Kentucky E85 Laws and Incentives

State Incentives

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 standard D 4806. The total credit amount for all corn and cellulosic ethanol producers is $5 million for taxable years beginning January 1, 2008. Unused credits may not be carried forward and applied to a future tax return. However, 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. (Reference Kentucky Revised Statutes 141.4244 to 141.4248)

Alternative Fuel Production Tax Incentives

The Kentucky Economic Development and 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. 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 is generated by the project; 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 coal severance tax paid for coal used as a feedstock. The incentives expire at the time of receipt of the authorized incentives 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 and $100 million for a facility that uses coal as the primary feedstock. (Reference Kentucky Revised Statutes 154.27-010 to 154.27-090)

Alternative Fuel Research, Development, and Promotion

Established legislatively as the Kentucky Alternative Fuel and Renewable Energy Fund Program, Kentucky New Energy Ventures (KNEV) is a state program that provides project funding to companies for research, development, and commercialization of alternative fuels and renewable energy. Specifically, KNEV is designed to: 1) grow Kentucky-based alternative fuel and renewable energy companies to promote statewide, 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 statewide awareness of the economic development opportunities offered by Kentucky’s alternative fuel and renewable energy industry.

Alternative Fuel and Vehicle Promotion

The Kentucky Division of Renewable Energy and Energy Efficiency (Division) encourages the responsible use of transportation fuels by supporting academic research, public education, and collaborative partnerships involving alternative fuels and alternative fuel vehicles (AFVs). The Division has implemented a number of projects to promote the use of AFVs and establish alternative fuel infrastructure in Kentucky.

State Laws and Regulations

Vehicle Acquisition Priorities and Alternative Fuel Use Requirement

The Finance and Administration Cabinet (Cabinet) is required to develop a strategy to replace at least 50% of state motor fleet light-duty vehicles with energy-efficient vehicles including hybrid electric vehicles, fuel cell vehicles, and alternative fuel vehicles. The Cabinet must also develop a strategy to increase the use of ethanol, biodiesel, and other alternative fuels in state motor vehicle fleets. The Cabinet must report targeted vehicle and fuel usage amounts annually. (Reference Kentucky Revised Statutes 44.045)

State Energy Plan Alternative Fuel Requirements

The Governor's Office of Energy Policy oversees the development and implementation of Kentucky’s comprehensive energy strategy. Specifically, the Governor’s Office of Energy Policy is directed to 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. The strategy must include the following: establishment or expansion of state government incentives for developing, constructing, or operating alternative transportation fuels and synthetic natural gas production facilities; support of alternative energy through awareness and technology development; and administration of grant programs to support energy-related research. (Reference Kentucky Revised Statutes 152.720)

Biofuels Use

The Kentucky Transportation Cabinet and the Finance and Administration Cabinet are directed to establish procurement contracts that maximize the market availability of ethanol and biodiesel fuel blends. Additionally, employees using conventional vehicles in the Transportation Cabinet's fleet are directed to use either a 10% blend of ethanol (E10) or a 2% blend of biodiesel (B2) as their primary fueling option, and the Transportation Cabinet is directed to maximize the use of E85 in its flexible fuel vehicle fleet. The Transportation Cabinet is directed to promote clean fuels through employee education, vendor identification, and by holding employees accountable for electing to use clean fuels in state vehicles. (Reference Executive Order 2005-124 (PDF 108 KB)) Download Adobe Reader