States Tackle Energy in 2009
Volume 2: Biofuel Incentives

Biofuels use plant or animal feedstock to produce transportation fuels . State incentives that support biofuel production are important for these fuels to continue to grow as a proportion of the nation's transportation fuel mix. In 2009, many states introduced legislation supporting biofuel production and use. The bills from the session included: making biofuels tax exempt, providing tax credits, general incentives, funding programs and perks for drivers of alternative fuel vehicles.

Tax Exemptions

California, Montana and New York proposed legislation exempting biofuels from certain types of taxes. California's bill, carried over to 2010, focuses on a tax exemption for biomass-based diesel fuel ("biodiesel") produced within California using only California feedstock. Montana enacted a bill which will exempt biodiesel produced from waste vegetable oil feedstock from a special fuel tax. The bill in New York, carried over to the 2010 session, exempts alternative fuels used for home heating purposes, including, but not limited to wood pellets, corn and ethanol from sales tax.

In 2009, Arkansas, Hawaii, Maine, Michigan, Mississippi and Montana introduced bills that considered exempting the producers, distributors and operators of biomass or biofuel facilities from taxes. Arkansas enacted a bill that will exempt biomass that is grown for biofuel production from a severance tax. Hawaii carried over to 2010 a bill that exempts all equipment used directly in the generation of biomass from the general excise tax and use tax. Maine had two bills. One bill, which was carried over, exempts biodiesel produced for personal use from taxation. They enacted a bill that exempts biodiesel fuels produced and used by the same individual or by an immediate family member from the tax imposed on special fuels. In 2009, Michigan considered a pending bill which urges the U.S. Alcohol and Tobacco Tax and Trade Bureau to waive any taxes or fees related to distilled spirits for plants making ethanol solely for fuel use. Mississippi enacted a bill that provides enterprises owning or operating facilities that produce co-firing biomass exemption from sales tax for the gross income of public storage warehouses derived from the temporary storage of raw material used in the facilities. Montana enacted a bill which will eliminate the license tax rate that each distributor pays for the engaging in and carrying on of business dealing with ethanol.

Michigan, Nebraska, New York and Texas introduced bills which exempt biodiesel from certain taxes. Michigan's carried over a bill that exempts certain gasoline and diesel fuel blends from sales tax. Nebraska's enacted legislation exempts biofuel used for irrigation and farming purposes from sales tax. A New York bill will eliminate taxes on alternative energies (any fuel which do not rely on petroleum products or natural gas as their energy source) in general if it is passed in the 2010 session. A failed bill in Texas exempted fuel ethanol derived from cellulosic biomass and blended with gasoline from the motor fuels tax.

Tax Credits

Hawaii, Iowa, Massachusetts, Missouri and New Mexico introduced bills which establish different types of biofuel tax credits. Hawaii's carried over a bill that allows tax credits to be equal to 40 cents per gallon of biofuel produced. Iowa considered three bills that would provide tax credits for motor fuel containing biodiesel; they will consider them again in the 2010 session. Missouri failed to pass a bill that would have given tax credit for processed biomass engineered fuel. New Mexico enacted a bill that provides a deduction from special fuel excise tax and gross receipts paid for special fuel consisting of vegetable oil or animal fat.

Iowa, Maine, Massachusetts, New York, Pennsylvania and South Carolina's introduced bills would have given tax credits to producers, distributors and owners of land involved with biodiesel production. Iowa carried over a bill that provides for a residual biomass tax credit. Maine failed to pass legislation that would have increased the income tax credit for the production of biofuel from 5 cents per gallon to 15 cents per gallon. Massachusetts is still considering a bill that discusses a tax credit for biofuel production. New York has two bills related to this. The first, which will carry over to the 2010 session, includes a tax credit for the production of cellulosic ethanol. The second, also carried over, establishes a real property tax reduction for the owners of land used for replanting or crop expansion of woody biomass for the production of ethanol or biodiesel. Pennsylvania's pending bill authorizes certain tax credits for qualified alternative fuel distributors. The pending-carryover bill in South Carolina provides for a credit against the state income tax for donations of waste oil from the kitchens of restaurants or other commercial kitchens to registered producers of biodiesel fuel.

Maine, Missouri and Oregon introduced bills which give users of biofuel tax credits. Maine's carried over a bill that provides a tax credit for installing alternative fuel heating and cooling systems. The failed bill in Missouri gave a tax credit to tax payers for using processed biomass engineered fuel. The failed bill in Oregon provided a credit against income taxes for repairs to vehicle engines due to damage caused by ethanol.

South Carolina and Virginia each enacted bills which will give tax credits to biofuel research and job creation. South Carolina's bill will allow an income tax credit for research and development of feedstock. The bill in Virginia will give the vehicle job creation tax credit to jobs created associated with the production of advanced cellulosic biofuel, the conversion of vehicles from traditional fuels to cellulosic biofuel, and the manufacture of components for vehicles that utilize cellulosic biofuel derived from biomass.

General Incentives

Arkansas, Hawaii, Massachusetts, Nebraska, Pennsylvania and Washington introduced bills which promote the use of biofuel through incentives. Arkansas enacted a bill which will increase incentives for alternative fuels producers, feedstock processors and alternative fuels processors. Hawaii has two bills. Massachusetts has carried over a bill which considers biofuel feedstock tax incentives. A bill in Nebraska, carried over, creates a production incentive for renewable diesel fuel. Pennsylvania's bill would have provided incentives to persons who plant and harvest bioenergy crops to be used exclusively to produce cellulosic ethanol as an alternative motor vehicle fuel.

Grant Programs, Loan Programs, and Appropriations

Indiana, North Dakota and Virginia enacted bills which discussed grant programs for the increased development and use of biofuel. Illinois and New York currently have pending bills that discuss the same type of grant programs. Additionally, California and Texas have pending bills for loan programs for the advancement of alternative energy (including biofuel).

Perks to Users of Alternate Fuel Vehicles

California, Colorado and Massachusetts considered bills allowing alternative fuel vehicles in high-occupancy vehicle (HOV) lanes without having the minimum number of passengers inside. Hawaii enacted a bill that will allow this. These were carried over to the next session. Hawaii, Illinois, Massachusetts, Michigan, New York and Oklahoma had bills that, if passed in 2010, will provide tax credits and exemptions for the purchase of alternative fuel vehicles. Colorado and Louisiana enacted legislation that will provide these credits and exemptions.

Food Sources in Biofuel

Not all recent legislation encourages the production and use of all types of biofuel. A few states have created legislation that curbs the use of biofuel made from food sources. Hawaii has a piece of pending legislation which excludes corn as an organic feedstock for the production of ethanol. Oregon has a pending bill which prohibits allowance of tax incentives for the use of biofuel or biomass that is fit for human consumption.

The trends in recent legislation are clear. States are looking toward rewarding companies and individuals with incentives, credits, exemptions, and perks for producing and using biodiesel. If this legislation passes, biodiesel could become a major part of the nation's transportation fuel mix.