Iowa Aims to Repeat Ethanol’s Success With Biorenewable Chemicals

A friend recently showed me a picture lamenting the passing of $7 corn and $12 soybeans. This column is published in the June issue of Ethanol Producer Magazine.
By Joe Leo | May 11, 2016

A friend recently showed me a picture lamenting the passing of $7 corn and $12 soybeans. It was styled as one of those rear car-window stickers that memorialize the death of a friend or loved one which have become common recently. I laughed at the creativity, but it really brought home the point with which I think many are struggling. 

The low corn prices appear to be here to stay. Innovations in corn production have continued to push the United States’ ability to produce corn and are starting to spread to the rest of the world. As a result, many are looking for the next wave of innovation that will push the United States agricultural economy further. 

Ethanol has done amazing things in rural America. The improvement to the rural economy resulted from both the public sector and private investors who had the foresight to support the ethanol industry and expand it into what it is today. Now, many are using the model ethanol created to foster other industries that can repeat ethanol’s success. 

Iowa’s Gov. Terry Branstad signed Senate File 2300 into law April 6, creating the Iowa Biorenewable Chemical Tax Credit Program, a landmark piece of legislation that is expected to result in significant investment and innovation in Iowa. I expect that Iowa is going to be the first of many states to institute this type of program. This legislation was supported by a diverse coalition of private industry and public sector supporters. The Biorenewable Chemical Tax Credit Program will be administered by the Iowa Economic Development Authority which can allocate up to $105 million in tax credits to Iowa-based renewable chemical producers during the next 10 years. 

The program is expected to expand on Iowa’s robust renewable fuels industry by adding a tax credit to support the production of chemicals derived from renewable sources. The renewable fuels industry expanded significantly after Iowa enacted a similar tax credit program. In January, Iowa State University published a white paper examining the potential economic impacts of the tax credit in the state. It found that up to 50,000 new jobs could be created by the tax credit program during the next 10 years.

The tax credits issued under the Biorenewable Chemical Tax Credit Program are refundable, meaning eligible producers can receive a cash payment for the amount of tax credits that exceed their state tax liability. To be eligible, an applicant must be the owner of a for-profit business located in Iowa, among other criteria. Each eligible business created within the past five years may receive up to $1 million per year in tax credits for five years. For any eligible business that has been in existence for more than five years, the maximum annual credit is $500,000 for five years.

Eligible companies receive a tax credit of 5 cents per pound of qualifying renewable chemicals produced. Eligible renewable chemicals are created from biomass-based feedstock including sugar, crude glycerin, lignin, fat and other plant- and animal-derived feedstocks. 

There is continued interest in the United States to replace petroleum-based products with products produced from renewable resources. I believe innovation in the biochemical industry will have a direct impact on innovation in the ethanol industry and vice versa. Further, I think investment in biochemical production will be an important source of diversification for companies and investors involved in the ethanol industry. The industry is uniquely positioned to take advantage of its knowledge and experience—it created the blueprint. Now I believe leaders in this industry have the opportunity to replicate that success in the biochemical market.

Author: Joe Leo
Attorney, BrownWinick Law Firm