Alternative and Advanced Fuels

National
Conference
State Legislatures

of

I I I I I I The Forum for Americas Ideas

State Policy Options

By Zoe A. Keve I 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 area25
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.
Biofuels 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, large-scale
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 economi

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. Minnesotas
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

cal 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 acre100 times more than can be
produced from soybeans.

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
Microalgaeproduce lipids that
many of which can grow in salt water
can be produced from an array of
can be converted to biodiesel fuel
and in areas otherwise unsuitable for
biomass, making resources abundant
and of food sources for fuel
conventional agriculture. The National Aeronautics and
minimizing the diversion
Space Administration (NASA) recently started a program
production. Cellulosic feedstocks suited to ethanol
production

National Conference of State Legislatures

include the following:

Agricultural residuecrop residues such as wheat straw
and corn stalks, leaves and husks;
Forestry residuelogging and mill residues, such as wood
chips, sawdust and pulping liquor;
Grasseshardy, fast-growing grasses such as switch grass
grown specifically for ethanol production;
Municipal and other wastesplant-derived wastes such as
household garbage, paper products, paper pulp and foodprocessing waste; and
Treesfast-growing trees such as poplar and willow
grown specifically for ethanol production
Much of the biomass used for cellulosic ethanol can be
recycled from industry and agricultural residues, turning

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 com

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
ethanol production is the lack of
efficient and inexpensive
technology to break down and
process cellulose feedstock. Still,
multiple cellulosic biorefineries
are under construction in the
United States, built with the help
of federal and state incentives.
One concern often raised

panies 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.
A recent study by the
University of Tennessee found
that producing 25 percent of
Americas energy from
agricultural resources could
generate in excess of $700
billion annually in economic
activity, create 5.1 million jobs,
and add $180 billion to net farm
income by 2025. The result
Iowa switchgrass

regarding the use of ethanol is its energy balancewhether the fuel provides more energy to the end
user than it takes to produce it. Cellulosic ethanol yields
roughly 80 percent more energy than is required to grow and
convert it and emits a low net level of greenhouse gases.
Ethanol Blends. There are three types of ethanol blends. First,
the U.S. Environmental Protection Agency classifies lowlevel ethanol blends as substantially similar to gasoline.
Low-level ethanol blends can be used legally in any gasolinepowered vehicle. Low-level ethanol blends are sold in every
state. Nearly half of U.S. gasoline now contains up to 10
percent ethanol (E10) to boost octane or meet air quality
requirements.
Second, E85 (85 percent ethanol, 15 percent gasoline) is
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 of
July 2009, there are over 1,950 fueling stations that offer E85.
These stations are more common in the corn belt

ing decline in market prices for corn and other food

crops could produce an estimated cumulative
savings in government farm payments of $15 billion.
Switch Grass
Switch grass, a perennial prairie grass, does not directly
compete with food crops as an ethanol input. A 2006 study
shows that burning cellulosic ethanol made from switch grass
emits 88 percent less greenhouse gas emissions than burning
gasoline. This estimate does not include carbon that is
potentially sequestered in the soil, which could increase
savings to 94 percent over 100 years. It is projected that
perennial grasses, such as switch grass, will be primarily
grown on land protected in the Conservation Reserve
Program. This program removes insignificant, heavily eroded
cropland from the annual farming cycle and gives farmers
financial incentives to plant perennial trees and grasses.
High-Diversity Perennial Crops
Low-input high-diversity mixtures of native grasslands,
including switch grass, can be grown on land where soil qual-

National Conference of State Legislatures

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 TimberlandResidue Current biomass output

from forestland is about 142 million dry tons per year.
Sustainable forestry practices which use all materials and
residuescould 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 productssuch 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.

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 fastgrowing
l Triple
grasses
agriculturaand

biofuels dispenser

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 oilsalone or blended with
petroleumthat 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.

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 ofTechnology, 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 nations
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

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.
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. Thirty-five
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

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.

National Conference of State Legislatures

Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution

State

Production Incentives

Infrastructure and Distribution 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

Alternative Fuel Grants: Includes grant incentives for alternative

incentives for alternative fuel producers and

feedstock producers

fuel distributors

Arizona

Biofuels Grants and Specifications: Promotes development of

fueling infrastructure
California

Alternative Fuel and Vehicle Research and

Development Incentives: Provides grants and

Alternative Fuel and Vehicle Research and Development

Incentives: Provides grants and loans for projects that expand fuel

loans for projects that produce alternative and

renewable fuels

infrastructure, fueling stations and equipment

Colorado

Alternative Fuel Vehicle and Fueling Infrastructure Grants

Alternative Fuel Infrastructure Tax Credit

Funding for Alternative Fuel Feedstock Production

Connecticut

Biodiesel Production and Distribution Grants: Provides grants to

Biodiesel Production and Distribution Grants:

Florida

Georgia

Provides grants to qualified biodiesel producers

Biofuels Investment Tax Credit: Tax
credit for costs incurred in connection with an
investment in the production of biodiesel and
ethanol in the state

Alternative Fuels Production Assistance:

qualified biodiesel distributors

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
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 Credits:

Includes production of biomass or alternative

fuels
Alternative Fuel Production Loans
Idaho
Illinois

Exemptions for Biodiesel Production for Personal

Use
Biofuels Production Facility Grants:

Ethanol Blend Retailer Tax Credit;

E85 Retailer Tax Credit, Biofuels Infrastructure Grants
Biodiesel Tax Credit
Biofuel Fueling Infrastructure Tax Credit
E85 Fueling Infrastructure Grants

Provides grants for construction or expansion of

biodiesel and ethanol production facilities in
Illinois
Indiana

Ethanol Production Tax Credit

Biodiesel Production Tax Credit

E85 Fueling Station Grant Program;

Biodiesel Retailer Tax Credit

National Conference of State Legislatures

Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)
State

Production Incentives

Kansas

Biodiesel Production Incentive:

Infrastructure and Distribution Incentives

Biofuel Equipment Tax Credits
Renewable Fuel Retailer Incentive
Alternative Fueling Infrastructure Tax Credit

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-toenergy facility
Kentucky
Louisiana

Ethanol Production Tax Credit

Biodiesel Equipment and Fuel Tax

Alternative Fuel Vehicle and Fueling Infrastructure Tax Credit

Includes property and equipment Advanced Ethanol Fuel Blend Research Grants:
used to produce biodiesel
Grants to purchase of fueling pumps that can dispense
advanced biofuel blends
Exemption:

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
Michigan

Biofuels Production Tax Credit

Alternative Fuel and Vehicle Research,
Development and Manufacturing Tax Credits

Minnesota

Alternative Fueling Infrastructure Tax Credit

E85 Fueling Infrastructure Grant Program
Alternative Fueling Infrastructure Grants

are available to
service
stations
that
install
equipment
for dispensing E85
ethanol production incentive of $.20 per
fuel
to
flexible
fuel
vehicles
gallon of ethanol produced is available to
qualified facilities
Ethanol Production Incentive: An

Missouri

E85 Fueling Infrastructure Grants: Grants

Alternative Fueling Infrastructure Tax Credit

Ethanol Production Incentive:

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

Montana

Biofuels Production Incentive: Provides

incentive payments to ethanol and

biodiesel producers
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

Production Incentives

Infrastructure and Distribution Incentives

Biofuels Industry Development: Grants to private businesses
to encourage retail infrastructure of biofuels

Biofuels Industry Development:

Alternative Fueling Infrastructure Tax Credit

North Carolina

Grants to private businesses to encourage

maximizing production of biofuels
Biodiesel Production Tax Credit, Alternative
Fuel Production Tax Credit
North Dakota

Biofuels Loan Program: Provides

Biofuels Loan Program: Provides

a 5%
interest buy-down to biodiesel and 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
Hampshire
New Jersey

Alternative Fuel Vehicle and Fueling Infrastructure Project Funding

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
cost of biomass Biodiesel Blending Tax Credit
materials used for processing into biofuels Alternative Fuel Vehicle (AFV) and Fueling Infrastructure Grants
can be deducted when computing the
compensating tax due

New Mexico

Biofuels Tax Deduction: The

New York

Biofuel Production Tax Credit

Ohio

Oklahoma

a 5% interest buy-down to
biofuels retailers for refueling infrastructure installation

Biodiesel Production Tax Credit

Ethanol 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

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
Oregon

Biofuels Production Property Tax Exemption

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
Pennsylvania

Biodiesel Production Refund:

Biodiesel producers with a production

capacity of 25,000 gallons or more may
apply for a $.75 per gallon refund for
biodiesel produced

Alternative Fuel Vehicle (AFV), Hybrid Electric Vehicle, and Fueling

Infrastructure Funding

Renewable Energy Grants

National Conference of State Legislatures

Table 1. State Incentives for Biofuel Production, Infrastructure and Distribution (continued)
State

Production Incentives

South Carolina

Biofuels Production Tax Credit, Biofuels

Production Facility Tax Credit

Infrastructure and Distribution Incentives

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

Tennessee

Biodiesel Blend Tax Credit: Licensed biodiesel blenders may be

$.20 per
gallon production incentive is available to eligible for a tax credit for special fuel blended with
ethanol producers for ethanol that is fully biodiesel
distilled and produced in South Dakota
Biodiesel Production Incentive: Provides $.20 Biodiesel Infrastructure Grants
per gallon incentive for biodiesel fuel
Biofuels Fueling Infrastructure Grants
produced and sold to Tennessee companies Alternative Fuel Innovations Grant: Includes installation of
Ethanol Production Incentive: A

infrastructure
Infrastructure Development Program
Texas

Alternative Fuel Grants: Provides grants

for alternative fuel

infrastructure projects
Utah

Virginia

Washington

Alternative Fuel Vehicles (AFV) and Fueling Infrastructure Grants

and Loans
Biodiesel Production Tax Credit
Biofuels Production Grants
Alternative Fuel Loans and Grants:

Biofuels Retail Tax Exemption

Provides financial and technical assistance Biofuels Tax Deduction: Available for the sale or distribution
of biodiesel or E85 motor fuel
for bioenergy production
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

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.
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 cost-effective in the long term.

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 nations 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.

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/RANDan-dUT/UTEXECsummary25X25FINALFF.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 LowInput High-Diversity Grassland Biomass, Science 8 (2006): 15981600
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.

IIIIII
NATIONAL C ONFERENCE / STATE LEGISLATURES
The Forum for Americat Ideas

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
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ISBN 978-1-58024-581-4

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National Conference of State Legislatures