Fiscal Note
Fiscal Services Division
HF 859 – Biofuel (LSB1311HV)
Staff Contact: Rodrigo Acevedo (515.281.6764) rodrigo.acevedo@legis.iowa.gov
Jeff Robinson (Tax Credits) (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – New
Description
House File 859 modifies the definitions and requirements for use of ethanol and biodiesel
blends, provides for financial incentives by appropriating funds to the Renewable Fuel
Infrastructure Program (RFIP), modifies biofuel tax credits, and requires State vehicles to use
certain types of biofuel blends.
Division I Division II Division III Division IV
Motor Fuel Standards Tax Credit Requirements for
Financial Incentives Renewable Fuel Use
and Requirements for Ethanol and Calculations
in State Motor
Waivers Biodiesel Retail Motor Tax Credit Expiration Vehicles
Disciplinary Action Fuel Sites Dates
Effective Date Ethanol Cost-Share
Provisions Program
Biodiesel Cost-Share
Program
Renewable Fuel
Infrastructure Fund
Requirements and
Classifications
Effective Date
Provisions
Division I restricts the advertisement and sale of blended and unblended gasoline and diesel
fuel, directs how motor fuels may be advertised and sold by retailers, and provides penalties.
Gasoline and Ethanol Blends
Blended and unblended gasoline is designated by the percentage of ethanol the product
contains. Unblended gasoline is designated E-0, while a gallon of gasoline that is blended as
15.0% ethanol is designated E-15. A gasoline blend that is designated E-85 may have an
ethanol content that is as high as E-85, but E-85 is allowed to be sold with a lower ethanol
content. The Bill places restrictions on retail sites that sell gasoline as a motor fuel.
• Beginning January 1, 2022, the Bill prohibits the advertisement and sale of E-0 that does not
have an octane rating of at least 91 (premium).
• Beginning January 1, 2028, the Bill prohibits the advertisement and sale of ethanol blends
below E-15. Exceptions to the prohibition are allowed for specified types of use.
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• Beginning January 1, 2028, the Bill requires retail locations with more than two dispensing
units to advertise and sell E-15 from at least one dispensing unit.
Diesel and Biodiesel Blends
Blended and unblended diesel is designated by the percentage of biodiesel the product
contains. Unblended diesel is designated B-0, while a gallon of diesel that is blended as 11.0%
biodiesel is designated B-11.
Beginning January 1, 2022, the Bill prohibits the advertisement for sale of biodiesel and
biodiesel blends below B-11 during an annual period beginning April 1 and ending October 31.
Exceptions to the prohibition are allowed for specified types of use.
The Bill also allows for the Governor or Secretary of Agriculture to issue waivers or suspensions
of the new motor fuel restrictions in specific instances.
The Bill also allows for the Department of Natural Resources to issue an extension of
compliance for small retail dealers, defined as having less than 10 permanent fuel sites
beginning January 1, 2028.
Division II amends eligible expenditure requirements for grants from the RFIP for retail motor
fuel sites for both ethanol blended fuels and biodiesel and amends the application and approval
process. Under current law, RFIP grants can be used to fund infrastructure improvements for
the storage and dispensing of E-15 blended fuel and for biodiesel of any classification. The Bill
makes the following changes:
Ethanol Infrastructure: For grants involving ethanol infrastructure, the funds must be used for
infrastructure used to:
• Store ethanol classified as E-100 or store ethanol blended gasoline classified as E-85 or
higher.
• Store and dispense ethanol blended gasoline classified as E-85 or higher.
• Store ethanol classified as E-100 or store ethanol blended gasoline classified as E-85 or
higher to blend and dispense ethanol or ethanol blended gasoline classified as E-85 or
higher.
Under current law, cost-share agreements for grants involving biodiesel infrastructure are the
same as for ethanol infrastructure grants.
The Bill limits the cost-share agreements for grants involving ethanol to a five-year period and
70.0% of the actual cost or $50,000, whichever is less.
Biodiesel Infrastructure: For grants involving biodiesel infrastructure, the funds must be used for
infrastructure improvements for the purposes below.
• To store biodiesel classified as B-100 or store biodiesel blended fuel classified as B-20 or
higher.
• To blend and dispense biodiesel blended fuel classified as B-20 or higher.
The Bill limits the biodiesel cost-share agreements to a three-year period and 50.0% of the
actual cost or $30,000, whichever is less.
The Bill maintains the supplemental financial incentives under current law of up to $24,000 per
site for both ethanol and biodiesel infrastructure projects.
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Allocations: Division II identifies the following allocations for the RFIP for retail motor fuel sites:
• For FY 2022 to FY 2024, specifies that not more than $1,250,000 may be allocated from the
Renewable Fuel Infrastructure Fund to support biodiesel infrastructure improvements. This
allocation is repealed on July 1, 2024.
• Specifies that no more than $100,000 may be allocated from the Fund to the Department of
Agriculture and Land Stewardship for administrative costs of the RFIP beginning July 1,
2021.
• Specifies that up to 1.5% of the RFIP funds may be used for marketing beginning July 1,
2021.
Storage and Dispensing Infrastructure
The Department of Natural Resources and the state fire marshal are entrusted with managing
the requirements of storage and dispensing infrastructure.
Division II takes effect July 1, 2021, except for the requirements of storage and dispensing
infrastructure, which take effect October 1, 2021.
Division III makes changes to the existing E-15 Plus Gasoline Promotion Tax Credit, the E-85
Gasoline Promotion Tax Credit, and the Biodiesel Blended Fuel Tax Credit. The changes,
effective January 1, 2022, include:
• E-85 — Extends the availability of the credit by three years to December 31, 2027.
• E-15 — Extends the availability of the credit by three years to December 31, 2027, and
changes the tax credit rate from 10.0 cents or 3.0 cents depending on the time of year of the
sale to a tax credit of 4.0 cents regardless of the date of the sale.
• Biodiesel — Extends the availability of the credit by three years to December 31, 2027, and
changes the credit from one based on the amount of biodiesel contained in the gallon sold
to one that is based on the amount of biodiesel and the time of year of the sale.
Division IV establishes guidelines for fuel use and motor vehicles purchased by the State of
Iowa. Furthermore, it requires the Department of Administrative Services (DAS) to compile a
report including information from the Commission of the Blind, Board of Regents institutions,
Department of Transportation, and Department of Corrections, with the report due on or before
March 1 of each year.
The Bill requires any competitive-bidding procedure to verify that a vehicle manufacturer certify
the use of B-20 or higher blends.
The required annual report to the Governor and the General Assembly shall include the
following information:
For Ethanol:
• Number of State vehicles by model year.
• Vehicles able to use E-15 and E-85 without affecting car warranty.
• Number of E-15 and E-85 gallons purchased.
For Biodiesel:
• Number of State vehicles by model year.
• Vehicles able to use B-20 without affecting car warranty.
• Number of B-20 gallons purchased.
Division IV takes effect on July 1, 2021.
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Background
As of FY 2021, the RFIP is funded through the Rebuild Iowa Infrastructure Fund (RIIF) at
$3.0 million. This is not a standing appropriation, meaning the General Assembly must pass the
funding each year. No more than $50,000 may be allocated from the Fund to the Department of
Agriculture and Land Stewardship for administrative costs of the RFIP.
Assumptions
Blended and Unblended Gasoline Sales and Tax Credits
• The projected annual retail sales of blended and unblended gasoline are based on the
Retailers Fuel Gallons Annual Reports filed by Iowa fuel retailers with the State. The
Department of Revenue produces an annual summary that provides the number of gallons
sold in Iowa, both in total and by specific blend (E-0, E-10, E-15, E-20, and E-85). The
CY 2019 report concludes that 1,564.9 billion gallons of blended and unblended gasoline
motor fuel were sold by retailers who filed 2019 reports with the Department.
• The Department’s Fuel Tax Monthly Report for the 12 months that represent CY 2019
indicates that fuel tax was paid on 1,657.6 million gallons of gasoline fuel for the year.
Therefore, the number of gallons represented in the annual retailers’ report is 94.4% of the
gallons sold at retail over the period. To adjust for the missing gallons, the gallons of each
blend category are divided by 94.4% so that total retail gallons equals taxed gallons for the
year. The CY 2019 gallons reported by retailers and the adjusted gallons are presented in
Table 1.
Table 1
2019 Iowa Gasoline Retail Sales — Reported and Adjusted
Fuel Gallons in Millions
E-0 E-10 E-15 E-20 E-85 Total
CY 2019 211.5 1,284.3 49.0 1.1 19.0 1,564.9
Adjusted CY 2019 * 224.0 1,360.4 51.9 1.2 20.1 1,657.6
* Adjusted so total retail gallons match annual taxable gallons.
• The current-law projection of gallons sold by ethanol blend level is assumed to be equal to
the adjusted CY 2019 gallons displayed in Table 1, with one exception. Over the past four
years, E-15 sales have accounted for a small percentage (2.4%) of Iowa retail gasoline
sales, but the gallons of E-15 sold have been increasing. To adjust for this trend, the
current-law gallons projection for E-10 fuel is decreased 10.1 million gallons each future
calendar year while E-15 gallons are increased 10.3 million gallons each future calendar
year.
• The Bill has several provisions that are designed to alter the mix of fuel blends sold in Iowa
when compared to current law by increasing the amount of ethanol consumed as motor fuel.
The Bill:
• Dedicates additional State funds to a cost-share program that assists retailers with the
replacement of gasoline fuel handling equipment (tanks, lines, and pumps) with new
equipment that is able to dispense E-15, E-85, and higher products.
• Requires that any time a retail motor fuel dealer installs, replaces, or converts motor fuel
storage and dispensing infrastructure, the installed, replacement, or converted
infrastructure must be capable of storing and dispensing fuel classified as E-85 or
higher.
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 • Extends existing retail tax incentives for the sale of E-15 and E-85, set to expire
December 31, 2024, by three years to December 31, 2027.
• With limited exceptions, prohibits the sale of E-0 to fuel with an octane rating of at least
91 (premium) beginning January 1, 2022.
• With limited exceptions, restricts the sale of ethanol blends below E-15 beginning
January 1, 2028.
• The provisions discussed in the previous item are assumed to alter the sale of the various
blends of gasoline motor fuel under the Bill when compared to current law:
• E-0 — Effective January 1, 2022, the sale of E-0 will be restricted to high-octane fuel
only. Since the price of this fuel is considerably higher than the price of the lower octane
fuel that is required by most vehicles, the sales restriction is projected to substantially
reduce the number of E-0 gallons sold in Iowa.
• E-10 — Until the sale of E-10 is restricted (starting January 1, 2028), E-10 sales will
increase as that fuel replaces E-0 sales. Beginning in CY 2026, E-10 sales will start to
decline as retailers prepare for the restrictions on E-10 sales that begin January 1, 2028.
• E-15 and E-20 — Beginning in CY 2022, the additional infrastructure spending and the
E-0 restriction to only higher-priced premium fuel will expand E-15 sales. E-15 sales will
begin to accelerate in CY 2026 as retailers prepare for E-10 restrictions that begin
January 1, 2028. Starting January 1, 2028, E-15 sales will increase sharply as the sale
of gasoline below that blend level will be severely restricted.
• E-85 — The additional funding for storage and dispensing infrastructure grants and the
requirement that new and modified installations must be able to dispense E-85 will
modestly increase E-85 sales.
• Gasoline (E-0) and pure ethanol (E-100) have different energy content by volume. Gasoline
contains 115,400 BTU (British Thermal Units) per gallon while E-100 contains 75,670 BTU
per gallon. A vehicle that travels a given distance on E-0 will require a greater volume of
fuel to travel the same distance on an ethanol blend. This estimate assumes the same
number of miles driven by Iowa retail fuel purchasers under the Bill as is assumed under
current law. In order to account for the miles per gallon difference between blends of
gasoline, this projection adjusts the overall fuel volume using the following energy factors:
• E-0 = 1.000
• E-10 = 1.036
• E-15 = 1.054
• E-20 = 1.074
• E-85 (calculated as E-79) = 1.374
• The current income tax credit for E-15 sales equals 10.0 cents per gallon for the summer
period and 3.0 cents for the winter period. The Department reports that 39.4% of E-15
gallons are sold during the high rate period and 60.6% are sold at the lower rate. This
equates to an average tax credit of 5.8 cents per gallon across a full year. The Bill changes
the E-15 credit to 4.0 cents per gallon for all sales, beginning January 1, 2022. Therefore,
the average change in the credit across an entire year is a reduction of 1.8 cents per gallon.
In addition to this change, the E-15 tax credit is extended for an additional three years
beyond its current sunset date of December 31, 2024.
• The current income tax credit for E-85 sales equals 16.0 cents per gallon, and the credit
remains at that level under the Bill. The Bill extends the credit for an additional three years
beyond its current sunset date of December 31, 2024.
• E-15 and E-85 tax credits are refundable, and therefore 100.0% of earned credits are
assumed to be redeemed. It is assumed that tax credits earned for a calendar year are
redeemed 50.0% in the fiscal year that begins after the end of the calendar year and 50.0%
in the succeeding fiscal year.
• Appendix A — Gasoline provides blended and unblended gasoline sales assumptions and
the resulting projection for tax credits earned and redeemed.
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Blended and Unblended Diesel Sales and Tax Credits
• Projected annual retail sales of blended and unblended diesel fuel are based on the
Retailers Fuel Gallons Annual Reports filed by Iowa motor fuel retailers with the State. The
Department of Revenue produces an annual summary that provides the number of gallons
sold in Iowa, both in total and by specific blend (B-0, B-01 to B-04, B-5 to B-10, B-11 to
B-19, B-20 to B-49, and B-50 to B-100). The CY 2019 report concludes that 636.9 million
gallons (blended and unblended) of taxed diesel fuel and 200.7 million gallons of tax-exempt
diesel fuel were sold by retailers who filed 2019 reports with the Department.
• The Department of Revenue’s Fuel Tax Monthly Report for the 12 months that represent
CY 2019 indicates that fuel tax was paid on 756.2 million gallons of taxed diesel fuel for the
year. Therefore, the number of taxed gallons represented in the annual retailers’ report is
88.2% of the taxed gallons sold at retail over the period. To adjust for the missing gallons,
each blend category of diesel fuel is divided by 84.2% so that total retail gallons equals
taxed gallons for the year. Since tax-exempt diesel gallons sold are not included in the Fuel
Tax Monthly Report, the number of tax-exempt gallons cannot be accurately adjusted for
gallons missing from the retailer report. The CY 2019 gallons reported by retailers and the
adjusted gallons are presented in Table 2.
Table 2
2019 Iowa Diesel Retail Sales — Reported and Adjusted
Fuel Gallons in Millions
B-0 B-1 to B-4 B-5 to B-10 B-11 to B-19 B-20 to B-49 B-50 to B-100 Total
CY 2019, Taxed 191.7 7.0 69.5 291.2 76.9 0.5 636.8
CY 2019, Tax Exempt 150.8 0.7 40.7 7.0 1.5 0.0 200.7
CY 2019, Adjusted * 227.7 8.3