5 August 2005

The US Senate and the Congress have passed the Energy Policy Act of 2005. President Bush will sign the document on August 8th at a ceremony at Sandia National Laboratories in Albuquerque, New Mexico.

The US energy policy remains focused on oil, natural gas and coal, with most of the $14.5 billion in tax breaks helping producers of these conventional energy sources, to the disappointment of environmentalists and alternative fuel stakeholders. At the same time, the bill does provide certain incentives for clean energy, including clean diesel. The following are the key diesel-related provisions in the new energy policy act:

  • Tax credits, close to $875 million in total, will be available for customers who purchase fuel efficient vehicles, including hybrid-electric and diesel (“advanced lean-burn technology”) cars. Vehicles will be eligible for up to $3,400 in tax credits based on their weight, fuel efficiency rating and emission level. Eligible diesel vehicles must meet EPA Tier 2 Bin 5 emission standards (Bin 8 for cars over 6,000 lbs), and must achieve at least 125% of the 2002 model year city fuel economy. This tax credit program runs from 1 January 2006 through 31 December 2010, but full credit is available only to the first 60,000 vehicles sold by a manufacturer.
  • A $1-billion diesel emissions reduction program, known as the Diesel Emissions Reduction Act (DERA), will provide up to $200 million per year to reduce emissions from older diesel trucks, buses, and off-road equipment currently in use (Sec. 791-795).
  • A $100 million diesel truck retrofit and fleet modernization program will fund up to 50% of the costs of diesel truck retrofits, primarily in ports and major hauling operations (Sec. 742).
  • A $94.5-million idle emission reduction program will help the EPA’s SmartWay Transport Partnership to deploy auxiliary power units (APUs) and truckstop electrification systems (Sec. 756).
  • Excise and income tax credits for manufacturers of biodiesel will be extended through 2008 at a budget of $194 million. These tax credits, established by the American JOBS Creation Act of 2004, would have expired in 2006. The excise tax credit is a penny per percentage point of biodiesel blended with petroleum diesel for “agri-biodiesel” (such as that made from soybean oil) and a half-penny per percentage for biodiesel made from other sources.

The US diesel industry has praised the Energy Policy Act for establishing consumer tax credits for diesel cars, and for the DERA emission reduction program.

Energy Policy Act of 2005: Conference Report