With recent high energy prices, the passage of major energy legislation in 2005 (P.L. 109-58) and 2007 (P.L. 110-140), and the passage of a farm bill in 2008 (P.L. 110-246), 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. However, many incentives for biofuels production and use expired at the end of 2011, and ongoing congressional debate over budget deficits and the national debt make the prospect of extending these incentives less likely.
Until recently, ethanol and biodiesel, the two most widely used biofuels, received significant government support under federal law in the form of mandated fuel use, tax incentives, loan and grant programs, and certain regulatory requirements. While the mandate remains, several tax incentives and other programs have terminated in recent years. The 22 programs and provisions listed in this report were established over the past three decades, and were 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 targeted a variety of beneficiaries, including farmers and rural small businesses, biofuel producers, petroleum suppliers, and fuel marketers. Arguably, in prior years the most significant federal programs for biofuels had been tax credits for the production or sale of ethanol and biodiesel. However, with the establishment of the renewable fuel standard (RFS) under P.L. 109-58, Congress has mandated biofuels use; P.L. 110-140 significantly expanded that mandate. In the long term, the mandate may prove even more significant than tax incentives in promoting the use of these fuels.
The 2008 farm bill—The Food, Conservation, and Energy Act of 2008—amended or established various biofuels incentives, including lowering the value of the ethanol excise tax credit, establishing a tax credit for cellulosic biofuel production, extending import duties on fuel ethanol, and establishing several new grant and loan programs (all of which are set to expire at the end of FY2012).
Several key biofuels incentives had expired or were set to expire (e.g., a tariff on ethanol imported from most countries, as well as tax credits for biodiesel, renewable diesel, and ethanol) before the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312). The incentives included in that law were extended through the end of 2011, and Congress has not acted to extend these incentives into 2012.
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.
With recent high energy prices, the passage of major energy legislation in 2005 (P.L. 109-58) and 2007 (P.L. 110-140), and the passage of a farm bill in 2008 (P.L. 110-246), 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. However, many incentives for biofuels production and use expired at the end of 2011, and ongoing congressional debate over budget deficits and the national debt make the prospect of extending these incentives less likely.
Until recently, ethanol and biodiesel, the two most widely used biofuels, received significant government support under federal law in the form of mandated fuel use, tax incentives, loan and grant programs, and certain regulatory requirements. While the mandate remains, several tax incentives and other programs have terminated in recent years. The 22 programs and provisions listed in this report were established over the past three decades, and were 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 targeted a variety of beneficiaries, including farmers and rural small businesses, biofuel producers, petroleum suppliers, and fuel marketers. Arguably, in prior years the most significant federal programs for biofuels had been tax credits for the production or sale of ethanol and biodiesel. However, with the establishment of the renewable fuel standard (RFS) under P.L. 109-58, Congress has mandated biofuels use; P.L. 110-140 significantly expanded that mandate. In the long term, the mandate may prove even more significant than tax incentives in promoting the use of these fuels.
The 2008 farm bill—The Food, Conservation, and Energy Act of 2008—amended or established various biofuels incentives, including lowering the value of the ethanol excise tax credit, establishing a tax credit for cellulosic biofuel production, extending import duties on fuel ethanol, and establishing several new grant and loan programs (all of which are set to expire at the end of FY2012).
Several key biofuels incentives had expired or were set to expire (e.g., a tariff on ethanol imported from most countries, as well as tax credits for biodiesel, renewable diesel, and ethanol) before the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312). The incentives included in that law were extended through the end of 2011, and Congress has not acted to extend these incentives into 2012.
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.
With recent high energy prices, the passage of the Energy Policy Act of 2005 (P.L. 109-58) and the Energy Independence and Security Act of 2007 (P.L. 110-140), and the passage of the 2008 farm bill (P.L. 110-246), 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, received significant federal support in the form of tax incentives, loan and grant programs, and regulatory programs. However, many incentives for biofuels production and use expired at the end of 2011, while many farm-bill related programs will expire at the end of FY2012. The ongoing congressional debate over budget deficits and the national debt make the prospect of extending these incentives less likely. For example, six of the eight tax incentives listed in this report expired at the end of 2011 and the remaining two are set to expire at the end of 2012.
This report outlines 22 current, expired, or pending federal programs 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.
Various tax credits and other incentives have been available for the production, blending, and/or sale of biofuels and biofuel blends. However, many of these incentives expired at the end of 2011. Tax credits vary by the type of fuel and the size of the producer.
Several key biofuels incentives had expired or were set to expire (e.g., a tariff on ethanol imported from most countries, as well as tax credits for biodiesel, renewable diesel, and ethanol) before the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312). The incentives included in that law were extended through the end of 2011, but support for extending these tax incentives beyond 2011 was limited.
The following programs within the Rural Business Cooperative Service could possibly be used to assist biofuels producers indirectly:
Table A-1. Federal Biofuels Incentives by Agency
Administering Agency |
Program |
Description |
Original Authorizing Legislation |
FY2012 Appropriation |
Expiration Date |
Environmental Protection Agency |
Renewable Fuel Standard |
Mandated use of renewable fuel in gasoline: 4.0 billion gallons in 2006, increasing to 36 billion gallons in 2022 |
P.L. 109-58 §1501 |
N/A |
None |
Internal Revenue Service |
Volumetric Ethanol Excise Tax Credit |
Gasoline suppliers who blend ethanol with gasoline are eligible for a tax credit of 45 cents per gallon of ethanol |
P.L. 108-357 §301 |
N/A |
Expired at the end of 2011 |
Small Ethanol Producer Credit |
An ethanol producer with less than 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 |
N/A |
Expired at the end of 2011 |
||
Biodiesel Tax Credit |
Producers of biodiesel or diesel/biodiesel blends may claim a tax credit of $1.00 per gallon of biodiesel. |
N/A |
Expired at the end of 2011 |
||
Small Agri-Biodiesel Producer Credit |
An agri-biodiesel (produced from virgin agricultural products) producer with less than 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 |
N/A |
Expired at the end of 2011 |
||
Renewable Diesel Tax Credit |
Producers of renewable diesel (similar to biodiesel, but produced through a different process) may claim a tax credit of $1.00 per gallon of renewable diesel |
N/A |
Expired at the end of 2011 |
||
Credit for Production of Cellulosic Biofuel |
Producers of cellulosic biofuel may claim a tax credit of $1.01 per gallon. For cellulosic ethanol producers, the value of the production tax credit is reduced by the value of the volumetric ethanol excise tax credit and the small ethanol producer credit—the credit is currently valued at 46 cents per gallon. The credit applies to fuel produced after December 31, 2008. |
N/A |
End of 2012 |
||
Special Depreciation Allowance for Cellulosic Biofuel Plant Property |
Plants producing cellulosic biofuels may take a 50% depreciation allowance in the first year of operation, subject to certain restrictions |
N/A |
End of 2012 |
||
Alternative Fueling Station Credit |
A credit of up to $30,000 is available for the installation of alternative fuel infrastructure, including E85 (85% ethanol and 15% gasoline) pumps |
P.L. 109-58 §1342 |
N/A |
Expired at the end of 2011 |
|
Department of Agriculture |
Biorefinery Assistance |
Loan guarantees and grants for the construction and retrofitting of biorefineries to produce advanced biofuels |
P.L. 110-246 §9001 |
None—balance from previous years available until expended |
End of FY2012 |
Repowering Assistance |
Grants to biorefineries that use renewable biomass to reduce or eliminate fossil fuel use |
P.L. 110-246 §9001 |
None—balance from previous years available until expended |
End of FY2012 |
|
Bioenergy Program for Advanced Biofuels |
Provides payments to producers to support and expand production of advanced biofuels |
P.L. 110-246 §9001 |
$65 million |
End of FY2012 |
|
Feedstock Flexibility Program for Producers of Biofuels (Sugar) |
Authorizes the use of CCC funds to purchase surplus sugar, to be resold as a biomass feedstock to produce bioenergy |
P.L. 110-246 §9001 |
No appropriation to date |
None |
|
Biomass Crop Assistance Program (BCAP) |
Provides financial assistance for biomass crop establishment costs and annual payments for biomass production; also provides payments to assist with costs for biomass collection, harvest, storage, and transportation |
P.L. 110-246 §9001 |
Dollar-for-dollar commodity payment—payments limited to $17 million in FY2012 |
End of FY2012 |
|
Rural Energy for America Program (REAP) |
Loan guarantees and grants for a wide range of rural energy projects, including biofuels. |
P.L. 110-246 §9001 |
$25.4 million |
End of FY2012 |
|
Biomass Research and Development |
Grants for biomass research, development, and demonstration projects |
$40 million |
End of FY2015 |
||
Department of Energy |
Biorefinery Project Grants |
Funds cooperative R&D on biomass for fuels, power, chemicals, and other products |
Various statutes |
Approximately $175 million for overall biomass program |
None |
Loan Guarantees for Ethanol and Commercial Byproducts from Various Feedstocks |
Several programs of loan guarantees to construct facilities that produce ethanol and other commercial products from cellulosic material, municipal solid waste, and/or sugarcane |
P.L. 109-58 §§1510, 1511, and 1516 |
No appropriation to date |
Varies |
|
DOE Loan Guarantee Program |
Loan guarantees for energy projects that reduce air pollutant and greenhouse gas emissions, including biofuels projects |
P.L. 109-58 Title XVII |
$38 million for administrative expenses to be offset by loan fees Approximately $100 billion in loan authority from FY2008 and FY2009 appropriations; $10 billion in loan authority for renewable energy and energy efficiency |
None |
|
Cellulosic Ethanol Reserve Auction |
Authorizes DOE to provide per-gallon payments to cellulosic biofuel producers |
P.L. 109-58 §942 |
No FY2010 appropriation $5 million in FY2008 for administrative expenses |
August 8, 2015 |
|
U.S. Customs and Border Protection |
Import Duty for Fuel Ethanol |
All imported ethanol is subject to a 2.5% ad valorem tariff; fuel ethanol is also subject to a most-favored-nation added duty of 54 cents per gallon (with some exceptions) |
N/A |
End of 2011 |
|
Department of Transportation |
Flexible Fuel Vehicle Production Incentive |
Automakers subject to Corporate Average Fuel Economy (CAFE) standards may accrue credits under that program for the production and sale of alternative fuel vehicles, including ethanol/gasoline flexible fuel vehicles (FFVs) |
N/A |
Incentive expires after model year 2019 |
1. |
For program details see CRS Report R41985, Renewable Energy Programs and the Farm Bill: Status and Issues, by [author name scrubbed]. |