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. Under current law, only qualified fuel produced in the United States between January 1, 2009 and December 31, 2017, for use in the United States may be eligible. 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 December 21, 2006 and December 31, 2017 may be eligible. Qualified property placed in service in 2017 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 up to $30,000 for the cost of installing qualified clean-fuel pumps through December 31, 2017. Qualified refueling property includes fuel pumps that sell E85 ethanol. For more information about claiming the credit, see IRS Form 8911.
45Q Carbon Capture Credit
The 45Q carbon capture credit was reformed as part of the 2017 tax reform bill to include a broader swath of eligible parties for the credit, by reducing the required amount of carbon captured needed for eligibility. Under the former eligibility rules, typical ethanol production facilities did not capture enough carbon to be eligible to use the credit.
The tax credit applies to carbon sequestered in the ground, as has been the case for certain ethanol producers that have the appropriate geological structure below their plants. It is also beneficial for the delivery of carbon dioxide (CO2) for enhanced oil recovery efforts that use carbon dioxide to inject into wells in connection with the process of fracking. This could drive the development of carbon dioxide pipelines.
The credit incentivizes decarbonization by the above types of activities, and helps ethanol producers increase market demand for the use and utilization of CO2. That has a direct economic benefit for producers selling CO2, but also will indirectly help producers by reducing the carbon scores for their fuel, for purposes of entering into low carbon fuel standard (LCFS) markets like California.