BioFuel Incentives

Washington State provides a variety of incentives to encourage the development of in-state production facilities, distribution services and retail sales facilities for biodiesel and ethanol fuels.

Washington State provides a variety of incentives to encourage the development of in-state production facilities, distribution services and retail sales facilities for biodiesel and ethanol fuels.

In 2003, the Washington State legislature passed tax incentives for the manufacture and sale of biodiesel and ethanol. Detailed information on the 2003 state tax incentives for biofuels can be found at the Department of Revenue’s Tax Incentive website. Highlights include:

• a reduction in the B&O Tax for manufacturers of biodiesel and ethanol fuels from from 0.484% to 0.138%;
• an exemption from state and local property and leasehold taxes for a period of 6 years for buildings, equipment and land used in the manufacturing of alcohol fuel, biodiesel fuel, or biodiesel feedstocks; and,
• an exemption from retail sales and use tax for the purchase of machinery and equipment and the construction of facilities used directly for the retail sale of alcohol fuel or biodiesel fuel.

In 2006, the Washington State Legislature passed landmark biofuels legislation including the Energy Freedom Fund and the Renewable Fuel Standard.

• The Energy Freedom Program
  
  The Energy Freedom fund includes the Energy Freedom Loan Account. This account is funded by $100 million from the State General Fund and managed by a 13-member Energy Freedom Board. The Board is responsible for establishing a competitive process for awarding low-interest loan and grants in research and development of new and renewable energy sources, including infrastructure, facilities, technologies and research and development that will advance Washington's move towards energy independence. Financial assistance may be awarded by the Board for: research and development of new and renewable energy and biofuel sources, including biomass, solar, and wind power; renewable energy and biofuel development infrastructure and facilities; and research and development to develop markets for alternative fuel byproducts. The Energy Freedom Program expires June 30, 2016. The Energy Freedom Program expires June 30, 2016. Details of the Energy freedom Fund can be found in RCW 15.110.
  
  The 2006 supplemental capitol budget provided $23 million to help fund biofuels projects, such as biodiesel and ethanol production facilities, oilseed crushers, and anaerobic digesters. The bulk of the funds will be provided as low-interest loans, with the potential for some grant funding. Of the $23 million, $6 million was earmarked for Grays Harbor Pulp and Paper Company to install a biomass turbine, $10.25 million was earmarked for 5 biodiesel production or oilseed crushing projects selected by the Legislature. The remaining $6.75 million is available for open competition. A summary of 2006 project funding can be viewed at the Washington State Department of Agriculture Bioenergy website.
  
  
• Washington State Renewable Fuel Standard
  
  In 2006, the Washington State legislature passed a renewable fuel standard –ESSB 6508. The standard requires that at least 2% of the diesel sold in Washington must be biodiesel, beginning November 30, 2008, or when a determination is made by the Director of the State Department of Agriculture that feedstock grown in Washington State can satisfy a 2% fuel blend requirement. The biodiesel requirement would increase to 5% once in-state feedstocks and oil-seed crushing capacity can meet a 3% requirement. At current fuel consumption levels, a 2 percent biodiesel requirement is equivalent to approximately 20 million gallons per year. Details on Washington’s renewable fuel standard are contained in RCWs 19.112.110 to 19.112.180.

  The 2006 renewable fuel standard also requires that beginning on December 1, 2008, at least 2% of the gasoline sold in Washington be ethanol. The ethanol requirement could be increased to 10% if the Director of Ecology determines that this would not jeopardize continued attainment of Clean Air Act standards. At current fuel consumption levels, a 2 percent requirement is equivalent to approximately 55 million gallons of ethanol per year.
  
  The Department of Licensing (DOL) is responsible for tracking biodiesel and ethanol fuel use in the State. DOL will work directly with producers and suppliers to determine in-state use of biofuels and will report this information in aggregate form. Biofuel use data will be posted on this site once it becomes available.

In 2007, a number of energy related bills were passed by the Washington State Legislature, including SSB 6001- Mitigating the impacts of climate change. Bills directly affecting biofuels are listed below.

• SHB 1303- Encouraging the Use of Cleaner Energy
  
  This is an omnibus bill that contains a number of provisions that would reduce diesel emissions, examine the use plug-in hybrids electric vehicles and continue to promote the use of biofuels. Some key biofuel related elements are presented below.
  
  
  • The administrative home of the Energy Freedom Account is moved to the Department of Community Trade and Economic Development from the Washington State Department of Agriculture. A coordinator position is created within the Energy Freedom Program and is responsible for coordinating state efforts to develop a biofuels market and developing a plan for a complete biofuels infrastructure supply chain.
    
    
  • The Energy Freedom Program is expanded to include grants or loans for refueling projects under the Green Energy Incentive Account. Cellulosic ethanol production facilities are also made eligible for assistance under the Energy Freedom Program.
    
    
  • Conservation districts, public development authorities, and electric utilities are given direct authority to be involved with the biofuel industry in the state. The entities may enter into crop purchase contracts for dedicated energy crops used for the production, selling, or distributing of biodiesel produces from Washington feedstock, cellulosic ethanol, and cellulosic ethanol blends.
    
    
  • Washington State University is directed to analyze and recommend models for possible implementation of biofuel incentive programs. Incentives to be studied include market incentives and research grant preferences.
    
    
  • By the year 2015, all state agencies and local government subdivisions of the state must satisfy 100 percent of their fuel needs for all vessels, vehicles, and construction equipment from biofuels certified by the DCTED as having been produced from recycled materials or Washington feedstocks.
    
    
• HB 1029 –Defining E-85 motor fuel
  
  This bill corrects the technically inaccurate definition of E85 fuel in Washington State law. The bill also extends the sunset dates fro biodiesel and ethanol tax incentives from 2009 to 2015.
  
  
• SB 5669 – Requiring agencies to expedite decisions regarding the implementation of renewable fuel standards
  
  This bill requires state agencies to expedite and coordinate processing of applications and decisions on infrastructure improvements related to implementing the state RFS. The requirements in the bill do not apply to biodiesel or ethanol production facilities.

U.S Laws and Incentives

• Energy Policy Act of 2005
  
  The Energy Policy Act of 2005 provides federal incentives for consumers and businesses using biofuels. A summary of the Act’s provisions and other federal incentives can be found at the Department of Energy’s Alternative Fuels Data Center. The major provisions affecting biodiesel and ethanol include:
  • Small producer biodiesel and ethanol credit. This credit will benefit small agri-biodiesel producers by giving them a 10 cent per gallon tax credit for up to 15 million gallons of agri-biodiesel produced. In addition, the limit on production capacity for small ethanol producers increased from 30 million to 60 million gallons. This is effective until the end of 2008.
  • Credit for installing alternative fuel refueling property. Fueling stations are eligible to claim a 30% credit for the cost of installing clean-fuel vehicle refueling equipment, (e.g. E85 ethanol pumping stations). Under the provision, a clean fuel is any fuel that consists of at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. This is effective through December 31, 2010. In May 2006, the Internal Revenue Service (IRS) published Form 8911, which provides a mechanism to claim the infrastructure tax credit. Owners who install qualified refueling property on multiple sites can utilize the credit for each property. The instructions define what is considered qualified property and the value of the credit. See IRS Form 8911.
  • Biodiesel and ethanol tax credit. Extends the tax credit for biodiesel producers established in the American Jobs Creation Act of 2004 (Public Law 108-357) 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. The American Jobs Act also established the Volumetric Ethanol Excise Tax Credit (VEETC), which provides ethanol blenders/retailers with $.51 per pure gallon of ethanol blended or $.0051 per percentage point of ethanol blended (i.e., E10 is eligible for $.051/gal; E85 is eligible for $.4335/gal). The incentive is available until 2010.
  
  
  
• 2002 and 2007 Farmbill Initiative
  
  The Farm Security and Rural Investment Act of 2002 (the Farm Bill) established the Renewable Energy Systems and Energy Efficiency Improvements Programunder Title IX, Section 9006. This program currently funds grants and loan guarantees to agricultural producers and rural small business for assistance with purchasing renewable energy systems and making energy efficiency improvements. For more information on Section 9006 grant and guaranteed loan programs including details on project and applicant eligibility, application procedures and other useful visit the USDA Business and Cooperative Programs website. Information on the proposed 2007 Farm Bill can be viewed at the following USDA website.

Additional Resources

Department of Community Trade and Economic Development Energy Policy Division

WSDA website

US Department of Energy State Laws and Incentives.