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bioweb.sungrant.org » Technical » Policy » State Biofuels Policy

State Biofuels Policy	Printer Friendly

In addition to federal biofuels policies, many states have also enacted policies, in part because they want to be proactive in addressing national and international concerns (i.e., reducing oil imports, reducing greenhouse gas emissions), and in part to address local economic and environmental issues (e.g., increasing agricultural incomes, providing local jobs, water contamination from MTBE). State biofuels policies are most heavily concentrated in the Midwest and Great Plains, although states outside of these regions are beginning to formulate policies as well. The focus on biofuels has been strongest in the Midwest due to the reliance of corn as a feedstock, which has lead to the concentrated production of ethanol in this area (figure 1). Due to issues associated with transporting ethanol, most consumption (7 of the top 10 states) also occurs in the Midwest (Federal Highway Administration, 2004; Renewable Fuels Association, 2006). Biodiesel production is more widely distributed than is ethanol production, but it too is more concentrated in the Midwest and Great Plains regions (figure 2). Figure 1—U.S. ethanol refineries and U.S. corn production density Source: Informa Economics, Inc. (2005) Figure 2—U.S. commercial biodiesel production plants Source: National Biodiesel Board (2006) State policies typically involve the use of producer incentives, retail incentives, and renewable fuel standards. Other policy instruments include infrastructure grants and/or credits, fleet fuel purchase requirements, and research and development grants. Biofuel producer incentives Biofuel producer incentives are designed to promote the construction and expansion of biofuels production facilities. Due to high start up costs and uncertain input costs for biofuels, these incentives are meant to reduce production and investment costs. Mechanisms include tax credits for every gallon of biofuel produced or exemption from some level of state sales or property taxes for materials, capital, and land used to produce biofuels. Some production incentives apply generally to biofuels, while others are specific to either ethanol or biodiesel. Retail incentives Retail incentives are intended to help make biofuels more price competitive with gasoline and diesel at the fuel pump.  States typically charge an excise or use tax on every gallon of fuel sold.  These incentives will either provide biofuels with a reduced tax rate or a complete exemption from the taxes. The level of exemption for a given fuel will depend on the amount of biofuels blended into it. Therefore, E85 is usually taxed at a lower rate than E10, and the same is true for B20 relative to B2. A state-by-state summary of producer and retail incentives for ethanol and biodiesel are shown in tables 1 and 2.    Table 1—State ethanol production incentives and tax exemptions   State Excise Tax Exemption Producer Credits Special Information Alaska $0.06 per gallon tax exemption No producer credit Tax exemption applies only in Anchorage and only during the winter months. No sunset. California   $0.40 per gallon tax credit for liquid fuels (including ethanol) produced from biomass sources within the state   Connecticut $0.01 per gallon tax exemption No producer credit No sunset Florida   75% of all capital costs, operation and maintenance costs, and R&D costs associated with in-state production, storage, or distribution of biodiesel and ethanol Sales tax exemption on materials used in distribution of biodiesel and ethanol Hawaii 4% tax exemption Tax credit during an 8 year period will equal 30% of a facility's nameplate capacity if that capacity is greater than 500,000 but less than 15 million gallons No sunset Other: Administrative rules signed September 20, 2004 require that beginning April 2006, 85% of all gasoline sold in the state must contain 10% ethanol. Implements the ethanol requirement originally included in legislation signed in 1994. Idaho Tax exemption is to equal the amount of ethanol blended in a gallon of gasoline – not to exceed 10%. Average exemption is $0.023 per gallon.  E10 receives a $0.025 per gallon exemption with a tax of $0.225 per gallon No producer credit No sunset Illinois 2% sales tax exemption – average exemption is $0.01 to $0.015 per gallon. Tax applies to 80% of proceeds from E10 sales.  No gasoline tax applies to sales of E85.  Extended in 2003 to include E85 and biodiesel. No producer credit A $15 million grant fund, the Renewable Fuels Development Program, was created in 2003 to support the construction of new ethanol/biodiesel plants and expansions; to qualify, a project must increase capacity by at least 30 million gallons per year. Sunsets in 2013; gradually reduces to zero after December 31, 2013. Indiana $0.10 tax exemption per gallon of E85.  The total amount of deductions may not exceed $2 million for all retailers in all reporting periods.  Expires July 1, 2008. $0.125 per gallon producer credit Credit applies to facilities that produce at least 40 million gallons per year or increase production by at least 40 million gallons per year after December 31, 2005. Total per facility not to exceed $5 million for all taxable years.  If facility does not have approval from Indiana Economic Development Corporation, total may not exceed $3 million for all taxable years.  Total biofuel incentives paid may not exceed $20 million. Iowa $0.017 tax exemption per gallon of E10 and $0.037 tax exemption per gallon of E85 from the $0.207 per gallon gasoline tax.  E10 tax is $0.19 per gallon and E85 tax is $0.17 per gallon.  E85 tax is $0.19 per gallon if annual sales exceed 700,000 gallons.  Retailers with more than 60% sales in blended gasoline are eligible for a $0.025 per gallon tax credit for every additional gallon sold from 2002 to 2007. No producer credit Sunset 2007; Income tax credit available to retailers who sell more than 60% ethanol-blended fuel at their station, including E85. Kansas No tax exemption Average $0.07 per gallon producer credit Provides $0.05 per gallon for producer in operation prior to July 1, 2001 during FY 2002-2004. Increased capacity of 5 million gallons per year or more on-line on or after July 1, 2001 receives $0.075 per gallon, limited to 15 million gallons per year. Producers who begin production on or after July 1, 2001 and have sold at least 5 million gallons to a blender are eligible for $0.075 per gallon, limited to 15 million gallons per year. Maine Approximately $0.02 tax exemption on E10 and a $0.064 tax exemption on E85 from the $0.22 per gallon gasoline tax.  $0.05 per gallon producer credit Producer credit applies to biofuels produced on or after January 1, 2004.  Unused portions of the tax credit may be carried over for the succeeding 5 taxable years. Maryland   $0.20 per gallon producer credit for ethanol produced from small grains (winter grain including wheat, rye, triticale, oats, barley); $0.05 per gallon producer credit for ethanol from other agricultural products (including corn). Maximum total payment of $3 million per year for all ethanol produced. The credit applies to no more than 15 million gallons per year, of which at least 10 million must be produced from small grains.  Expires December 31, 2017. Minnesota No tax exemption on E10 and a $0.058 tax exemption on E85 from the $0.20 per gallon excise tax.  E85 excise tax rate is $0.142 per gallon. $0.20 per gallon producer credit; subject to reduction pending on state budget Producer credit applies to the first 15 million gallons per plant per year. There is a $3 million annual cap per plant. Cap is 10 years from date of plant start-up. Mississippi No tax exemption $0.20 per gallon producer credit Maximum payment of $6 million per producer of anhydrous ethanol and $37 million total per fiscal year. Payments received for up to 10 years.  Must enter the market on or before June 30, 2005.  Expires June 30, 2015. Missouri No tax exemption $0.20 per gallon applies to the first 12.5 million gallons. $0.05 per gallon to the next 12.5 million gallons produced. Producer credit applies to the first 5 years of plant production up to 25 million gallons.  Capped at $3.125 million over 5 years.  Expires December 31, 2005.  Facilities are only eligible if at least 51% is owned by Missouri ag producers actively engaged in agricultural production. Montana No tax exemption $2 million per plant, per year producer incentive.  $0.30 per gallon producer incentive on ethanol made entirely from Montana products. To receive producer incentive, plant must use Montana produced grains: 20% in first year of production, 25% in 2nd year, 35% in 3rd year, and increasing by 10% per year until plant uses 65% Montana grains.  Available for the first 6 years of production, and total incentive payments may not exceed $6 million per year. Nebraska Motor fuels sold to an ethanol facility or produced at an ethanol facility are exempt from certain motor fuel taxes. No producer credit $0.185 producer incentive for first 15.625 million gallons.  Facilities may earn up to $2.8 million per year for 8 years.  Plants must be producing by June 30, 2004. New Mexico The amount of biomass used in processing biofuels can be deducted in calculating the compensating tax due.     New York   Producer credit under construction Potential tax credit of up to $1 million per year for 5 years. North Carolina   35% tax credit to taxpayers who construct, purchase, or lease renewable energy property.  This credit is received is five equal installments beginning with the taxable year the property is placed in service.  $2,500,000 per installation cap and property must be in service by January 1, 2011. North Dakota $0.20 per gallon exemption on E85 from the $0.21 per gallon gasoline excise tax until E85 sales reach 1.2 million gallons. $0.40 per gallon producer credit 2005 legislation establishes producer payments for 2005-07 biennium (and not beyond) for plants that were in operation by June 1, 1995 (less than 15 million gallons per year = $900,000 and greater than 15 million gallons per year = $450,000). Also provides additional incentives for increased production by 10 million gallons per year or 50% (whichever is less). The Agricultural Products Utilization Commission may provide quarterly countercyclical payments for ethanol producers based on the price of corn and the rack price of ethanol during each quarter. Oklahoma $0.016 per gallon tax credit on retail sales of ethanol blended gasoline effective January 1, 2006. $0.20 per gallon producer credit For production in excess of nameplate capacity resulting from an expansion in place between July 1, 2003 and December 31, 2006. Maximum of $25 million per facility per year, with total maximum per facility of $125 mil.  Maximum 25 million gallons for a single facility and maximum 75 million gallons for all facilities.  Eligible for 5 years ending no later than December 31, 2011.  Credit of $0.075 for new production after January 1, 2011, for up to 10 million gallons per year per facility for 3 years. Pennsylvania No tax exemption $0.05 per gallon producer credit Up to 12.5 million gallons of renewable fuel per calendar year produced by a qualified renewable fuels producer. Money provided from state Alternative Fuel Incentive Fund. (SB 255, signed into law November 29, 2004.     South Carolina $0.05 per gallon incentive payment to E85 retailers provided E85 is at least $0.05 lower in price than lowest priced non-E85 gasoline sold by that retailer. $0.20 per gallon tax credit Production facilities must be in place after 2006 and producing 25% of the nameplate capacity by December 31, 2009.  Facilities are eligible for the credit for 5 years ending no later than December 31, 2014.   $0.20 per gallon tax credit Applies to ethanol produced in excess of the nameplate capacity due to a facility expansion that occurs after 2006 and before 2009.  Facilities are eligible for the credit for 5 years ending no later than December 31, 2014.   $0.075 per gallon tax credit Applies to new ethanol production beginning January 1, 2014 and not exceeding a period of 3 years.   Tax credit for 25% of the cost of constructing or installing equipment of a commercial ethanol facility.   South Dakota $0.02 tax exemption per gallon of E10 and $0.12 tax exemption per gallon of E85 from the $0.22 per gallon gasoline tax. $0.20 per gallon producer credit 416,667 gallons per month maximum allowable to ensure equal distribution among all producers.  Cumulative annual incentives may not exceed $7 million.  Expires December 31, 2006. Texas Ethanol blended with taxable diesel that is identified as an ethanol fuel blend is exempt from the diesel fuel tax. $0.20 per gallon producer credit for ethanol and biodiesel Credit applies to first 18 million gallons per year of production per plant for 10 years. Imposes fee on ethanol and biodiesel producers of 3.2 cents for each gallon produced up to 18 million gallons per facility. Tennessee   Governmental producer credit of up to $6 million.   Washington Tax deduction on the sale or distribution of E85.  Delivery vehicles and machinery, equipment, and related services that are used for the retail sale of biodiesel are exempt from state retail fuel sales and use taxes. State and local sales and use tax exemption on investments in buildings, equipment, and labor for the purpose of manufacturing ethanol until July 1, 2009.  Certain buildings, equipment, and land used to manufacture ethanol are also exempt from state and local property and leasehold taxes for a period of 6 years.   Wisconsin No tax exemption $0.20 per gallon producer credit subject to funding $3 million per year, per plant limited to first 15 million gallons per year for first 5 years.  Eligible facilities must produce at least 10 million gallons in first year and purchase commodity inputs grown in Wisconsin.  Expires June 30, 2006. Wyoming No tax exemption $0.40 per gallon producer credit if 25% of inputs originate in Wyoming Program has a $4 million per year cap. Maximum $2 million in incentives to any one ethanol producer.  Plants constructed after July 1, 2003 eligible for 15 years. Plants in existence prior to July 1, 2003 eligible until June 30, 2009 , unless they expand by at least 25%, in which case they are eligible for 15 years following the date of expansion. Sources: American Coalition for Ethanol (2006); Koplow (2006); National Conference of State Legislatures (2006); Schumacher (2003); US Department of Energy, EERE (2006).

Table 2—State biodiesel production incentives and tax exemptions State Excise Tax Exemption Producer Credits Arkansas   $0.50 per gallon tax refund for B1 and $1.00 per gallon tax credit for B2 or higher, tax income credit for up to 5% of facilities and equipment Florida   Sales tax exemption on materials used in distribution of biodiesel and ethanol   75% of all capital, operation and maintenance, and R&D costs associated with in-state production, storage, or distribution of biodiesel and ethanol Idaho Tax deduction not exceeding 10% for fuel containing agricultural products or animal fats/wastes   Illinois Sales and use taxes apply to 80% of biodiesel blended fuels containing between 1% and 10% biodiesel.  Sales and use taxes are not applicable to blends containing more than 10% biodiesel.  If tax rates are ever imposed at a rate of 1.25%, then taxes on biodiesel blends do not receive a reduced rate.   Indiana $0.01 per gallon credit to fuel retailers and distributors on blended biodiesel.  This credit is also extended to users who have fuel containing at least 2 percent biodiesel delivered. $1.00 per gallon credit to in-state facilities on biodiesel used to produce blended biodiesel.  Up to $3 million in credits per taxpayer or up to $5 million with approval from the Indiana Economic Development Corporation.    $0.02 per gallon credit to in-state facilities on blended biodiesel.  Up to $3 million in credits per blender who uses Indiana biodiesel.   The state budget for biofuel incentives is increased from $10 million to $20 million. Iowa $0.03 per gallon credit on B2 to fuel retailers with diesel sales at least 50% biodiesel   Kansas   $0.30 per gallon credit to qualified Kansas biodiesel producers on biodiesel Kentucky   $1.00 per gallon income tax credit to biodiesel producers and blenders, annual cap of $1,500,000 Louisiana Sales and use tax exemptions for certain property and equipment used in biodiesel production   Maine   $0.05 per gallon income tax credit for commercial biofuels production used in motor vehicles.  Producer credit applies to biofuels produced on or after January 1, 2004.  Unused portions of the tax credit may be carried over for the succeeding 5 taxable years. Maryland   $0.20 per gallon credit for biodiesel produced from soybean oil.  Eligible facilities must have begun production on or after December 31, 2004.   $0.05 per gallon credit for biodiesel produced from other feedstocks.  Eligible facilities must have begun production on or before December 31, 2004.   Credits may only be paid on no more than 5 million gallons per calendar year.  2 millions of these gallons must be produced from soybean oil. Mississippi   $0.20 per gallon credit for up to 30 million gallons per year for up to 10 years to in-state ethanol and biodiesel producers with an annual cap of $6 million for each producer Missouri   Monthly grant if 51% of the facility is owned by agricultural producers who reside in Missouri and if 80% of the feedstock used comes from in-state sources.  $0.30 per gallon for the first 15 million gallons and $0.10 per gallon for the next 15 million gallons in a fiscal year.  30 million gallon cap for a maximum of 5 years per producer. Montana State road tax is reduced by 15% for consumers using biodiesel. Credit for up to 15% of the cost of blending and storage equipment.  May not exceed $52,500 for a special fuel distributor and $7,500 for an owner/operator of a motor fuel outlet.  Credit can only be claimed in the year the taxpayer begins blending biodiesel.  $0.02 per gallon to distributors if biodiesel ingredients are all from Montana.  $0.01 per gallon for retailers if biodiesel ingredients are all from Montana.   Credit for up to 15% of the cost of constructing and equipping a production facility.  Credit can only be claimed in the year the facility begins production, and the facility must be in operation by January 1, 2010.  $0.10 per gallon for each gallon of increased production from the previous year.  This is available for the first 3 years of production. Nebraska