Iowa governor signs bill for biochemical tax breaks

Source: Niina Heikkinen, E&E reporter • Posted: Friday, April 8, 2016

Iowa Gov. Terry Branstad (R) signed legislation yesterday that will offer new tax incentives for renewable chemical production in his state.

The passage of S.F. 2300 makes Iowa the first state to offer tax credits to companies that produce biochemicals. It’s a strategic move for a state that is aiming to position itself early as a leading producer of biochemicals nationally.

Expanding chemical production makes sense for Iowa, since it is already a top renewable energy producer of both ethanol and soy-based biodiesel, Branstad told ClimateWire.

“We think this is the next logical step to grow what we already grow in such abundance, corn and soybeans, and make all kinds of consumer products out of them,” he said. “We’re very excited about it because we think it’s going to attract the attention of international companies that will want to locate in a state where there is a financial incentive or an advantage to locate.”

This would not only create “high-tech, quality jobs” and boost the state’s economy but also generate products that are less harmful to the environment by switching out petroleum-based chemicals for those made from corn and soybeans, he added.

The renewable chemical production tax credit will offer a total of $10 million a year in credits to businesses that use bio-based feedstock to produce chemicals, with producers earning 5 cents per pound of chemical produced. Companies will be able to apply for credits starting Jan. 1, 2017, up until Dec. 31, 2026.

The overall chemical market in the United States has an estimated value of over $250 billion per year, but the production of bio-based chemicals is still in its relative infancy. The hope is that Iowa will be able to take advantage of the large amount of available biomass from the state’s corn and soybean producers to facilitate biochemical growth.

The state is ranked No. 1 and No. 2, respectively, in U.S. corn and soybean production and generates 14.4 million dry tons of available biomass each year.

With the state producing more ethanol than can be blended into gasoline, producing biochemicals offers a new potential way to utilize biofuels that cannot currently be absorbed under U.S. EPA’s renewable fuel standard.

“We are very disappointed with what the EPA has done creating this uncertainty with reducing the renewable fuel standard, but we’re going to not let that prevent us from moving forward and look for additional opportunities to add value to what we’re producing, and this is just another source of income and new products from what we produce,” Branstad said.

In addition to having so much readily available feedstock to generate the chemicals, Iowa has a lot of highly developed agricultural infrastructure that could support expansion of the industry, said Brent Shanks, director of the National Science Foundation Engineering Research Center for Biorenewable Chemicals (CBiRC) at Iowa State University.

Shanks recently co-authored a report evaluating the opportunities for bio-based chemical production in Iowa.

“Iowa is well-positioned to be where this industry grows out,” Shanks said.

Though it isn’t the only state where the bio-based chemical industry could do well, having a tax credit could provide extra incentives for companies to do business in Iowa or even switch over from producing petrochemicals to bio-based chemicals at a faster rate, he said.

“This is an indicator that the state is very serious about being a significant player in the industry,” he said.

The bill may already be having an impact. According to Branstad, some companies attending the bill signing indicated that they were interested in expanding and creating new operations in the state because of new tax credits.

“I think in the months and years ahead we are going to see a lot of that,” Branstad said.