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With government and state incentives, higher diesel fuel prices, unstable oil prices, and environmental issues, biodiesel production has become so profitable that the industry has expanded from 22
commercial biodiesel production plants in 2004 to 105 plants nationwide, with Texas claiming more refineries (15) than any other state. Biodiesel also furthers the state's rural farm economy by creating markets for crops such as soybeans and cottonseed.
For an in-depth review of government subsidies for biofuels, read Government Financial Subsidies in the Texas Comptroller's 2008 energy report.
Texas State Incentives
State Tax Exemption
So that biodiesel fuel can retail for about the same as petroleum diesel, the state diesel fuel tax is not imposed on biodiesel fuel (B-100) or any volume of biodiesel
that is blended with petroleum diesel fuel.
See Texas Tax Code, Chapter 162 (§162.001 and §162.204) and the biodiesel tax fact sheet published by the Texas Comptroller of Public Accounts.
Pollution Reduction Incentives
A 2007 Texas legislative bill relating to air
quality improvement programs, S. B. 12, includes the Emissions Reduction Incentive Grants
Program, provides funds to projects that reduce
emission of NOx from diesel vehicles. Another,
the New Technology Research and Development
Program, provides grants to research projects that
find ways to reduce pollution in Texas. For more
information, please refer to Government Financial Subsidies in the Texas Comptroller's 2008 energy report.
Federal Incentives
IRS Fuel Tax Credits and Refunds
Also see IRS publication # 378 on the fuel tax credits and refunds.
American
Jobs Creation Act of 2004 (H.R. 4520)
To make biodiesel more competitive in cost with diesel fuel, blenders are allowed a credit of $1.00 per gallon of biodiesel made from oil crops and animal fats and a $0.50 per gallon credit for biodiesel made from recycled fats and oils. The incentive is taken at the blender level, which generally means petroleum distributors, and is passed on to consumers due to a competitive market. The Energy Policy Act of 2005 extended this tax credit through 2008.
ENERGY POLICY ACTS
The goal of both the Energy Policy Act of 1992 and the Energy Policy Act of 2005 is to enhance our nation's energy security by reducing our reliance on foreign petroleum, and to improve air quality. Several sections of the Acts were designed to stimulate the demand for alternative transportation fuels.
Energy Policy Act (EPAct) of 1992
EPAct 1992 requires certain federal, state and alternative fuel providers to purchase alternative fuel vehicles (AFVs) for their fleets, with a focus on large, centrally fueled fleets in metropolitan areas. The acquisition requirements were phased in over time and apply only to fleets that operate more than 50
light-duty vehicles and have at least 20 vehicles in
one of 125 designated metropolitan areas. Compliance with EPAct is met by credits awarded for acquisition of AFVs.
The Energy Conservation Reauthorization Act of 1998 amended EPAct to allow fleets to satisfy up to 50 percent of their EPAct requirements by using biodiesel blends. Under this law, fleet operators are allowed one alternative-fueled vehicle credit for using 450 gallons of biodiesel. The biodiesel must be neat (B100) or in blends that contain by volume at least 20% biodiesel (B20). Biodiesel fuel providers can meet up to 100% of their requirements through the use of biodiesel fuel use credits. These credits can be claimed only in the year in which the fuel is purchased for use, and they cannot be traded among fleets. See the State and Alternative Fuel Provider Rule web site for detailed guidance on the EPAct .
Energy Policy Act of 2005 (H.R. 6)
Some day a president is going to pick up the crop report and they're going to say we're growing a lot of corn, or soybeans, and the first thing that will pop into the president's mind is that we are less dependent on foreign sources of energy. It makes sense to promote ethanol and biodiesel. President George W. Bush, upon signing the RFS into law, 2005
The Energy Policy Act of 2005 (H.R. 6) was signed into law by President Bush on August 8, 2005, the first major piece of federal energy legislation since the Energy Policy Act of 1992. EPAct 2005 includes a number of measures intended to improve on the success of the EPAct 1992's fleet programs and to stimulate the demand for biofuels. Following is a summary of selected sections that relate to biodiesel fuel:
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Section 1501: Renewable Fuels Standard (RFS)
Creates a renewable fuels phase-in, the Renewable Fuels Standard.
The RFS requires that gasoline sold by refiners, importers and blenders must contain an
increasing amount of renewable fuel, such as biodiesel or ethanol, starting at 4 billion gallons in 2006, increasing each year by 700 million gallons and reaching a level of 7.5 billion gallons in 2012. After 2012, renewable fuel production must grow at least the same rate as gasoline production. By 2012, the program is estimated to cut petroleum use by up to 3.9 billion gallons and cut annual greenhouse gas emissions by up to 13.1 million metric tons, the equivalent of removing 2.3 million cars from the road.
RFS Credit Trading: Under the RFS, credits are transferable/saleable and designed to ease refiner compliance with the RFS purchase requirements. Refiners can now receive credits for renewable fuels blended above the baseline. This gives gasoline suppliers the flexibility to use less renewable fuel than required by the RFS and still meet the standard by purchasing credits from suppliers who choose to use more renewable fuel than required.
NOTE: Under new legislation, the RFS
for biodiesel will increase from 500 million gallons
in 2009 to 1 billion gallons by 2012. |
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Section 701:
Federal Fleet Dual-Fuel Vehicles - Fuel Use Requirement
Requires federal fleets to use alternative fuels in dual-fuel vehicles unless an agency qualifies for a waiver. Grounds for a waiver are: alternative fuel is not reasonably available to the fleet or the cost of alternative fuel is unreasonably more expensive than conventional fuel. For more information see Federal Fleet Requirements, a U.S. Department of Energy (DOE) web site. |
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Section 703:
Alternative Compliance for State and Alternative Fuel Provider Fleets
Expands compliance options under EPAct 1992 by allowing fleets to choose a petroleum reduction path in lieu of acquiring AFVs. Interested fleets must obtain a waiver from DOE. To receive a waiver, fleets must prove that they will achieve petroleum reductions equivalent to their AFVs running on alternative fuels 100% of the time. See this update on the final rule for alternative compliance. |
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Section 757:
Biodiesel Engine Testing Program
Authorizes $5 million each year during 2006-2010 for DOE to work with engine manufacturers and fuel injection manufacturers to test biodiesel in advanced diesel fuel engines, to determine impacts of different biodiesel blendstocks and to study the emissions and warranty impacts of different blendstocks. |
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Section 772:
Extension of Maximum Increase for AFVs
Extends the current CAFE (corporate average fuel economy) credits for dual-fuel AFVs through 2010 and authorizes the National Highway Traffic Safety Administration to consider extending the incentives through 2014. |
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Section 932: Bioenergy Program
Authorizes DOE's biomass and bioproducts programs to partner with industrial and academic institutions in order to advance the development of biofuels, bioproducts and biorefineries. |
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Section 1341:
Alternative Motor Vehicle Credit
Replaces the Clean Fuel Tax Credit, which expired December 31, 2005. It provides a tax credit to purchasers of new dedicated AFVs. The tax credit equals 50% of the incremental cost of the vehicle plus an additional 30% of the incremental cost for vehicles with near-zero emissions. For non-tax-paying entities, the credit can be passed back to the vehicle seller. The tax credit can be applied to vehicle purchases made after December 31, 2005. It expires December 31, 2010. |
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Section 1341:
Hybrid Motor Vehicle Credit
Provides a fuel economy and conservation credit for light-duty hybrid vehicles and trucks. Heavy-duty hybrid vehicles are subject to the incremental cost limitations. The credit phases out after a manufacturer has sold 60,000 qualified vehicles. |
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Section 1342:
Alternative Fuel Infrastructure Tax Credit
Provides a tax credit equal to 30% of the cost of alternative refueling property, up to $30,000 for business property. Qualifying alternative fuels are natural gas, propane, hydrogen, E85, or biodiesel blends of B20 or more. Buyers of residential refueling equipment can receive a tax credit for $1,000. For non-tax-paying entities, the credit can be passed back to the equipment seller. The credit is effective on purchases put into service after December 31, 2005. It expires December 31, 2009 (hydrogen purchases expire in 2014).
This legislation replaces the Tax Deduction Timeline for the refueling property tax deduction extended by the Working Families Tax Relief Act of 2004. |
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Section 1344:
Biodiesel Excise Tax
Extends the tax credit for biodiesel producers established in the American Jobs Creation Act of 2004 through 2008. The tax credit is $.50 per gallon of waste-grease biodiesel and $1.00 for agribiodiesel. If the fuel is used in a mixture, the credit is 1 cent per percentage point of agribiodiesel used or 1/2 cent per percentage point of waste grease biodiesel. |
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Section 1345:
Small Agribiodiesel Producer Credit
Provides a $.10 tax credit for each gallon of biodiesel produced by small producers with a production capacity of less than 60 million gallons annually. This tax credit is capped after the first 15 million gallons produced annually. |
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Section 1346:
Renewable Diesel Tax Credit
Amends the biodiesel tax credits to include renewable diesel fuel that is derived from biomass by a thermal depolymerization process. The credit is $1 per gallon of renewable diesel. To qualify, the fuel must meet ASTM D975 or D396 standards. |
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Section 1514: Advanced Biofuels Technologies
Creates a $550 million Advanced Biofuels Technologies Program. |
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Section 1703: Title XVII Loan Guarantee Program
Seeks to facilitate financing for commercial projects that avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases while employing advanced technologies. Renewable energy systems, such as advanced biofuels projects are eligible for Title XVII loan guarantees. |
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Section 1823:
Alternative Fuels Report on Biodiesel and Hythane
Directs DOE to report on the potential for biodiesel and hythane to become large-scale sustainable alternative fuels. The report will include assessments of the environmental and energy security benefits of biodiesel. |
DOE Issues Final Rule on Alternative Compliance
On March 20, 2007, the U.S. Department of Energy (DOE) published a final rule that offers state and alternative fuel provider fleets a new way to comply with the Alternative Fuel Transportation Program requirements. The new rule was mandated by Section 703 of the Energy Policy Act (EPAct) of 2005. Known as Alternative Compliance, this new rulemaking allows state and alternative fuel provider fleets covered under EPAct's Alternative Fuel Transportation Program to apply for a waiver from AFV acquisition requirements. The waiver lets fleets reduce petroleum consumption instead of acquiring AFVs by using methods such as energy-efficient technologies or fuel blends.
An intent to file a waiver is due by March 31 of the model year for which the waiver is sought. For more information, read the Final Rule, check with the EPAct Web site for tools that help fleets navigate the application process, and visit the State and Alternative Fuel Provider Rule web site.
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