Biofuels Law Alert: Oregon Set to Adopt Aggressive Biofuels Incentives
Oregon continues to distinguish itself in the renewable energy sector as it breaks ground in the area of biofuels. On June 20, the Oregon legislature passed one of the most aggressive biofuels incentive packages in the United States. It sets renewable fuel standards and provides major tax and production incentives for fuel retailers and processors to produce and sell biofuels and biomass. When combined with Oregon’s existing Business Energy Tax Credit, the new legislation will result in one of the most robust incentive packages in the nation for the development of ethanol and biodiesel. Governor Ted Kulongoski, an enthusiastic supporter of renewable fuels, is expected to sign the legislation shortly.
Oregon Guarantees Markets for Biodiesel and Ethanol
The legislation guarantees a market for biofuels in Oregon by requiring Oregon petroleum dealers to add biofuels into diesel and unleaded gasoline as state biofuel producers reach certain critical levels of production. After Oregon production of biodiesel from sources in Oregon, Washington, Idaho, and Montana reaches 5 million gallons per year, the Oregon Department of Agriculture (the "Department") will mandate that state petroleum dealers blend at least 2 percent biodiesel into market petroleum diesel. Once Oregon biodiesel production from regional sources reaches 15 million gallons per year, the percentage increases to 5 percent. Biodiesel produced from palm oil does not apply toward these percentages. For the ethanol industry, after state ethanol production reaches 40 million gallons per year, the Department will mandate that state petroleum dealers blend 10 percent ethanol into their unleaded gasoline.
Income Tax Credits and Property Tax Exemptions
Oregon’s biofuels legislation goes beyond just setting mandates; it also provides state income tax credits for producing or collecting biomass to produce biofuels, property tax exemptions in designated rural renewable energy development zones and income tax credits for consumers using biofuel blends or solid biofuels. Farmers and biomass collectors may claim their credit for the tax year in which they transfer the biomass to biofuel producers. The legislation provides a carryforward period of up to four years. Once the tax credit is claimed, the taxpayer may choose to use the credit or sell it to another taxpayer by a simple notice filed with the Department of Revenue. To be eligible for the tax credit, biomass must be produced or collected and used in Oregon as a feedstock for bioenergy or biofuel production. Biomass includes, but is not limited to, woody mass, canola, wheat, barley, triticale, straw, grass, camelina, flax, cooking oil or waste grease, yard debris, animal manure, and wastewater solids.
Producers of biofuels will receive state tax credits that can be used to finance up to 35 percent of a facility’s capital costs through the recently amended Oregon Business Energy Tax Credit ("BETC") program. On June 25, the legislature passed HB 3201 that would increase the BETC to finance up to 50 percent of a facility's capital cost, up to a maximum BETC of $10 million. The producer eligible for a BETC may choose instead to sell the BETC to another taxpayer for cash. Senate Bill 819, which was passed by the Oregon legislature on June 23 and is expected to soon be signed by Governor Kulongoski, is intended to revive the market for the sale of these credits, helping producers that need to monetize the BETC.
The biofuels legislation also expands local property tax exemptions within a rural renewable energy development zone from $100 million to $250 million. Projects for the production of ethanol, biofuel or a verified fuel additive within the zone are eligible for the property tax exemption. No carryforward is allowed.
Individual consumers of biofuels are eligible for the Biofuel Consumer Income Tax Credit ("BCITC"), which allows an income tax credit of $0.50 per gallon of biodiesel (B99) or ethanol (E85) blended fuel up to a maximum of $200 per year for each Oregon registered vehicle owned or leased by the taxpayer. Individual taxpayers may also receive a BCITC of up to $200 per year for their purchase of biosolids prepared from forest, rangeland, or agriculture waste or residue. The BCITC is also available to consumers who purchase certain biodiesel blend fuels for home heating.
The legislation also sets technical standards for the composition of biodiesel and ethanol. In two years, the Oregon Department of Energy will conduct an impact study of the biofuels program, focusing on work force, environmental, and economic effects.
For more information on the biofuels legislation and its requirements, or legal assistance with biofuels-related projects, please contact:
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This is a publication of Stoel Rives Renewable Energy Law Group for the benefit and information of clients and friends. This bulletin is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended for information purposes only. Copyright 2007, Stoel Rives LLP.