Alternative Fuels Tax Credit: Definition, Eligibility, and Implications

The Alternative Fuels Tax Credit, deeply entrenched within the framework of the Internal Revenue Code (IRC), is emblematic of the government’s strategic initiative to mitigate the nation’s reliance on imported oil. It derives its roots from pivotal legislative endeavors such as the American Jobs Creation Act of 2004 (Jobs Bill), the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (Highway Bill), and the Energy Policy Act of 2005 (EPAct 2005).

The legislative landscape surrounding alternative fuels has been significantly influenced by congressional acts emphasizing energy security and environmental sustainability. Notable among these is the Volumetric Excise Tax Credit (VEETC) provision within the Jobs Bill, which laid the groundwork for incentivizing the production, sale, and utilization of alternative fuels such as biodiesel, renewable diesel, and ethanol-gasoline blends.

The eligibility criteria for alternative fuels under the IRC encompass a diverse array of substances deemed conducive to reducing carbon emissions and fostering energy independence. These include liquefied petroleum gas (LPG), compressed natural gas (CNG), liquefied natural gas (LNG), liquefied hydrogen, liquid fuel derived from coal via the Fischer-Tropsch process, liquid hydrocarbons from biomass, and P-Series fuels. However, ethanol, biodiesel, and renewable diesel, though biomass-derived, are categorized separately under gasoline and diesel fuel incentives.

The alternative fuels tax credit, a vital fiscal stimulus for the adoption of cleaner energy solutions, faces an impending expiration on December 31, 2020, unless Congress intervenes with an extension. The credit, amounting to $0.50 per gallon, applies to a spectrum of alternative fuels including natural gas, liquefied hydrogen, propane, P-Series fuel, coal-derived liquid fuel via Fischer-Tropsch conversion, and compressed or liquefied gas from biomass. For propane and natural gas, the credit is determined based on the gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE).

No, the alternative fuels tax credit primarily targets businesses and entities involved in the production, sale, or utilization of alternative fuels for commercial purposes.

To claim the alternative fuels tax credit, businesses must maintain meticulous records documenting fuel composition, usage, and excise tax payment procedures. Additionally, providers and blenders are mandated to register with the Internal Revenue Service (IRS) to facilitate credit claims or refunds.

While the alternative fuels tax credit encompasses a broad spectrum of alternative fuels specified in the IRC, certain biomass-derived fuels such as ethanol, biodiesel, and renewable diesel are categorized under separate gasoline and diesel fuel incentives and are not considered for this credit.