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bioweb.sungrant.org » Technical » Policy » State Biofuels Policy
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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 |
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Alaska |
$0.06 per gallon tax exemption |
No producer credit |
Tax exemption applies only in Anchorage and only during the winter months. No sunset. |
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California |
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$0.40 per gallon tax credit for liquid fuels (including ethanol) produced from biomass sources within the state |
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Connecticut |
$0.01 per gallon tax exemption |
No producer credit |
No sunset |
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Florida |
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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 |
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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 |
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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. |
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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 |
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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. |
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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. |
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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. |
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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. |
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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. |
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Maryland |
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$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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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New Mexico |
The amount of biomass used in processing biofuels can be deducted in calculating the compensating tax due. |
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New York |
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Producer credit under construction |
Potential tax credit of up to $1 million per year for 5 years. |
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North Carolina |
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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. |
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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. |
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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. |
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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. |
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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. |
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$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. |
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$0.075 per gallon tax credit |
Applies to new ethanol production beginning January 1, 2014 and not exceeding a period of 3 years. |
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Tax credit for 25% of the cost of constructing or installing equipment of a commercial ethanol facility. |
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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. |
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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. |
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Tennessee |
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Governmental producer credit of up to $6 million. |
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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. |
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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. |
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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).
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Table 2—State biodiesel production incentives and tax exemptions
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State |
Excise Tax Exemption |
Producer Credits |
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Arkansas |
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$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 |
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Florida |
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Sales tax exemption on materials used in distribution of biodiesel and ethanol |
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75% of all capital, operation and maintenance, and R&D costs associated with in-state production, storage, or distribution of biodiesel and ethanol |
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Idaho |
Tax deduction not exceeding 10% for fuel containing agricultural products or animal fats/wastes |
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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. |
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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. |
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$0.02 per gallon credit to in-state facilities on blended biodiesel. Up to $3 million in credits per blender who uses Indiana biodiesel. |
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The state budget for biofuel incentives is increased from $10 million to $20 million. |
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Iowa |
$0.03 per gallon credit on B2 to fuel retailers with diesel sales at least 50% biodiesel |
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Kansas |
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$0.30 per gallon credit to qualified Kansas biodiesel producers on biodiesel |
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Kentucky |
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$1.00 per gallon income tax credit to biodiesel producers and blenders, annual cap of $1,500,000 |
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Louisiana |
Sales and use tax exemptions for certain property and equipment used in biodiesel production |
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Maine |
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$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. |
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Maryland |
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$0.20 per gallon credit for biodiesel produced from soybean oil. Eligible facilities must have begun production on or after December 31, 2004. |
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$0.05 per gallon credit for biodiesel produced from other feedstocks. Eligible facilities must have begun production on or before December 31, 2004. |
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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. |
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Mississippi |
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$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 |
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Missouri |
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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. |
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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. |
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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. |
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Nebraska |
Motor fuels sold to a biodiesel facility or produced at a biodiesel facility are exempt from certain motor fuel taxes. |
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New Mexico |
The amount of biomass used in processing biofuels can be deducted in calculating the compensating tax due. |
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North Carolina |
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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. |
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North Dakota
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Sales tax exemption on equipment used to produce fuel that is at least 2% biodiesel. |
$0.05 per gallon income tax credit to suppliers of fuel that is at least 5% biodiesel. |
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$0.0105 per gallon reduction in the $0.21 per gallon state excise tax for the sale or delivery of fuel that is at least 2% biodiesel. |
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Oklahoma |
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$0.20 per gallon credit to biodiesel producers for tax years beginning after December 31, 2004 and before December 31, 2011. Eligible facilities must produce at least 25% of the nameplate capacity for at least 6 months after the first month they are eligible. The credit may be earned for up to 5 years. |
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$0.20 per gallon credit for biodiesel produced in excess of the nameplate capacity due to a facility expansion that occurs before December 31, 2007. |
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$0.075 per gallon credit for new biodiesel production beginning January 1, 2012 and not exceeding a period of 3 years. |
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Pennsylvania |
No tax exemption |
$.05 per gallon producer credit for 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. |
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Rhode Island |
Motor fuel tax exemption for organically produced biodiesel fuels. |
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South Carolina |
$0.05 per gallon incentive payment to biodiesel retailers on fuel that is at least 20% biodiesel provided the fuel is at least $0.05 lower in price than lowest priced non-B20 fuel sold by that retailer. |
$0.20 per gallon income tax credit for biodiesel motor fuel produced mostly from soybean oil for up to 3 million gallons per year for a maximum of 5 years. |
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$0.30 per gallon income tax credit for biodiesel motor fuel produced from feedstock other than soybean oil for up to 3 million gallons per year for a maximum of 5 years. |
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These income tax credits are available for no more than one facility per county in a calendar year. Priority is given to the first facility in the county using soybean oil as a feedstock. There are no per county limitations on these credits. |
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$0.20 per gallon tax credit for production facilities 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. |
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$0.20 per gallon tax credit for biodiesel 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. |
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$0.075 per gallon credit for new biodiesel production beginning January 1, 2014 and not exceeding a period of 3 years. |
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Tax credit for 25% of the cost of constructing or installing equipment of a commercial biodiesel facility. |
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South Dakota |
$0.22 per gallon special fuel excise tax. |
Tax refund for contractors' excise taxes and sales/use taxes paid during the construction of a new agricultural processing facility. Includes the expansion of an existing soybean processing facility if the expansion is used for biodiesel production. Project costs must exceed $4.5 million in order to qualify for the refund. |
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Texas |
Biodiesel blended with taxable diesel that is identified as a biodiesel fuel blend is exempt from the diesel fuel tax. |
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Virginia |
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$0.10 per gallon grant for biofuels sold within the state between January 1, 2007 and January 1, 2017. The producer must produce at least 10 million gallons of biofuels in the calendar year the incentive is given in order to qualify. Each producer is only eligible for 6 calendar years of grants. |
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Washington |
Tax deduction on the sale or distribution of biodiesel. 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 biodiesel until July 1, 2009. Certain buildings, equipment, and land used to manufacture biodiesel are also exempt from state and local property and leasehold taxes for a period of 6 years. | |
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Renewable fuels standards
Like the federal government, several states have created their own renewable fuel standards to increase the amount of biofuels used within the states.
In May 2006, Iowa Governor Tom Vilsack signed into law the most aggressive state renewable fuel standard in the country. Biofuel use, including ethanol and biodiesel, is expected to account for 25 percent of gasoline use in the state by 2020 (table 3). Retailers are able to meet this standard through E10, E85, and biodiesel blends.
Table 3—Renewable fuel standard schedule for Iowa
| Iowa Renewable Fuel Standard Schedule |
| 2009 |
10% |
2014 |
15% |
| 2010 |
11% |
2015 |
17% |
| 2011 |
12% |
2016 |
19% |
| 2012 |
13% |
2017 |
21% |
| 2013 |
14% |
2018 |
23% |
Source: Iowa Corn Growers Association (2006).
Missouri also enacted a renewable fuel standard in 2006 that requires most gasoline (excludes aviation fuels and premium gasoline) sold in the state to be at least 10% ethanol by 2008. The start date was established to allow the state industry time to increase production. The standard is only in effect when the price of ethanol is lower than the price of unblended gasoline permitting consumers to benefit from the standard by being able to purchase the least expensive fuel available at the time. This consumer protection clause is intended to make the standard market driven and only supports the biofuels industry when fuel prices are low. If prices rise and the industry is profitable, extra income will not be provided by the renewable fuel standard. Missouri currently has four ethanol plants using 55 million bushels of corn (worth an additional $41 million/yr to corn producers). The University of Missouri estimates that the standard will contribute $348 million/year in value added income and $726 million/year in economic activity. An estimated 5,000 new jobs will be created by the standard, and 124 million bushels of corn will be required for ethanol production.
Hawaii implemented a renewable fuel standard in 2004 that requires 85 percent of gasoline used in Hawaii to be 10% ethanol. At the same time, the state proposed six ethanol plants. However, due to zoning and permit issues, none of these ethanol plants have started construction. As a result, Hawaii will be importing (from both the mainland and foreign countries) all the ethanol necessary to meet its renewable fuel standard this year and will wait for local ethanol plants to begin production in 2007. The fuel standard does not require gasoline distributors to sell ethanol produced locally, however, due to transportation and freight costs, Hawaii typically has the highest gasoline prices of any state, and the potential to produce some fuel locally may help to decrease average fuel prices. Hawaii’s fuel standard is unique in that it relies on the state’s sugarcane crop and waste, while Midwestern states focus heavily on corn for ethanol or soybeans for biodiesel.
Louisiana passed a renewable fuel standard in June 2006. The regulation requires 2% of gasoline sales to be ethanol once in-state ethanol production reaches 50 million gallons per year. The same requirement of 2% will apply to biodiesel once in-state production reaches 10 million gallons per year. An 18 to 24 month delay is anticipated before in-state production is high enough for the mandate to go into effect.
In February 2006, Washington passed a renewable fuel standard that requires by December 1, 2008, that 2% of the state’s diesel use to be met by biodiesel. The biodiesel requirement increases to 5% once the state can produce 3% on its own demand. By the same date, 2% of gasoline use must be ethanol. The ethanol requirement may then increase to 10%, as long as this does not adversely affect the state’s ability to meet Clean Air Act standards. This bill expected to result in the sales of at least 20 million gallons of biodiesel and 50 million gallons of ethanol per year.
In May 2005, Minnesota passed a renewable fuel standard for ethanol. The ethanol content of gasoline must be 20% by 2013, but the standard could also be fulfilled by ethanol making up 20 percent of gasoline sales by 2013. Increased use of E85 is expected to help the state meet the standard without requiring all gasoline to be 20 percent ethanol. Minnesota has been a forerunner in ethanol promotion and was the first state to require 10 percent ethanol fuel blends. Shortly after passing the ethanol fuel standard, Minnesota enacted a requirement that all diesel fuel sold in Minnesota must contain 2 percent biodiesel. Minnesota is currently producing about 63 million gallons of biodiesel per year, the most of any state in the US.
Infrastructure grants and credits
Infrastructure grants and credits are offered to fuel retailers to help cover the cost of installing or retrofitting refueling equipment to be compatible with ethanol. Most of these incentives cover a certain percentage (usually up to 50 percent) of the costs associated with the modifications. A state-by-state summary of infrastructure grants and credits is available in table 4.
State fleet fuel purchase requirements
Renewable energy purchase requirements for state governments are intended to make the state lead by example. According to the U.S. Department of Energy, county, city, and town governments spend $12 billion per year on energy bills and another $50 to $70 billion on energy-related products per year.
Purchase requirements can help reduce government energy expenditures by ensuring that the governments are operating with the most efficient equipment. These programs take into account the long term energy costs of a technology and look to minimize costs over time. Because governments typically have large expenditures on consumption of any type, purchase requirements may help increase demand for renewable energy. However, because renewable energy-using products tend to have higher upfront costs, it may be difficult for governments to absorb these initial costs. Even though savings would appear over time, year to year government budgets may not permit extra spending in current periods to save in future periods. Governments often find themselves required to purchase the least expensive option, regardless of the lifetime cost of that purchase.
State fleet requirements vary in how binding they are (i.e., permitted or required). Requirements may depend upon the current prices of a renewable fuel relative to its conventional counterpart. A state-by-state summary of state fleet requirements is available in table 4.
Miscellaneous other grants
Grants may be offered to promote renewable energy in general or a specific type of renewable technology; for research and development efforts; for implementation activities; or to reduce costs. The percentage of the project cost covered by a grant varies. Grants can help develop new technologies that may not have been feasible within the market otherwise, but potentially run the risk of merely subsidizing an activity that will never be commercially viable.
The Illinois Ethanol Research Advisory Board manages and operates the National Corn-to-Ethanol Research Pilot Plant at Southern Illinois University. This research facility is designed to develop technologies to reduce ethanol production costs and make ethanol production more sustainable. Delaware’s Green Energy Fund provides grants of up to 25% of costs for projects that improve Delaware’s renewable energy market. Grants for a single biodiesel production facility may not exceed $300,000. Indiana has enacted plans for rural communities in the state to meet their energy needs from renewable resources (Gov. Mitch Daniels, 2005). The initial pilot community is Reynolds, IN--phase 1 of the plan focuses on biofuels and includes installation of E85 and B20 pumps at a local BP fuel station and conversion of the town fleet of vehicles to E85 compatible. General Motors (with help from the Indiana State Department of Agriculture) has agreed to provide special pricing on flexible fuel vehicles and 20 randomly selected residents were given two year leases on a flexible fuel vehicle.
Table 4—Biofuels government use requirements and infrastructure incentives
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State |
State Fleet Use Requirement |
Infrastructure Incentives |
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California |
Public agencies and utilities are permitted to use biodiesel or biodiesel-blended fuels. |
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Colorado |
All state owned diesel vehicles and equipment must run on B20 by January 1, 2007. The requirement is subject to availability and only applies if the price is no more than $0.10 more per gallon than conventional diesel. |
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Georgia |
State agencies and departments must prioritize the procurement of fuel efficient and flexible fuel vehicles is such technologies are available and economically practical. State owned vehicles must maximize use of ethanol and biodiesel blended fuels. |
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Hawaii |
Biofuels preference in state procurement. A preference of $0.05 per gallon is given to each gallon of B100 or to the biodiesel portion of a blended fuel. |
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Illinois |
Supports procurement of 2% biodiesel blends for the state's diesel fleet and investigates ways to increase the availability of E85 for the state's flexible fuel vehicles. State agencies may also give preference to contractors who use ethanol made from Illinois corn or biodiesel made from Illinois soybeans. |
$500,000 is available for the Illinois E85 Clean Energy Infrastructure Development Program to establish E85 retail gasoline outlets throughout Illinois. The program covers up to 50% of the total converting costs with a maximum grant of $2,000 per facility. Grants for the construction of a new facility are capped at $40,000 per facility. |
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Vehicles operated by state, county, or local governments, school districts, community colleges, public colleges or universities, and mass transit agencies must use a biodiesel blend with at least 2% biodiesel. |
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Indiana |
The Indiana Greening the Government Initiative requires all government flexible fuel vehicles based in Indianapolis to use E85 whenever possible. |
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Government entities are required to use B20 whenever possible with a 10% price premium over conventional diesel. |
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Iowa |
State agency flexible fuel vehicles must operate on E85 whenever refueling facilities are available. |
An infrastructure grant program will pay up 50% of the cost to install or upgrade E85 fueling equipment with a maximum of $30,000 per project. Grants will also pay for up to 50% the cost of biodiesel terminal distribution facilities with a maximum of $50,000 per project. Total expenditures are capped at $13 million over 3 years. |
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All state agencies must ensure that bulk diesel fuel procured contains at least 5% renewable content by 2007, 10% by 2008, and 20% by 2010. Vehicles must operate on biodiesel blends whenever possible. |
A cost-share program is being developed for the installation and conversion of E85 fueling infrastructure. The program will provide at least 30 new retail ethanol stations and 4 new terminal facilities for ethanol storage. Maximum annual payments will be $325,000. |
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A biodiesel fuel revolving fund has been created from the sale of Energy Policy Act credits to be used by the Iowa Department of Transportation for the purchase of biodiesel fuel. |
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Kansas |
State owned diesel vehicles and equipment must be fueled with at least B2 as long as the price is no more than $.10 per gallon higher than diesel fuel. State owned motor vehicles must be fueled with E10 as long as the price is no more than $0.10 per gallon higher than regular fuel. |
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Kentucky |
Procurement contracts must maximize the market availability of ethanol and biodiesel blends. Vehicles operated by the Kentucky Transportation Cabinet should use E10 and B2 are primary fuel options and flexible fuel vehicles should use E85. |
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Maryland |
At least 50% of state vehicles must use a minimum biodiesel blend of B5 beginning in fiscal year 2008. |
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Minnesota |
State owned flexible fuel vehicles are expected to use E85 when available. Plans are being established to facilitate the use of ethanol and biodiesel and make more E85 fueling stations available throughout the state. |
The Minnesota E85 Team provides grants to service stations to install or convert fueling equipment to E85 compatible. |
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Missouri
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School districts are allowed to establish contracts with nonprofit, farmer-owned cooperatives for the purchase of B20 or higher. |
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At least 75% of the Missouri Department of Transportation fleet must be fueled with at least B20 if it is available. |
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Mississippi |
The Bureau of Fleet Management encourages the use of fuel efficient and hybrid vehicles when appropriate. |
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Nebraska |
State owned flexible fuel vehicles and diesel vehicles are required to use E85 and biodiesel blends when available. |
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New Jersey |
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Local governments, state colleges and universities, school districts, and governmental authorities are eligible for 50% of the cost of purchasing and installing refueling infrastructure for alternative fuels including ethanol. Maximum per project cost is $50,000. |
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New Mexico |
Cabinet level state agencies, public schools, and public universities and colleges must have at least 15% of their transportation fleet operating on alternative fuels by 2010. |
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New York |
State owned flexible fuel vehicles are required to use E85 when available. At least 2% of fuels used in the state fleet must be biodiesel by 2007. This percentage will increase annually, and by 2012 at least 10% of fuels used in the state fleet must be biodiesel. |
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North Carolina |
The Alternative Fuel Revolving Fund helps state agencies offset the cost of alternative fuel, fueling infrastructure, and alternative fuel vehicles. |
15% tax credit for the cost of constructing and installing fueling infrastructure is available for biodiesel, ethanol, and ethanol blend refueling facilities. Facilities must be in service before January 1, 2008. |
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North Dakota |
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10% tax credit for up to 5 years on costs incurred after December 31, 2004 from adding or adapting equipment at a facility in order to sell diesel fuel containing at least 2% biodiesel. Cumulative amount of credits for all taxable years is limited to $50,000. |
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Ohio |
The Ohio Department of Transportation is required to use one million gallons of biodiesel and 30,000 gallons of ethanol each year. Light-duty vehicles must be flexible fuel vehicles that can operate on E85. |
Incentives are provided to owners of retail fuel stations in order to install E85 and B20 refueling infrastructure. E85 incentives are up to $5,000 per project, and B20 incentives are up to $15,000 per project. Applicants must provide matching support, which means the incentive can only cover at most 50% of the project cost. |
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South Carolina |
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Tax credit for 25% of the cost of constructing or installing equipment for a commercial facility that distributes ethanol or biodiesel. |
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South Dakota |
State diesel vehicles are directed to use at least B2 whenever available and financially prudent. |
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Tennessee |
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Public-private partnerships may be entered with fuel providers by the Tennessee Department of Transportation in order to install fueling facilities. The Department is authorized to create a grant program to help cover the costs of installing biofuels refueling infrastructure. |
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Grants are offered to county governments for the installation of biodiesel infrastructure that provide biodiesel fuel to county and city vehicles. Individual grants cover 50% of the total project costs, may not exceed $12,000, and are limited to one per county. |
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Vermont |
The State Agency Energy Plan for State Government is to be developed to investigate the environmental and economic feasibility of using biodiesel blends within the state fleet. |
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Virginia |
State agencies are directed to use biodiesel fuels when feasible. |
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Washington |
State agencies are encouraged to use B20 in all diesel-powered vehicles. 20% of diesel used by state agencies must be biodiesel beginning June 1, 2009. |
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Wisconsin |
Transportation aids to cover the difference in the cost of biodiesel and diesel fuel are offered to school districts that use biodiesel fuel in buses. |
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Sources: American Coalition for Ethanol, 2006; Koplow, 2006; Schumacher, 2003; U.S. Department of Energy, 2006 |
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| MTBE Ban |
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Throughout the 1990s, evidence emerged that Methyl Tertiary Butyl Ether (MTBE), an oxygen additive for gasoline, was appearing in drinking water. Ethanol can be used as an oxygen additive in gasoline, but is more expensive to produce than MTBE. However, by 2004 evidence of pollution was enough to cause many states (figure 3) to ban MTBE. While not a policy directly aimed at ethanol, the ban has had the effect of increasing the demand for ethanol.
Figure 3—MTBE bans by state
Source: American Coalition for Ethanol, 2006.
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| References |
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American Coalition for Ethanol (2006). MTBE Bans and Proposed Bans Map. Retrieved December 8, 2006, from http://www.ethanol.org/.
American Coalition for Ethanol (2006). StatUS: 2006, ACE State by State Ethanol Handbook. Retrieved December 8, 2006, from http://www.ethanol.org/.
Informa Economics, Inc. (2005). The Structure and Outlook for the US Biofuels Industry. Retrieved December 8, 2006, from http://www.in.gov/isda.
Iowa Corn Growers Association. (2006). Description of Iowa House File 2754 – Iowa Renewable Fuels Standard. Retrieved December 8, 2006, from http://www.iowacorn.org.
Koplow, Doug. (2006). Biofuels – At What Cost? Government support for ethanol and biodiesel in the United States. Global Subsidies Initiative. Retreived December 18, 2006, from http://www.globalsubsidies.org/IMG/pdf/biofuels_subsidies_us.pdf.
National Biodiesel Board (2006). Biodiesel Distributors and Retailers Map. Retrieved December 8, 2006, from http://www.biodiesel.org/.
National Biodiesel Board (2006). Commercial Biodiesel Production Plants Map. Retrieved December 8, 2006, from http://www.biodiesel.org/.
National Conference of State Legislatures (2006). State Incentives for the Production and Use of Ethanol table. Retrieved December 8, 2006, from http://www.ncsl.org/.
National Highway Traffic Safety Administration. (2006). “CAFÉ Overview – Frequently Asked Questions.” Retrieved December 8, 2006, from http://nhtsa.gov/cars/rules/.
Renewable Fuels Association (RFA) (2005). The Federal Ethanol Program: A Backgrounder. Retrieved December 8, 2006, from http://www.ethanolrfa.org.
Schumacher, Joel. (2003). Oilseed, Biodiesel and Ethanol Subsidies & Renewable Energy Mandates: US Federal & Selected State Initiatives. Retrieved December 8, 2006, from http://www.ampc.montana.edu/.
U.S. Department of Energy, Energy Efficiency and Renewable Energy (2006). Alternative Fuels Data Center. Ethanol and Biodiesel Regulations and Incentives. Retrieved December 8, 2006, from http://www.eere.energy.gov/afdc. |
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