Overview of Iowa Biofuel Tax Credits and Ethanol Blends Sales: E10, E15, E20, and E85
By S. Patricia Batres-Marquez
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
Iowa Biofuel Tax Credits
Ethanol consumption in the United States has been substantially supported by the Renewable Fuel Standard, which is the federal biofuel usage mandate. Ethanol consumption also has been promoted at the state level. In Iowa for instance, the Iowa General Assembly authorized House File 2754 in 2006. This legislation established the goal that 25% of all petroleum used in the formulation of gasoline in Iowa be replaced by biofuels by 2020. To support this goal, several refundable tax credits were enacted for biofuel retailers. As of now, Iowa biofuel retailers have four tax credits available: The Ethanol Promotion Tax Credit, the E85 Gasoline Promotion Tax Credit, the E15 Plus Gasoline Promotion Tax Credit, and the Biodiesel Blended Fuel Tax Credit (IDR, 2014).
The Ethanol Promotion Tax Credit (EPTC) was first enacted January 1, 2009. EPTC replaced the Ethanol Blend Gasoline Tax Credit, which expired December 31, 2008. The EPTC rate received by retailers ranges from $0.08 to $0.04 per gallon.
E85 Gasoline Promotion Tax Credit (E85GC) allows a credit of $0.16 per gallon. E85GC was enacted on January 1, 2006. E85 requires dedicated pumps, and is for flexible fuel vehicles only.
E15 Plus Gasoline Promotion Tax Credit (E15GC) was first enacted July 1, 2011. This tax incentive provides a credit to retail dealers who sell blended gasoline with 15% to 69% ethanol (E15 Plus). Vehicles model year 2001 and newer have been allowed by the Environmental Protection Agency (EPA) to use E15, which is a blend up with 15% ethanol sold by registered E15 retailers. Blends with more than 15% ethanol or dispensed by nonregistered retailers can only be used in flex-fuel vehicles, as flex-fuel vehicles can use any gasoline blended with up to 85% ethanol. The E15GC rate in 2017 is $0.03 per gallon, except for gallons sold from June 1 to September 15, for which the tax credit is $0.10 per gallon. Retailers can only continue to sell registered E15 during these months if they use low volatile gasoline for blending, which is not piped into Iowa. According to the IDR (2017), the tax credit of $0.10 per gallon during the summer time is designed to incentivize retailers to take the additional steps required to continue selling E15 through registered pumps year-round.
Biodiesel Blended Fuel Tax Credit (BBFC) was first available on January 1, 2006. In 2017, the tax credit will be at $0.045 per gallon for retailers offering a biodiesel blend with a minimum of 5% biodiesel (B5). The tax incentive will be $0.035 per gallon on B5 and $0.055 per gallon on B11, or diesel blended with a minimum of 11% biodiesel for the 2018 through 2024 period.
EPTC will expire December 1, 2020, whereas E85GC, E15GC, and BBFC all will expire December 31, 2024.
We will present here the sales trends of ethanol-gasoline blends in Iowa. Iowa biodiesel sales will be presented in a future post.
Iowa E10 Sales
Data from the Iowa Department of Revenue (IDR) published in the Motor Fuel Monthly Report(1) indicates 2002 gasoline blended with 10% ethanol (E10) taxable sales were about 56% of total fuel taxable sales in Iowa, with gasoline-only taxable sales representing the remaining 44%. The gallon amounts published in this monthly report are not from the retail level, but rather from the supplier/terminal or rack level. As Figure 1 shows, the number of gallons of taxable ethanol-blended gasoline has fluctuated throughout the years, but overall, gallons of taxable ethanol-blended gasoline have increased from 887 million gallons in 2002 to 1.150 billion gallons in 2016 (IDR, 2002-2017), indicating a larger demand for ethanol-blended gasoline in Iowa compared with gasoline without ethanol.
Starting in 2015, the average percentage of taxable gallons reported as ethanol-blended gasoline declined to 67% compared with 2014. As indicated by IDR, this was the result of a change in the way the types of taxable gallons are reported by suppliers. In 2016, ethanol blended gasoline accounted for an annual average of 65% of taxable gallons of motor fuel. January and February 2017 data indicates this percent was at 66%, on average. Taxable gallons of ethanol-blended gasoline are estimated as the difference between gross amounts of ethanol blended gasoline reported and exported gallons and distribution allowance, with exported gallons accounting for most of the difference. In 2016, Iowa exported gallons represented 64.5% of gross amounts of ethanol blended gasoline reported. Exported gallons in this context means delivery across the boundaries of Iowa by the seller or purchaser from a place of origin in Iowa.
Figure 1. Iowa Rack Level Monthly Taxable Gasoline, Ethanol Blended Gasoline, and Percent Ethanol Blended Gasoline of Total Taxable Fuel
The Retailers Motor Fuel Gallons Annual Report, also published by IDR, has data publicly available starting in 2011. Despite a requirement for retailers to complete the annual report for sales made during the year, the participation rate for retail locations throughout the state has been under 90% (88.4% on average from 2011 to 2016) (IDR, 2011-2016). Based on these annual reports and as indicated in Figure 2, in 2016, the reported amount of E10 sold in Iowa at the retail level equaled 1.347 billion gallons, up 2.1% from 2015. The 2016 retail annual data shows a difference of about 196 million gallons compared with the wholesale data, which reflects the blending that occurs between the terminal and the final consumer. In addition, the difference between rack and retail level increased in 2015, due to changes in the way rack level data was reported by suppliers.
Figure 2. Iowa E10 Annual Rack and Retail Level Sales
Iowa E85 Sales
Most gasoline in the United States remains at a 10% blend, as the domestic market growth for E15 blends (15% ethanol blend) is limited by infrastructural and regulatory constraints. Higher levels of blends such as E85 (70% to 85% ethanol) can be used only in flex-fuel vehicles (FFV). Motor gasoline with more than 10% fuel ethanol content is mainly sold in the Midwest where most ethanol production takes place, with Iowa as the number one producer. According to the Iowa Renewable Fuels Association, there are currently nearly 300,000 FFVs owned by Iowa motorists. As indicated by the U.S. Department of Energy, Iowa currently has 225 E85 fueling stations. Minnesota is the state with the most E85 fueling stations at 323.
IDR in the Motor Fuel Monthly Report also publishes data on taxable gallons of E85. Based on this data, Iowa taxable gallons of E85 have increased from 1.48 million gallons in 2006 to 6.0 million in 2016. As indicated before, the gallon amounts in this publication reflect taxable fuel shipped from terminals instead of gallons sold at retail locations. There may be additional blending of products throughout the fuel distribution chain. This happens for most E85 gallons, therefore the gallons reported for this fuel type in the monthly report are far below the actual number of retail gallons sold in Iowa.
The Retailers Motor Fuel Gallons Annual Report data indicates retail level sales of E85 fuel has consistently increased since 2013 (see Figure 3). The 2016 amount of E85 sold in Iowa equaled 13.5 million gallons, up 2.4% from the previous year and 20.8% from 2013 (11.2 million gallons). The 2016 retail annual data shows a difference of about 7.5 million gallons compared with the 2016 annual wholesale data, reflecting the additional blending of this fuel type occurring through the fuel distribution channel.
Figure 3. Iowa E85 Annual Rack and Retail Level Sales
Iowa Sales of Other Ethanol-Gasoline Blends: E15 and E20
IDR in its Retailers Motor Fuel Gallons Annual Report also reports on Iowa sales of other ethanol-gasoline blends such as E15 and E20. Before 2015, E15 and E20 were reported together and represented gasoline blended with 15% to 69% ethanol. According to IDR, in 2015 ethanol blended gasoline requirements were modified to adjust for the increasing E15 market in Iowa. Under the new requirements, ethanol blended gasoline with 15% ethanol is now reported as registered E15, which is sold by retailers registered with the EPA to sell E15 to 2001 vehicles and newer models (see Figure 4). Registered retailers unable to obtain low volatile gasoline for blending during the summer months can only sell E15 as a flex fuel E15 (15% to 19% ethanol) (see Figure 4).
Also included in this category are gallons sold by retailers through a blender pump at any time of the year. E20 is defined as any ethanol blended gasoline with 20% to 69% ethanol As Figure 4 indicates, E15 and E20 sales have increased in Iowa since 2014. Compared with 2015, in 2016 registered E15 and E20 sales increased 193.0% to 4.483 million gallons and 20.3% to 3.032 million gallons, respectively, whereas flex fuel E15 declined 3.7% to 0.582 million gallons. E15 plus Flex Fuel E15 combined sales reached a volume of 5.066 million gallons in 2016, up 137.2% from the volume in 2015 (2.135 million gallons) because of the substantial increase in E15 sales.
Figure 4. Iowa E15 and E20 Sales (Retail Level)
The Renewable Fuels Infrastructure Program
On April 20, 2017, the Iowa Legislature voted for another year of funding for the state’s blender pump program, the Renewable Fuels Infrastructure Program (RFIP). Funding for RFIP at $3 million for fiscal year 2018 will end June 30, 2018. Originally, funding for the RFIP was set to expire June 30, 2017. According to the Iowa Renewable Fuel Association (IRFA), the RFIP provides cost-share grants to Iowa retailers who want to upgrade fueling infrastructure to offer E15, E85 and/or biodiesel blends. The program covers up to 70% of the installation costs, up to a maximum of $50,000 per project, with a five-year commitment to sell E15, E85 or biodiesel blends.
In addition, as announced by the Iowa Department of Agriculture and Land Stewardship (IDALS, 2015), in 2015 Iowa received a $5.0 million grant from the United States Department of Agriculture Biofuel Infrastructure Partnership (BIP) to be used for cost share funding to assist retailers in Iowa with the purchase and installation of blender pumps and underground storage tank infrastructure for higher blends of ethanol. In 2016, nearly $2.5 million in RFIP dollars were used as matching funds to leverage the $5.0 million awarded by BIP to Iowa.
Biofuel Distribution Percentage
Overall, ethanol-gasoline blend retail sales in Iowa have increased in recent years. Despite E85 and E15 sales growth in the state, sales of these higher blend fuels remain low compared with E10 sales. In 2016, 98.4% of gallons of gasoline blend sold at the retail level were E10 blend fuel sales and only 1.6% were higher blend fuel sales. The aggregate ethanol gallonage (i.e., amount of pure ethanol gallons) used in gasoline blends sold by retailers in 2016 was up 2.2% to 146.795 million gallons from 2015, with 91.8% (134.786 million gallons) used in the E10 blend and 7.3% (10.643 million gallons) in the E85 blend. Only 0.93% (1.366 million gallons) was used in E15 (E15 Registered and flex fuel E15) and E20. Based on the IDR’s 2016 Retailer Fuel Gallons Annual Report, in 2016 the biofuel distribution percentage, which is used to determine progress in meeting the 25% percent biofuel goal, was 12.2% compared with 11.6% in 2015 . A news report in the April 20th edition of Biofuels Digest indicates a proposed amendment to Iowa House Study Bill 187 would affect the Iowa biofuel tax programs by issuing credits only after annual sales amounts for fuel retailers were calculated. According to the report, petroleum marketers are concerned the policy change would bring too much insecurity in the market and end up with less biofuel blended, rather than more.
Iowa Department of Revenue, 2014. Iowa’s Biofuel Retailers’ Tax Credits, Tax Credits Program. December.
Iowa Department of Revenue. Retailers Motor Fuel Gallons Annual Report, 2002-2017.
Iowa Department of Revenue. Retailers Motor Fuel Gallons Annual Report, 2017.
Iowa Department of Revenue. Motor Fuel Monthly Report (2011-2017).
Iowa Renewable Fuel Association, 2017. Iowa Legislature Approves Funding for State Blender Pump Program. April.
Iowa Department of Agriculture and Land Stewardship, 2015. Applications Being Accepted for “Fueling Our Future 100” Initiative. December.
(1) Motor Fuel Monthly Report is a publication that reports the gross gallons of fuel delivered by Iowa licensed suppliers, blenders, importers restrictive suppliers, and liquified petroleum gas/compressed natural gas dealers and users. Restrictive supplier means a person who imports motor fuel or undyed special fuel into the state in tank wagons or in small tanks not otherwise licensed as an importer.
(2)According to Iowa law (Iowa Code 452.31(8), the biofuel distribution percentage estimate includes the aggregate biodiesel gallonage (pure biodiesel) but not the diesel fuel (i.e. Biofuel Distribution Percentage = (Pure Ethanol Gallons + Pure Biodiesel Gallons) / Total Gasoline Gallons)).