Iowa legislature agrees to expand biofuels incentives

By Kris Bevill | May 09, 2011

The Iowa legislature has passed a bill that will expand incentive opportunities for state retailers who sell increased biofuels blends, including a specific incentive for the sale of E15. The bill, S.F. 531, was nearly unanimously approved by the state Senate on May 2, passing by a vote of 48 to 1. The state House passed it by a vote of 81 to 13 on May 4 and will soon send the bill to Gov. Terry Branstad for his signature.

If signed by Branstad, it is believed that Iowa will be the first state to offer an E15-specific incentive for fuel retailers. The bill establishes a tax credit of 3 cents per gallon of E15 sold, beginning on July 1. In 2015, the credit will be reduced to 2 cents per gallon. It is currently unclear whether E15 will be able to be legally sold for use in conventional vehicles by July 1. However, retailers selling E15 for use in flex-fuel vehicles will qualify for the credit and, according to Mindy Larsen Poldberg, director of government relations for the Iowa Corn Growers Association, having the program in place will assure that retailers can begin benefiting from the sale of E15 to other vehicles as soon as the legal hurdles are overcome.

The bill also modifies the existing E85 Promotion Credit. The tax credit was previously set at a sliding scale, providing 20 cents per gallon of E85 last year but decreasing to 10 cents per gallon for 2011. The legislature approved modifying the program to provide 16 cents for each gallon of E85 sold for the next six years beginning in January. This modification will provide more stability to the program, according to Poldberg.

Another important modification to S.F. 531 is the increase of amounts paid to retailers who meet the state’s aggressive renewable fuel standard (RFS).  The current program allows retailers to claim a 6.5 cent per gallon tax credit for biofuels sold if that amount equals at least 12 percent of the station’s total annual fuel sales. The new bill increases that payment to 8 cents per gallon. Poldberg said the state RFS is meant to encourage the sale of high blends of ethanol and biodiesel. Since the program was established in 2006, it has been proven that only those retailers who aggressively pursue biofuels sales can meet the RFS. Therefore, they should be rewarded for their efforts, Poldberg said. “If a retailer sells only E10, that’s only 10 percent of their sales, so they must do more,” she said. “The only way for them to get to 12 percent, for example is to sell all E10 plus E85 or biodiesel, or install blender pumps.” The RFS schedule increases each year, ramping up to a requirement of 25 percent biofuels by 2019.

Other provisions included in the bill are:

- A 4.5 cent per gallon tax credit for retailers selling biodiesel blends of B5 or greater.

- A three-year production tax credit of 2 to 3 cents per gallon for biodiesel producers.

- The approval of $3 million per year for three years to fund the state’s Renewable Fuels Infrastructure Program. The program provides cost share grants of up to 70 percent for the installation of retail biofuels infrastructure, including blender pumps and biodiesel stations.

Poldberg said that while Iowa legislators from both parties are generally very supportive of biofuels, budget issues played a significant role in the formation of S.F. 531. “Because tax credits impact the state budget, the most difficult part was finding an incentive package that was very meaningful for biofuels and still met the budgetary requirements that were given to us by legislative leadership,” she said. While Iowa Corn is very pleased with the outcome, the group didn’t get everything on its wish list. “We asked for tax credits to be higher,” Poldberg said. “For example, Iowa Corn would have wanted to see E85 stay at the 20-cent level, but due to the state of Iowa’s budget it was scaled down to 16  cents.”

Fuel retailers and state petroleum marketers also support the bill, Poldberg said. Branstad has been supportive of biofuels since taking on the role of governor in January, but he has not indicated whether he will sign S.F. 531. Poldberg said the governor and the state legislature remain deeply involved in appropriations bills negotiations and there can be no assurances that a bill requesting state money for any program will be approved. “We are not taking anything for granted,” she said. “We are contacting the governor’s office now and we have been encouraging our members and farmers across the state to ask the governor to sign the bill.”