Senate energy tax plan aims at efficiency, fuel alternatives

WASHINGTON -- Hybrid cars powered by fuel cells or batteries. Utilities that squeeze electricity from coal with less pollution. Buildings that use less energy. Poultry, pig and cattle producers.

All would get tax breaks under multibillion-dollar legislation taking shape in the Senate.

The legislation, expected to cost between $15 billion and $18 billion over 10 years, is less generous to traditional energy production industries than a $33 billion version passed last year by the House. But it still includes tax breaks for natural gas and oil production and to help refiners comply with federal sulfur regulations, among others.

The tax provisions will become part of a broader Democratic energy bill the Senate is expected to begin debating next week. President Bush and his GOP allies on Capitol Hill have been pushing for months for Senate action on energy, which Bush says is vital to the nation's long-term economic health and security.

Republicans are likely to propose amendments for even more tax breaks as the debate unfolds and to push for drilling in the Arctic National Wildlife Refuge to drilling, a top priority of the White House.

Alternative fuels, and the vehicles that run on them, are on the list for new tax breaks, according to a draft outline of the bill. For instance, people who buy hybrid cars that run on both gas and electricity could qualify for a tax credit of $1,000 or more.

Help for agriculture

Vehicles that run on fuel cells, which are still in the developmental stage, could generate credits of at least $4,000. Makers of ethanol and biodiesel -- fuel made from corn, soybeans and other grains -- would also get tax credits.

Agriculture would benefit in other ways. The bill envisions a five-year extension of a tax credit for electricity generated by wind, plant matter and poultry waste. To that list would be added geothermal energy sources and waste from cattle and pig operations.

Tax breaks for energy efficiency would go to individual homeowners who install solar water heaters (up to $2,000) and other equipment. They would also go to big appliance companies and the construction industry.

Contractors who achieve certain levels of energy efficiency in hew homes could get a tax credit of up to $2,000, while owners of buildings that reduce energy consumption by 50 percent could qualify for a deduction of up to $2.25 per square foot. Makers of washing machines and refrigerators could get credits for each power-saving machine, up to an annual cap of $30 million for each type.

Electric utilities could qualify for three tax credits if they use cleaner-burning coal, including a 10 percent investment tax credit for clean coal technology and two kinds of credits for the power produced by units fitted with this technology.

The legislation also includes a list of tax breaks for oil and gas production, as well as two items not limited to energy but on Western senators' priority list: extension for two years of a depreciation deduction for businesses on Indian reservations and a credit for up to $20,000 of each employee's wages and insurance costs.

Some believe the tax breaks should be paid for without increasing the budget deficit, which would require raising other taxes or making cuts. A Republican source, speaking on condition of anonymity, said the bill could be sent to the Senate floor with the understanding that cost offsets will be identified before a final vote.