By: Hardcastle, Deshotel, Darby, Solomons, H.B. No. 3732

Cook of Colorado, et al.

A BILL TO BE ENTITLED

AN ACT

relating to the implementation of ultraclean energy projects and other environmentally protective projects in this state.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 447, Government Code, is amended by adding Section 447.013 to read as follows:

Sec. 447.013. ULTRACLEAN ENERGY PROJECT GRANT AND LOAN PROGRAM. (a) In this section:

(1) "Account" means the ultraclean energy project account established under this section.

(2) "Program" means the ultraclean energy project grant and loan program established under this section.

(3) "Ultraclean energy project" has the meaning assigned by Section 382.003, Health and Safety Code.

(b) The ultraclean energy project grant and loan program is established to encourage the development of ultraclean energy projects in an environmentally protective manner. The program is administered by the state energy conservation office.

(c) The ultraclean energy project account is an account in the general revenue fund.

(d) The account consists of:

(1) a sub-account in the account that consists of the proceeds of bonds issued under Subsection (j);

(2) revenues allocated to the account under Section 182.122, Tax Code;

(3) any amount appropriated by the legislature for the account;

(4) gifts, grants, and other donations received for the account; and

(5) interest earned on the investment of money in the account.

(e) Money in the account may be appropriated only to the state energy conservation office to award grants or to make or guarantee loans under this section. The total amount of grants that may be awarded under this section in any state fiscal biennium from revenues described by Subsection (d)(2) may not exceed $20 million. The total amount of loans that may be made or guaranteed under this section in any state fiscal biennium from revenues described by Subsection (d)(2) may not exceed $10 million.

(f) Before awarding a grant or making a loan under this section, the state energy conservation office shall enter into a written agreement with the entity to which the grant is to be awarded or the loan is to be made. The agreement may specify that if, as of a date specified by the agreement, the entity has not used the grant or loan for the purposes for which the grant or loan was intended, the entity shall repay the amount of the grant or the amount of the loan and any accrued interest, as applicable, under terms specified by the agreement.

(g) Under the program, the state energy conservation office may award a grant to the managing entity of an ultraclean energy project in an amount not to exceed 50 percent of the total amount invested in the project by private industry sources. The managing entity of the project must provide any information considered necessary by the state energy conservation office to determine whether the entity qualifies for the grant.

(h) Under the program, the state energy conservation office may make or guarantee a loan to the managing entity of an ultraclean energy project in this state. If the loan or guarantee is to be funded by the proceeds of bonds issued under Subsection (j), the project must qualify for the loan or guarantee under Section 49-p, Article III, Texas Constitution.

(i) A recipient of a grant or loan under this section is encouraged to purchase goods and services from small businesses and historically underutilized businesses, as those terms are defined by Section 481.191, Government Code.

(j) The Texas Public Finance Authority shall issue general obligation bonds as authorized by Section 49-p, Article III, Texas Constitution.

SECTION 2. Section 382.003, Health and Safety Code, is amended by adding Subdivisions (3-a), (3-b), (11-a), and (12-a) to read as follows:

(3-a) "Clean coal technology" means a technology or process, including a technology or process applied at the precombustion, combustion, or postcombustion stage, for use at a new or existing facility that will achieve a 97 percent reduction of sulfur dioxide emissions, an emission rate for nitrogen oxides of 0.08 pounds per million British thermal units, and significant reductions in mercury emissions associated with the use of coal in the generation of electricity, process steam, or industrial products, including the creation of liquid fuels, hydrogen for fuel cells, and other coproducts. The technology used must comply with applicable federal law regarding mercury emissions and must render carbon dioxide capable of capture, sequestration, or abatement. Clean coal technology includes atmospheric or pressurized fluidized bed combustion technology, integrated gasification combined cycle technology, methanation technology, magnetohydrodynamic technology, direct and indirect coal-fired turbines, undiluted high-flame temperature oxygen combustion technology that excludes air, and integrated gasification fuel cells.

(3-b) "Coal" has the meaning assigned by Section 134.004, Natural Resources Code.

(11-a) "Solid waste" has the meaning assigned by Section 361.003.

(12-a) "Ultraclean energy project" means a project that:

(A) involves the use of coal, biomass, petroleum coke, or solid waste in the generation of electricity, process steam, or industrial products, including gasification and the creation of liquid fuels, hydrogen for fuel cells, and other coproducts;

(B) is capable of achieving a 99 percent reduction of sulfur dioxide emissions, a 95 percent reduction of mercury emissions, and an emission rate for nitrogen oxides of 0.05 pounds per million British thermal units; and

(C) renders carbon dioxide capable of capture, sequestration, or abatement.

SECTION 3. Subchapter C, Chapter 382, Health and Safety Code, is amended by adding Section 382.0566 to read as follows:

Sec. 382.0566. ULTRACLEAN ENERGY PROJECT PERMITTING PROCEDURE. (a) An application for a permit under this chapter for an ultraclean energy project must be received by the commission on or after January 1, 2008, and before January 1, 2020.

(b) As authorized by federal law, not later than nine months after the executive director declares an application for a permit under this chapter for an advanced clean energy project to be administratively complete, the executive director shall complete its technical review of the application.

(c) The commission shall issue a final order issuing or denying the permit not later than nine months after the executive director declares the application technically complete. The commission may extend the deadline set out in this subsection up to three months if it determines that the number of complex pending applications for permits under this chapter will prevent the commission from meeting the deadline imposed by this subsection without creating an extraordinary burden on the resources of the commission.

(d) The permit process authorized by this section is subject to the requirements relating to a contested case hearing under this chapter, Chapter 5, Water Code, or Subchapters C-G, Chapter 2001, Government Code, as applicable.

(e) An applicant for a permit under this chapter for an ultraclean energy project is not required to prove, as part of an analysis of whether the project will use the best available control technology or reduce emissions to the lowest achievable rate, that the clean coal technology or ultraclean energy technology proposed to be used in connection with the project has been demonstrated to be feasible in a commercial operation.

(f) The commission shall adopt rules to implement this section.

SECTION 4. Section 11.31, Tax Code, is amended by amending Subsection (b) and adding Subsections (k), (l), and (m) to read as follows:

(b) In this section, "facility, device, or method for the control of air, water, or land pollution" means land that is acquired after January 1, 1994, or any structure, building, installation, excavation, machinery, equipment, or device, and any attachment or addition to or reconstruction, replacement, or improvement of that property, that is used, constructed, acquired, or installed wholly or partly to meet or exceed rules or regulations adopted by any environmental protection agency of the United States, this state, or a political subdivision of this state for the prevention, monitoring, control, or reduction of air, water, or land pollution. Whether or not carbon dioxide is considered a pollutant, the term includes property that is used, constructed, acquired, or installed wholly or partly to capture carbon dioxide from an anthropogenic source that is used in an enhanced recovery project for which a producer of oil receives a severance tax exemption under Section 202.0545, or that is geologically sequestered. This section does not apply to a motor vehicle.

(k) The Texas Commission on Environmental Quality shall adopt rules establishing a nonexclusive list of facilities, devices, or methods for the control of air, water, or land pollution, which must include:

(1) coal cleaning facilities;

(2) atmospheric or pressurized and bubbling or circulating fluidized bed combustion systems and gasification fluidized bed combustion combined cycle systems;

(3) ultra-supercritical pulverized coal boilers;

(4) flue gas recirculation components;

(5) syngas purification systems and gas-cleanup units;

(6) enhanced heat recovery systems;

(7) exhaust heat recovery boilers;

(8) heat recovery steam generators;

(9) superheaters and evaporators;

(10) enhanced steam turbine systems;

(11) methanation;

(12) coal combustion or gasification byproduct and coproduct handling, storage, or treatment facilities;

(13) biomass cofiring storage, distribution, and firing systems;

(14) coal cleaning or drying processes, such as coal drying/moisture reduction, air jigging, precombustion decarbonization, and coal flow balancing technology;

(15) oxy-fuel combustion technology, amine or chilled ammonia scrubbing, fuel or emission conversion through the use of catalysts, enhanced scrubbing technology, modified combustion technology such as chemical looping, and cryogenic technology; and

(16) any other equipment designed to capture, abate, or monitor nitrogen oxides, volatile organic compounds, particulate matter, mercury, carbon monoxide, carbon dioxide, or any criteria pollutant.

(l) The Texas Commission on Environmental Quality by rule shall update the list adopted under Subsection (k) at least once every three years. An item may not be removed from the list unless the commission finds compelling evidence to support the conclusion that the item does not provide pollution control benefits.

(m) Notwithstanding the other provisions of this section, if the facility, device, or method for the control of air, water, or land pollution described in an application for an exemption under this section is a facility, device, or method included on the list adopted under Subsection (k), the executive director of the Texas Commission on Environmental Quality, not later than the 30th day after the date of receipt of the information required by Subsections (c)(2) and (3) and without regard to whether the information required by Subsection (c)(1) has been submitted, shall determine that the facility, device, or method described in the application is used wholly or partly as a facility, device, or method for the control of air, water, or land pollution and shall take the actions that are required by Subsection (d) in the event such a determination is made.

SECTION 5. Section 26.045, Tax Code, is amended to read as follows:

Sec. 26.045. ROLLBACK RELIEF FOR POLLUTION CONTROL REQUIREMENTS. (a) The rollback tax rate for a political subdivision of this state is increased by the rate that, if applied to the total current value, would impose an amount of taxes equal to the amount the political subdivision will spend out of its maintenance and operation funds under Section 26.012(16)[, Tax Code,] to pay for a facility, device, or method for the control of air, water, or land pollution that is necessary to meet the requirements of a permit issued by the Texas [Natural Resource Conservation] Commission on Environmental Quality.

(b) In this section, "facility, device, or method for control of air, water, or land pollution" means any land, structure, building, installation, excavation, machinery, equipment, or device, and any attachment or addition to or reconstruction, replacement, or improvement of that property, that is used, constructed, acquired, or installed wholly or partly to meet or exceed rules or regulations adopted by any environmental protection agency of the United States or this state for the prevention, monitoring, control, or reduction of air, water, or land pollution.

(c) To receive an adjustment to the rollback tax rate under this section, a political subdivision shall present information to the executive director of the Texas [Natural Resource Conservation] Commission on Environmental Quality in a permit application or in a request for any exemption from a permit that would otherwise be required detailing:

(1) the anticipated environmental benefits from the installation of the facility, device, or method for the control of air, water, or land pollution;

(2) the estimated cost of the pollution control facility, device, or method; and

(3) the purpose of the installation of the facility, device, or method, and the proportion of the installation that is pollution control property.

(d) Following submission of the information required by Subsection (c), the executive director of the Texas [Natural Resource Conservation] Commission on Environmental Quality shall determine whether [if] the facility, device, or method is used wholly or partly as a facility, device, or method for the control of air, water, or land pollution. If the executive director determines that the facility, device, or method is used wholly or partly to control pollution, the director shall issue a letter to the political subdivision stating that determination and the portion of the cost of the installation that is pollution control property.

(e) The Texas [Natural Resource Conservation] Commission on Environmental Quality may charge a political subdivision seeking a determination that property is pollution control property an additional fee not to exceed its administrative costs for processing the information, making the determination, and issuing the letter required by this section. The commission may adopt rules to implement this section.

(f) The Texas Commission on Environmental Quality shall adopt rules establishing a nonexclusive list of facilities, devices, or methods for the control of air, water, or land pollution, which must include:

(1) coal cleaning facilities;

(2) atmospheric or pressurized and bubbling or circulating fluidized bed combustion systems and gasification fluidized bed combustion combined cycle systems;

(3) ultra-supercritical pulverized coal boilers;

(4) flue gas recirculation components;

(5) syngas purification systems and gas-cleanup units;

(6) enhanced heat recovery systems;

(7) exhaust heat recovery boilers;

(8) heat recovery steam generators;

(9) superheaters and evaporators;

(10) enhanced steam turbine systems;

(11) methanation;

(12) coal combustion or gasification byproduct and coproduct handling, storage, or treatment facilities;

(13) biomass cofiring storage, distribution, and firing systems;

(14) coal cleaning or drying processes such as coal drying/moisture reduction, air jigging, precombustion decarbonization, and coal flow balancing technology;

(15) oxy-fuel combustion technology, amine or chilled ammonia scrubbing, fuel or emission conversion through the use of catalysts, enhanced scrubbing technology, modified combustion technology such as chemical looping, and cryogenic technology; and

(16) any other equipment designed to capture, abate, or monitor nitrogen oxides, volatile organic compounds, particulate matter, mercury, carbon monoxide, carbon dioxide, or any criteria pollutant.

(g) The Texas Commission on Environmental Quality by rule shall update the list adopted under Subsection (f) at least once every three years. An item may not be removed from the list unless the commission finds compelling evidence to support the conclusion that the item does not render pollution control benefits.

(h) Notwithstanding the other provisions of this section, if the facility, device, or method for the control of air, water, or land pollution described in a permit application or in a request for any exemption from a permit that would otherwise be required is a facility, device, or method included on the list adopted under Subsection (f), the executive director of the Texas Commission on Environmental Quality, not later than the 30th day after the date of receipt of the information required by Subsections (c)(2) and (3) and without regard to whether the information required by Subsection (c)(1) has been submitted, shall determine that the facility, device, or method described in the permit application or in the request for an exemption from a permit that would otherwise be required is used wholly or partly as a facility, device, or method for the control of air, water, or land pollution and shall take the action that is required by Subsection (d) in the event such a determination is made.

(i) A political subdivision of the state seeking an adjustment in its rollback tax rate under this section shall provide to its tax assessor a copy of the letter issued by the executive director of the Texas [Natural Resource Conservation] Commission on Environmental Quality under Subsection (d). The tax assessor shall accept the copy of the letter from the executive director as conclusive evidence that the facility, device, or method is used wholly or partly as pollution control property and shall adjust the rollback tax rate for the political subdivision as provided for by Subsection (a).

SECTION 6. Section 182.022, Tax Code, is amended by adding Subsection (c) to read as follows:

(c) Notwithstanding any other provision of this chapter, a tax under this chapter may not be imposed on gross receipts from the sale of electricity generated by an ultraclean energy project, as defined by Section 382.003, Health and Safety Code.

SECTION 7. Section 182.122, Tax Code, is amended to read as follows:

Sec. 182.122. ALLOCATION OF TAX. (a) Revenues collected under this chapter are allocated:

(1) one-fourth to the foundation school fund; and

(2) three-fourths to the general revenue fund.

(b) The comptroller shall transfer to the ultraclean energy project account the first $30 million of the revenues collected under this chapter that are allocated to the general revenue fund under Subsection (a)(2) in any state fiscal biennium.

SECTION 8. Effective September 1, 2020, Section 182.122, Tax Code, is amended to read as follows:

Sec. 182.122. ALLOCATION OF TAX. Revenues collected under this chapter are allocated:

(1) one-fourth to the foundation school fund; and

(2) three-fourths to the general revenue fund.

SECTION 9. Subchapter B, Chapter 202, Tax Code, is amended by adding Section 202.0545 to read as follows:

Sec. 202.0545. TAX EXEMPTION FOR ENHANCED RECOVERY PROJECTS USING ANTHROPOGENIC CARBON DIOXIDE. (a) Subject to the limitations provided by this section, the producer of oil recovered through an enhanced oil recovery project that qualifies under Section 202.054 for the recovered oil tax rate provided by Section 202.052(b) is entitled to an additional 50 percent reduction in that tax rate if in the recovery of the oil the enhanced oil recovery project uses carbon dioxide that:

(1) is captured from an anthropogenic source;

(2) would otherwise be released into the atmosphere as industrial emission;

(3) is measurable at the source of capture; and

(4) is sequestered in one or more geological formations following the enhanced oil recovery process.

(b) In the event that a portion of the carbon dioxide used in the enhanced oil recovery project is anthropogenic carbon dioxide that satisfies the criteria of Subsection (a) and a portion of the carbon dioxide used in the project fails to satisfy the criteria of Subsection (a) because it is not anthropogenic, the tax reduction provided by Subsection (a) shall be reduced to reflect the proportion of the carbon dioxide used in the project that satisfies the criteria of Subsection (a).

(c) To qualify for the tax rate reduction under this section, the operator must apply to the comptroller for the reduction and include with the application any information and documentation that the comptroller may require.

(d) To qualify for the tax rate reduction under this section, the operator must apply for a certification from:

(1) the Railroad Commission of Texas, if carbon dioxide used in the project is to be sequestered in a reservoir productive of oil or natural gas;

(2) the Texas Commission on Environmental Quality, if carbon dioxide used in the project is to be sequestered in a geological formation other than a reservoir productive of oil or natural gas; or

(3) both the Railroad Commission of Texas and the Texas Commission on Environmental Quality if both Subdivisions (1) and (2) apply.

(e) An agency to which an operator applies for a certification under Subsection (d) may issue the certification only if the agency finds that, based on substantial evidence, there is a reasonable expectation that:

(1) the operator's planned sequestration program will ensure that at least 99 percent of the carbon dioxide sequestered as required by Subsection (a)(4) will remain sequestered for at least 1,000 years; and

(2) the operator's planned sequestration program will include appropriately designed monitoring and verification measures that will be employed for a period sufficient to demonstrate whether the sequestration program is performing as expected.

(e-1) The tax rate reduction does not apply if the operator's sequestration program or the operator's monitoring and verification measures differ substantially from the planned program described by Subsection (e), and the operator shall refund the difference between the amount of the tax paid under this section and the amount that would have been imposed in the absence of this section.

(f) The comptroller shall approve the application if the operator submits the certification or certifications required by Subsection (d) and if the comptroller determines that the oil is otherwise eligible under this section.

(g) If, before the comptroller approves an application for the tax rate reduction under this section, the tax imposed by this chapter is paid at the rate provided by Section 202.052(a) or (b) on oil that qualifies under this section, the producer or producers of the oil are entitled to a credit against taxes imposed by this chapter in an amount equal to the difference between the tax paid on the oil and the tax due on the oil after the rate reduction under this section is applied. The credit is allowed to each producer according to the producer's proportionate share in the oil. To receive a credit, one or more of the producers of the oil must apply to the comptroller for the credit not later than the first anniversary of the date the oil is produced.

(h) The comptroller may enact rules and establish procedures to implement and administer this section.

(i) The Railroad Commission of Texas may enact rules and establish procedures to implement and administer this section.

(j) The Texas Commission on Environmental Quality may enact rules and establish procedures to implement and administer this section.

SECTION 10. Section 313.024(b), Tax Code, as effective January 1, 2008, is amended to read as follows:

(b) To be eligible for a limitation on appraised value under this subchapter, the entity must use the property in connection with:

(1) manufacturing;

(2) research and development;

(3) a clean coal project, as defined by Section 5.001, Water Code;

(4) an ultraclean energy [a gasification] project, as defined by Section 382.003, Health and Safety Code [for a coal and biomass mixture]; or

(5) renewable energy electric generation.

SECTION 11. (a) Not later than September 1, 2012, and September 1, 2016, the Texas Commission on Environmental Quality and the State Energy Conservation Office shall issue a joint report to the legislature providing a status update on the implementation of the ultraclean energy program and an assessment of whether the emissions profile set out in Section 382.003(12-a)(B), Health and Safety Code, as added by this Act, should be adjusted to increase or decrease elements of the emissions profile.

(b) Factors to be considered in the assessment of the emissions profile shall include:

(1) the technical and economic feasibility of meeting all of the elements of the emissions profile in a commercially viable project, as documented by the United States Department of Energy;

(2) the technical and economic feasibility of projects to meet all of the elements of the emissions profile and still use a diverse range of fuels, including lignite; and

(3) the adequacy of the incentives provided by this Act to continue to attract investment in and federal funding for ultraclean energy projects in this state.

(c) Any adjustments to the emissions profile implemented by the legislature in response to a report required by this section shall not apply to an application deemed administratively complete on or before the date of the report.

(d) Not later than September 1, 2020, the State Energy Conservation Office shall issue a report to the legislature providing an assessment of whether the ultraclean energy program should be extended due to a continued need for incentives to ensure that a diverse range of affordable fuels, including lignite, can be utilized in a manner that achieves the lowest emission profile that is technically and economically feasible.

SECTION 12. The state energy conservation office shall promulgate rules to establish the ultraclean energy grant and loan program under Section 447.013, Government Code, as added by this Act, not later than January 1, 2008.

SECTION 13. Not later than January 1, 2008, the Texas Commission on Environmental Quality shall adopt rules required under Section 382.0566, Health and Safety Code, and Section 11.31(k), Tax Code, as added by this Act, and Section 26.045(f), Tax Code, as amended by this Act.

SECTION 14. Section 447.013(j), Government Code, as added by this Act, takes effect only if the constitutional amendment proposed by the 80th Legislature, Regular Session, 2007, authorizing the issuance of general obligation bonds to provide and guarantee loans to encourage the use of carbon-free hydrogen energy is approved by the voters. If that amendment is not approved by the voters, Section 447.013(j), Government Code, as added by this Act, has no effect.

SECTION 15. The amendment made by this Act to Section 11.31(b), Tax Code, takes effect January 1, 2008.

SECTION 16. Except as otherwise provided by this Act, this Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.