Woody Biomass for Energy Tax Incentives

Dr. Linda Wang National Forest Tax Specialist USDA Forest Service

Biomass for Electricity Tax Credit Income Tax Credit (Sec. 45 and 38) – The amount of credit 2.1 cents per kilowatt-hour for closed-loop biomass 1 cent per kilowatt-hour for open-loop biomass (IRS Notice of Inflation Adjustment Factor, April 30, 2008). –Qualified taxpayers Electricity producers

Biomass for Electricity Tax Credit Closed-loop biomass means –“any organic material from a plant which is planted exclusively” for electricity production

Open-Loop Biomass from forestry source –“mill and harvesting residues, precommercial thinnings, slash, and brush”; –“solid wood waste materials, including waste pallets, crates, dunnage, manufacturing and construction wood wastes, and landscape or right-of-way tree trimmings”; or –“wood bark and lignin material recovered from spent pulping liquors” (IRS Notice )

Deadline –The closed-loop biomass power facility must be originally placed in service after December 31, 1992, and before January 1, 2009 (Sec. 45(d)(2)(A)(i)).

Deadline –The open-loop biomass power generation facility must be originally placed in service through December 31, 2008 to qualify (§45(d)(3)(A)(ii)).

Requirements –Recycled paper does not qualify for the open-loop biomass tax credit (§ 45(c)(3)(A)(ii)(II)) –The electricity must be sold to unrelated person to qualify (§45(a)(2)(B)). Therefore, self-use is excluded.

Cellulosic Biomass for Fuel Tax Credit The 2008 Farm Bill enacted a temporary new tax credit—$1.01 per gallon for qualified cellulosic biomass fuel producers (The Food, Conservation and Energy Act, P.L ).

This credit is effective after December 31, 2008 through December 31, 2012 Cellulosic Biomass for Fuel Tax Credit

Cellulosic Biomass Ethanol Plant Property 50% Bonus Depreciation A 50% additional depreciation deduction is available for qualified cellulosic biomass ethanol plant property (§168(l))

Ethanol Excise Tax Credit An excise tax is a selective sales tax on a specific commodity or service Excise tax incentive play significant role in biofuel industry growth

Ethanol Excise Tax Credit An excise tax credit of 51 cents per gallon is available for ethanol producers ( under “the alcohol mixture credit” by the American Jobs Creation Act of 2004 )

Ethanol Excise Tax Credit  The 51 cents per gallon credit amount will be reduced to 45 cents per gallon for 2009 and beyond.  However, if the production level falls short of 7.5 billion gallons of ethanol, the credit reduction will be delayed (the 2008 Farm Bill).

Qualified Gasification Technology Project Tax Credit  Certified gasification projects qualify for a 20% of property investment tax credit in the year of investment (Sec. 48B).

Qualified Gasification Technology Project Tax Credit  The taxpayer must apply for and receive certification by the Treasury Department (in consultation with the Energy Department) to qualify.

Qualified Gasification Technology Project Tax Credit The term “biomass” means any – –agricultural or plant waste, –byproduct of wood or paper mill operations, including lignin in spent pulping liquors, and –other products of forestry maintenance.

Woody Biomass Tax Incentives  Mainly targeting energy producers, not at the forest  However, these tax incentives help to create market and increase demand for products and services from forests