Biofuels Incentives: A Summary of Federal Programs

Brent D. Yacobucci
Section Research Manager

With recent high energy prices, the passage of major energy legislation in 2005 (P.L. 109-58) and 2007 (P.L. 110-140), and the passage of a farm bill in 2008 (P.L. 110-246), there is ongoing congressional interest in promoting alternatives to petroleum fuels. Biofuels—transportation fuels produced from plants and other organic materials—are of particular interest. However, many incentives for biofuels production and use expired at the end of 2011, and ongoing congressional debate over budget deficits and the national debt make the prospect of extending these incentives less likely.

Until recently, ethanol and biodiesel, the two most widely used biofuels, received significant government support under federal law in the form of mandated fuel use, tax incentives, loan and grant programs, and certain regulatory requirements. While the mandate remains, several tax incentives and other programs have terminated in recent years. The 22 programs and provisions listed in this report were established over the past three decades, and were administered by five separate agencies and departments: Environmental Protection Agency, U.S. Department of Agriculture, Department of Energy, Internal Revenue Service, and Customs and Border Protection. These programs targeted a variety of beneficiaries, including farmers and rural small businesses, biofuel producers, petroleum suppliers, and fuel marketers. Arguably, in prior years the most significant federal programs for biofuels had been tax credits for the production or sale of ethanol and biodiesel. However, with the establishment of the renewable fuel standard (RFS) under P.L. 109-58, Congress has mandated biofuels use; P.L. 110-140 significantly expanded that mandate. In the long term, the mandate may prove even more significant than tax incentives in promoting the use of these fuels.

The 2008 farm bill—The Food, Conservation, and Energy Act of 2008—amended or established various biofuels incentives, including lowering the value of the ethanol excise tax credit, establishing a tax credit for cellulosic biofuel production, extending import duties on fuel ethanol, and establishing several new grant and loan programs (all of which are set to expire at the end of FY2012).

Several key biofuels incentives had expired or were set to expire (e.g., a tariff on ethanol imported from most countries, as well as tax credits for biodiesel, renewable diesel, and ethanol) before the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312). The incentives included in that law were extended through the end of 2011, and Congress has not acted to extend these incentives into 2012.

This report outlines federal programs that provide direct or indirect incentives for biofuels. For each program described, the report provides details including administering agency, authorizing statute(s), annual funding, and expiration date. The Appendix provides summary information in a table format.


Date of Report: January 11, 2012
Number of Pages: 19
Order Number: R40110
Price: $29.95

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