Alternative and Advanced Fuels · 2010-01-28 · Alternative and Advanced Fuels ... greenhouse gas emissions compared to fossil fuels. Many ... that involves putting algae and waste

State Policy Options

Alternative and Advanced Fuels

By Zoe A. Keve / 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 area—25 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 distribu-tion 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 In-dependence and Security Act (EISA) of 2007, has played a significant role in the increased use of biofuel in the trans-portation sector. EISA 2007 encouraged this development by revising and implementing regulations to ensure that gasoline sold in the United States contains a minimum vol-ume of renewable fuel.

Biofuel’s role in meeting U.S. transportation needs is grow-ing 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 biofu-els, including production technologies, current and future production forecasts, and state policy options for promot-ing biofuel development.

Biofuels BasicsBiofuels 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 biodie-sel, 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 prod-ucts—methyl esters (the chemical name for biodiesel) and glycerin (a valuable byproduct usually sold for use in soaps and other products).

National Conference of State Legislatures2

Biodiesel use in diesel engines requires no major modi-fications, 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 SourcesWaste OilMost 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 an-nounced that it will power its entire fleet of ground equip-ment 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 lim-ited. 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 BiodieselLipids from micro algae are an emerging source of biodie-sel. These lipids could potentially be a viable and economi-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 acre—100 times more than can be produced from soybeans.

A wide variety of algal species exists, many of which can grow in salt water and in areas otherwise unsuitable for conventional agriculture. The National Aeronautics and Space Administration (NASA) recently started a program

that involves putting algae and waste water in plastic mem-branes 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 ad-opted a statewide requirement requiring diesel to contain 2 percent biodiesel by volume and increased that to 20 per-cent in 2008, making it the highest biodiesel requirement in the nation. Since then, Louisiana, Maryland, Oregon, Pennsylvania and Washington have enacted similar require-ments, though some are contingent on state biodiesel pro-duction reaching passing certain thresholds. Minnesota’s 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 bio-diesel.

EthanolEthanol 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 abun-dance of natural sugars or starches. Corn supplies are ap-proximately 90 percent of the feedstock for U.S. ethanol production. Sugar cane and sugar beets are used in parts of

the world where they grow in abun-dance due to favorable climatic condi-tions. 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 con-troversial issue in some areas of the United States.

Cellulosic Ethanol. Cellulosic ethanol can be produced from an array of bio-mass, making resources abundant and

minimizing the diversion of food sources for fuel produc-tion. Cellulosic feedstocks suited to ethanol production

Microalgae produce lipids that can be converted to biodiesel fuel

3National Conference of State Legislatures

include the following:• Agricultural residue—crop residues such as wheat

straw and corn stalks, leaves and husks; • Forestry residue—logging and mill residues, such as

wood chips, sawdust and pulping liquor; • Grasses—hardy, fast-growing grasses such as switch

grass grown specifically for ethanol production; • Municipal and other wastes—plant-derived wastes

such as household garbage, paper products, paper pulp and food-processing waste; and

• Trees—fast-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 waste into a viable fuel source. It is estimated that ethanol pro-duced 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 incen-tives. One concern often raised regarding the use of ethanol is its energy balance-whether 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 low-level ethanol blends as “substantially similar” to gaso-line. Low-level ethanol blends can be used legally in any gasoline-powered 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 of-fer E85. These stations are more common in the corn belt

areas of Minnesota, Iowa and Illinois. However, E85 is of-fered in more than 40 states. Third, intermediate ethanol blends have an ethanol con-tent 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-

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 Uni-versity of Tennessee found that producing 25 percent of America’s energy from agricul-tural resources could generate in excess of $700 billion an-nually in economic activity, create 5.1 million jobs, and add $180 billion to net farm income by 2025. The result-

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 GrassSwitch 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 emis-sions 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 Conserva-tion 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, in-cluding switch grass, can be grown on land where soil qual-

Iowa switchgrass


ity is poor. The mixtures require less agrichemicals; provide more usable energy; and, compared to traditional mon-oculture sources, provide greater greenhouse gas reduc-tions. 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 bio-mass 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 cur-rently building a demonstration plant for processing these types of biomass in Jennings, La.

Forest and Timberland ResidueCurrent biomass output from forestland is about 142 million dry tons per year. Sustainable forestry practices—which use all materials and residues—could increase this yield to 368 million dry tons of biomass annually. Two

primary sources for the additional biomass include the residues from commercial tim-berland harvest and currently non-marketable biomass from the forestry industry. Waste products-such as the trunk (when a tree is felled, the trunk can break, leaving a top that is too thin to be used as a log ) and

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 pro-jected 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 FuelsSeveral 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 fol-lowing.

• Biobutanol is an alcohol (similar to ethanol) that can be produced by processing domestically grown crops such as corn and sugar beets and other bio-mass such as fast-growing grasses and agricultural 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 substi-tute 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 etha-nol, biobutanol and biodiesel.

• Coal to Liquids processes convert coal into liquid fu-els. 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 oils—alone or blended with petroleum—that 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

Wood chipper preparing material in the ethanol production process

Triple biofuels dispenser


methyltetrahydrofuran (MeTHF). P-Series fuels are clear, colorless, 89-93 octane liquid blends that are for-mulated to be used in flexible fuel vehicles. It can be used alone or freely mixed with gasoline in any propor-tion 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 alterna-tive fuels under the Energy Policy Act of 1992 in the 1999 EPAct petitions provision.

Although these fuels are in the early stages of develop-ment, many were considered alternative fuels by the En-ergy 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 in-crease 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 ProductionDevelopment 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. De-partment of Energy announced it would invest up to $4.4 million in six advanced biofuel research projects at the Uni-versity of Toledo, Stevens Institute of Technology, Montana State University, the University of Georgia, the University of Maine and Georgia Tech Research Corporation. These projects represent an investment in clean energy technolo-gies that will help expand current biofuel research and de-velopment efforts and help meet growing energy demand. These programs also will expand the geographic diversity and number of partners working on advanced biofuel de-velopment nationwide and will strengthen the Department of Energy collaboration with universities, encouraging the necessary innovation to diversify the nation’s 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 EnergyIn 2008, the Department of Energy announced it would invest up to $385 million to support six new cellulosic

biorefineries. Estimated annual cellulosic ethanol produc-tion 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 fermenta-tion 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 AlgaeInterest also has revived in developing biodiesel from mi-croorganisms, such as algae. In 2006, only four companies were focused on developing algae-based biodiesel technolo-gies. 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 bio-fuel industry.

Although this technology is in the experimental stage, algae seems to have many advantages as a biodiesel source com-pared 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 PolicyMany 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 incen-tives 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 ten-sion 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.


Existing Biofuel Policies States have created a variety of policies to encourage pro-duction and use of biofuel, including tax exemptions, cred-its 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 government-owned 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. Govern-ments can lead by example and invest in emerging vehicle technologies.

A Colorado program requires all state-owned diesel ve-hicles 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 require-ments 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 na-tionally 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 IncentivesMost 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

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.

Tax exemptions, credits and/or grantsTax exemptions, credits and/or grants with renewable fuel standards


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

State Production Incentives Infrastructure and Distribution IncentivesAlaska 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 incentives for alternative fuel producers and feedstock producers

Alternative Fuel Grants: Includes grant incentives for alternative fuel distributors

Arizona Biofuels Grants and Specifications: Promotes development of fueling infrastructure

California Alternative Fuel and Vehicle Research and Development Incentives: Provides grants and loans for projects that produce alternative and renewable fuels

Alternative Fuel and Vehicle Research and •Development Incentives: Provides grants and loans for projects that expand fuel infrastructure, fueling stations and equipmentAlternative Fuel Vehicle and Fueling Infrastructure •Grants

Colorado Funding for Alternative Fuel Feedstock Production

Alternative Fuel Infrastructure Tax Credit

Connecticut Biodiesel Production and Distribution Grants: Provides grants to qualified biodiesel producers

Biodiesel Production and Distribution Grants: Provides grants to qualified biodiesel distributors

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

Biofuels Tax Exemption• : The sale of materials such as fueling infrastructure, transportation and storage are exempt from state sales taxBiofuels Investment Tax Credit• : Tax credit for costs incurred in connection with an investment in the distribution of biodiesel and ethanol in the state

Georgia Alternative Fuels Production Assistance: Provides assistance to companies considering locating alternative fuels production facilities in Georgia

E85 Fueling Infrastructure Grant Program

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•

Ethanol Blend Retailer Tax Credit; •E85 Retailer Tax Credit, Biofuels Infrastructure •GrantsBiodiesel Tax Credit•

Idaho Exemptions for Biodiesel Production for Personal Use

Biofuel Fueling Infrastructure Tax Credit

Illinois Biofuels Production Facility Grants: Provides grants for construction or expansion of biodiesel and ethanol production facilities in Illinois

E85 Fueling Infrastructure Grants

Indiana Ethanol Production Tax Credit• Biodiesel Production Tax Credit•

E85 Fueling Station Grant Program• ; Biodiesel Retailer Tax Credit•


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

State Production Incentives Infrastructure and Distribution IncentivesKansas Biodiesel Production Incentive• :

Available in the amount of $.30 per gallon of biodiesel fuel sold by a biodiesel producerEthanol Production Incentive• : Ethanol producers can apply for a production incentive with the Department of RevenueCellulosic Ethanol Production •Incentive: Issues revenue bonds to cover the costs of construction or expansion of a biomass-to-energy facility

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

Kentucky Ethanol Production Tax Credit

Louisiana Biodiesel Equipment and Fuel Tax Exemption: Includes property and equipment used to produce biodiesel

Alternative Fuel Vehicle and Fueling Infrastructure •Tax Credit • Advanced Ethanol Fuel Blend Research Grants: Grants to purchase of fueling pumps that can dispense advanced biofuel blends

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 Biofuels Production Tax Credit

Michigan Alternative Fuel and Vehicle Research, Development and Manufacturing Tax Credits

Alternative Fueling Infrastructure Tax Credit•E85 Fueling Infrastructure Grant Program•Alternative Fueling Infrastructure Grants•

Minnesota Ethanol Production Incentive: An ethanol production incentive of $.20 per gallon of ethanol produced is available to qualified facilities

E85 Fueling Infrastructure Grants: Grants are available to service stations that install equipment for dispensing E85 fuel to flexible fuel vehicles

Missouri 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 producedBiodiesel Production Incentive• : Provides monthly grants to qualified biodiesel producers

Alternative Fueling Infrastructure Tax Credit

Mississippi Biofuels Production Incentive: Provides incentive payments to ethanol and biodiesel producers

Montana 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 saleBiodiesel Tax Refund•



State Production Incentives Infrastructure and Distribution IncentivesNorth Carolina Biofuels Industry Development• :

Grants to private businesses to encourage maximizing production of biofuelsBiodiesel Production Tax Credit, •Alternative Fuel Production Tax Credit

Biofuels Industry Development• : Grants to private businesses to encourage retail infrastructure of biofuels • Alternative Fueling Infrastructure Tax Credit

North Dakota Biofuels Loan Program• : Provides a 5% interest buy-down to biodiesel and ethanol production facilitiesEthanol Production Incentive• : Provides an incentive of $.40 per gallon for ethanol produced and sold in North Dakota

Biofuels Loan Program: Provides a 5% interest buy-down to biofuels retailers for refueling infrastructure installation

Nebraska Biodiesel Production Investment Tax Credit

New Hampshire

Alternative Fuel Vehicle and Fueling Infrastructure Project Funding

New Jersey 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

New Mexico Biofuels Tax Deduction: The cost of biomass materials used for processing into biofuels can be deducted when computing the compensating tax due

Biodiesel Blending Tax Credit•Alternative Fuel Vehicle (AFV) and Fueling •Infrastructure Grants

New York Biofuel 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

Ohio Biofuels Retail Tax Credit•Alternative Fuel and Fueling Infrastructure Grants•

Oklahoma Biodiesel Production Tax Credit•Ethanol Production 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

Alternative Fueling Infrastructure Tax Credit•Ethanol Fuel Retailer Tax Credit•

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 producedRenewable Energy Grants•

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



State Production Incentives Infrastructure and Distribution IncentivesSouth Carolina Biofuels Production Tax Credit, Biofuels

Production Facility Tax CreditBiofuels Retail Incentive• : A $.05 incentive payment is available to E85 retailers for each gallon of E85 fuel soldBiofuels Distribution Infrastructure Tax Credit•

South Dakota Ethanol Production Incentive: A $.20 per gallon production incentive is available to ethanol producers for ethanol that is fully distilled and produced in South Dakota

Biodiesel Blend Tax Credit: Licensed biodiesel blenders may be eligible for a tax credit for special fuel blended with biodiesel

Tennessee Biodiesel Production Incentive: Provides $.20 per gallon incentive for biodiesel fuel produced and sold to Tennessee companies

Biodiesel Infrastructure Grants•Biofuels Fueling Infrastructure Grants• Alternative Fuel Innovations Grant• : Includes installation of infrastructureInfrastructure Development Program•

Texas Alternative Fuel Grants: Provides grants for alternative fuel infrastructure projects

Utah Alternative Fuel Vehicles (AFV) and Fueling Infrastructure Grants and Loans

Virginia Biodiesel Production Tax Credit•Biofuels Production Grants•

Washington Alternative Fuel Loans and Grants• : Provides financial and technical assistance for bioenergy productionBiofuels Production Tax Exemption•

Biofuels Retail Tax Exemption• Biofuels Tax Deduction• : Available for the sale or distribution of biodiesel or E85 motor fuel

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.


Considerations for PolicymakersA 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 feed-stocks, research and development objectives, economic de-velopment, 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 pro-tection and strategic technology innovation.

• How can public policy spur private investment in re-search and development?

• How does biofuel development fit in with long-term land management plans?

• Consider overall issues of renewable energy and green-house gas emissions and any unintended consequences.

• If greenhouse gas reduction is a goal, considering anal-ysis 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.

ConclusionIncreasing 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 cur-rent levels of biofuel production meet a small fraction of the nation’s fuel demand (of the total energy used in the United States in 2007, only 3.71 percent came from bio-mass), 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 consump-tion. Such policies include increasing the use of energy efficient vehicles, electric vehicles and plug-in hybrids; in-creasing availability of mass transportation; and designing communities so that walking and biking are transportation options.

Photos courtesy of the National Renewable Energy Laboratory.

Washington Metropolical Areas Transit Authority (WMATA) fueling station


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” (Wash-ington, D.C.: DOE, 2009); www.afdc.energy.gov/afdc/vehicles/emissions_biodiesel.html. 4. Matthew McDermott, “Nature Air To Use Waste Veg-etable 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-powered-ground-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 Feed-stocks 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 Produc-tion 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/plan-etearth/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 Bio-technology 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 Econom-ics, 2006); www.25x25.org/storage/25x25/documents/RANDan-dUT/UT-EXECsummary25X25FINALFF.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 Low-Input High-Diversity Grassland Biomass,” Science 8 (2006): 1598-1600 15. Fred Krupp et al., “Earth: The Sequel, The Race to Re-invent Energy and Stop Global Warming” (New York, N.Y.: W.W. Norton and Company, 2008). 16. Energy Information Administration, “Biomass” (Wash-ington D.C.: EIA, 2009); www.eia.doe.gov/cneaf/solar.renew-ables/page/biomass/biomass.html. 17. U.S. Department of Energy, “Emerging Fuels” (Wash-ington 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. Uni-versities” (Washington D.C.: EPA, 2008); www.energy.gov/news/6525.htm. 20. U.S. Department of Energy, “DOE Selects Six Cellu-losic 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 Col-laborate 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 Bioen-ergy Using Microorganisms,” Biotechnology and Bioengineering 100, no. 2 (2008): 203-212. 23. Kathleen Kingsbury, “After the Oil Crisis, A Food Cri-sis?” (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%20State%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.

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Alternative and Advanced Fuels · 2010-01-28 · Alternative and Advanced Fuels ... greenhouse gas emissions compared to fossil fuels. Many ... that involves putting algae and waste