Kentucky Laws and Incentives for Ethanol

The list below contains summaries of all Kentucky laws and incentives related to Ethanol.

State Incentives

On-Farm Biofuel Production Grants

The Governor's Office of Agricultural Policy provides grants through the County Agricultural Investment Program for on-farm energy efficiency and renewable energy production projects, including funding for equipment, structures, or other supplies necessary to convert biomass crops into useable energy or to convert grains and oilseeds into ethanol or biodiesel for use in on-farm equipment. Fuels produced on a farm with assistance through this program may not be used as transportation fuels for highway use. Applicants are encouraged to review manufacturers' warranties and specifications before using the fuels in any on-farm equipment. For more information, see the Kentucky Agricultural Development Fund website.

Alternative Fuel Research, Development, and Promotion

The Kentucky New Energy Ventures (KNEV) program provides grants and investments to companies for research, development, and commercialization of alternative fuels and renewable energy. KNEV is designed to: 1) grow Kentucky-based alternative fuel and renewable energy companies to promote commonwealth-wide, innovation-driven economic growth; 2) stimulate private investment in Kentucky-based alternative fuel and renewable energy enterprises; 3) expand the alternative fuel and renewable energy knowledge base, talent force, and industry in Kentucky; 4) develop an alternative fuel and renewable energy resource network to build the technical and business capacity of entrepreneurs through informal and formal strategic support; and 5) build commonwealth-wide awareness of the economic development opportunities Kentucky's alternative fuel and renewable energy industry offers. For the purposes of KNEV, alternative fuels include biodiesel, ethanol, cellulosic ethanol, synthetic natural gas, fuels produced from coal, waste coal, or extract oil from oil shale, and other fuels produced from a renewable or sustainable source. Eligible companies must be based in Kentucky, have 150 or fewer employees, and work to develop or commercialize alternative fuel and renewable energy products, processes, and services. For more information, including information on the application process, see the KNEV program website. (Reference Kentucky Revised Statutes 154.20-410 and 154.20-415)

Ethanol Production Tax Credit

Qualified ethanol producers are eligible for an income tax credit of $1.00 per gallon of corn- or cellulosic-based ethanol that meets ASTM specification D4806. The total credit amount available for producers is $5 million for each fuel type in each taxable year. Unused ethanol credits from one ethanol-based cap, such as corn, may be applied to another ethanol-based cap, such as cellulosic, in the same taxable year. Unused credits may not be carried forward. Feedstock eligibility restrictions may apply. (Reference Kentucky Revised Statutes 141.422 and 141.4242 to 141.4248)

Alternative Fuel Production Tax Incentives

Through the Incentives for Energy Independence Act program, the Kentucky Economic Development Finance Authority (KEDFA) provides tax incentives to construct, retrofit, or upgrade an alternative fuel production or gasification facility that uses coal or biomass as a feedstock. KEDFA also provides tax incentives for energy-efficient alternative fuel production facilities and for up to five alternative fuel production facilities that use natural gas or natural gas liquids as a feedstock. Energy-efficient alternative fuels are defined as homogeneous fuels that are produced from processes designed to densify feedstocks such as coal, waste coal, or biomass resources and have an energy content that is greater than the feedstock. The incentives may consist of: 1) a refund of up to 100% of the state sales tax paid on the purchase of personal property used to construct the facility; 2) a credit of up to 100% of an approved company's state income tax and limited liability entity tax that the project generates; 3) up to 4% of the wage assessment of employees whose jobs were created as a result of the construction, retrofit, upgrade, or operation of a qualified facility; and 4) a credit for up to 80% of the severance tax paid for coal, natural gas, or natural gas liquids used as a feedstock. KEDFA may allow advance incentive disbursement to encourage the use of in-state labor for facility construction.

The incentives expire at the time of receipt of the authorized amount or 25 years from activation of the project, whichever occurs first. Approved companies may recover up to 50% of their capital investment via the authorized tax incentives. The minimum capital investment for incentive eligibility is $25 million for an alternative fuel or gasification facility that uses biomass as the primary feedstock; $100 million for an alternative fuel or gasification facility that uses coal, oil shale, or tar sands as the primary feedstock; $25 million for an energy-efficient alternative fuel facility; and $1 million for a facility that uses natural gas or natural gas liquids as the primary feedstock.

To apply for the incentive, an eligible taxpayer must submit a $1,000 non-refundable application fee and remit payment for any other fees in connection with the project, including administrative, legal, and consulting fees. For more information, see the Kentucky Business Incentives and Financial Programs website.

(Reference Kentucky Revised Statutes 154.27-010 to 154.27-090)

Point of Contact
Don Goodin
Director, Incentive Assistance Division
Kentucky Economic Development Finance Authority
Phone: (502) 782-1978
Fax: (502) 564-7697

Laws and Regulations

Clean Transportation Fuels for School Buses

The Kentucky Department of Education (Department) must consider the use of clean transportation fuels in school buses as part of its regular procedure for establishing and updating school bus standards and specifications. If the Department determines that school buses may operate using clean transportation fuels while maintaining the same or a higher degree of safety as fuels currently allowed, it must update the standards and specifications to allow for such use. (Reference Kentucky Revised Statutes 156.153)

Vehicle Acquisition Priorities and Alternative Fuel Use Requirement

The Kentucky Finance and Administration Cabinet (Cabinet) must develop a strategy to replace at least 50% of commonwealth motor fleet light-duty vehicles with energy-efficient vehicles including hybrid electric, advanced lean burn, fuel cell, and alternative fuel vehicles. The Cabinet must also develop a strategy to increase the use of ethanol (including cellulosic ethanol), biodiesel, and other alternative fuels in commonwealth motor vehicle fleets. The Cabinet must report targeted vehicle and fuel usage amounts annually. (Reference Kentucky Revised Statutes 45A.625)

Alternative Fuel and Conversion Definitions

Clean transportation fuels include liquefied petroleum gas (or propane), compressed natural gas (CNG), liquefied natural gas (LNG), electricity, and other transportation fuels determined to be comparable with respect to emissions. CNG is defined as pipeline-quality natural gas that is compressed and provided for sale or use as a motor vehicle fuel. LNG is defined as pipeline-quality natural gas treated to remove water, hydrogen sulfide, carbon dioxide, and other components that will freeze and condense into liquid form for sale or use as a motor vehicle fuel. Propane is defined as a hydrocarbon mixture produced as a by-product of natural gas processing and petroleum refining and condensed into liquid form for sale or use as a motor fuel.

A bi-fuel system is defined as the power system for motor vehicles powered by gasoline and either CNG or LNG. Bi-fuel systems are considered clean fuel systems. Conversion is defined as repowering a motor vehicle or special mobile equipment by replacing its original gasoline or diesel powered engine with one capable of operating on clean transportation fuel or retrofitting a motor vehicle or special mobile equipment with parts that enable its original gasoline or diesel engine to operate on clean transportation fuel.

(Reference Kentucky Revised Statutes 186.750)

Alternative Fuel Tax

An excise tax rate of 9% of the average wholesale price on a per gallon basis applies to all special fuels, including diesel, natural gas, liquefied petroleum gas (propane), ethanol, biodiesel, hydrogen, and any other combustible gases and liquids, excluding gasoline, used to propel motor vehicles. For taxation purposes, one gasoline gallon equivalent (GGE) of compressed natural gas (CNG) is equal to 5.66 pounds (lbs.) or 126.67 cubic feet. One GGE of liquefied natural gas (LNG) is equal to 6.06 lbs. (Reference Kentucky Administrative Regulations 103.43:330 and Kentucky Revised Statutes 131.130(1), 138.210, 138.220, and 138.226(1))


More Laws and Incentives

To find laws and incentives for other alternative fuels and advanced vehicles, search all laws and incentives.