The bill would provide tax incentives to organizations that participate in research and development activities related to a "clean energy project".  Specifically, a "clean energy project" is defined as the construction of a coal-fired power plant that: (1) can generate at least 200 megawatts; (2) uses Integrated Gasification and Combined Cycle technology; and (3) is capable of capturing and permanently sequestering in a geological formation at least 60% of the carbon dioxide generated by the power plant.  The bill does not limit the number of entities eligible for these incentives. 

The bill provides for a franchise tax credit not to exceed $100 million per organization implementing a clean energy project.  The governor and the comptroller would adopt provisions detailing the issuance of the franchise tax credit, for example, on how much of the franchise tax credit would be allowed per year.  An organization would be qualified to receive the franchise tax credit irrespective of whether the entity owes or pays the franchise tax.  Additionally, the entity would be permitted to assign the tax credits to a taxable entity.

The bill would require the Bureau of Economic Geology of the University of Texas at Austin (BEG) to monitor, measure, and verify the status of the sequestered carbon dioxide generated by the first three clean energy projects.  The BEG has indicated the cost of monitoring one clean energy project will be approximately $1,000,000 per year.  These costs mainly consist of hiring approximately 7 FTEs per year and purchasing necessary equipment.  The BEG also estimates that approximately ten thousand acres of land will be needed, per clean energy project, to sequester the necessary amount of carbon dioxide.  According to the BEG, there could be a revenue loss to the Permanent University Fund if land owned by the PUF was used for this purpose, since it would no longer be available for oil and gas exploration.

The bill would amend the Tax Code to reduce the oil production tax rate from 4.6% to 1.15% for certain oil producers.  To qualify, the oil produced must be recovered through an Enhanced Oil Recovery Project (EOR) that uses carbon dioxide generated by a clean energy project.  Also, the producer must receive certification from either the Railroad Commission or the Texas Commission on Environmental Quality (depending on where the carbon dioxide is sequestered) that at least 60% of the carbon dioxide sequestered will remain so for at least 500 years.  The tax rate reduction will last for 30 years.  Currently, a producer is eligible for the rate reduction for 7 years if at least 99% of the carbon dioxide sequestered will remain so for at least 1000 years.  Since the bill would extend the length of the rate reduction and impose a less stringent requirement for obtaining the reduction, the state could experience a revenue loss that would depend on the number of producers participating in an EOR project.