Two pieces of legislation have been passed recently by the U.S. Congress contain some provisions that will provide financial incentives for distributed energy technologies including biomass, wind, solar and geothermal. The Working Families Tax Relief Act of 2004 [H.R. 1380] and the 2004 American Jobs Creation Act [H.R. 4520] have been signed into law by President Bush. Some of these incentives are new, some are extensions of incentives that have lapsed with the inability of Congress to pass a comprehensive energy bill in the past two years.
H.R. 1380, the Working Families Tax Relief Act bill, provided the renewable energy industry [defined as wind, closed-loop biomass and poultry waste] with an extension of the federal renewable energy production tax credit (currently at 1.8 cents per kWh) until January 1, 2006.
H.R. 4520, the 2004 American Jobs Creation Act, contains the following energy provisions:
Sec. 301. Alcohol and biodiesel excise tax credit and extension of alcohol fuels income tax credit. and Sec. 302. Biodiesel income tax credit.
The Volumetric Ethanol Excise Tax Credit (VEETC) allows terminal operator, refiner or marketer (distributor, jobber or retailer) who buys gasoline and ethanol as separate commodities can receive the $.51 per gallon federal incentive and produce ethanol blends of up to E85.
The biodiesel tax incentive, which is structured as a federal excise tax credit, amounts to a one cent per percentage point of biodiesel blended with petroleum diesel for first-use oils (corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, and from animal fats) and one-half cent per percentage for biodiesel made from other sources, like waste cooking oil. The USDA has estimated that the incentive will increase biodiesel demand from an estimated 30 million gallons in fiscal year 2004 to at least 124 million gallons per year.
Sec. 313. Apportionment of small ethanol producer credit.
These section allows ethanol cooperatives to take a vote of their member owners to determine whether or not to set up a system so that the ethanol producer tax credits are passed along to the members of the cooperative.
The bill reads in part, “In the case of a cooperative organization described in section 1381(a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.”
Sec. 710. Expansion of credit for electricity produced from certain renewable
The following energy technology resources are allowed access to the 1.5 cents per kWh tax credit previously only available to wind energy and some types of biomass projects (adjusted for inflation the credit is now 1.8 cents per kWh):
small irrigation power
municipal solid waste
It’s the first time this editor has heard of “open-loop” biomass. It’s defined in the bill as (i) any agricultural livestock waste nutrients, or (ii) any solid, nonhazardous, cellulosic waste material which is segregated from other waste materials and which is derived from mill and harvesting residues, precommercial thinnings, slash, and brush, waste pallets, crates, dunnage, manufacturing and construction wood wastes (other than pressure-treated, chemically-treated, or painted wood wastes), and landscape or right-of-way tree trimmings, but not including municipal solid waste, gas derived from the biodegradation of solid waste, or paper which is commonly recycled, or agriculture sources, including orchard tree crops, vineyard, grain, legumes, sugar, and other crop by-products or residues.
The term ‘agricultural livestock waste nutrients’ means agricultural livestock manure and litter, including wood shavings, straw, rice hulls, and other bedding material for the disposition of manure. The term ‘agricultural livestock’ includes bovine, swine, poultry, and sheep.
It’s also the first time to my knowledge that coal has been included in federal renewable technology definitions. Refined coal has access to the tax incentive as well and is defined as: a fuel which is a liquid, gaseous, or solid synthetic fuel produced from coal (including lignite) or high carbon fly ash, including such fuel used as a feedstock, is sold by the taxpayer with the reasonable expectation that it will be used for purpose of producing steam, is certified by the taxpayer as resulting (when used in the production of steam) in a qualified emission reduction, and is produced in such a manner as to result in an increase of at least 50 percent in the market value of the refined coal (excluding any increase caused by materials combined or added during the production process), as compared to the value of the feedstock coal.
The term ‘qualified emission reduction’ means a reduction of at least 20 percent of the emissions of nitrogen oxide and either sulfur dioxide or mercury released when burning the refined coal (excluding any dilution caused by materials combined or added during the production process), as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of January 1, 2003
Provisions in the bill reduce the tax incentive by one-half for certain technologies including open-loop biomass, small irrigation power and municipal solid waste.
The incentive is available for ten years for wind, geothermal, solar and refined coal projects and five years for other technologies.
For a comprehensive listing of renewable energy incentives at the state level, visit the Database of State Incentives for Renewable Energy (DSIRE) at http://www.dsireusa.org/