Biodiesel Laws and Incentives in Kentucky

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

Laws and Regulations

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, propane, ethanol, biodiesel, hydrogen, and any other combustible gases and liquids, excluding gasoline, used to propel motor vehicles. Additionally, a highway motor fuel tax of $0.02 per gallon applies to all special fuels. For taxation purposes, one gasoline gallon equivalent of compressed natural gas (CNG) is equal to 5.66 pounds (lbs.) or 126.67 cubic feet. One diesel gallon equivalent of liquefied natural gas (LNG) is equal to 6.06 lbs.

(Reference Kentucky Revised Statutes 131.130, 138.220, and 138.226)

Alternative Fuel and Conversion Definitions

Clean transportation fuels include propane, compressed natural gas (CNG), liquefied natural gas (LNG), electricity, and other transportation fuels determined to be comparable with respect to emissions. 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. 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.

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)

State Incentives

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 Standard D6751, and renewable diesel is defined as a renewable, biodegradable, non-ester combustible liquid derived from biomass resources that meets ASTM Standard D975.

(Reference Kentucky Revised Statutes 141.422 to 141.424)

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 Program Portal website.

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