Kentucky Laws and Incentives

Listed below are the summaries of all current Kentucky laws, incentives, regulations, funding opportunities, and other initiatives related to alternative fuels and vehicles, advanced technologies, or air quality. You can go directly to summaries of:

State Incentives

On-Farm Biofuel Production Grants

The Governor's Office of Agricultural Policy provides grants through the County Agricultural Investment Program (CAIP) 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 Governor's Office of Agricultural Policy CAIP website.

Biodiesel Production and Blending Tax Credit

Qualified biodiesel producers or blenders are eligible for an income tax credit of $1.00 per gallon of pure biodiesel (B100) or renewable diesel produced or used in the blending process. Re-blending of blended biodiesel does not qualify for the tax credit. The total amount of credits claimed by all biodiesel producers may not exceed the annual biodiesel tax credit cap of $10 million. Unused credits may not be carried forward. For the purpose of this credit, biodiesel must meet ASTM specification D6751, and renewable diesel is defined as a renewable, biodegradable, non-ester combustible liquid derived from biomass resources that meets ASTM specification D975 or D396. (Reference Kentucky Revised Statutes 141.422 to 141.424)

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
don.goodin@ky.gov
http://www.thinkkentucky.com/

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, 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)

Propane Excise Tax Exemption

Propane is exempt from the state excise tax when it is used to operate motor vehicles on public highways provided that vehicles are equipped with carburetion systems approved by the Kentucky Energy and Environment Cabinet or fuel systems that meet Federal Motor Vehicle Safety Standards. (Reference Kentucky Revised Statutes 234.321)

Utility/Private Incentives

Ethanol Infrastructure Grants

The Kentucky Corn Growers' Association (KyCGA) offers grants of $5,000 per pump to retailers installing new E85 dispensers in Kentucky. For more information, see the KyCGA E85 Fuel Dispenser Incentive Program website.

Low Emission Vehicle Electricity Rate Incentive - Louisville Gas & Electric

Louisville Gas & Electric (LG&E) offers a pilot Low Emission Vehicle (LEV) time-of-use electricity rate for residential customers who own an electric vehicle, plug-in hybrid electric vehicle, or natural gas vehicle fueled through a home fueling appliance. The rate is limited to 100 residential customers. For more information, see the LG&E LEV Pilot website.

Laws and Regulations

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 Reference Kentucky Revised Statutes 186.750)

Natural Gas Vehicles Safety Regulations

Vehicles converted to operate on compressed natural gas (CNG), liquefied natural gas (LNG), or a bi-fuel system must be inspected for compliance with applicable Federal Motor Vehicle Safety Standards (FMVSS). The inspection must occur proximate to the conversion; every three years or 36,000 miles after the conversion, whichever comes first; and following any collision in which the vehicle was traveling at five miles per hour or greater. Vehicles originally designed and manufactured to use CNG or LNG must also be inspected for safety following any collision in which a vehicle was traveling at five miles per hour or greater. Any person who performs natural gas vehicle conversions must certify to the vehicle owner that the conversion does not affect any existing vehicle emissions or diagnostic systems, except as necessary for the conversion. The Kentucky Transportation Cabinet may establish regulations to qualify persons to perform safety inspections; modify FMVSSs for state use; and identify converted vehicles and ensure compliance with applicable regulations. (Reference Kentucky Revised Statutes 186.750)

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)

Biomass and Biofuels Industry Development

The Executive Task Force on Biomass and Biofuels Development must facilitate the development of a sustainable biomass and biofuels industry in Kentucky. The Executive Task Force Final Report recommends key strategic actions to develop the industry, including identifying a single agency to coordinate development efforts, developing policies to mitigate demand and supply risks, ensuring the industry's sustainability, and developing capitalization mechanisms. For more information, see the Executive Task Force Final Report. (Reference Executive Order 2009-817, 2009)

Request to Report Research on Second Generation Biofuels

The Kentucky House of Representatives (House) requested that universities in the state report their most recent research on second generation biofuels, including cellulosic ethanol, to the House by January 7, 2014. Second generation biofuels are defined as biofuels produced from biomass sources including wood, grasses, or the inedible parts of plants. The universities are also encouraged to intensify research efforts on second generation biofuels to identify alternative fuel resources and reduce the crude oil and petroleum products consumed in the United States each year. (Reference House Resolutions 168, 2013)

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)

State Energy Plan Alternative Fuel Requirements

The Department for Energy Development and Independence (Department) oversees the development and implementation of Kentucky's comprehensive energy strategy. Specifically, the Department must develop and implement a strategy for the production of alternative transportation fuels and synthetic natural gas from fossil energy resources and biomass resources, including biodiesel and ethanol. Kentucky's Governor's developed a commonwealth energy plan, Intelligent Energy Choices for Kentucky's Future, in 2008. This plan proposes seven strategies to support a renewable and efficiency portfolio standard and to develop an alternative transportation fuel standard and set fuel production goals. For more information, see the Department's Energy Plan website. (Reference Kentucky Revised Statutes 152.720)

Compressed Natural Gas (CNG) Deregulation

The Kentucky Public Service Commission may not regulate the rates, terms, or conditions of service for the sale of CNG to a fueling station, retailer, or to any end-user for use as a motor vehicle fuel. (Reference Kentucky Revised Statutes 278.508)

Low-Speed Electric Vehicle Access to Roadways

A low-speed vehicle is defined as a four-wheeled vehicle propelled by an electric motor, combustion-driven motor, or a combination of the two and designed to operate at speeds of up to 25 miles per hour (mph). Low-speed vehicles may operate on roads with posted speed limits of up to 35 mph provided that the vehicle has not been modified to increase its speed above the original standard manufactured limit. Low-speed vehicles may only cross roads with posted speed limits above 35 mph if the intersection is equipped with a traffic signal. Low-speed vehicles must display a vehicle identification number; be titled, registered, and insured as motor vehicles; and meet safety standards specified in Title 49 of the Code of Federal Regulations, section 571.500. (Reference Executive Order 2008-824, 2008, and Kentucky Revised Statutes 186.010 and 189.282)