Order Code RL33572
CRS Report for Congress
Received through the CRS Web
Biofuels Incentives: A Summary of
Federal Programs
July 25, 2006
Brent D. Yacobucci
Specialist in Energy Policy
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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Biofuels Incentives:
A Summary of Federal Programs
Summary
With recent high energy prices and the passage of major energy legislation in
2005 (P.L. 109-58), there is ongoing congressional interest in promoting alternatives
to petroleum fuels. Biofuels — transportation fuels produced from plants and other
organic materials — are of particular interest. Ethanol and biodiesel, the two most
widely used biofuels, receive significant government support under this law in the
form of mandated fuel use, tax incentives, loan and grant programs, and certain
regulatory requirements.
The 14 programs and provisions listed in this report have been established over
the past 26 years, and are administered by five separate agencies and departments:
Environmental Protection Agency, U.S. Department of Agriculture, Department of
Energy, Internal Revenue Service, and Customs and Border Protection. These
programs target a variety of beneficiaries, including farmers and rural small
businesses, biofuel producers, petroleum suppliers, and fuel marketers. Arguably,
the most significant federal programs for biofuels have been tax credits for the
production or sale of ethanol and biodiesel. However, with the establishment of the
renewable fuels standard (RFS) under P.L. 109-58, Congress has mandated biofuels
use. In the long term, this mandate may prove even more significant than tax
incentives in promoting the use of these fuels.
This report outlines federal programs that provide direct or indirect incentives
for biofuels. For each program described, the report provides details including
administering agency, authorizing statute(s), annual funding, and expiration date.
The Appendix provides summary information in a table format. This report will be
updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Environmental Protection Agency (EPA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Renewable Fuel Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Internal Revenue Service (IRS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Volumetric Ethanol Excise Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Small Ethanol Producer Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Biodiesel Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Small Agri-Biodiesel Producer Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Department of Agriculture (USDA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bioenergy Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Renewable Energy Systems and Energy Efficiency Improvements . . . . . . . . 4
Value-Added Producer Grants Program (VAPG) . . . . . . . . . . . . . . . . . . . . . 4
Biorefinery Development Grants (Unfunded) . . . . . . . . . . . . . . . . . . . . . . . . 4
Business and Industry (B&I) Guaranteed Loans . . . . . . . . . . . . . . . . . . . . . . 5
Rural Business Enterprise Grants (RBEG) . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Other USDA Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Department of Energy (DOE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Biomass Research and Development Initiative . . . . . . . . . . . . . . . . . . . . . . . 5
Biorefinery Project Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Loan Guarantees for Ethanol and Commercial Byproducts from
Cellulose, Municipal Solid Waste, and Sugar Cane . . . . . . . . . . . . . . . 6
U.S. Customs and Border Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Import Duty for Fuel Ethanol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Appendix. Summary of Federal Incentives Promoting for Biofuels . . . . . . . . . . . 8

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Biofuels Incentives:
A Summary of Federal Programs
Introduction
With recent high energy prices and the passage of the Energy Policy Act of 2005
(P.L. 109-58), there is ongoing congressional interest in promoting greater use of
alternatives to petroleum fuels. Biofuels — transportation fuels produced from plants
and other organic materials — are of particular interest. Ethanol and biodiesel, the
two most widely used biofuels, receive significant federal support in the form of tax
incentives, loan and grant programs, and regulatory programs.1
This report outlines 14 current federal programs and provisions (plus one
authorized but unfunded program) that provide direct or indirect incentives for
biofuels. The programs are grouped below by administering agency. The incentives
for biofuels are summarized in the Appendix. This information is compiled from
authorizing statutes, committee reports, and Administration budget request
documents.
Environmental Protection Agency (EPA)
Renewable Fuel Standard
Administered by: EPA
Annual funding: N/A
FY2007 budget request: N/A
Established: 2005 by the Energy Policy Act of 2005, §1501 (P.L. 109-58, H.R. 6)
Scheduled termination: None
Description: The Energy Policy Act of 2005 established a renewable fuels standard
(RFS) for automotive fuels. The RFS requires the blending of renewable fuels
(including ethanol and biodiesel) in gasoline.2 In 2006, fuel suppliers must blend 4.0
billion gallons of renewable fuel into gasoline, increasing annually to 7.5 billion
1 For more information on ethanol, see CRS Report RL33290, Fuel Ethanol: Background
and Public Policy Issues, by Brent D. Yacobucci. For more information on biofuels in
general, see CRS Report RL30758, Alternative Transportation Fuels and Vehicles: Energy,
Environment, and Development Issues, by Brent D. Yacobucci, and CRS Report RL32712,
Agriculture-Based Renewable Energy Production, by Randy Schnepf.
2 The requirement is for renewable fuel in gasoline. However, biodiesel is blended with
diesel fuel, not gasoline. P.L. 109-58 requires EPA to promulgate regulations for blenders
to earn and trade renewable fuel credits for biodiesel blending.

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CRS-2
gallons in 2012. For subsequent years, EPA is required to set a minimum ratio for
renewable content, no less than the ratio in 2012. By August 2007, EPA must
promulgate regulations for the program, including a market-based credit banking and
trading system. While this program is not a direct incentive for the construction of
biofuels plants, the guaranteed market created by the renewable fuel standard is
expected to stimulate growth of the biofuels industry.
Internal Revenue Service (IRS)
Volumetric Ethanol Excise Tax Credit
Administered by: Internal Revenue Service
Annual funding: N/A
Established: 2005 by the American Jobs Creation Act of 2004, §301 (P.L. 108-357)
Scheduled termination: December 31, 2010
Description: Gasoline suppliers who blend ethanol with gasoline are eligible for a tax
credit of 51 cents per gallon of ethanol.
Qualified applicant: Blenders of gasohol (i.e., gasoline suppliers and marketers)
For more information: IRS Publication 378: Fuel Tax Credits and Refunds
[http://www.irs.gov/pub/irs-pdf/p378.pdf]
Small Ethanol Producer Credit
Administered by: Internal Revenue Service
Annual funding: N/A
Established:1990 by the Omnibus Budget Reconciliation Act of 1990, §11502 (P.L.
101-508); expanded by the Energy Policy Act of 2005, §1347 (P.L. 109-58)
Scheduled termination: December 31, 2007
Description: The small ethanol producer credit is valued at 10 cents per gallon of
ethanol produced. The credit may be claimed on the first 15 million gallons of
ethanol produced by a small producer in a given year.
Qualified applicant: Any ethanol producer with production capacity below 60
million gallons per year
For more information: IRS Publication 378: Fuel Tax Credits and Refunds
[http://www.irs.gov/pub/irs-pdf/p378.pdf]
Biodiesel Tax Credit
Administered by: Internal Revenue Service
Annual funding: N/A
Established: 2005 by the American Jobs Creation Act of 2004, §302 (P.L. 108-357);
extended by the Energy Policy Act of 2005, §1344 (P.L. 109-58)
Scheduled termination: December 31, 2008
Description: Biodiesel producers (or producers of diesel/biodiesel blends) can claim
a per-gallon tax credit. The credit is valued at $1.00 per gallon of “agri-biodiesel”
(biodiesel produced from virgin agricultural products such as soybean oil or animal
fats), or 50 cents per gallon of biodiesel produced from previously used agricultural
products (e.g., recycled fryer grease).

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CRS-3
Qualified applicant: Biodiesel producers and blenders
For more information: IRS Publication 378: Fuel Tax Credits and Refunds
[http://www.irs.gov/pub/irs-pdf/p378.pdf]
Small Agri-Biodiesel Producer Credit
Administered by: Internal Revenue Service
Annual funding: N/A
Established: 2005 by the Energy Policy Act of 2005, §1345 (P.L. 109-58)
Scheduled termination: December 31, 2008
Description: The small agri-biodiesel producer credit is valued at 10 cents per gallon
of “agri-biodiesel” (see Biodiesel Tax Credit, above) produced. The credit may be
claimed on the first 15 million gallons of ethanol produced by a small producer in a
given year.
Qualified applicant: Any agri-biodiesel producer with production capacity below 60
million gallons per year
F o r m o r e i n f o r m a t i o n : N a t i o n a l B i o d i e s e l B o a r d ,
[http://www.nbb.org/news/taxincentive/]
Department of Agriculture (USDA)
Bioenergy Program
Administered by: Commodity Credit Corporation (CCC)
Annual funding: $100 million appropriated for FY2005, $60 million for FY2006; up
to $150 million authorized annually for FY2004 through FY2006
FY2007 budget request: $0
Established: FY2001 in response to Executive Order 13134 (August 12, 1999)
Developing and Promoting Biobased Products and Bioenergy, through CCC’s
general authority to conduct commodity programs; extended by the Farm Security
and Rural Investment Act of 2002, §9010 (P.L. 101-171)
Scheduled termination: End of FY2006
Description: The Bioenergy Program reimburses ethanol and biodiesel producers for
expanding their production capacity. Payments help defray the purchase cost of the
additional commodities needed for that expansion. The amount of each payment is
based on the change in production capacity, as well as the number of applicants
selected for funding. Eligible commodities include grain and oilseed crops (e.g.
barley, corn, soybeans), cellulosic crops (e.g. switchgrass, rice hulls), animal fats,
agricultural byproducts, and oils.
Qualified applicant: Any ethanol or biodiesel producer who expands production
capacity
For more information: [http://www.fsa.usda.gov/daco/bio_daco.htm]

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CRS-4
Renewable Energy Systems and Energy
Efficiency Improvements
Administered by: Rural Business Cooperative Service
Annual funding: $23 million for all projects through FY2006, including biofuels
projects; reduced in FY2007
FY2007 budget request: $10.2 million
Established: FY2003 by the Farm Security and Rural Investment Act of 2002, §9006
(P.L. 101-171); funding authorization for FY2007 reduced to $3 million by §1301
of the Deficit Reduction Act of 2005 (P.L. 109-171)
Scheduled termination: End of FY2007
Description: This program provides grants, loans, and loan guarantees for the
development of renewable energy projects and energy efficiency improvements. The
construction of a biofuel plant could be an eligible project. Grants are limited to 25%
of the costs of the project; loans are limited to 50% of the cost of the project.
Qualified applicant: Farmers, ranchers, and rural small businesses
For more information: [http://www.rurdev.usda.gov]
Value-Added Producer Grants Program (VAPG)
Administered by: Rural Business Cooperative Service
Annual funding: $20.5 million appropriated for FY2006 (up from $15.5 million in
FY2005); part of a $40 million total annual authorization for several value-added
programs
FY2007 budget request: $20.3 million
Established: FY2001, expanded in FY2003 to include renewable energy projects by
the Farm Security and Rural Investment Act of 2002, §6401 (P.L. 101-171); the
Deficit Reduction Act of 2005, §1402 (P.L. 109-171), requires that all previously
appropriated funds unobligated by October 1, 2006 be returned to the Treasury
Scheduled termination: End of FY2007
Description: VAPG provides grants to independent producers for the development
of value-added agricultural activities, including biofuel production. The grants can
be used for feasibility studies, the development of a business plan, or to acquire
working capital to operate a value-added business. Grants are limited to $500,000
per recipient.
Qualified applicant: Independent producer, producer group, cooperative, or a
majority-controlled producer-based business venture
For more information: [http://www.rurdev.usda.gov/rbs/coops/vadg.htm]
Biorefinery Development Grants (Unfunded)
Administered by: If funded, it would likely be administered by USDA’s Rural
Development Agency
Annual funding: $0
Established: 2002 by the Farm Security and Rural Investment Act of 2002, §9003
(P.L. 101-171)
Scheduled termination: End of FY2007
Description: This program was established by the Farm Security and Rural
Investment Act of 2002 (P.L. 101-171); however, no funding has been provided. If

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CRS-5
funded, the program would provide grants for the development and construction of
biorefineries, including those that produce biofuels.
Qualified applicant: Virtually any non-federal entity (including a national laboratory)
or group of entities that plans to build a biorefinery
For more information: N/A
Business and Industry (B&I) Guaranteed Loans
Administered by: Rural Business Cooperative Service
Annual funding: Approximately $1 billion in loans are guaranteed annually
Scheduled termination: None
Description: This program provides guarantees for up to 90% of a loan made by a
commercial lender. Loan proceeds may be used for working capital, machinery and
equipment, buildings and real estate, and certain types of debt refinancing.
Qualified applicant: Virtually any legal entity.
For more information: [http://www.rurdev.usda.gov/rbs/busp/b&i_gar.htm]
Rural Business Enterprise Grants (RBEG)
Administered by: Rural Business Cooperative Service
Annual funding: Approximately $40 million in each of FY2005 and FY2006
Scheduled termination: None
Description: RBEG provides grants to finance and facilitate development of small
and emerging private rural business enterprises. The grant is awarded to a third party
to assist a business; grant funds do not go directly to the business.
Qualified applicant: Public bodies, private nonprofit corporations, and federally
recognized Indian Tribal groups.
For more information: [http://www.rurdev.usda.gov/rbs/busp/rbeg.htm]
Other USDA Programs
The following programs within the Rural Business Cooperative Service could
possibly be used to assist biofuels producers indirectly:
! Rural Economic Development Loan Program;
! Rural Development Loan Program;
! Rural Economic Development Grants.
Department of Energy (DOE)
Biomass Research and Development Initiative
Administered by: National Biomass Coordination Office (a joint DOE-USDA
program)
Annual funding: $14 million per year, decreased to $12 million in FY2006
FY2007 budget request: $12 million
Established: FY2001 by the Biomass Research and Development Act of 2000, §307
(P.L. 106-224); program extended and mandatory appropriations provided bythe

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Farm Security and Rural Investment Act of 2002, §9008 (P.L. 101-171); program
extended and funding authorization expanded by the Energy Policy Act of 2005,
§941 (P.L. 109-58) — currently authorized at $200 million per year
Scheduled termination: End of FY2015
Description: Grants are provided for biomass research, development, and
demonstration projects. Eligible projects include ethanol and biodiesel demonstration
plants.
Qualified applicant: Wide range of possible applicants
For more information: [http://www.biomass.govtools.us/]
Biorefinery Project Grants
Administered by: Office of Energy Efficiency and Renewable Energy
Annual funding: For FY2006 $91 million appropriated for the biomass program —
not all of this funding will go toward biorefinery project grants
FY2007 budget request: $150 million for entire biomass program
Established: FY2001 through funding authorized in various statutes
Scheduled termination: None
Description: This program provides funds for cooperative biomass research and
development for the production of fuels, electric power, chemicals, and other
products.
Qualified applicant: Varies from year to year, depending on program goals in a given
year
For more information: [http://www.eere.energy.gov/biomass/]
Loan Guarantees for Ethanol and Commercial Byproducts
from Cellulose, Municipal Solid Waste, and Sugar Cane
Administered by: DOE
Annual funding: Not specified
FY2007 budget request: $0
Established: 2005 by the Energy Policy Act of 2005, §§1510, 1511, and 1516 (P.L
109-58, H.R. 6)
Scheduled termination: Varies, depending on specific program
Description: The Energy Policy Act of 2005 authorizes several programs to provide
loan guarantees for the construction of facilities that produce ethanol and other
commercial products from cellulosic material, municipal solid waste, or sugar cane.
Qualified applicant: Private lending institutions, to guarantee loans for the
construction of biofuels plants

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CRS-7
U.S. Customs and Border Protection
Import Duty for Fuel Ethanol
Administered by: U.S. Customs and Border Protection
Annual funding: N/A
Established: 1980 by the Omnibus Reconciliation Act of 1980 (P.L. 96-499);
amended by the Tax Reform Act of 1986, §423 (P.L. 99-514).
Scheduled termination: End of FY2007
Description: A 2.5% ad valorem tariff and a most-favored-nation duty of 54 cents per
gallon of ethanol (for fuel use) applies to imports into the United States from most
countries; most ethanol from Caribbean Basin Initiative (CBI) countries may be
imported duty-free.
Covered Entities: Fuel ethanol importers
For more information: CRS Report RS21930, Ethanol Imports and the Caribbean
Basin Initiative, by Brent D. Yacobucci.

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CRS-8
Appendix. Summary of Federal Incentives Promoting for Biofuels
Original
Administering
FY2006
Expiration
Program
Description
Authorizing
Agency
Funding
Date
Legislation
Environmental
Renewable Fuels
Mandated use of renewable fuel in gasoline: 4.0
P.L. 109-58
N/A
None
Protection Agency
Standard
billion gallons in 2006, increasing to 7.5 billion
§1501
gallons in 2012
Internal Revenue
Volumetric Ethanol
Gasoline suppliers who blend ethanol with gasoline
P.L. 108-357
N/A
End of 2010
Service
Excise Tax Credit
are eligible for a tax credit of 51 cents per gallon of
§301
ethanol
Small Ethanol Producer
An ethanol producer with less than 60 million gallons
P.L. 101-508
N/A
End of 2007
Credit
per year in production capacity may claim a credit of
10 cents per gallon on the first 15 million gallons
produced in a year
Biodiesel Tax Credit
Producers of biodiesel or diesel/biodiesel blends may
P.L. 108-357
N/A
End of 2008
claim a tax credit of $1.00 per gallon of agri-biodiesel
(produced from virgin agricultural products) or 50
cents per gallon of biodiesel from recycled products
Small Agri-Biodiesel
An agri-biodiesel producer (see above) with less than
P.L. 109-58
N/A
End of 2008
Producer Credit
60 million gallons per year in production capacity
may claim a credit of 10 cents per gallon on the first
15 million gallons produced in a year

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CRS-9
Original
Administering
FY2006
Expiration
Program
Description
Authorizing
Agency
Funding
Date
Legislation
Department of
Bioenergy Program
Reimburses ethanol and biodiesel producers for
P.L. 101-171
$60 million
End of FY2006
Agriculture
feedstocks necessary to expand operations
§9010
Renewable Energy
Grants, loans, and loan guarantees for the
P.L. 101-171
$23 million
End of FY2007
Systems and Energy
development of renewable energy projects and energy
§9006
Efficiency Improvements
efficiency improvements
Value-Added Producer
Grants to independent producers for the development
P.L. 101-171
$20.5 million
End of FY2007
Grants
of value-added agricultural activities, including
§6401
biofuel production
Biorefinery Development
If funded, would provide grants for the development
P.L. 101-171
$0
End of FY2007
Grants - Unfunded
and construction of biorefineries, including biofuel
§9003
plants
Business and Industry
Loan guarantees for various projects — could be used
Various
Approx. $1
None
(B&I) Guaranteed Loans
for biofuels
statutes
billion
Rural Business
Grants to finance and facilitate development of small
Various
Approx. $40
None
Enterprise Grants
and emerging rural business enterprises
statutes
million

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CRS-10
Original
Administering
FY2006
Expiration
Program
Description
Authorizing
Agency
Funding
Date
Legislation
Department of
Biomass Research and
Grants for biomass research, development, and
P.L. 106-224
$12 million
End of FY2015
Energy
Development Initiative
demonstration projects
Biorefinery Project
Funds cooperative R&D on biomass for fuels, power,
Various
$91 million
None
Grants
chemicals, and other products
statutes
Loan Guarantees for
Several programs of loan guarantees to construct
P.L. 109-58
N/A
Varies
Ethanol and Commercial
facilities that produce ethanol and other commercial
§§1510, 1511,
Byproducts from Various
products from cellulosic material, municipal solid
and 1516
Feedstocks
waste, and/or sugarcane
U.S. Customs and
Import Duty for Fuel
All imported ethanol is subject to a 2.5% ad valorem
P.L. 96-499
N/A
End of FY2007
Border Protection
Ethanol
tariff; fuel ethanol is also subject to a most-favored-
nation added duty of 54 cents per gallon (with some
exceptions)

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