Alternative Energy Industry Raking in Iowa Subsidies

Published February 27, 2012

The alternative energy industry has found a reliable benefactor in the form of the Iowa legislature, which between 2003 and 2010 gave most of the state’s economic development subsidies to biofuel firms.

New Caps Imposed

Tina Hoffman, marketing and communications director for the Iowa Economic Development Authority, confirmed the scope of the tax breaks but told Environment & Climate News the subsidies are in the process of being curtailed. 

“For the last several years, there have been several different types of awards in place,” said Hoffman. “Several years ago, maybe three years ago, there have been caps put in place for the tax credits.”

The cap, she said, now stands at $120 million per tax credit per year.

Taxpayers Footing the Bill

The Iowa House recently passed legislation extending the biodiesel tax credit program through January 1, 2018, while creating additional breaks aimed at encouraging biofuels production. Supporters of the extended tax credits estimated the subsidies would cost state taxpayers approximately $90 million through 2020. 

The biofuel industry, comprised largely of ethanol production, relies heavily on market-share mandates, tax credits, and other taxpayer subsidies to survive. Despite decades of taxpayer subsidies and repeated promises that biofuels are on the verge of replacing conventional transportation fuels, the producers of ethanol and other biofuels have repeatedly told Congress and state legislatures they cannot remain afloat without continuing taxpayer subsidies. 

The Iowa subsidies supplement subsidies handed out by other states, as well as federal mandates that require consumers to purchase a growing amount of ethanol as part of the nation’s transportation fuel mix. 

In February, the Advanced Ethanol Coalition petitioned Congress for producer tax credits to be included in the next Farm Bill, citing the “several billion dollars” that have already been put into biofuels development that could be considered wasted if the program were now curtailed. 

Creating More Certainty

Hoffman said the new caps on Iowa subsidies will allow taxpayers and the biofuels industry to understand in advance that there are limits to future subsidies. 

“The cap is very helpful,” Hoffman said. “It gives lawmakers an understanding of what the commitments are, and the kinds of tax credits awarded are not as large.”

Hoffman also said the state has not experienced any industry disadvantage, or faced competitive fallout, from the caps.

“We’ve been able to work just fine,” she said.

Cheryl Chumley ([email protected]) writes from northern Virginia.