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Alternative and Advanced

State Policy Options

By Zoe A. Keve / Julia Verdi / Christine M. English January 2010

The desire to reduce U.S. dependence on foreign and to promote economic development at home for rural areas has contributed to the rapid growth in U.S. 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, , North Dakota and Virginia are among the states where multiple bills were introduced in the house and senate to further biofuel production, use and distribu- tion 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 In- dependence and Security Act (EISA) of 2007, has played a significant role in the increased use of biofuel in the trans- portation sector. EISA 2007 encouraged this development by revising and implementing regulations to ensure that emissions compared to fossil fuels. Many sold in the United States contains a minimum vol- states are choosing to increase energy security, ume of renewable fuel. promote economic growth and reduce dependence on fossil fuels. Liquid biofuels can be categorized as biodie- Biofuel’s role in meeting U.S. transportation needs is grow- sel, or emerging fuels. ing 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’ Biodiesel is a domestically produced renewable fuel potential, the market for various technologies, and the best manufactured from , such as soybean oil, ways to ensure its cost-effective development is important the most common source of biodiesel. Other products for those who want to understand and develop biofuels such as canola oil, sunflower oil, animal fats and recycled policy. This publication provides a basic overview of biofu- restaurant grease also can be used to produce biodiesel. els, including production technologies, current and future Lipids from micro algae also can be used, although this production forecasts, and state policy options for promot- process remains in the research and development phase. ing biofuel development. Biodiesel is produced using a chemical process called Biofuels Basics transesterification, in which glycerin is separated from the Biofuels are produced from living organisms (such as algae fat or vegetable oil. Transesterification leaves two prod- or corn) or from organic or food waste products, and are ucts—methyl esters (the chemical name for biodiesel) most widely used in the transportation sector. Depending and glycerin (a valuable byproduct usually sold for use in on how they are derived, biofuels can significantly reduce soaps and other products). Biodiesel use in diesel engines requires no major modi- that involves putting algae and waste water in mem- fications, making it an excellent alternative for the U.S. branes and floating them out to sea. NASA believes this transportation sector. It is a clean-burning could be an environmentally friendly alternative to U.S. that is safe, biodegradable, and has lower emissions than dependence on foreign oil. Growing the algae at sea for diesel. biofuel would clean up the wastewater that would, in turn, be returned clean to the ocean; it also would leave land Biodiesel Sources open for farming. The program has been demonstrated Waste Oil in laboratories, was supported for a pilot program off the Most of the vegetable oil currently used for biodiesel coast of Santa Cruz, Calif., in March 2009, and is under production comes from food-grade oil, most commonly consideration for an $800,000 alternative energy grant soybeans, although waste vegetable oil also can be used. from the state of California. � For example, NatureAir, a Costa Rican airline, recently an- nounced that it will power its entire fleet of ground equip- State Requirements for Biodiesel. In 2005, Minnesota ad- ment with biodiesel made from waste vegetable oil. opted a statewide requirement requiring diesel to contain 2 percent biodiesel by volume and increased that to 20 per- In 2008, NREL estimated that the United States produced cent in 2008, making it the highest biodiesel requirement 495 million gallons of trap grease per year. Trap grease is in the nation. Since then, Louisiana, , Oregon, found in drains and sewers; restaurants pay to dispose of it. Pennsylvania and Washington have enacted similar require- One pound of most fats and oils (such as trap grease) can ments, though some are contingent on state biodiesel pro- be converted to one pound of biodiesel. duction reaching passing certain thresholds. Minnesota’s law also bans this use of palm oil for biodiesel, since many Technology and infrastructure for large-scale conversion of developing countries are clearing thousands of acres of waste oil into commercial-grade biodiesel currently is lim- rainforests to make way for palm oil plantations for bio- ited. Because the free fatty acid and moisture levels of waste diesel. fuel vary, they can present a challenge to efficient, large- scale conversion. Another impediment to development Ethanol is that the U.S. Environmental Protection Agency (EPA) Ethanol is an alternative fuel fermented from corn, grains has not registered raw vegetable oil or waste grease as legal or agricultural waste. It is usually mixed with gasoline in fuel for vehicles. Vehicles that burn this type of biodiesel varying percentages. The two types of ethanol are or are not certified by the EPA, and engine conversions may sugar -based and cellulosic. violate vehicle warranties. However, this does not prevent use of waste oil in commercial-grade biodiesel; these waste Starch- and Sugar-Based Ethanol. Most ethanol used for materials must be processed, and the final product must fuel today is derived from starch- and sugar-based sources, meet current quality standards.� such as corn or sugar cane. This type of fuel is made from distilling and fermenting a feedstock containing an abun- Algae-Derived Biodiesel dance of natural sugars or . Corn supplies are ap- Lipids from micro algae are an emerging source of biodie- proximately 90 percent of the feedstock for U.S. ethanol sel. These lipids could potentially be a viable and economi- production. Sugar cane and sugar beets are used in parts of cal oil source. Algae use sunlight, water the world where they grow in abun- and to create lipids, dance due to favorable climatic condi- which provide raw oil for biodiesel. tions. Some feel the massive increase Species of algae with high lipid content in the demand for corn due to ethanol yield significantly more fuel per area production has been a major influence than other conventional oil-seed crops. on the increase in some food prices, In fact, algae can produce 200 barrels of making corn ethanol incentives a con- oil per acre—100 times more than can troversial issue in some areas of the be produced from soybeans. United States.�

A wide variety of algal species exists, Cellulosic Ethanol. Cellulosic ethanol many of which can grow in salt water Microalgae produce lipids that can be produced from an array of bio- can 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 produc- Space Administration (NASA) recently started a program tion. Cellulosic feedstocks suited to ethanol production

2 National Conference of State Legislatures include the following: areas of Minnesota, Iowa and . However, is of- • Agricultural residue—crop residues such as wheat fered in more than 40 states. straw and corn stalks, leaves and husks; Third, intermediate ethanol blends have an ethanol con- • Forestry residue—logging and mill residues, such as tent greater than 10 percent and less than 85 percent. wood chips, sawdust and pulping liquor; Commonly considered blends include E15 (15 percent • Grasses—hardy, fast-growing grasses such as switch ethanol, 85 percent gasoline) and E20 (20 percent ethanol, grass grown specifically for ethanol production; 80 percent gasoline). However, intermediate ethanol blends • Municipal and other wastes—plant-derived wastes cannot yet be used legally in standard (non-flexible fuel) such as household garbage, paper products, paper pulp vehicles.� and food-processing waste; and • Trees—fast-growing trees such as poplar and willow The Future of Ethanol. Ethanol production from cellulosic grown specifically for ethanol production is now on the cusp of commercialization, thanks to dramatic advances in development of cellulose enzymes. Much of the biomass used for cellulosic ethanol can be These enzymes break down the cellulose in biomass so it recycled from industry and agricultural residues, turning can be used as biofuel feedstock. Industrial biotech com- waste into a viable fuel source. panies have reduced the cost It is estimated that ethanol pro- of cellulose enzymes 30-fold duced from switch grass, crop, since 2001, from more than and forest biomass residues $5 per gallon of ethanol to less could replace 30 percent of the than $.20 per gallon. current U.S. petroleum demand. A significant barrier to cellulosic A recent study by the Uni- ethanol 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 agricul- process cellulose feedstock. Still, tural resources could generate multiple cellulosic biorefineries in excess of $700 billion an- are under construction in the nually in economic activity, United States, built with the create 5.1 million jobs, and help of federal and state incen- add $180 billion to net farm tives. One concern often raised income by 2025. The result- Iowa switchgrass regarding the use of ethanol is its energy balance- ing 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 emis- low-level ethanol blends as “substantially similar” to gaso- sions 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 in every state. Nearly half of U.S. gasoline now contains projected that perennial grasses, such as switch grass, will up to 10 percent ethanol (E10) to boost octane or meet air be primarily grown on land protected in the Conserva- quality requirements. tion Reserve Program. This program removes insignificant, 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 considered an alternative fuel under the (EPAct). It is used and grasses. � 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 of- Low-input high-diversity mixtures of native grasslands, in- fer E85. These stations are more common in the corn belt cluding switch grass, can be grown on land where soil qual-

National Conference of State Legislatures 3 ity is poor. The mixtures require less agrichemicals; provide Emerging Fuels more usable energy; and, compared to traditional mon- Several biofuels are “emerging,” as defined by the U.S. oculture sources, provide greater greenhouse gas reduc- Department of Energy. Because all are in the early stages tions. This technique could allow farmers to grow biofuel of research and development, experience with their use in on abandoned agricultural land with poor soil quality. vehicles is limited. The emerging biofuels include the fol- lowing. Agricultural Waste An abundant source of waste products exists for cellulosic • Biobutanol ethanol production in agricultural waste. Waste from corn is an alcohol and sugar crops is an excellent source for cellulosic ethanol. (similar to Leaves and stalks left over after harvest are significant bio- ethanol) mass sources; almost 75 million dry tons of corn are that can be available annually. Bagasse, the cellulosic material left after produced by sugar is extracted from the cane, is plentiful in southern processing states such as Louisiana. The Verenium Corporation is cur- domestically rently building a demonstration plant for processing these grown crops types of biomass in Jennings, La.� such as corn and sugar Forest and Timberland Residue beets and Current biomass output from forestland is about 142 other bio- million dry tons per year. Sustainable forestry practices— mass such as which use all materials and residues—could increase this fast-growing yield to 368 million dry tons of biomass annually. Two grasses and primary sources agricultural Triple biofuels dispenser for the additional waste products. biomass include • is produced from the anaerobic digestion of the residues from organic matter such as animal manure, sewage and commercial tim- municipal solid waste. After it is processed to required berland harvest standards of purity, biogas becomes a renewable substi- and currently non- tute for and can be used to fuel natural gas marketable biomass vehicles. from the forestry • Biomass to Liquids processes convert diverse biomass industry. Waste feedstocks into a range of liquid fuels. These processes products-such as usually are distinguished from enzymatic/fermentation the trunk (when a processes and processes that use only part of a biomass tree is felled, the feedstock, such as those typically used to produce etha- trunk can break, nol, biobutanol and biodiesel. leaving a top that • to Liquids processes convert coal into liquid fu- is too thin to be els. Coal-derived liquid fuels are considered alternative Wood chipper preparing material in the used as a log ) and fuels under the Energy Policy Act of 1992 (EPAct). ethanol production process leaf litter, as well as • Fischer-Tropsch Diesel is made by converting gaseous smaller trees removed due to fire hazards or disease-can be hydrocarbons, such as natural gas and gasified coal or a significant source of biomass-based fuel. The amount of biomass, into liquid fuel. forest-based biomass depends upon existing resources and • processes convert natural gas into on the demand for primary forest products such as lumber. liquid fuels. Liquid fuels domestically produced from It is important to note that approximately 89 million dry natural gas are considered alternative fuels under the tons of the 368 million dry ton yield is based upon pro- Energy Policy Act of 1992. jected increases in demand for forest products. Regardless, • -Derived Renewable Diesel is the the amount of biomass available from forest management product of fats or vegetable oils—alone or blended and timber waste is significant and could be used in the with petroleum—that have been processed in an oil next generation of cellulosic ethanol facilities. � refinery. • P-Series is a blend of natural gas liquids (pentanes plus), ethanol and the biomass-derived co-solvent

4 National Conference of State Legislatures methyltetrahydrofuran (MeTHF). P-Series fuels are biorefineries. Estimated annual cellulosic ethanol produc- clear, colorless, 89-93 octane liquid blends that are for- tion from the six facilities will exceed 130 million gallons. mulated to be used in flexible fuel vehicles. It can be Range Fuels in Georgia and ALICO in Florida plan to used alone or freely mixed with gasoline in any propor- gasify biomass, then use catalytic conversion or fermenta- tion for flexible fuel vehicles. P-Series currently is not tion to produce ethanol. BlueFire Ethanol in California, produced in large quantities and is not widely used. It to be built on an existing landfill, will use waste biomass. is the only fuel added to the list of authorized alterna- Broin Companies in Iowa, Iogen in Idaho and Abengoa in tive fuels under the Energy Policy Act of 1992 in the Kansas will use various waste resources, including switch 1999 EPAct petitions provision. grass, agricultural wastes such as potatoes and corn stover, and forest residues and yard waste. Two of the biorefineries Although these fuels are in the early stages of develop- recently withdrew due to economic problems. ment, many were considered alternative fuels by the En- ergy Policy Act of 1992 and could qualify for federal and Production from Algae state incentives and mandates. The Energy Policy Act of Interest also has revived in developing biodiesel from mi- 2005, however, focuses on ethanol as the alternative fuel croorganisms, such as algae. In 2006, only four companies for transportation, establishing a national renewable fuel were focused on developing algae-based biodiesel technolo- standard that requires gasoline sold in the United States to gies. By February 2009, more than 170 companies were contain a specific volume of biofuel (mostly corn ethanol). conducting research, including several small-scale research It also requires the annual volume of renewable fuels to in- and development operations nationwide. crease from 4 billion gallons per year in 2006 to 7.5 billion gallons in 2012. The Energy Independence and Security Chevron Corporation recently partnered with the National Act of 2007 increased the renewable fuel standard set by Laboratory to develop from the EPAct to 9 billion gallons in 2008, with an increase of algae. Chevron decided to focus on algae for fuel because up to 36 billion gallons by 2022. Of the 36 billion gallons it believes nonfood feedstock sources-including algae and required by 2022, 16 billion must be cellulosic biofuel.� cellulose-hold the greatest promise for growth in the bio- fuel industry. � Alternative Fuels Production Development of biofuel and other advanced technologies Although this technology is in the experimental stage, algae is regarded as a way to reduce dependence on foreign oil seems to have many advantages as a biodiesel source com- sources and curb vehicle emissions. In 2008, the U.S. De- pared to conventional oilseed crops such as soybeans. These partment of Energy announced it would invest up to $4.4 crops are a food source and also require significant suitable million in six advanced biofuel research projects at the Uni- farming or arable land. Because algae do not require arable versity of Toledo, Stevens Institute of Technology, Montana land for development, they would not displace food crops. State University, the University of Georgia, the University of Maine and Georgia Tech Research Corporation. These State Policy projects represent an investment in clean energy technolo- Many states have written biofuels into state policy. Thirty- gies that will help expand current biofuel research and de- five state policies include tax exemptions, credits and grants velopment efforts and help meet growing energy demand. for use of biofuels. Thirty-four states have adopted incen- These programs also will expand the geographic diversity tives to reduce the costs of refining, storing, transporting and number of partners working on advanced biofuel de- and distributing alternative fuels. Some state policies also velopment nationwide and will strengthen the Department focus on requiring that state fleet vehicles use only biofuels of Energy collaboration with universities, encouraging or use it in a certain percentage of vehicles. the necessary innovation to diversify the nation’s energy sources. Corn ethanol has become a major U.S. biofuel because it is easily produced and can be used as a fuel additive in Major questions that remain, however, are how realistic all conventional gasoline. Yet, the potential to create ten- these goals are, and how long it will take to economically sion between food versus fuel production complicates the produce such fuels commercially for widespread use. corn ethanol issue. Also, there are concerns that the energy needed to produce corn ethanol may be nearly as much as Six Cellulosic Ethanol Projects Supported is produced, depending on how it is farmed and processed. by the Department of Energy By recognizing these potential relationships, policymakers In 2008, the Department of Energy announced it would can develop policies to address these issues. invest up to $385 million to support six new cellulosic

National Conference of State Legislatures 5 Existing Biofuel Policies Nebraska, New York, North Dakota, Ohio, and States have created a variety of policies to encourage pro- Wyoming.24 duction and use of biofuel, including tax exemptions, cred- its and grants; standards for state fleets; and renewable fuel State and Federal Renewable Fuel Standards standards. Figure 1 depicts state adoptions of these various Renewable fuel standards require that fuel sold in a state approaches. contain a specified percentage of biofuel. Such require- ments are in effect in at least 11 states and require up to 20 State Fleet Standards/Use ethanol in gasoline. As of Feb. 14, 2008, the EPA requires Many states have passed mandates requiring government- that a minimum of 7.76 percent of the fuel dispensed na- owned vehicles to use renewable fuels. These requirements tionally to be renewable.25 Renewable fuel use also must often include purchasing hybrid electric or flex fuel vehicles reach 36 billion gallons by 2022. Although a national and using biodiesel blends in diesel engines. A price limit standard exists, states can apply for an exemption, since can be included to ensure that the government need not renewable fuels are not required or available in all states. purchase new technologies if the cost is a given percentage Many states are taking the initiative to develop renewable higher than a comparable traditional fuel vehicle. Govern- fuel standards to supplement both gasoline and . ments can lead by example and invest in emerging vehicle technologies. Tax Incentives, Grants and Other Incentives Most states have incentives to promote ethanol production A Colorado program requires all state-owned diesel ve- and fuel use, and many have ethanol mandates. Nearly half hicles to use B20 as long as the price is no higher than $.10 the states offer tax credits for the cost of producing ethanol per gallon more than traditional diesel fuel. It also requires and biodiesel. Table 1 shows states that provide incentives the state to purchase flex fuel or hybrid electric vehicles so and tax credits for ethanol production and states that have long as the price is not more than 10 percent greater than introduced renewable fuels standards the price of a comparable vehicle. Similar programs exist in Alabama, Alaska, Georgia, Kansas, Missouri, Montana,

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 , “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 Infrastructure and Distribution Incentives Alaska 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 Alternative Fuel Grants: Includes grant incentives for incentives for alternative fuel producers alternative fuel distributors and feedstock producers Arizona Biofuels Grants and Specifications: Promotes development of fueling infrastructure California Alternative Fuel and Vehicle Research • Alternative Fuel and Vehicle Research and and Development Incentives: Provides Development Incentives: Provides grants and loans for grants and loans for projects that produce projects that expand fuel infrastructure, fueling stations alternative and renewable fuels and equipment • and Fueling Infrastructure Grants Colorado Funding for Alternative Fuel Feedstock Alternative Fuel Infrastructure Tax Credit Production Connecticut Biodiesel Production and Distribution Biodiesel Production and Distribution Grants: Provides Grants: Provides grants to qualified grants to qualified biodiesel distributors biodiesel producers Florida Biofuels Investment Tax Credit: Tax • Biofuels Tax Exemption: The sale of materials such as credit for costs incurred in connection fueling infrastructure, transportation and storage are with an investment in the production of exempt from state sales tax biodiesel and ethanol in the state • Biofuels Investment Tax Credit: Tax credit for costs incurred in connection with an investment in the distribution of biodiesel and ethanol in the state Georgia Alternative Fuels Production Assistance: E85 Fueling Infrastructure Grant Program Provides assistance to companies considering locating alternative fuels production facilities in Georgia Hawaii Ethanol Production Incentive: Income tax credit available for qualifying ethanol production facilities Iowa • Alternative Fuel Production Tax • Ethanol Blend Retailer Tax Credit; Credits: Includes production of • E85 Retailer Tax Credit, Biofuels Infrastructure biomass or alternative fuels Grants • Alternative Fuel Production Loans • Biodiesel Tax Credit Idaho Exemptions for Biodiesel Production for Biofuel Fueling Infrastructure Tax Credit Personal Use Illinois Biofuels Production Facility Grants: E85 Fueling Infrastructure Grants Provides grants for construction or expansion of biodiesel and ethanol production facilities in Illinois • Ethanol Production Tax Credit • E85 Fueling Station Grant Program; • Biodiesel Production Tax Credit • Biodiesel Retailer Tax Credit

National Conference of State Legislatures 7 Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)

State Production Incentives Infrastructure and Distribution Incentives Kansas • Biodiesel Production Incentive: • Biofuel Equipment Tax Credits Available in the amount of $.30 per • Renewable Fuel Retailer Incentive gallon of biodiesel fuel sold by a • Alternative Fueling Infrastructure Tax Credit 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 Kentucky Ethanol Production Tax Credit Louisiana Biodiesel Equipment and Fuel Tax • Alternative Fuel Vehicle and Fueling Infrastructure Exemption: Includes property and Tax Credit equipment used to produce biodiesel • Advanced Ethanol Fuel Blend Research Grants: Grants to purchase of fueling pumps that can dispense advanced biofuel blends 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, • Alternative Fueling Infrastructure Tax Credit Development and Tax • E85 Fueling Infrastructure Grant Program Credits • Alternative Fueling Infrastructure Grants Minnesota Ethanol Production Incentive: An E85 Fueling Infrastructure Grants: Grants are available to ethanol production incentive of $.20 per service stations that install equipment for dispensing E85 gallon of ethanol produced is available to fuel to flexible fuel vehicles qualified facilities 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 • Ethanol Production Incentive: • Biodiesel Blending Tax Credit: Tax credit for business Ethanol producers are entitled to a tax for up to 15% of the cost of equipment used for storing incentive of $.20 per gallon or blending biodiesel with petroleum diesel for sale • Biodiesel Production Incentive: Tax • Biodiesel Tax Refund incentive for biodiesel producers is available

8 National Conference of State Legislatures Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)

State Production Incentives Infrastructure and Distribution Incentives North Carolina • Biofuels Industry Development: • Biofuels Industry Development: Grants to private Grants to private businesses to businesses to encourage retail infrastructure of biofuels encourage maximizing production of • Alternative Fueling Infrastructure Tax Credit biofuels • Biodiesel Production Tax Credit, Alternative Fuel Production Tax Credit North Dakota • Biofuels Loan Program: Provides a Biofuels Loan Program: Provides a 5% interest buy-down 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 Nebraska Biodiesel Production Investment Tax Credit New Alternative Fuel Vehicle and Fueling Infrastructure Hampshire 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 • Biodiesel Blending Tax Credit biomass materials used for processing into • Alternative Fuel Vehicle (AFV) and Fueling biofuels can be deducted when computing Infrastructure Grants the compensating tax due New York Biofuel Production Tax Credit • Alternative Fueling Infrastructure Tax Credit • Biofuel Fueling Infrastructure Funding • Alternative Fuel and Infrastructure Planning • Alternative Fuel Vehicle and Fueling Infrastructure Funding Ohio • Biofuels Retail Tax Credit • Alternative Fuel and Fueling Infrastructure Grants Oklahoma • Biodiesel Production Tax Credit • Alternative Fueling Infrastructure Tax Credit • Ethanol Production Tax Credit • Ethanol Fuel Retailer 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 excise tax Oregon Biofuels Production Property Tax Alternative Fuel Infrastructure Tax Credit Information: Exemption 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 Pennsylvania • Biodiesel Production Refund: Alternative Fuel Vehicle (AFV), Hybrid , 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 9 Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)

State Production Incentives Infrastructure and Distribution Incentives South Carolina Biofuels Production Tax Credit, Biofuels • Biofuels Retail Incentive: A $.05 incentive payment Production Facility Tax Credit 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 • Biodiesel Infrastructure Grants $.20 per gallon incentive for biodiesel fuel • Biofuels Fueling Infrastructure Grants produced and sold to Tennessee companies • Alternative Fuel Innovations Grant: Includes installation of infrastructure • Infrastructure Development Program Texas Alternative Fuel Grants: Provides grants for alternative fuel infrastructure projects Alternative Fuel Vehicles (AFV) and Fueling Infrastructure Grants and Loans Virginia • Biodiesel Production Tax Credit • Biofuels Production Grants Washington • Alternative Fuel Loans and Grants: • Biofuels Retail Tax Exemption Provides financial and technical • Biofuels Tax Deduction: Available for the sale or assistance for bioenergy production distribution of biodiesel or E85 motor fuel • Biofuels Production Tax Exemption Wisconsin 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 Increasing production and distribution of alternative fuels consider regarding the use and production of alternative can promote economic development in agriculture and fuels. Decisions will be shaped by the availability of feed- biofuel technology and also minimize greenhouse gas stocks, research and development objectives, economic de- emissions and dependence on foreign oil. Although cur- velopment, foreign trade, and clean and alternative energy rent levels of biofuel production meet a small fraction of goals. Issues to consider when developing biofuel policies the nation’s fuel demand (of the total energy used in the include the following. United States in 2007, only 3.71 percent came from bio- mass), this amount is increasing and is helping to diversify • What type of policies will create sustainable biofuel fuel sources.26 Providing long-term alternatives to fossil development? Life-cycle and environmental impact fuels and reducing environmental impacts are important assessments for each biofuel under consideration can goals, however, biofuel policies are only part of the answer. help make this determination. To maximize biofuel policies’ effects, it also is important to consider policies that reduce the growth in fuel consump- • Consider the surrounding issues related to biofuel, tion. Such policies include increasing the use of energy such as energy security and independence, economic efficient vehicles, electric vehicles and plug-in hybrids; in- development, trade, food security, environmental pro- creasing availability of mass transportation; and designing tection and strategic technology innovation. communities so that walking and biking are transportation options. • How can public policy spur private investment in re- search and development?

• How does biofuel development fit in with long-term land management plans?

• Consider overall issues of renewable energy and green- house gas emissions and any unintended consequences.

• If greenhouse gas reduction is a goal, considering anal- ysis 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 cost- effective 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 14. David Tilman et al., “Carbon-Negative Biofuels from 1. U.S. Environmental Protection Agency, “Renewable Fuel Low-Input High-Diversity Grassland Biomass,” Science 8 (2006): Standard Program” (Washington D.C.: EPA, 2009); www.epa. 1598-1600 gov/OMS/renewablefuels/. 15. Fred Krupp et al., “Earth: The Sequel, The Race to Re- 2. Energy Information Administration, “Biofuels in the invent Energy and Stop Global Warming” (New York, N.Y.: W.W. U.S. Transportation Sector” (Washington, D.C.: EIA, 2007); Norton and Company, 2008). www.eia.doe.gov/oiaf/analysispaper/biomass.html. 16. Energy Information Administration, “Biomass” (Wash- 3. .S. Department of Energy, “Biodiesel Emissions” (Wash- ington D.C.: EIA, 2009); www.eia.doe.gov/cneaf/solar.renew- ington, D.C.: DOE, 2009); www.afdc.energy.gov/afdc/vehicles/ ables/page/biomass/biomass.html. emissions_biodiesel.html. 17. U.S. Department of Energy, “Emerging Fuels” (Wash- 4. Matthew McDermott, “Nature Air To Use Waste Veg- ington D.C.: DOE, 2009); www.afdc.energy.gov/afdc/fuels/ etable Oil Biodiesel On All Its Ground Vehicles” (New York: emerging.html?print. Discovery Communications, LLC, 2009); www.treehugger.com/ 18. U.S. Environmental Protection Agency, “EPA Proposes files/2009/01/nature-air-waste-vegetable-oil-biodiesel-powered- New Regulations for the National Renewable Fuel Standard ground-vehicles.php. Program for 2010 and Beyond” (Washington D.C.: EPA, 2009); 5. U.S. Environmental Protection Agency, “Alternative www.epa.gov/oms/renewablefuels/420f09023.htm. Fuels Brief: Biodiesel” (Washington D.C.: EPA, 2006); www. 19. U.S. Department of Energy, “DOE to Invest Up To epa.gov/smartway/growandgo/documents/factsheet-biodiesel. $4.4 Million in Six Innovative Biofuels Projects at U.S. Uni- htm. versities” (Washington D.C.: EPA, 2008); www.energy.gov/ 6. Qiang Hu et al., “Microalgal Triacylglycerols as Feed- news/6525.htm. stocks for Biofuel Production: Perspectives and Advances,” The 20. U.S. Department of Energy, “DOE Selects Six Cellu- Plant Journal 54 (2008): 621-639. losic Ethanol Plants for Up to $385 Million in Federal Funding” 7. Michael Gross, “Algal Biofuel Hopes,” Current Biology (Washington D.C.: DOE, 2008); www.doe.gov/news/4827.htm. 18, no. 2 (2008): 46-47. 21. Renewable Energy World, “Chevron, NREL To Col- 8. Joseph DiPardo, “Outlook for Biomass Ethanol Produc- laborate on Algae-to-Biofuel Research” (Peterborough, N.H.: tion and Demand” (Washington D.C,: EIA, 2000); www.eia. Renewable Energy World, 2007); www.renewableenergyworld. doe.gov/oiaf/analysispaper/pdf/biomass.pdf. com/rea/news/story?id=50468. 9. Evan Ratliff, “One Molecule Could Cure Our Addiction 22. Bruce Rittman, “Opportunities for Renewable Bioen- to Oil,” Wired Magazine, (2007); www.wired.com/science/plan- ergy Using Microorganisms,” Biotechnology and Bioengineering etearth/magazine/15-10/ff_plant?currentPage=1. 100, no. 2 (2008): 203-212. 10. Alternative Fuels and Advanced Data Center, “Ethanol” 23. Kathleen Kingsbury, “After the Oil Crisis, A Food Cri- (Washington D.C.: AFDC, 2010); www.afdc.energy.gov/afdc/ sis?” (New York, N.Y.; Time Magazine, 2007); www.time.com/ ethanol/index.html. time/business/article/0,8599,1684910,00.html. 11. Biotechnology Industrial Organization, “Industrial Bio- 24. Georgia Forestry Commission, “Summary of State technology and the Future of Ethanol Production” (Washington Incentives and Legislation for Renewable Energy Production” D.C.: BIO, 2004); www.bio.org/ind/biofuel/200611fact.asp. (Macon, G.A..:Georgia Forestry Commission, 2007); www. 12. Burton C. English et al., “25% Renewable Energy for gabio.org/attachments/3/200700211200Summary%20of%20 the United States by 2025: Agricultural and Economic Impacts” State%20Incentives%20for%20Renewables%2020070925.pdf. (Knoxville, Tenn.: University of Tennessee Agricultural Econom- 25. U.S. Environmental Protection Agency, “Renewable ics, 2006); www.25x25.org/storage/25x25/documents/RANDan- Fuel Standards Program: Regulations” (Washington D.C.: EPA, dUT/UT-EXECsummary25X25FINALFF.pdf. 2008), www.epa.gov/OMS/renewablefuels/420f07062.htm. 13. M.R. Schmer et al., “Net Energy of Cellulosic Ethanol 26. Energy Information Administration, “Official Energy from Switchgrass,” Proceedings of the National Academy of Science Statistics for the U.S. Government” (Washington D.C.: EIA, 105, no. 2 (2008): 464-469. 2008); www.eia.doe.gov/fuelrenewable.html.

National Conference of State Legislatures William T. Pound, Executive Director 7700 East First Place 444 North Capitol Street, N.W., #515 Denver, Colorado 80230 Washington, D.C. 20001 (303) 364-7700 (202) 624-5400 www.ncsl.org © 2010 by the National Conference of State Legislatures. All rights reserved. ISBN 978-1-58024-581-4

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