Ethanol Tax Policy

Driving Innovation and Making Ethanol Accessible

To encourage the continued growth and expansion of renewable fuels like ethanol, federal and state governments offer financial incentives to help drive innovation in the industry and to make ethanol more accessible to American consumers. However, to be truly effective, federal renewable fuel tax policy must be reformed in a way that creates a consistent and stable tax policy framework for ethanol producers and industry investors.


RFA is also working to expand the incentives available to the industry so they recognize changing market dynamics and ongoing consumer and industry challenges.   That’s why the RFA is working together with policymakers to improve current renewable fuel tax policy, making it more effective at driving growth and innovation in the industry.  


RFA is committed to finding long-term solutions that enhance the existing suite of tax incentives while properly deploying new programs.

Inflation Reduction Act

Successful implementation of 2022’s Inflation Reduction Act (IRA) remains near the top of RFA’s policy priority list. We view the IRA as the most significant federal commitment to low-carbon renewable fuels since the RFS was expanded in 2007. Several measures in the bill grew out of stand-alone legislation that had been previously developed with substantial RFA input and advocacy. These include:

  • $500 million in grants for higher-blend infrastructure
  • Extensions of several current biofuel tax credits
  • Creation of the “45Z” tax credit for clean fuel production
  • Establishment of the “40B” sustainable aviation fuel tax credit
  • Enhanced support for carbon capture, utilization, and storage.

RFA remains highly engaged as federal agencies implement these provisions. In particular, the lifecycle greenhouse gas modeling used to determine tax credit values, consideration of feedstock carbon intensity, and the law’s documentation and verification practices will be of utmost importance.

Other Current Tax Incentives
Second Generation Biofuel Producer Tax Credit (PTC)

A second-generation biofuel producer that is registered with the IRS may be eligible for a tax incentive in the amount of up to $1.01 per gallon of second-generation biofuel that is: sold and used by the purchaser in the purchaser’s trade or business to produce a second-generation biofuel mixture; sold and used by the purchaser as a fuel in a trade or business; sold at retail for use as a motor vehicle fuel; used by the producer in a trade or business to produce a second-generation biofuel mixture; or used by the producer as a fuel in a trade or business. If the second-generation biofuel also qualifies for alcohol fuel tax credits, the credit amount is reduced to $0.46 per gallon for biofuel that is ethanol and $0.41 per gallon if the biofuel is not ethanol. Second-generation biofuel is defined as liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable basis or any cultivated algae, cyanobacteria, or lemna. To qualify, fuel must also meet the U.S. Environmental Protection Agency fuel and fuel additive registration requirements. Alcohol with a proof of less than 150, fuel with a water or sediment content of more than 4%, and fuel with an ash content of more than 1% are not considered second-generation biofuels. The incentive is allowed as a credit against the producer’s income tax liability. For more information about claiming the credit, see IRS Forms 637 and 6478.

Accelerated Depreciation for Second-Generation Biofuel Plant Property

The law provides a 50% special depreciation allowance to recover part of the cost of qualified second-generation biofuel plant property placed. The allowance applies only for the first year that property was placed in service. Under current law, only biofuel plant property purchased and used in the United States between during the duration of the credit. Qualified property may be eligible to take an additional 50% or 100% special depreciation allowance, depending on the date the property was acquired. View more information about claiming the Special Depreciation Allowance here.

Alternative Fuel Vehicle Refueling Property Credit

The law provides a 30% credit of up to $30,000 for the cost of installing qualified clean-fuel pumps. Qualified refueling property includes fuel pumps that sell E85 ethanol. For more information about claiming the credit, see IRS Form 8911.

Alternative Fuel Mixture Credit

An alternative fuel blender that is registered with the Internal Revenue Service (IRS) may be eligible for a tax incentive on the sale or use of the alternative fuel blend (mixture) for use as a fuel in the blender's trade or business. The credit is in the amount of $0.50 per gallon of alternative fuel used to produce a mixture containing at least 0.1% gasoline, diesel, or kerosene. Qualified alternative fuels are liquefied hydrogen, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and liquid fuel derived from biomass. The incentive must be taken as a credit against the blender's alternative fuel tax liability. The tax credit is not allowed if an incentive for the same alternative fuel is also determined under the rules for the ethanol or biodiesel tax credits.


For more information about claiming the credit, see IRS Form 720, which is available on the IRS Forms and Publications website. (Reference Public Law 116-260, Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 6426).