Although the use of biofuels continues to increase, offsetting domestic petroleum consumption, it
is not clear that the tax incentives are responsible for driving this change. Renewable fuel
standards and blend mandates requiring certain amounts of biofuels may be boosting domestic
production.52 If nontax policies are responsible for enhancing biofuel production, and tax policies
fail to induce additional production, the tax credits provide a windfal to taxpayers without
necessarily resulting in additional use of biofuels.
Provisions Expiring in 2023
Credit for Carbon Oxide Sequestration53
The credit for carbon oxide (including carbon dioxide and carbon monoxide) provides a credit for
the capture and sequestration of carbon emissions generated by the use of coal and natural gas in
the electric power sector and potential y of carbon emissions from industrial applications, such as
cement and steel.
The carbon oxide sequestration credit (previously the carbon dioxide sequestration credit) is the
sum of four components: (1) $20 (adjusted to $23.82 for 2020) per metric ton of carbon oxide
captured using carbon capture equipment placed in service before February 9, 2018, that is not
used as a tertiary injectant; (2) $10 (adjusted to $11.91 for 2020) per metric ton of carbon oxide
captured using carbon capture equipment placed in service before February 9, 2018, that is used
as a tertiary injectant; (3) $31.77 in 2020 per metric ton of carbon oxide captured using carbon
capture equipment placed in service on or after February 9, 2018, that is not used as a tertiary

52 See CRS Report R43325, The Renewable Fuel Standard (RFS): An Overview, by Kelsi Bracmort.
53 IRC §45Q.
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injectant, during the first 12 years following the facility being placed in service; and (4) $20.22 in
2020 per metric ton of carbon oxide captured using carbon capture equipment placed in service
on or after February 9, 2018, that is used as a tertiary injectant, during the first 12 years following
the facility being placed in service. Carbon oxide that is not used as a tertiary injectant must be
disposed of in a secure geological facility.
For carbon dioxide captured at facilities placed in service before February 9, 2018, the credit
applies until the IRS, in consultation with the Environmental Protection Agency, certifies that 75
mil ion metric tons of carbon dioxide has been captured or used as a tertiary injectant. As of June
2020, the total amount of carbon oxide taken into account for the purposes of Section 45Q was
72,097,903 metric tons.54
For carbon oxide captured at facilities placed in service on or after February 9, 2018, for calendar
years 2017 through 2026, the dollar amount of the credit is a linear interpolation between $22.66
and $50 for carbon oxide that is captured and stored, and between $12.83 and $35 for carbon
oxide that is used as a tertiary injectant. The $50 and $35 credit amounts wil be adjusted for
inflation for calendar years after 2026. Facilities must begin construction before January 1, 2024,
to qualify for the credit.55
The credit for carbon dioxide sequestration was introduced as part of the Energy Improvement
and Extension Act of 2008, enacted as Division B of P.L. 110-343. The credit was enacted
alongside several other provisions designed to encourage cleaner, more efficient, and
environmental y responsible use of coal specifical y and greenhouse gas emissions reductions
more broadly.
The Bipartisan Budget Act of 2018 (P.L. 115-123) changed the credit from the carbon dioxide to
the carbon oxide credit (carbon oxide includes carbon monoxide in addition to carbon dioxide)
and expanded and extended the credit. Specifical y, the $10 per ton tax credit for carbon that is
used as a tertiary injectant is to increase to $35 over time. The $20 per ton tax credit for carbon
that is captured and not used as a tertiary injectant is to increase to $50 over time. The 75 mil ion
ton cap was eliminated for facilities placed in service on or after February 9, 2018. Qualifying
carbon capture equipment instead must be under construction before the end of 2023 for carbon
captured to qualify. Qualifying facilities can then claim tax credits for 12 years after a carbon
capture project is placed in service. The legislation also changed requirements for eligible
taxpayers, providing flexibility that could facilitate the use of tax-equity financing.
Tax credits for carbon capture and sequestration potential y support deployment of low- and zero-
emissions energy technologies and the use of domestic energy resources. Similar to tax credits
that support renewable energy, tax credits for carbon capture and sequestration can help address
market failures in energy production markets, where fossil-fuels-based electricity production and
the associated pollution effects generate negative externalities. As was noted above, a more direct
approach to addressing these externalities and supporting carbon capture and sequestration
technologies would be to impose a price on pollution or emissions, as opposed to subsidizing
carbon capture and sequestration.

54 IRS Notice 2020-40.
55 IRS Notice 2020-12.
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Author Information

Molly F. Sherlock
Donald J. Marples
Specialist in Public Finance
Specialist in Public Finance


Margot L. Crandall-Hollick

Acting Section Research Manager


Acknowledgments
Joe Hughes, Research Assistant, assisted in preparing this report.

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under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
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