Kipp A. Coddington 601 Pennsylvania Ave., Nw suite 900, South Building
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- Vehicle Size Current Tax Credit Cap APA’s Proposed Tax Credit Cap
Kipp A. Coddington 601 Pennsylvania Ave., NW Suite 900, South Building Washington, DC 20004 Ph: 202 220 3125 Cell: 703 628 3950 Kipp.coddington@m2c2law.com May 19, 2010 2nd version
On May 12, 2010, Senators Kerry (D-MA) and Lieberman (ID-CT) released their much anticipated climate/energy legislation. Entitled the American Power Act (“APA”), the bill attempts to thread needle in achieving the magical 60-vote bipartisan threshold in the Senate in a way that other efforts have failed. Sen. Graham (R-SC), as expected, did not endorse the bill as introduced but issued a statement indicating that he looked forward to reviewing it. This memorandum provides an analysis of the APA’s mobile source/transportation provisions. Executive Summary In a nut shell, vehicles and fleets come out favorably under the APA, all things considered. Fleets are not subject to mandates, nor are they directly included in the cap-and-trade program which constitutes the core of the legislation. Mobile source emissions are tackled through what is known as a “linking fee” that is effectively paid at the pump by all operators of mobile sources, not just fleets. Prices for gas and diesel will increase, in other words, but cost impacts would apply across the board and not just target fleets. Other provisions of the APA provide a wealth of incentives for vehicles owners, operators, and manufacturers. The legislation specifically focuses on advancing the manufacture and deployment of natural gas, plug-in electric, and electric vehicles. In a significant benefit for the leasing industry, the APA makes the natural gas vehicle tax credit transferable to the lessee, too. Under current law, only the lessor may claim the credit. Analysis No Fleet Mandates: In a positive development, nothing in the APA would impose a mandate on any fleet owner or operator. Tax Incentives for Natural Gas Vehicles (§4121): Elements of the so-called Pickens’ Plan, as reflected in prior drafts of the NAT GAS Act (S. 1408), made it into the APA. First, the APA establishes new tax credit caps for natural gas vehicles. Currently, the new qualified alternative fuel motor vehicle credit applies to natural gas vehicles, with the potential value of the tax credit varying based upon the size of the vehicle, its incremental cost and its emissions performance. The new proposed caps would be as follows:
Fleet owners would be eligible for a tax credit of 50% to 80% of the cap depending on vehicle emissions performance; the fact that only fleet owners are eligible for the incentive is significant in that it advances AALA’s position that fleet vehicles provide environmental benefits that general population vehicles cannot. Converted and repowered vehicles would also be eligible in some circumstances. The incentives would be available for ten years. Second, the qualified alternative fuel motor vehicle credit as applied to eligible natural gas vehicles would be transferable. Under current law, for example, only the owner or lessor (not a lessee) of an eligible natural gas vehicle may claim the credit. The APA provides that: A taxpayer who places in service qualified natural gas motor vehicle [sic] may transfer the credit … with respect to such vehicle through an assignment to the seller, the manufacturer, or the lessee of such vehicle. Such transfer may be revoked only with the consent of the Secretary [of the Treasury]. Third, the APA creates “natural gas bonds,” which are intended to incentivize the acquisition of natural gas vehicles by governmental agencies. A “natural gas vehicle bond” is any bond issued as part of an issue if, in part: (1) 100% of the proceeds are to be used for capital expenditures incurred by a governmental body for one or more qualified natural gas vehicle projects placed in service by the body primarily for government or public use; and (2) the bond is issued by a governmental body. The national aggregate limitation for the bonds is $3B. Fourth, the APA allows CNG and LNG vehicle manufacturing facilities to treat certain costs as immediately deductible expenses. CNG/LNG Vehicles for the Federal Fleet (§4124): APA directs GSA to conduct a “study of the means by which the Federal fleet could increase the number of light-, medium-, and heavy-duty [CNG and LPG] vehicles in the fleet.” Electric Vehicle Infrastructure & Electric Drive Pilot Projects\R&D Funding for Electric Vehicles\Tax Incentives for EV And Related Advanced Vehicle Technology Manufacturing (§§1701, 1801, 4003, 4111): DOE is directed to develop a “national transportation low-emission energy plan” with the “aspirational goal of achieving strategic deployment of electric vehicle infrastructure by January 1, 2020.” After that plan is developed, DOE is directed to establish pilot projects for electric drive vehicles; at least one pilot project must be “focused on freight issues,” which perhaps suggests medium and/or heavy duty vehicles. Nothing is mandated, however; the program is incentive-based. Academic research on electric vehicles is separately entitled to funding via emission allowances under KL’s creation of a clean energy technology fund, which defines “clean energy technology” as a technology that, in part, “improves energy efficiency for transportation, including electric vehicles.” Separately, available monies under the existing section 48C advanced energy manufacturing credit are increased from $2.3B to $7.3 billion. Funding under the section 48C program may be used for various vehicle-related technologies, including: (1) energy storage technologies (fuel cells, microturbines or other energy storage systems used in electric vehicles); and (2) plug-in electric vehicles and vehicle components, such as motors and generators. At least 25% of funding is earmarked for plug-in electric drive vehicles. Finally, a special funding program (the “Clean Vehicle Technology Fund”) is created to support “advanced technology vehicles.” An “advanced technology vehicle” is a light-duty vehicle that meets: (1) EPA’s Tier II Bin 5 emission standard; (2) any new emission standard for fine particulate matter established by EPA; and (3) a target fuel economy equal to or greater than 115% of the base model year target fuel economy for a vehicle of the same type and footprint, all as further defined in the legislation. The Clean Vehicle Technology Fund is funded with a portion of the proceeds from the auctioning of emission allowances under the cap-and-trade program. Incorporation of Climate Considerations into MPO Planning (§§1711, 1712): EPA, in consultation with DOT, is directed to issue regulations that require states and metropolitan planning organizations (“MPOs”) to reduce transportation-related GHG emissions. Although fleets are not targeted per se by these provisions, there is ample room for mischief. For example, the states are specifically mandated to implement emission reduction efforts that reduce GHG emissions from transportation, which could encourage focus on centrally fueled fleet mandates (although, again, the APA is silent on fleet mandates per se). MPOs also receive emission allowances under APA’s cap-and-trade program, which is effectively a form of subsidy. It might be worthwhile for AALA to consider – as a preemptive or defensive maneuver – to carve fleets out of any transportation control measure that a MPO may establish pursuant to these provisions. As a precedent, AALA could cite the comparable treatment that clean fuel vehicles received from certain transportation control measures under the Clean Air Act. GHG Inventory (§2001): The APA retains the Boxer’s bill authority that EPA be allowed to include in the inventory “any vehicle fleet with emissions of 25,000 tons or more of carbon dioxide equivalent on an annual basis.” Allowance Carve Out For Covered Entities that are “Refined Product Providers” (§729): Oil and gas companies are effectively carved out of the cap-and-trade scheme. Instead, so-called “refined product providers” must pay designated amounts to EPA each quarter beginning in 2013. The amount is equal to the most recent auction clearing price for emission allowances conducted by EPA for other sources. A “refined product” means “finished motor gasoline (regardless of whether intended for blending), distillate fuel oil, kerosene, aviation fuel, emission natural gas liquid, residual oil, and coal-based liquid fuel”; it does not include petcoke, distillate fuel or residual oil sold to certain end users, distillate fuel or residual oil used by ocean-going vessels, aviation fuel (in the event that there is an international agreement to cover emissions from such fuel), refined products used for chemical/industrial manufacturing, the renewable fuel component of a refined product, and any refined product exported or sold for export. This is the so-called “linking fee.” Subsidy Payments for Clean Vehicle Technology: To “facilitate development of clean vehicle technology,” percentages of emission allowances are allocated from 2013 through 2021, inclusive. These should be viewed as subsidy payments. New EPA Authority to Regulate Emissions from Diesel Engines (§2212): EPA is directed to examine whether it is doing enough to regulate “black carbon” emission from all emission sources (presumably mobile as well as stationary) and, if deemed necessary, issue new controls on such emission sources. Black Carbon Reduction Retrofit Grant Program (§2213): Consistent with the Boxer bill, an incentive program is provided to encourage owners of heavy duty vehicles to install diesel particulate filters. State Cap-and-Trade Programs Preempted/Mobile Source Programs Preserved (§§2305, 2501): The legislation preserves the ability of states such as California to separately regulate mobile source emissions and fuel restrictions, such as a low carbon fuel standard. Significantly, this provision would not overturn the hard fought victory that AALA helped EMA obtain in the SCAQMD case before the U.S. Supreme Court several years ago. New Motor Vehicle Standards (§4141): The APA amends the provisions of the Clean Air Act providing EPA with authority to regulate tailpipe emission of nonroad engines and vehicles to clarify that “noninternal combustion engines and the vehicles the engines power (such as electric engines and electric vehicles)” are also included. The APA separately directs EPA, by not later than December 31, 2010, to issue new tailpipe emissions standards from new heavy-duty vehicles and engines to “reflect the greatest degree of emission reduction achievable through the application of technology ….” 1 A qualifying light-duty vehicle must be acquired by a taxpayer who owns and operates not less than 10 motor vehicles in the course of a trade or business at the time of the acquisition, and has placed in service more than two motor vehicles after the date of enactment of APA. 2 A qualifying medium-duty vehicle does not need to be operated by a fleet. The vehicle instead only needs to meet the weight threshold, be made by a manufacturer, and be capable of (i) operating on CNG or LNG, or (ii) operating for more than 175 miles on 1 fueling of CNG or LNG and capable of operating on gasoline or diesel fuel. 3 A qualifying medium heavy-duty vehicle does not need to be operated by a fleet. The vehicle instead only needs to meet the weight threshold, be made by a manufacturer, and be capable of (i) operating on CNG or LNG, or (ii) operating for more than 175 miles on 1 fueling of CNG or LNG and capable of operating on gasoline or diesel fuel. 4 A qualifying heavy-duty vehicle does not need to be operated by a fleet. The vehicle instead only needs to meet the weight threshold, be made by a manufacturer, and be capable of (i) operating on CNG or LNG, or (ii) operating for more than 175 miles on 1 fueling of CNG or LNG and capable of operating on gasoline or diesel fuel. Download 23.21 Kb. Share with your friends:
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