Alternative and Advanced Fuels
State Policy Options
By Zoe A. Keve / Julia Verdi / Christine M. English
January 2010
The desire to reduce U.S. dependence on foreign fuel
and to promote economic development at home for rural
areas has contributed to the rapid growth in U.S. biofuel
production. The importance of biofuel production in the
states is demonstrated by the large amount of legislative
activity in this area—25 states have introduced biofuel
legislation to date in 2009. Hawaii, Iowa, Massachusetts,
Minnesota, North Dakota and Virginia are among the
states where multiple bills were introduced in the house
and senate to further biofuel production, use and distribution through tax credits, tax rebates, and grants and loans
for producers, retailers and distributors of biofuel.
Federal policy, including the Federal Energy Policy Act of
1992, the Energy Policy Act of 2005 and the Energy Independence and Security Act (EISA) of 2007, has played a
significant role in the increased use of biofuel in the transportation sector. EISA 2007 encouraged this development
by revising and implementing regulations to ensure that
gasoline sold in the United States contains a minimum volume of renewable fuel.
Biofuel’s role in meeting U.S. transportation needs is growing and will expand further as state and federal biofuel
mandates are implemented. Since biofuels will play a role
in the U.S. transportation sector, understanding biofuels’
potential, the market for various technologies, and the best
ways to ensure its cost-effective development is important
for those who want to understand and develop biofuels
policy. This publication provides a basic overview of biofuels, including production technologies, current and future
production forecasts, and state policy options for promoting biofuel development.
Biofuels Basics
Biofuels are produced from living organisms (such as algae
or corn) or from organic or food waste products, and are
most widely used in the transportation sector. Depending
on how they are derived, biofuels can significantly reduce
greenhouse gas emissions compared to fossil fuels. Many
states are choosing biofuels to increase energy security,
promote economic growth and reduce dependence on
fossil fuels. Liquid biofuels can be categorized as biodiesel, ethanol or emerging fuels.
Biodiesel
Biodiesel is a domestically produced renewable fuel
manufactured from vegetable oil, such as soybean oil,
the most common source of biodiesel. Other products
such as canola oil, sunflower oil, animal fats and recycled
restaurant grease also can be used to produce biodiesel.
Lipids from micro algae also can be used, although this
process remains in the research and development phase.
Biodiesel is produced using a chemical process called
transesterification, in which glycerin is separated from the
fat or vegetable oil. Transesterification leaves two products—methyl esters (the chemical name for biodiesel)
and glycerin (a valuable byproduct usually sold for use in
soaps and other products).
Biodiesel use in diesel engines requires no major modifications, making it an excellent alternative for the U.S.
transportation sector. It is a clean-burning alternative fuel
that is safe, biodegradable, and has lower emissions than
petroleum diesel.
Biodiesel Sources
Waste Oil
Most of the vegetable oil currently used for biodiesel
production comes from food-grade oil, most commonly
soybeans, although waste vegetable oil also can be used.
For example, NatureAir, a Costa Rican airline, recently announced that it will power its entire fleet of ground equipment with biodiesel made from waste vegetable oil.
In 2008, NREL estimated that the United States produced
495 million gallons of trap grease per year. Trap grease is
found in drains and sewers; restaurants pay to dispose of it.
One pound of most fats and oils (such as trap grease) can
be converted to one pound of biodiesel.
Technology and infrastructure for large-scale conversion of
waste oil into commercial-grade biodiesel currently is limited. Because the free fatty acid and moisture levels of waste
fuel vary, they can present a challenge to efficient, largescale conversion. Another impediment to development
is that the U.S. Environmental Protection Agency (EPA)
has not registered raw vegetable oil or waste grease as legal
fuel for vehicles. Vehicles that burn this type of biodiesel
are not certified by the EPA, and engine conversions may
violate vehicle warranties. However, this does not prevent
use of waste oil in commercial-grade biodiesel; these waste
materials must be processed, and the final product must
meet current quality standards.�
Algae-Derived Biodiesel
Lipids from micro algae are an emerging source of biodiesel. These lipids could potentially be a viable and economical oil source. Algae use sunlight, water
and carbon dioxide to create lipids,
which provide raw oil for biodiesel.
Species of algae with high lipid content
yield significantly more fuel per area
than other conventional oil-seed crops.
In fact, algae can produce 200 barrels of
oil per acre—100 times more than can
be produced from soybeans.
that involves putting algae and waste water in plastic membranes and floating them out to sea. NASA believes this
could be an environmentally friendly alternative to U.S.
dependence on foreign oil. Growing the algae at sea for
biofuel would clean up the wastewater that would, in turn,
be returned clean to the ocean; it also would leave land
open for farming. The program has been demonstrated
in laboratories, was supported for a pilot program off the
coast of Santa Cruz, Calif., in March 2009, and is under
consideration for an $800,000 alternative energy grant
from the state of California. �
State Requirements for Biodiesel. In 2005, Minnesota adopted a statewide requirement requiring diesel to contain 2
percent biodiesel by volume and increased that to 20 percent in 2008, making it the highest biodiesel requirement
in the nation. Since then, Louisiana, Maryland, Oregon,
Pennsylvania and Washington have enacted similar requirements, though some are contingent on state biodiesel production reaching passing certain thresholds. Minnesota’s
law also bans this use of palm oil for biodiesel, since many
developing countries are clearing thousands of acres of
rainforests to make way for palm oil plantations for biodiesel.
Ethanol
Ethanol is an alternative fuel fermented from corn, grains
or agricultural waste. It is usually mixed with gasoline in
varying percentages. The two types of ethanol are starch or
sugar -based and cellulosic.
Starch- and Sugar-Based Ethanol. Most ethanol used for
fuel today is derived from starch- and sugar-based sources,
such as corn or sugar cane. This type of fuel is made from
distilling and fermenting a feedstock containing an abundance of natural sugars or starches. Corn supplies are approximately 90 percent of the feedstock for U.S. ethanol
production. Sugar cane and sugar beets are used in parts of
the world where they grow in abundance due to favorable climatic conditions. Some feel the massive increase
in the demand for corn due to ethanol
production has been a major influence
on the increase in some food prices,
making corn ethanol incentives a controversial issue in some areas of the
United States.�
A wide variety of algal species exists,
Cellulosic Ethanol. Cellulosic ethanol
Microalgae produce lipids that
many of which can grow in salt water
can be produced from an array of biocan be converted to biodiesel fuel
and in areas otherwise unsuitable for
mass, making resources abundant and
conventional agriculture. The National Aeronautics and
minimizing the diversion of food sources for fuel producSpace Administration (NASA) recently started a program
tion. Cellulosic feedstocks suited to ethanol production
2
National Conference of State Legislatures
include the following:
• Agricultural residue—crop residues such as wheat
straw and corn stalks, leaves and husks;
• Forestry residue—logging and mill residues, such as
wood chips, sawdust and pulping liquor;
• Grasses—hardy, fast-growing grasses such as switch
grass grown specifically for ethanol production;
• Municipal and other wastes—plant-derived wastes
such as household garbage, paper products, paper pulp
and food-processing waste; and
• Trees—fast-growing trees such as poplar and willow
grown specifically for ethanol production
areas of Minnesota, Iowa and Illinois. However, E85 is offered in more than 40 states.
Third, intermediate ethanol blends have an ethanol content greater than 10 percent and less than 85 percent.
Commonly considered blends include E15 (15 percent
ethanol, 85 percent gasoline) and E20 (20 percent ethanol,
80 percent gasoline). However, intermediate ethanol blends
cannot yet be used legally in standard (non-flexible fuel)
vehicles.�
The Future of Ethanol. Ethanol production from cellulosic
biomass is now on the cusp of commercialization, thanks
to dramatic advances in development of cellulose enzymes.
These enzymes break down the cellulose in biomass so it
can be used as biofuel feedstock. Industrial biotech companies have reduced the cost
of cellulose enzymes 30-fold
since 2001, from more than
$5 per gallon of ethanol to less
than $.20 per gallon.
Much of the biomass used for cellulosic ethanol can be
recycled from industry and agricultural residues, turning
waste into a viable fuel source.
It is estimated that ethanol produced from switch grass, crop,
and forest biomass residues
could replace 30 percent of the
current U.S. petroleum demand.
A significant barrier to cellulosic
A recent study by the Uniethanol production is the lack
versity of Tennessee found
of efficient and inexpensive
that producing 25 percent of
technology to break down and
America’s energy from agriculprocess cellulose feedstock. Still,
tural resources could generate
multiple cellulosic biorefineries
in excess of $700 billion anare under construction in the
nually in economic activity,
United States, built with the
create 5.1 million jobs, and
help of federal and state incenadd $180 billion to net farm
tives. One concern often raised
income by 2025. The resultIowa switchgrass
regarding the use of ethanol is its energy balanceing decline in market prices for corn and other
whether the fuel provides more energy to the end
food crops could produce an estimated cumulative
user than it takes to produce it. Cellulosic ethanol yields
savings in government farm payments of $15 billion.�
roughly 80 percent more energy than is required to grow
and convert it and emits a low net level of greenhouse
Switch Grass
gases.
Switch grass, a perennial prairie grass, does not directly
compete with food crops as an ethanol input. A 2006
Ethanol Blends. There are three types of ethanol blends.
study shows that burning cellulosic ethanol made from
First, the U.S. Environmental Protection Agency classifies
switch grass emits 88 percent less greenhouse gas emislow-level ethanol blends as “substantially similar” to gasosions than burning gasoline. This estimate does not include
line. Low-level ethanol blends can be used legally in any
carbon that is potentially sequestered in the soil, which
gasoline-powered vehicle. Low-level ethanol blends are sold
could increase savings to 94 percent over 100 years. It is
projected that perennial grasses, such as switch grass, will
in every state. Nearly half of U.S. gasoline now contains
up to 10 percent ethanol (E10) to boost octane or meet air
be primarily grown on land protected in the Conservation Reserve Program. This program removes insignificant,
quality requirements.
heavily eroded cropland from the annual farming cycle and
Second, E85 (85 percent ethanol, 15 percent gasoline) is
gives farmers financial incentives to plant perennial trees
and grasses. �
considered an alternative fuel under the (EPAct). It is used
to fuel flexible fuel vehicles (FFVs), which are available in
a variety of models from U.S. and foreign automakers. As
High-Diversity Perennial Crops
of July 2009, there are over 1,950 fueling stations that ofLow-input high-diversity mixtures of native grasslands, infer E85. These stations are more common in the corn belt
cluding switch grass, can be grown on land where soil qualNational Conference of State Legislatures
3
ity is poor. The mixtures require less agrichemicals; provide
more usable energy; and, compared to traditional monoculture sources, provide greater greenhouse gas reductions. This technique could allow farmers to grow biofuel
on abandoned agricultural land with poor soil quality.
Agricultural Waste
An abundant source of waste products exists for cellulosic
ethanol production in agricultural waste. Waste from corn
and sugar crops is an excellent source for cellulosic ethanol.
Leaves and stalks left over after harvest are significant biomass sources; almost 75 million dry tons of corn stover are
available annually. Bagasse, the cellulosic material left after
sugar is extracted from the cane, is plentiful in southern
states such as Louisiana. The Verenium Corporation is currently building a demonstration plant for processing these
types of biomass in Jennings, La.�
Forest and Timberland Residue
Current biomass output from forestland is about 142
million dry tons per year. Sustainable forestry practices—
which use all materials and residues—could increase this
yield to 368 million dry tons of biomass annually. Two
primary sources
for the additional
biomass include
the residues from
commercial timberland harvest
and currently nonmarketable biomass
from the forestry
industry. Waste
products-such as
the trunk (when a
tree is felled, the
trunk can break,
leaving a top that
is too thin to be
Wood chipper preparing material in the
used as a log ) and
ethanol production process
leaf litter, as well as
smaller trees removed due to fire hazards or disease-can be
a significant source of biomass-based fuel. The amount of
forest-based biomass depends upon existing resources and
on the demand for primary forest products such as lumber.
It is important to note that approximately 89 million dry
tons of the 368 million dry ton yield is based upon projected increases in demand for forest products. Regardless,
the amount of biomass available from forest management
and timber waste is significant and could be used in the
next generation of cellulosic ethanol facilities. �
4
Emerging Fuels
Several biofuels are “emerging,” as defined by the U.S.
Department of Energy. Because all are in the early stages
of research and development, experience with their use in
vehicles is limited. The emerging biofuels include the following.
• Biobutanol
is an alcohol
(similar to
ethanol)
that can be
produced by
processing
domestically
grown crops
such as corn
and sugar
beets and
other biomass such as
fast-growing
grasses and
Triple biofuels dispenser
agricultural
waste products.
• Biogas is produced from the anaerobic digestion of
organic matter such as animal manure, sewage and
municipal solid waste. After it is processed to required
standards of purity, biogas becomes a renewable substitute for natural gas and can be used to fuel natural gas
vehicles.
• Biomass to Liquids processes convert diverse biomass
feedstocks into a range of liquid fuels. These processes
usually are distinguished from enzymatic/fermentation
processes and processes that use only part of a biomass
feedstock, such as those typically used to produce ethanol, biobutanol and biodiesel.
• Coal to Liquids processes convert coal into liquid fuels. Coal-derived liquid fuels are considered alternative
fuels under the Energy Policy Act of 1992 (EPAct).
• Fischer-Tropsch Diesel is made by converting gaseous
hydrocarbons, such as natural gas and gasified coal or
biomass, into liquid fuel.
• Gas to Liquids processes convert natural gas into
liquid fuels. Liquid fuels domestically produced from
natural gas are considered alternative fuels under the
Energy Policy Act of 1992.
• Hydrogenation-Derived Renewable Diesel is the
product of fats or vegetable oils—alone or blended
with petroleum—that have been processed in an oil
refinery.
• P-Series is a blend of natural gas liquids (pentanes
plus), ethanol and the biomass-derived co-solvent
National Conference of State Legislatures
methyltetrahydrofuran (MeTHF). P-Series fuels are
clear, colorless, 89-93 octane liquid blends that are formulated to be used in flexible fuel vehicles. It can be
used alone or freely mixed with gasoline in any proportion for flexible fuel vehicles. P-Series currently is not
produced in large quantities and is not widely used. It
is the only fuel added to the list of authorized alternative fuels under the Energy Policy Act of 1992 in the
1999 EPAct petitions provision.
Although these fuels are in the early stages of development, many were considered alternative fuels by the Energy Policy Act of 1992 and could qualify for federal and
state incentives and mandates. The Energy Policy Act of
2005, however, focuses on ethanol as the alternative fuel
for transportation, establishing a national renewable fuel
standard that requires gasoline sold in the United States to
contain a specific volume of biofuel (mostly corn ethanol).
It also requires the annual volume of renewable fuels to increase from 4 billion gallons per year in 2006 to 7.5 billion
gallons in 2012. The Energy Independence and Security
Act of 2007 increased the renewable fuel standard set by
the EPAct to 9 billion gallons in 2008, with an increase of
up to 36 billion gallons by 2022. Of the 36 billion gallons
required by 2022, 16 billion must be cellulosic biofuel.�
biorefineries. Estimated annual cellulosic ethanol production from the six facilities will exceed 130 million gallons.
Range Fuels in Georgia and ALICO in Florida plan to
gasify biomass, then use catalytic conversion or fermentation to produce ethanol. BlueFire Ethanol in California,
to be built on an existing landfill, will use waste biomass.
Broin Companies in Iowa, Iogen in Idaho and Abengoa in
Kansas will use various waste resources, including switch
grass, agricultural wastes such as potatoes and corn stover,
and forest residues and yard waste. Two of the biorefineries
recently withdrew due to economic problems.
Production from Algae
Interest also has revived in developing biodiesel from microorganisms, such as algae. In 2006, only four companies
were focused on developing algae-based biodiesel technologies. By February 2009, more than 170 companies were
conducting research, including several small-scale research
and development operations nationwide.
Chevron Corporation recently partnered with the National
Renewable Energy Laboratory to develop jet fuel from
algae. Chevron decided to focus on algae for fuel because
it believes nonfood feedstock sources-including algae and
cellulose-hold the greatest promise for growth in the biofuel industry. �
Alternative Fuels Production
Development of biofuel and other advanced technologies
is regarded as a way to reduce dependence on foreign oil
sources and curb vehicle emissions. In 2008, the U.S. Department of Energy announced it would invest up to $4.4
million in six advanced biofuel research projects at the University of Toledo, Stevens Institute of Technology, Montana
State University, the University of Georgia, the University
of Maine and Georgia Tech Research Corporation. These
projects represent an investment in clean energy technologies that will help expand current biofuel research and development efforts and help meet growing energy demand.
These programs also will expand the geographic diversity
and number of partners working on advanced biofuel development nationwide and will strengthen the Department
of Energy collaboration with universities, encouraging
the necessary innovation to diversify the nation’s energy
sources.
Major questions that remain, however, are how realistic
these goals are, and how long it will take to economically
produce such fuels commercially for widespread use.
Six Cellulosic Ethanol Projects Supported
by the Department of Energy
In 2008, the Department of Energy announced it would
invest up to $385 million to support six new cellulosic
Although this technology is in the experimental stage, algae
seems to have many advantages as a biodiesel source compared to conventional oilseed crops such as soybeans. These
crops are a food source and also require significant suitable
farming or arable land. Because algae do not require arable
land for development, they would not displace food crops.
State Policy
Many states have written biofuels into state policy. Thirtyfive state policies include tax exemptions, credits and grants
for use of biofuels. Thirty-four states have adopted incentives to reduce the costs of refining, storing, transporting
and distributing alternative fuels. Some state policies also
focus on requiring that state fleet vehicles use only biofuels
or use it in a certain percentage of vehicles.
Corn ethanol has become a major U.S. biofuel because
it is easily produced and can be used as a fuel additive in
all conventional gasoline. Yet, the potential to create tension between food versus fuel production complicates the
corn ethanol issue. Also, there are concerns that the energy
needed to produce corn ethanol may be nearly as much as
is produced, depending on how it is farmed and processed.
By recognizing these potential relationships, policymakers
can develop policies to address these issues.
National Conference of State Legislatures
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Existing Biofuel Policies
States have created a variety of policies to encourage production and use of biofuel, including tax exemptions, credits and grants; standards for state fleets; and renewable fuel
standards. Figure 1 depicts state adoptions of these various
approaches.
State Fleet Standards/Use
Many states have passed mandates requiring governmentowned vehicles to use renewable fuels. These requirements
often include purchasing hybrid electric or flex fuel vehicles
and using biodiesel blends in diesel engines. A price limit
can be included to ensure that the government need not
purchase new technologies if the cost is a given percentage
higher than a comparable traditional fuel vehicle. Governments can lead by example and invest in emerging vehicle
technologies.
A Colorado program requires all state-owned diesel vehicles to use B20 as long as the price is no higher than $.10
per gallon more than traditional diesel fuel. It also requires
the state to purchase flex fuel or hybrid electric vehicles so
long as the price is not more than 10 percent greater than
the price of a comparable vehicle. Similar programs exist
in Alabama, Alaska, Georgia, Kansas, Missouri, Montana,
Nebraska, New York, North Dakota, Ohio, Wisconsin and
Wyoming.24
State and Federal Renewable Fuel Standards
Renewable fuel standards require that fuel sold in a state
contain a specified percentage of biofuel. Such requirements are in effect in at least 11 states and require up to 20
ethanol in gasoline. As of Feb. 14, 2008, the EPA requires
that a minimum of 7.76 percent of the fuel dispensed nationally to be renewable.25 Renewable fuel use also must
reach 36 billion gallons by 2022. Although a national
standard exists, states can apply for an exemption, since
renewable fuels are not required or available in all states.
Many states are taking the initiative to develop renewable
fuel standards to supplement both gasoline and diesel fuel.
Tax Incentives, Grants and Other Incentives
Most states have incentives to promote ethanol production
and fuel use, and many have ethanol mandates. Nearly half
the states offer tax credits for the cost of producing ethanol
and biodiesel. Table 1 shows states that provide incentives
and tax credits for ethanol production and states that have
introduced renewable fuels standards
Figure 1. State Biofuel Production Laws and Standards
Tax exemptions, credits and/or grants
Tax exemptions, credits and/or grants
with renewable fuel standards
Source: Pew Center on Global Climate Change, “Mandates and Incentives Promoting Biofuels,”
www.pewclimate.org/sites/default/modules/usmap/pdf.php?file=5903, Aug. 18, 2009.
6
National Conference of State Legislatures
Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution
State
Production Incentives
Alaska
Ethanol Fuel Blend Tax Rate Reduction:
Tax rates on fuel containing at least 10%
ethanol by volume is reduced by $.06 per
gallon
Arkansas
Alternative Fuel Grants: Includes grant
incentives for alternative fuel producers
and feedstock producers
Arizona
Infrastructure and Distribution Incentives
Alternative Fuel Grants: Includes grant incentives for
alternative fuel distributors
Biofuels Grants and Specifications: Promotes development
of fueling infrastructure
Alternative Fuel and Vehicle Research
and Development Incentives: Provides
grants and loans for projects that produce
alternative and renewable fuels
•
Colorado
Funding for Alternative Fuel Feedstock
Production
Alternative Fuel Infrastructure Tax Credit
Connecticut
Biodiesel Production and Distribution
Grants: Provides grants to qualified
biodiesel producers
Biodiesel Production and Distribution Grants: Provides
grants to qualified biodiesel distributors
Florida
Biofuels Investment Tax Credit: Tax
credit for costs incurred in connection
with an investment in the production of
biodiesel and ethanol in the state
•
Georgia
Alternative Fuels Production Assistance:
Provides assistance to companies
considering locating alternative fuels
production facilities in Georgia
E85 Fueling Infrastructure Grant Program
Hawaii
Ethanol Production Incentive: Income
tax credit available for qualifying ethanol
production facilities
Iowa
•
California
•
Alternative Fuel Production Tax
Credits: Includes production of
biomass or alternative fuels
Alternative Fuel Production Loans
•
•
•
•
•
Alternative Fuel and Vehicle Research and
Development Incentives: Provides grants and loans for
projects that expand fuel infrastructure, fueling stations
and equipment
Alternative Fuel Vehicle and Fueling Infrastructure
Grants
Biofuels Tax Exemption: The sale of materials such as
fueling infrastructure, transportation and storage are
exempt from state sales tax
Biofuels Investment Tax Credit: Tax credit for costs
incurred in connection with an investment in the
distribution of biodiesel and ethanol in the state
Ethanol Blend Retailer Tax Credit;
E85 Retailer Tax Credit, Biofuels Infrastructure
Grants
Biodiesel Tax Credit
Idaho
Exemptions for Biodiesel Production for Biofuel Fueling Infrastructure Tax Credit
Personal Use
Illinois
Biofuels Production Facility Grants:
Provides grants for construction or
expansion of biodiesel and ethanol
production facilities in Illinois
E85 Fueling Infrastructure Grants
Indiana
•
•
•
•
Ethanol Production Tax Credit
Biodiesel Production Tax Credit
E85 Fueling Station Grant Program;
Biodiesel Retailer Tax Credit
National Conference of State Legislatures
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Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)
State
Kansas
Production Incentives
•
•
•
Kentucky
Ethanol Production Tax Credit
Louisiana
Biodiesel Equipment and Fuel Tax
Exemption: Includes property and
equipment used to produce biodiesel
•
•
•
Biofuel Equipment Tax Credits
Renewable Fuel Retailer Incentive
Alternative Fueling Infrastructure Tax Credit
•
•
Alternative Fuel Vehicle and Fueling Infrastructure
Tax Credit
Advanced Ethanol Fuel Blend Research Grants:
Grants to purchase of fueling pumps that can dispense
advanced biofuel blends
Alternative Fueling Infrastructure Tax Credit
E85 Fueling Infrastructure Grant Program
Alternative Fueling Infrastructure Grants
Maryland
Biofuels Production Incentive: Qualified
ethanol and biodiesel producers are eligible
for ethanol and biodiesel production
incentives in the form of per- gallon credits
Maine
Biofuels Production Tax Credit
Michigan
Alternative Fuel and Vehicle Research,
Development and Manufacturing Tax
Credits
•
•
•
Minnesota
Ethanol Production Incentive: An
ethanol production incentive of $.20 per
gallon of ethanol produced is available to
qualified facilities
E85 Fueling Infrastructure Grants: Grants are available to
service stations that install equipment for dispensing E85
fuel to flexible fuel vehicles
Missouri
•
•
Ethanol Production Incentive:
Alternative Fueling Infrastructure Tax Credit
Provides $.20 per gallon for the first
12.5 million gallons and $.05 for the
second 12.5 million gallons of ethanol
produced
Biodiesel Production Incentive:
Provides monthly grants to qualified
biodiesel producers
Mississippi
Biofuels Production Incentive: Provides
incentive payments to ethanol and
biodiesel producers
Montana
•
•
8
Biodiesel Production Incentive:
Available in the amount of $.30 per
gallon of biodiesel fuel sold by a
biodiesel producer
Ethanol Production Incentive:
Ethanol producers can apply for
a production incentive with the
Department of Revenue
Cellulosic Ethanol Production
Incentive: Issues revenue bonds to
cover the costs of construction or
expansion of a biomass-to-energy
facility
Infrastructure and Distribution Incentives
Ethanol Production Incentive:
Ethanol producers are entitled to a tax
incentive of $.20 per gallon
Biodiesel Production Incentive: Tax
incentive for biodiesel producers is
available
•
•
Biodiesel Blending Tax Credit: Tax credit for business
for up to 15% of the cost of equipment used for storing
or blending biodiesel with petroleum diesel for sale
Biodiesel Tax Refund
National Conference of State Legislatures
Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)
State
North Carolina
Production Incentives
•
•
North Dakota
•
•
Nebraska
Biofuels Industry Development:
Grants to private businesses to
encourage maximizing production of
biofuels
Biodiesel Production Tax Credit,
Alternative Fuel Production Tax
Credit
Infrastructure and Distribution Incentives
•
•
Biofuels Industry Development: Grants to private
businesses to encourage retail infrastructure of biofuels
Alternative Fueling Infrastructure Tax Credit
Biofuels Loan Program: Provides a 5% interest buy-down
Biofuels Loan Program: Provides a
5% interest buy-down to biodiesel and to biofuels retailers for refueling infrastructure installation
ethanol production facilities
Ethanol Production Incentive:
Provides an incentive of $.40 per
gallon for ethanol produced and sold
in North Dakota
Biodiesel Production Investment Tax
Credit
New
Hampshire
Alternative Fuel Vehicle and Fueling Infrastructure
Project Funding
New Jersey
Alternative Fuel Infrastructure Rebate: Reimburses
eligible local governments, state colleges, school districts and
governmental authorities for 50% of the cost of purchasing
and installing refueling infrastructure for alternative fuels
New Mexico
Biofuels Tax Deduction: The cost of
biomass materials used for processing into
biofuels can be deducted when computing
the compensating tax due
•
•
Biodiesel Blending Tax Credit
Alternative Fuel Vehicle (AFV) and Fueling
Infrastructure Grants
New York
Biofuel Production Tax Credit
•
•
•
•
Alternative Fueling Infrastructure Tax Credit
Biofuel Fueling Infrastructure Funding
Alternative Fuel Bus and Infrastructure Planning
Alternative Fuel Vehicle and Fueling Infrastructure
Funding
•
•
Biofuels Retail Tax Credit
Alternative Fuel and Fueling Infrastructure Grants
•
•
Alternative Fueling Infrastructure Tax Credit
Ethanol Fuel Retailer Tax Credit
Ohio
Oklahoma
•
•
•
Oregon
Biofuels Production Property Tax
Exemption
Pennsylvania
•
•
Biodiesel Production Tax Credit
Ethanol Production Tax Credit
Biofuels Tax Exemption: An
individual who produces biofuels or
biodiesel from feedstock grown on
property and used in a vehicle owned
by the same individual are exempt
from the state motor fuel excise tax
Alternative Fuel Infrastructure Tax Credit Information:
Business owners who invest in alternative fuel production
and fueling infrastructure projects in Oregon may be eligible
for a state tax credit of up to 50% of eligible project costs
Biodiesel Production Refund:
Alternative Fuel Vehicle (AFV), Hybrid Electric Vehicle,
Biodiesel producers with a production and Fueling Infrastructure Funding
capacity of 25,000 gallons or more
may apply for a $.75 per gallon refund
for biodiesel produced
Renewable Energy Grants
National Conference of State Legislatures
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Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)
State
South Carolina
Production Incentives
Infrastructure and Distribution Incentives
Biofuels Production Tax Credit, Biofuels •
Production Facility Tax Credit
•
Biofuels Retail Incentive: A $.05 incentive payment
is available to E85 retailers for each gallon of E85 fuel
sold
Biofuels Distribution Infrastructure Tax Credit
South Dakota
Ethanol Production Incentive: A $.20 per Biodiesel Blend Tax Credit: Licensed biodiesel blenders
gallon production incentive is available to may be eligible for a tax credit for special fuel blended with
ethanol producers for ethanol that is fully
biodiesel
distilled and produced in South Dakota
Tennessee
Biodiesel Production Incentive: Provides •
$.20 per gallon incentive for biodiesel fuel •
produced and sold to Tennessee companies •
•
Biodiesel Infrastructure Grants
Biofuels Fueling Infrastructure Grants
Alternative Fuel Innovations Grant: Includes
installation of infrastructure
Infrastructure Development Program
Texas
Alternative Fuel Grants: Provides grants for alternative fuel
infrastructure projects
Utah
Alternative Fuel Vehicles (AFV) and Fueling
Infrastructure Grants and Loans
Virginia
•
•
Biodiesel Production Tax Credit
Biofuels Production Grants
Washington
•
Alternative Fuel Loans and Grants:
Provides financial and technical
assistance for bioenergy production
Biofuels Production Tax Exemption
•
Wisconsin
•
•
Biofuels Retail Tax Exemption
Biofuels Tax Deduction: Available for the sale or
distribution of biodiesel or E85 motor fuel
Ethanol and Biodiesel Fueling Station Tax Credit
Source: U.S. Department of Energy: Alternative Fuels and Advanced Vehicles Data Center, August 2009; www.afdc.energy.gov/afdc/progs/all_state_summary.
php/afdc/0.
10
National Conference of State Legislatures
Considerations for Policymakers
Conclusion
A number of policy options are available for legislators to
consider regarding the use and production of alternative
fuels. Decisions will be shaped by the availability of feedstocks, research and development objectives, economic development, foreign trade, and clean and alternative energy
goals. Issues to consider when developing biofuel policies
include the following.
Increasing production and distribution of alternative fuels
can promote economic development in agriculture and
biofuel technology and also minimize greenhouse gas
emissions and dependence on foreign oil. Although current levels of biofuel production meet a small fraction of
the nation’s fuel demand (of the total energy used in the
United States in 2007, only 3.71 percent came from biomass), this amount is increasing and is helping to diversify
fuel sources.26 Providing long-term alternatives to fossil
fuels and reducing environmental impacts are important
goals, however, biofuel policies are only part of the answer.
To maximize biofuel policies’ effects, it also is important to
consider policies that reduce the growth in fuel consumption. Such policies include increasing the use of energy
efficient vehicles, electric vehicles and plug-in hybrids; increasing availability of mass transportation; and designing
communities so that walking and biking are transportation
options.
• What type of policies will create sustainable biofuel
development? Life-cycle and environmental impact
assessments for each biofuel under consideration can
help make this determination.
• Consider the surrounding issues related to biofuel,
such as energy security and independence, economic
development, trade, food security, environmental protection and strategic technology innovation.
• How can public policy spur private investment in research and development?
• How does biofuel development fit in with long-term
land management plans?
• Consider overall issues of renewable energy and greenhouse gas emissions and any unintended consequences.
• If greenhouse gas reduction is a goal, considering analysis of how much CO2 is emitted during the life-cycle
of clearing land and raising and processing various
biofuels crops is critical. Biofuel mandates that focus
only on the least-cost source of biofuels can overlook
more promising technologies that could be more costeffective in the long term.
Washington Metropolical Areas Transit Authority
(WMATA) fueling station
Photos courtesy of the National Renewable Energy Laboratory.
National Conference of State Legislatures
11
Notes
1. U.S. Environmental Protection Agency, “Renewable Fuel
Standard Program” (Washington D.C.: EPA, 2009); www.epa.
gov/OMS/renewablefuels/.
2. Energy Information Administration, “Biofuels in the
U.S. Transportation Sector” (Washington, D.C.: EIA, 2007);
www.eia.doe.gov/oiaf/analysispaper/biomass.html.
3. .S. Department of Energy, “Biodiesel Emissions” (Washington, D.C.: DOE, 2009); www.afdc.energy.gov/afdc/vehicles/
emissions_biodiesel.html.
4. Matthew McDermott, “Nature Air To Use Waste Vegetable Oil Biodiesel On All Its Ground Vehicles” (New York:
Discovery Communications, LLC, 2009); www.treehugger.com/
files/2009/01/nature-air-waste-vegetable-oil-biodiesel-poweredground-vehicles.php.
5. U.S. Environmental Protection Agency, “Alternative
Fuels Brief: Biodiesel” (Washington D.C.: EPA, 2006); www.
epa.gov/smartway/growandgo/documents/factsheet-biodiesel.
htm.
6. Qiang Hu et al., “Microalgal Triacylglycerols as Feedstocks for Biofuel Production: Perspectives and Advances,” The
Plant Journal 54 (2008): 621-639.
7. Michael Gross, “Algal Biofuel Hopes,” Current Biology
18, no. 2 (2008): 46-47.
8. Joseph DiPardo, “Outlook for Biomass Ethanol Production and Demand” (Washington D.C,: EIA, 2000); www.eia.
doe.gov/oiaf/analysispaper/pdf/biomass.pdf.
9. Evan Ratliff, “One Molecule Could Cure Our Addiction
to Oil,” Wired Magazine, (2007); www.wired.com/science/planetearth/magazine/15-10/ff_plant?currentPage=1.
10. Alternative Fuels and Advanced Data Center, “Ethanol”
(Washington D.C.: AFDC, 2010); www.afdc.energy.gov/afdc/
ethanol/index.html.
11. Biotechnology Industrial Organization, “Industrial Biotechnology and the Future of Ethanol Production” (Washington
D.C.: BIO, 2004); www.bio.org/ind/biofuel/200611fact.asp.
12. Burton C. English et al., “25% Renewable Energy for
the United States by 2025: Agricultural and Economic Impacts”
(Knoxville, Tenn.: University of Tennessee Agricultural Economics, 2006); www.25x25.org/storage/25x25/documents/RANDandUT/UT-EXECsummary25X25FINALFF.pdf.
13. M.R. Schmer et al., “Net Energy of Cellulosic Ethanol
from Switchgrass,” Proceedings of the National Academy of Science
105, no. 2 (2008): 464-469.
14. David Tilman et al., “Carbon-Negative Biofuels from
Low-Input High-Diversity Grassland Biomass,” Science 8 (2006):
1598-1600
15. Fred Krupp et al., “Earth: The Sequel, The Race to Reinvent Energy and Stop Global Warming” (New York, N.Y.: W.W.
Norton and Company, 2008).
16. Energy Information Administration, “Biomass” (Washington D.C.: EIA, 2009); www.eia.doe.gov/cneaf/solar.renewables/page/biomass/biomass.html.
17. U.S. Department of Energy, “Emerging Fuels” (Washington D.C.: DOE, 2009); www.afdc.energy.gov/afdc/fuels/
emerging.html?print.
18. U.S. Environmental Protection Agency, “EPA Proposes
New Regulations for the National Renewable Fuel Standard
Program for 2010 and Beyond” (Washington D.C.: EPA, 2009);
www.epa.gov/oms/renewablefuels/420f09023.htm.
19. U.S. Department of Energy, “DOE to Invest Up To
$4.4 Million in Six Innovative Biofuels Projects at U.S. Universities” (Washington D.C.: EPA, 2008); www.energy.gov/
news/6525.htm.
20. U.S. Department of Energy, “DOE Selects Six Cellulosic Ethanol Plants for Up to $385 Million in Federal Funding”
(Washington D.C.: DOE, 2008); www.doe.gov/news/4827.htm.
21. Renewable Energy World, “Chevron, NREL To Collaborate on Algae-to-Biofuel Research” (Peterborough, N.H.:
Renewable Energy World, 2007); www.renewableenergyworld.
com/rea/news/story?id=50468.
22. Bruce Rittman, “Opportunities for Renewable Bioenergy Using Microorganisms,” Biotechnology and Bioengineering
100, no. 2 (2008): 203-212.
23. Kathleen Kingsbury, “After the Oil Crisis, A Food Crisis?” (New York, N.Y.; Time Magazine, 2007); www.time.com/
time/business/article/0,8599,1684910,00.html.
24. Georgia Forestry Commission, “Summary of State
Incentives and Legislation for Renewable Energy Production”
(Macon, G.A..:Georgia Forestry Commission, 2007); www.
gabio.org/attachments/3/200700211200Summary%20of%20
State%20Incentives%20for%20Renewables%2020070925.pdf.
25. U.S. Environmental Protection Agency, “Renewable
Fuel Standards Program: Regulations” (Washington D.C.: EPA,
2008), www.epa.gov/OMS/renewablefuels/420f07062.htm.
26. Energy Information Administration, “Official Energy
Statistics for the U.S. Government” (Washington D.C.: EIA,
2008); www.eia.doe.gov/fuelrenewable.html.
National Conference of State Legislatures
William T. Pound, Executive Director
7700 East First Place
Denver, Colorado 80230
(303) 364-7700
12
444 North Capitol Street, N.W., #515
Washington, D.C. 20001
(202) 624-5400
www.ncsl.org
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National Conference of State Legislatures