Tax Incentives for Renewable Fuel and Energy

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Our Position

Farm Bureau supports policies that will create a diverse, domestic energy supply to fuel America’s economic growth and prosperity while strengthening our energy security and bolstering rural economies. Further development and use of renewable fuel and energy sources such as ethanol, biodiesel, biomass and wind are critical to our nation’s energy future and will strengthen the overall national security of the United States.

Biodiesel Fuel Tax Credits

Biodiesel is a cleaner-burning renewable replacement for petroleum diesel fuel. It can be manufactured from vegetable oils, animal fats, or recycled restaurant grease. Agri-biodiesel comes solely from virgin oils (soybean, corn, sunflower seed, cotton seeds, canola, etc.) or animal fats. Renewable biodiesel is derived from biomass and is treated the same as biodiesel for tax purposes.

The law provides an income tax credit for fuels containing biodiesel. It is the sum of three credits. The biodiesel blender credit is $1.00 per gallon for biodiesel mixed with diesel fuel. It applies to any blended biodiesel, whether of domestic origin or imported. The biodiesel credit is $1.00 for each gallon of pure biodiesel. The small agri-biodiesel producer credit is an additional credit of 10 cents per gallon for up to 15 million gallons when agro-biodiesel production capacity does not exceed 60 million gallons per year. These incentives are in effect through 2016.

The law also provides a biodiesel excise tax credit that can be taken against the taxpayer’s fuel tax liability. The credit is $1.00 per gallon through 2016.

Second Generation Biofuel Producer Tax Credit

Second generation biofuel come from cellulosic biomass, for example woody crops and agricultural residues or waste. The law provides a tax credit of $1.01 per gallon of fuel produced in the United Sates through 2016.

Alternative Fuel Vehicle Property

Qualified refueling property includes fuel pumps that sell E85 ethanol and fuels containing at least 20 percent biodiesel. The law provides a 30 percent credit up to $30,000 for the cost of installing qualified clean-fuel pumps through 2016.

Renewable Energy From Biomass (Sect. 45)

Electricity produced from closed-loop biomass comes from plants grown exclusively for electricity production, for example switch grass. Open-loop biomass is material not originally intended as a fuel source, like wood chips, manure and farm waste. 

The law provides a Production Tax Credit of 2.3 cents per kilowatt-hour credit for electricity produced from close-loop biomass. The credit for open-loop biomass is 1.2 cent per kilowatt-hour. The credit is generally available for 10 years after a facility begins production. The electricity produced must be sold to an unrelated person. These incentives are in effect through 2016.

Biomass energy producers have the option of taking a 30 percent investment tax credit for installation costs in lieu of the production tax credit for 2016. The investment credit for 2017 is 24 percent, 18 percent for 2018 and 12 percent for 2019.

Separate rules apply to other Sec. 45 sources like geothermal, solar, small irrigation, municipal solid waste, hydropower and marine energy.

Renewable Energy From Wind (Sect. 48c and 25d)

Electricity produced from wind that is sold to an unrelated person (the grid) can claim an investment taxcredit for 30 percent of installation costs for 2016. The investment credit for 2017 is 24 percent, 18 percent for 2018 and 12 percent for 2019.

Distributed wind (which includes smaller scale wind and community wind) refers to electrical power generation that occurs close to where the power is consumed, often for on-site usage. Many distributed wind projects as well as some wind farms are community-owned incorporating local financial participation and control. The law provides for a 30 percent investment tax credit for the installation cost of systems through 2016.

Small wind uses small generators to produce power for individual homes, farms and small businesses. The law provides an investment tax credit worth 30 percent of the installed cost of the system through 2016.

Legislative Status

Farm Bureau supports H.R. 5240, the Biodiesel Tax Incentive Reform and Extension Act of 2016, introduced by Rep. Kristi Noem (At Large – S.D) to extend the $1-per-gallon tax credit for biodiesel through the end of 2019, and reform the credit from a blender’s credit to a producer’s credit. Farm Bureau supports H.R. 5167, the Technologies for Energy Security Act, introduced by Tom Reed (RN.Y.) and Mike Thompson (D-Calif.), to extend the 30 percent small wind tax credit through 2019. The credit would then be 26 percent for 2020 and 22 percent for 2021.

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