How to Reform Biofuels Tax Polices (2010)

June 2010
Biofuels tax policies must be reformed to cut pollution and save oil.

Today’s biofuels tax credits are expensive and ineffective. They cost taxpayers more than $5 billion per year, yet they have no effect on biofuels production. In fact, the tax credits do not even benefit biofuel producers or farmers, but instead the money goes to oil companies to simply comply with the Renewable Fuel Standard.

The Billion Gallon Challenge shows how a different type of tax credit – a Biofuels Performance Tax Credit – would be more effective in jumpstarting the advanced biofuels industry. A performance-based tax credit would:

  • Reward biofuel producers for performance improvements. The amount of the tax credit would be based on the emissions improvement over today’s conventional biofuels. The greater the emissions improvement, the higher the tax credit.
  • Clean up all types of biofuels. Since both conventional and advanced biofuels are eligible for the tax credit, both would have an incentive to reduce emissions.
  • Save billions of taxpayer dollars and spur investments in biofuels-production technology.

The Biofuels Performance Tax Credit by itself is only one component of a successful policy prescription for biofuels. Combined with other smart government polices such as loan guarantees and investment tax credits, biofuels can get back on the right path to help secure America’s clean energy future.

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