Alternative Fuel Extra: Credits for Change

Change can be good. But sometimes people need a little coaxing to take that initial step in a different direction. In the case of alternative fuels, there are tax incentives for contractors who choose the alternate route.

Federal tax credits established by 2005 legislation exist for propane users. Until 2011, propane vehicle credits are available to consumers who purchase or convert their vehicles to operate exclusively on propane. The credit amount depends on the weight and class of the vehicle and the vehicle’s emissions. Until 2010, propane infrastructure credits are available to those who build propane fueling stations. This provides a tax credit of 30 percent of the cost of a fueling station, not to exceed $30,000 per station. Until 2009, propane fuel credits of 50 cents per gallon of fuel sold for use in motor vehicles is available to propane retailers. 

On May 17 the National Propane Gas Association proposed a bill to Congress calling for the extension of the propane tax credits through 2012 “to firmly establish the propane vehicle market.” The document also stated Congress should allow taxpayers to qualify for the credits throughout the year, rather than only once at year end. According to Mike Troop, vice president of legislative affairs for the National Propane Gas Association, Washington, D.C., the Senate Finance Committee has since passed an energy bill that included the 2012 extension; however a similar energy bill passed by the House did not. The National Propane Gas Association aims to ensure that the incentive extensions appear in the bill’s final draft, Troop says. “Both House and Senate leadership continue to indicate that an energy bill is something they want to get done this session of Congress,” he says. “However, it seems like every time they start listing legislation they want to finish, the energy bill moves further down the list.” As of press time, there has been no set date given for when the next step in the process might be, he says, adding that timing can depend on many different factors, particularly the progress made on other legislative priorities.

There are state and federal incentives for the production and use of ethanol, as well. The Renewable Fuels Standard, the first-ever U.S. federal policy requiring steadily increasing levels of ethanol use, passed in July 2005 as part of the Energy Policy Act. The act calls for the amount of ethanol and biodiesel used nationwide to increase from 4 billion gallons per year in 2006 to 7.5 billion gallons per year by 2012. In turn, the Volumetric Ethanol Excise Tax Credit, passed in October 2005, ensured that ethanol-blended fuel makes the same contribution to the Highway Trust Fund as conventional gasoline, and also extended the Blender's Tax Credit until 2010, a policy that was set to expire in 2007. The blender credit is 51-cents per gallon which goes to the petroleum industry as an incentive to blend ethanol into their gasoline. The VEETC also improved the Small Ethanol Producer Tax Credit, passed by Congress in 1990, by allowing the $1.5 million credit to be passed through to the farmer-owners of ethanol cooperatives for the first time, and redefining a "small" ethanol producer from facilities producing up to 30 million gallons of ethanol annually to those producing up to 60 million gallons annually.

According to the American Coalition for Ethanol, seven states have enacted Renewable Fuels Standards that require the use of ethanol-blended fuel; 10 states have some type of retail pump incentives for E10, E85 or both types of ethanol-blended fuel; and 22 states have some type of incentive for ethanol producers. Information on individual states can be found on the ACE Web site, www.ethanol.org.

In terms of biodiesel, a federal excise credit equal to one cent per percent of biodiesel made from agricultural products and one-half cent per percent of biodiesel made from recycled oils is available to biodiesel consumers, according to the National Biodiesel Board. The tax is taken at the blender level and is passed on to consumers. A federal excise credit of $1 per gallon of biodiesel produced was created by Congress in 2004 and has been extended until 2008.

There are also numerous local, state and federal incentives for driving an electric car. Some include single-occupancy access to carpool lanes, free parking at some airport charging stations, no parking meter fees in an increasing number of metropolitan areas and discounted electrical rates.