File No. 183

Senate, March 29, 2007

The Committee on Environment reported through SEN. FINCH of the 22nd Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT CONCERNING ALTERNATIVE FUELS AND FLEXIBLE FUELED VEHICLES.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective July 1, 2007) For the purposes of sections 1 to 7, inclusive, of this act:

(1) "Biodiesel" means a fuel comprised of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats, designated B100, and meeting the requirements of designation D6751 of the American Society for Testing and Materials.

(2) "Qualified biodiesel producer" means a facility that produces biodiesel, is registered with the state of Connecticut, domiciled in Connecticut and actively engaged in the production of biodiesel in Connecticut for commercial purposes.

(3) "Qualified biodiesel distributor" means a facility that stores and distributes biodiesel, that is registered with the state of Connecticut, domiciled in Connecticut and actively engaged in the storage and distribution of biodiesel in Connecticut for commercial purposes.

Sec. 2. (NEW) (Effective July 1, 2007) (a) There is established an account to be known as the "Connecticut qualified biodiesel producer incentive account", which shall be a separate, nonlapsing account within the General Fund. The account shall contain any moneys required by law to be deposited in the account.

(b) The moneys in said account shall be expended by the Connecticut Center for Advanced Technology for the purpose of administration of the program and providing grants to qualified biodiesel producers and qualified biodiesel distributors pursuant to sections 3 to 7, inclusive, of this act.

Sec. 3. (NEW) (Effective July 1, 2007) (a) A qualified biodiesel producer shall be eligible for not more than sixty monthly grants from the account. The Connecticut Center for Advanced Technology shall determine monthly grant amounts by calculating the estimated gallons of biodiesel produced during the preceding month, as certified by the Connecticut Center for Advanced Technology, and applying such figure to the per gallon incentive credit established in subsection (b) of this section.

(b) Each qualified biodiesel producer shall be eligible for a total grant in any fiscal year equal to the following amounts: (1) For the first five million gallons of biodiesel produced, thirty cents per gallon; (2) for the second five million gallons of biodiesel produced, twenty cents per gallon; and (3) for the third five million gallons of biodiesel produced, ten cents per gallon.

(c) Biodiesel produced by a qualified biodiesel producer in excess of fifteen million gallons shall not be eligible for a grant pursuant to this section.

Sec. 4. (NEW) (Effective July 1, 2007) (a) To receive a grant pursuant to section 3 of this act, a qualified biodiesel producer shall file an application for such funds not later than fifteen days after the last day of the month for which the grant is sought. The application shall include, but not be limited to, (1) the location of the qualified biodiesel producer; (2) the number of Connecticut citizens employed by the biodiesel producer in the preceding month; (3) the number of gallons of biodiesel produced during the month for which the grant is sought; (4) a copy of the qualified biodiesel producer's Connecticut registration; and (5) any other information deemed necessary by the Connecticut Center for Advanced Technology to ensure that such grants shall be made only to qualified biodiesel producers.

(b) The Connecticut Center for Advanced Technology shall pay all grants for a particular month by the fifteenth day after receipt and approval of the application filed pursuant to subsection (a) of this section.

Sec. 5. (NEW) (Effective July 1, 2007) A qualified biodiesel producer shall be eligible for a one-time grant pursuant to section 2 of this act to assist with purchasing equipment or constructing, modifying or retrofitting production facilities. Such grant shall not exceed three million dollars, regardless of the number of facilities owned by said qualified biodiesel producer.

Sec. 6. (NEW) (Effective July 1, 2007) A qualified biodiesel distributor shall be eligible for a grant pursuant to section 2 of this act for purposes other than to assist with purchasing equipment or constructing, modifying or retrofitting facilities, including, but not limited to, the actual costs of creating storage and distribution capacity for biodiesel during the month. Such grants shall not exceed fifty thousand dollars for any one distributor at any one site. The Connecticut Center for Advanced Technology shall create an application process and adopt rules for the administration of this grant provision.

Sec. 7. (NEW) (Effective July 1, 2007) The management of the Connecticut Center for Advanced Technology, in consultation with the Department of Economic and Community Development, shall adopt rules and regulations necessary for the administration of the provisions of this section on the progress of the grant programs administered pursuant to sections 2 to 7, inclusive, of this act. The Connecticut Center for Advanced Technology, in consultation with the Department of Economic and Community Development, shall submit an annual report, in accordance with the provisions of section 11-4a of the general statutes, to the joint standing committees of the General Assembly having cognizance of matters relating to energy and technology and the environment.

Sec. 8. Section 22-26l of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2007):

(a) The Department of Agriculture shall establish and administer a Connecticut Farm Link program to establish a database of farmers and agricultural land owners who intend to sell their farm operations or agricultural land. The database shall be maintained by the Department of Agriculture and shall be made available to the public on the department's web site. Persons interested in starting an agricultural business or persons interested in expanding a current agricultural business may notify the department and have their names, contact information and intentions regarding such businesses placed on the web site. The department shall make reasonable efforts to facilitate contact between parties with similar interests, including, but not limited to, growing and processing crops as feedstock for biodiesel heating and transportation fuels.

(b) The Department of Agriculture shall post educational materials regarding the Connecticut Farm Link program on the department's web site, including, but not limited to, information regarding farm transfer and farm succession planning, family farm estate planning, farm transfer strategies, farm leasing, formation of farm partnerships, growing and processing crops as feedstock for biodiesel heating and transportation fuels and information regarding starting a farm business.

Sec. 9. (NEW) (Effective July 1, 2007) (a) There is established a biofuel crops grant program, which shall be administered by the Department of Agriculture. Matching grants shall be made to farmers, agricultural not-for-profit organizations and agricultural cooperatives for the cultivation and production of crops used to generate biofuels.

(b) The Commissioner of Agriculture shall adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, for the administration of the program established by this section.

Sec. 10. (NEW) (Effective October 1, 2007) (a) The Institute for Sustainable Energy shall (1) compile and distribute educational materials regarding biodiesel to municipalities, local boards of education and private commercial entities to educate future consumers, and (2) establish and administer a Connecticut biodiesel link program to establish a database of schools, restaurants, institutional cafeterias and other institutions and businesses in the state that produce waste vegetable oil or other comparable food product suitable for conversion to biodiesel. The database shall be maintained by the Institute for Sustainable Energy and shall be made available to the public on said institute's Internet web site. Businesses interested in selling their waste vegetable oil or other comparable food product to producers of biodiesel heating and motor vehicle fuel may notify the Institute for Sustainable Energy and have their names, contact information and intentions regarding such businesses placed on said web site. The Institute for Sustainable Energy shall make reasonable efforts to facilitate contact between parties with similar interests.

(b) The Institute for Sustainable Energy shall post educational materials regarding the Connecticut biofuel link program on said institute's Internet web site, and such information shall be posted on the Internet web sites of the Department of Economic and Community Development, the Department of Agriculture, The Connecticut Agricultural Experiment Station, The University of Connecticut Biofuel Consortium and The University of Connecticut Cooperative Extension System, including, but not limited to, information regarding the starting of a waste vegetable oil business and strategies for conducting such business.

Sec. 11. (NEW) (Effective July 1, 2007) (a) There is established a grant program for service stations, which shall be administered by the Department of Economic and Community Development to reduce or eliminate the upfront costs of installing new alternative fuel pumps or converting gas or diesel pumps to dispense alternative fuels.

(b) The Commissioner of Economic and Community Development shall adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, for the administration of the program established by this section.

Sec. 12. Subdivision (16) of section 12-412 of the general statutes is repealed and the following is substituted in lieu thereof (Effective from passage and applicable to sales occurring on or after July 1, 2007):

(16) (A) Sales of fuel used for heating purposes (i) in any residential dwelling or (ii) in any building, location or premise utilized directly in agricultural production, fabrication of a finished product to be sold or an industrial manufacturing plant, provided the exemption under this subdivision (ii) shall only be allowed with respect to a building, location or premise in which not less than seventy-five per cent of the fuel used in such building, location or premise is used for the purpose of such production, fabrication or manufacturing.

(B) This exemption also applies to (i) the renewable fuel content of fuel used for heating purposes, and (ii) the purchase of equipment and machinery used to store, distribute, manufacture and blend renewable fuels for heating purposes.

(C) "Renewable fuel content" means fuels that meet the specifications of the American Society of Testing and Materials designation D396 or D975 of not less than five per cent biodiesel or D 6751.

Sec. 13. Subsection (a) of section 12-701 of the general statutes is amended by adding subdivisions (37) to (39), inclusive, as follows (Effective from passage and applicable to income years commencing on or after January 1, 2008):

(NEW) (37) "Biodiesel blended heating fuel" means a fuel comprised of a minimum of two per cent biodiesel blended with conventional home heating oil, which meets the specifications of the American Society of Testing and Materials designation D396 or D975.

(NEW) (38) "Biodiesel" means a fuel comprised exclusively of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats, designated B100 (pure biodiesel), which meets the specifications of the American Society of Testing and Materials designation D6751.

(NEW) (39) "Residential purposes" means any structure, or part of a structure, in Connecticut used as a place of abode maintained by or for a person, whether or not owned by such person, on other than a temporary or transient basis. "Residential purposes" includes multifamily dwelling units, such as multifamily homes, apartment buildings, condominiums and cooperative apartments. "Residential purposes" does not include the part of a structure used as a hotel, motel or similar space, except for those units used by the same occupant for not less than ninety consecutive days.

Sec. 14. (NEW) (Effective from passage and applicable to income years commencing on or after January 1, 2008) (a) Any resident of this state, as defined in subdivision (1) of subsection (a) of section 12-701 of the general statutes, subject to the tax under chapter 229 of the general statutes for any taxable year shall be entitled to a credit in determining the amount of tax liability under chapter 229 of the general statutes equal to one cent per gallon for each per cent of biodiesel included in the biodiesel blended heating fuel purchased by the taxpayer on or after January 1, 2008, but before December 31, 2012. Said credit shall not exceed twenty cents per gallon. The biodiesel blended heating fuel shall be used for space heating or hot water production for residential purposes within the state. If a taxpayer makes more than one qualifying purchase of biodiesel blended heating fuel and the percentage of biodiesel included in the biodiesel blended heating fuel varies, said taxpayer shall calculate each purchase of biodiesel blended heating fuel separately. If two or more taxpayers share in the purchase of biodiesel blended heating fuel, the amount of the credit allowable to each taxpayer is to be prorated according to the percentage of the total biodiesel blended heating fuel purchased by each taxpayer.

(b) The credit allowed under this section shall not exceed five hundred dollars for each taxable year. In the case of two or more taxpayers sharing in the purchase of biodiesel blended heating fuel, the credit allowed, in the aggregate, shall not exceed five hundred dollars for each taxable year.

Sec. 15. Subdivision (2) of subsection (b) of section 12-587 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2007):

(2) Gross earnings derived from the first sale of the following petroleum products within this state shall be exempt from tax: (A) Any petroleum products sold for exportation from this state for sale or use outside this state; (B) the product designated by the American Society for Testing and Materials as "Specification for Heating Oil D396-69", commonly known as number 2 heating oil, to be used exclusively for heating purposes or to be used in a commercial fishing vessel, which vessel qualifies for an exemption pursuant to section 12-412, as amended by this act; (C) kerosene, commonly known as number 1 oil, to be used exclusively for heating purposes, provided delivery is of both number 1 and number 2 oil, and via a truck with a metered delivery ticket to a residential dwelling or to a centrally metered system serving a group of residential dwellings; (D) the product identified as propane gas, to be used exclusively for heating purposes; (E) bunker fuel oil, intermediate fuel, marine diesel oil and marine gas oil to be used in any vessel having a displacement exceeding four thousand dead weight tons; (F) for any first sale occurring prior to July 1, 2008, propane gas to be used as a fuel for a motor vehicle; (G) for any first sale occurring on or after July 1, 2002, grade number 6 fuel oil, as defined in regulations adopted pursuant to section 16a-22c, to be used exclusively by a company which, in accordance with census data contained in the Standard Industrial Classification Manual, United States Office of Management and Budget, 1987 edition, is included in code classifications 2000 to 3999, inclusive, or in Sector 31, 32 or 33 in the North American Industrial Classification System United States Manual, United States Office of Management and Budget, 1997 edition; (H) for any first sale occurring on or after July 1, 2002, number 2 heating oil to be used exclusively in a vessel primarily engaged in interstate commerce, which vessel qualifies for an exemption under section 12-412, as amended by this act; (I) for any first sale occurring on or after July 1, 2000, paraffin or microcrystalline waxes; (J) for any first sale occurring prior to July 1, 2008, petroleum products to be used as a fuel for a fuel cell, as defined in subdivision (113) of section 12-412; [or] (K) a commercial heating oil blend containing not less than [ten] five per cent of alternative fuels derived from agricultural produce, food waste, waste vegetable oil or municipal solid waste, including, but not limited to, biodiesel or low sulfur dyed diesel fuel; (L) for any first sale occurring on or after July 1, 2007, biofuels or biodiesel that meet the specifications of the American Society of Testing and Materials designation D396, D975 or D6751 containing a blend of not less than five per cent renewable content; or (M) for any first sale occurring on or after July 1, 2009, additives of any derivation added to heating oil that is used exclusively for heating purposes to maintain the stability or operational performance of petroleum products.

Sec. 16. (NEW) (Effective July 1, 2007) (a) The Commissioner of Administrative Services, in consultation with the Office of Policy and Management, shall establish a program designed to encourage the use in state buildings and facilities of biodiesel blended heating fuel mixed from (1) not more than ninety-five per cent ultra low sulfur number 2 heating oil and not less than five per cent of biodiesel on or after July 1, 2008, and until June 30, 2010; (2) not more than ninety per cent ultra low sulfur number 2 heating oil and not less than ten per cent of biodiesel on or after July 1, 2010, and until June 30, 2012; and (3) not more than eighty per cent ultra low sulfur number 2 heating oil and not less than twenty per cent of biodiesel on or after July 1, 2012, and until July 1, 2017.

(b) On or before January 1, 2008, the commissioner shall prepare a plan for implementation of such program which shall include, but not be limited to, (1) identification of state buildings and facilities suitable for biodiesel blended heating fuel, (2) evaluation of energy efficiency and reliability of biodiesel blended heating fuel in such buildings and facilities, and (3) the availability and feasibility of exclusively using such fuels or fuel products, including agricultural products or waste yellow grease, produced in Connecticut.

Sec. 17. (NEW) (Effective July 1, 2007) (a) Notwithstanding section 10-266m of the general statutes, on and before July 1, 2008, and until June 30, 2010, the Commissioner of Education shall, within available appropriations, award grants annually to municipalities and to local and regional boards of education to provide funds for the purchase of biodiesel fuel mixed from not less than five per cent B100 biofuel for school buses and school and municipal buildings. On and after July 1, 2010, and until June 30, 2012, said grants shall be awarded for the purchase of biodiesel fuel mixed from not less than ten per cent B100 biofuel. On and after July 1, 2012, and until June 30, 2017, said grants shall be awarded for the purchase of biodiesel fuel mixed from not less than twenty per cent B100 biofuel.

(b) The commissioner shall adopt regulations, in accordance with the provisions of chapter 54 of the general statutes, to set the standards for the grant program established in subsection (a) of this section.

Sec. 18. (NEW) (Effective July 1, 2007) (a) The Connecticut Agricultural Experiment Station, in consultation with The University of Connecticut Biodiesel Consortium, state universities, and agencies, shall develop a program to enable The Connecticut Agricultural Experiment Station, The University of Connecticut and other state universities and agencies to serve as testing centers for biodiesel and biodiesel fuels for heating and transportation and to develop quality monitoring standards that comply with the standards of the American Society of Testing and Materials.

(b) The Connecticut Agricultural Experiment Station shall, on or before February twenty-eighth, annually, submit a report regarding its progress in accordance with the provisions of section 11-4a of the general statutes to the joint standing committees of the General Assembly having cognizance of matters relating to the environment and energy and technology.

Sec. 19. (NEW) (Effective July 1, 2007) The Connecticut Center for Advanced Technology shall establish a fuel diversification grant program to provide funding to Connecticut institutions of higher education or research for purposes including, but not limited to: (1) Research to promote (A) biofuel production from agricultural products, algae and waste grease, and (B) fuel cell technology development and commercialization and economic analysis; and (2) the development of education and outreach programs.

Sec. 20. (Effective from passage) (a) There is established a task force to promote the use of biodiesel fuel and explore its commercial and industrial applications. Such study shall include, but not be limited to, an examination of the necessary steps to: (1) Facilitate development of a regional network of alternative fueling stations and encourage broad public and private use of alternative fuels; (2) develop the infrastructure across the states of the northeast that furthers the ability of fleets and individuals to travel on alternative fuels; (3) identify regional areas for the development of publicly accessible biofuel stations; (4) establish working relationships with petroleum movers and suppliers across the northeast to gain their cooperation to work with regional fuel suppliers or retailers to turn existing access tanks or pumps into public biofuel supply points or to build new systems for dispensing biofuels; (5) identify necessary incentives to encourage public and private use of alternative fuels and alternative fuel vehicles and work to develop those incentives; and (6) maintain an information clearinghouse and education center to provide information in an effective manner to encourage participation by public and private fleets, vehicle manufacturers, fuel producers and suppliers, retail marketers and by private individuals.

(b) The task force shall consist of the following members:

(1) Two representatives of a biofuels association, who shall be appointed by the speaker of the House of Representatives;

(2) A representative of the Independent Connecticut Petroleum Association, who shall be appointed by the president pro tempore of the Senate;

(3) Three representatives from Connecticut universities, who shall be appointed by the majority leader of the House of Representatives;

(4) A representative of the Connecticut Center for Advanced Technology, who shall be appointed by the majority leader of the Senate;

(5) A member of the transportation industry who shall be appointed by the minority leader of the House of Representatives;

(6) A member of the Connecticut Petroleum Council, who shall be appointed by the minority leader of the Senate;

(7) A member of the joint standing committee of the General Assembly having cognizance of matters relating to energy and technology, who shall be appointed by the majority leader of the House of Representatives.

(c) All appointments to the task force shall be made not later than thirty days after the effective date of this section. Any vacancy shall be filled by the appointing authority.

(d) The speaker of the House of Representatives and the president pro tempore of the Senate shall select the chairpersons of the task force from among the members of the task force. Such chairpersons shall schedule the first meeting of the task force, which shall be held not later than sixty days after the effective date of this section.

(e) The administrative staff of the joint standing committee of the General Assembly having cognizance of matters relating to the environment shall serve as administrative staff of the task force.

(f) Not later than January 1, 2008, the task force shall submit a report on its findings and recommendations to the joint standing committees of the General Assembly having cognizance of matters relating to the environment, transportation and energy and technology, in accordance with the provisions of section 11-4a of the general statutes. The task force shall terminate on the date that it submits such report or January 1, 2008, whichever is later.

Sec. 21. (NEW) (Effective July 1, 2007) Transit buses, railroad locomotives and ferry boats that are used solely for intrastate travel and that are powered by diesel fuel in whole or in part shall use a diesel fuel blend containing the following minimum percentages of biodiesel fuel: (1) On and before July 1, 2008, and until June 30, 2010, five per cent, (2) on and before July 1, 2010, and until June 30, 2012, ten per cent, and (3) on and after July 1, 2012, and until June 30, 2017, twenty per cent. For the purposes of this section, "biodiesel fuel" shall have the same meaning as in section 1 of this act.

Sec. 22. (NEW) (Effective from passage) The operator of a hybrid passenger vehicle, as defined in subdivision (115) of section 12-412 of the general statutes, as amended by this act, or the operator of a motor vehicle which is exclusively powered by a clean alternative fuel, as defined in subdivision (67) of section 12-412 of the general statutes, may operate the passenger vehicle or motor vehicle in a high occupancy vehicle lane when the operator is the only occupant of the passenger vehicle or motor vehicle.

Sec. 23. Subdivision (115) of section 12-412 of the general statutes is repealed and the following is substituted in lieu thereof (Effective July 1, 2007):

(115) On and after October 1, 2004, and prior to October 1, 2008, the sale of any hybrid passenger [car] vehicle that has a United States Environmental Protection Agency estimated city or highway gasoline mileage rating of at least forty miles per gallon. For purposes of this subdivision, "hybrid passenger [car] vehicle" means a passenger [car] vehicle that draws acceleration energy from two onboard sources of stored energy, which are both an internal combustion or heat engine using combustible fuel and a rechargeable energy storage system and, for a passenger [car] vehicle or light truck with a model year of 2004 or later, is certified to meet or exceed the tier II bin 5 low emission vehicle classification.

Sec. 24. (NEW) (Effective July 1, 2007) Any municipality may by ordinance provide for the abatement in whole or in part of personal property taxes on a hybrid passenger vehicle, as defined in subdivision (115) of section 12-412 of the general statutes, as amended by this act, or a motor vehicle which is exclusively powered by a clean alternative fuel, as defined in subdivision (67) of section 12-412 of the general statutes.

Sec. 25. (Effective July 1, 2007) The sum of five million dollars is appropriated to the Department of Economic and Community Development, from the General Fund, for the fiscal year ending June 30, 2008, for the purpose of a grant to the Connecticut Center for Advanced Technology for research and educational outreach for the fuel diversification grant program established under section 19 of this act.

Sec. 26. (Effective July 1, 2008) The sum of five million dollars is appropriated to the Department of Economic and Community Development, from the General Fund, for the fiscal year ending June 30, 2009, for the purpose of a grant to the Connecticut Center for Advanced Technology for research and educational outreach for the fuel diversification grant program established under section 19 of this act.

Sec. 27. (Effective July 1, 2007) The sum of one million three hundred thousand dollars is appropriated to the Connecticut Agricultural Experiment Station, from the General Fund, for the fiscal year ending June 30, 2008, for biodiesel crop research and biodiesel testing in accordance with section 18 of this act.

Sec. 28. (Effective July 1, 2008) The sum of eight hundred thousand dollars is appropriated to the Connecticut Agricultural Experiment Station, from the General Fund, for the fiscal years ending June 30, 2009, for biodiesel crop research and biodiesel testing in accordance with section 18 of this act.

The following fiscal impact statement and bill analysis are prepared for the benefit of members of the General Assembly, solely for the purpose of information, summarization, and explanation, and do not represent the intent of the General Assembly or either chamber thereof for any purpose:

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact:

Explanation

The bill establishes a number of tax incentives against the personal income tax, sales tax, and petroleum gross earnings tax to encourage the production and use of biodiesel fuel for transportation and heating. The short-term impact of these tax incentives cannot be determined but is anticipated to be minimal because the commercial availability of biodiesel is limited. However, as the availability of alternative fuel sources increases these incentives are likely to have a very significant impact on General Fund revenues, which could eventually be in excess of $100 million per year.

The bill also expands the current sales tax exemption for hybrid vehicles to include all hybrid passenger vehicles that get at least 40 miles per gallon in the city or on the highway. This change is anticipated to result in a General Fund revenue loss of between $1.0 and $3.0 million in FY 08¹ depending on sales volume.

The bill is expected to result in a cost to the Department of Revenue Services of $300,000 in FY 08 and $125,000 in FY 09 plus associated fringe benefit costs² to administer and audit the tax provisions contained in the bill.

The bill allows municipalities to exempt hybrid motor vehicles and vehicles with fuel efficiencies of at least 40 miles per gallon from the property tax. Municipalities electing to exempt these vehicles from the property tax will experience a loss to their net grand list (assessed value less exemptions permitted under state law) and will likely necessitate an increase in a municipality's mill rate to offset the loss of taxable property.

The bill creates a Connecticut Qualified Biodiesel Producer Incentive Account (Account) as a separate non lapsing account in the General Fund and requires the Connecticut Center for Advanced Technology (CCAT) to use funds from the account to provide grants and administer a grant program. The Connecticut Center for Advanced Technology, Inc. (CCAT) is a non-stock, tax exempt corporation and not a state agency. The bill appropriates $5 million in FY 08 and $5 million in FY 09 to the Department of Economic and Community Development (DECD) for a grant to CCAT for theses purposes. Funding does not currently exist for this purpose or for the required educational outreach in the Governor's recommended budget for FY 08 and FY 09. However, the Governor's recommended Capitol budget provides a $5 million GO bond authorization in both FY 08 and FY 09 for this purpose.

Provisions of the bill expanding the Department of Agriculture's (DOAG) farm link program to include biodiesel can be done within existing agency resources. Establishment of a biofuel crops grant program administered by the DOAG will require an additional employee at a cost of $60,000 starting in FY 2008 plus fringe benefits³. General Obligation (GO) bonds in the amount of $5 million in both FY 08 and 09 are provided for this program in the Governor's recommended capitol budget.

Requiring the DECD to administer a program providing grants to service stations will increase costs to the DECD. DECD will require funds in FY 08 in the amount of $105,000 plus fringe benefits to hire an economic and community development agent and an assistant economic community development agent. GO bond funds in the amount of $5 million in both FY 08 and FY 09 are provided in the Governor's recommended capitol budget for this program. Minimal additional costs of approximately $5,000 are anticipated to be incurred in order for the DECD to adopt regulations.

Sections of the bill require additional tasks of the Institute of Sustainable energy located at Eastern Connecticut State University. It is estimated that the initial first year costs associated with these tasks would be $330,000. The ongoing program costs are estimated to be $130,000. Funds to accomplish the tasks are not included in the FY 08/09 budget as recommended by the governor.

It is estimated that the Connecticut Agricultural Experiment Station (CAES) would utilize the appropriation in the bill for 3 additional full time employees and 3 summer assistants for bio fuel crop research and testing at a cost of approximately $810,000 in FY 08 and $396,000 in FY 09. The CAES anticipates transferring $490,000 in FY 08 and $ 404,000 in FY 09 to the University of Connecticut to undertake its duties. The bill appropriates $1.3 million in FY 08 and $800,000 in FY 09, but the funding is not included in the Governor's recommended budget.

The bill establishes a grant program within the State Department of Education for the purchase of diesel fuel containing at least 5% biodiesel, then 10% biodiesel and eventually 20% biodiesel. The bill does not specify how much funding would be provided nor a methodology for distributing the funds. Therefore the section results in a potential cost to the state and a potential revenue gain to local and regional school districts.

The bill requires the Department of Administrative Services (DAS), in consultation with the Office of Policy and Management, to establish a program to encourage the use of biodiesel blends in state buildings and facilities. By January 1, 2008, DAS must prepare a plan to implement this program, including identifying state buildings and facilities suitable for the use of biodiesel blended heating fuel. There will be significant increased costs for DAS to establish a biodiesel blended heating fuel program. DAS will need to hire a consultant or additional staff as the agency does not have the technical experience to meet the bill's requirements.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.



OLR Bill Analysis

sSB 1260

AN ACT CONCERNING ALTERNATIVE FUELS AND FLEXIBLE FUELED VEHICLES.

SUMMARY:

This bill creates a number of tax incentive and grant programs to encourage the production and use of biodiesel fuel for transportation and heating. It requires certain transit buses, locomotives and ferries to use biodiesel fuel blends according to a graduated schedule; encourages the use of biodiesel fuel to heat state buildings and facilities; creates a biodiesel task force to explore biodiesel's commercial and industrial applications; and allows operators of hybrid and alternative fuel-powered motor vehicles to use high occupancy vehicle (HOV) lanes when they are the vehicle's only occupant.

EFFECTIVE DATE: Various, see below

§§ 1, 2 & 7 — CONNECTICUT QUALIFIED BIODIESEL PRODUCER INCENTIVE ACCOUNT

The bill creates the Connecticut Qualified Biodiesel Producer Incentive Account (incentive account) as a separate, non-lapsing account in the General Fund to contain any money the law requires. The Connecticut Center for Advanced Technology (CCAT) must use money from the account to (1) provide grants to qualified Connecticut biodiesel producers and distributors as the act provides, and (2) administer the grant program. To qualify, biodiesel producers must be actively engaged in the commercial production of biodiesel in Connecticut and be registered with, and domiciled in, the state. Distributors must be registered with, and domiciled in, the state and actively engaged in storing and distributing biodiesel in Connecticut for commercial purposes. The fuel produced and distributed must meet the standards for biodiesel specified by American Society for Testing and Materials (ASTM) designation D6751 (pure biodiesel).

CCAT, in consultation with the Department of Economic and Community Development (DECD), must (1) adopt rules and regulations to administer the grant program, and (2) submit an annual report to the Energy and Technology and Environment committees.

EFFECTIVE DATE: July 1, 2007

§§ 3 - 6 — INCENTIVE ACCOUNT GRANTS

Qualified producers are eligible in any fiscal year for grants in the following amounts: (1) 30 cents per gallon for the first five million gallons produced; (2) 20 cents per gallon for the second five million gallons produced; and (3) ten cents per gallon for the third five million gallons produced. Quantities of more than 15 million gallons produced in a fiscal year are not eligible for grants. CCAT must determine monthly grant amounts by calculating the estimated quantity of biodiesel produced in the preceding month, and multiplying that figure by the incentive credit. Qualified producers can receive up to 60 monthly grants.

Producers must apply for the grants no later than 15 days after the last day of the month for which the grant is sought. The application must include (1) the producer's location, (2) the number of Connecticut citizens it employed in the preceding month, (3) the number of gallons of biodiesel produced during the month for which the grant is sought; (4) a copy of the producer's Connecticut registration, and (5) any other information CCAT deems necessary. CCAT must pay all grants for a particular month within 15 days after receiving and approving the application.

Other Producer Grants

Each producer is also eligible to receive one grant of up to $3 million to buy equipment or build, modify, or retrofit production facilities.

Distributor Grants

A distributor is eligible for grants of up to $50,000 per distributor for each distribution site. These grants may be for the actual monthly costs of creating biodiesel storage and distribution capacity, but cannot be used to buy equipment or build, modify, or retrofit facilities. CCAT must create an application process and adopt rules to administer this grant.

EFFECTIVE DATE: July 1, 2007

§8 — CONNECTICUT FARM LINK PROGRAM

By law, the Agriculture Department must encourage communication between farmers and farmland owners seeking to sell their farms and lands and those interested in starting or expanding an agricultural business. The bill specifically requires the department to encourage contact between parties interested in growing and processing feedstock crops for biodiesel. It requires the department to post educational information about such crops on its website.

EFFECTIVE DATE: July 1, 2007

§ 9 — BIOFUEL GRANT PROGRAM

The bill requires the agriculture department to establish and adopt regulations for a biofuel crops grant program the act creates. Under this program the department must make matching grants to farmers, agricultural not-for-profit organizations, and agricultural cooperatives to grow and produce biodiesel feedstock.

EFFECTIVE DATE: July 1, 2007

§ 10 — CONNECTICUT BIOFUEL LINK PROGRAM AND EDUCATIONAL MATERIALS

The bill requires the Institute for Sustainable Energy to compile and distribute consumer education materials about biodiesel fuel to municipalities, local school boards, and private businesses, and to establish and administer a database of schools, restaurants, institutional cafeterias, and other institutions and businesses in the state that produce waste vegetable oil or other comparable food products suitable for conversion to biodiesel. The institute must maintain the database and make it publicly available on its website. Businesses interested in selling their waste vegetable oil or similar food products to biodiesel producers may notify the institute, and have their names, contact information, and business objectives placed on the website. The institute must make reasonable efforts to encourage contact between parties with similar interests. The institute must post educational material about this biofuel link program on its website. The information also must be posted on websites of DECD, the Agriculture Department, the Connecticut Agricultural Experiment Station, the UConn Biofuel Consortium, and UConn Cooperative Extension System. The educational material must include information about starting and conducting a waste vegetable oil business.

EFFECTIVE DATE: October 1, 2007

§ 11 — SERVICE STATION GRANTS

The bill creates and requires DECD to administer a program providing grants to service stations to reduce or eliminate the costs of installing new alternative fuel pumps, or converting gas or diesel pumps to dispense alternative fuels. DECD must adopt regulations to administer the program.

EFFECTIVE DATE: July 1, 2007

§ 12 — RENEWABLE FUEL CONTENT SALES TAX EXEMPTION

By law, sales of heating oil used to heat homes and certain buildings, locations, or premises, are exempt from the sales tax. The bill also exempts the (1) renewable fuel content of heating oil and (2) purchase of equipment and machinery used to store, distribute, manufacture, and blend renewable fuels for heating purposes. Under the bill, renewable fuel content is pure biodiesel, or home heating oil or diesel fuel containing at least 5% biodiesel.

EFFECTIVE DATE: Upon passage and applicable to sales occurring on or after July 1, 2007.

§§ 13 & 14 — INCOME TAX CREDITS

The bill establishes an income tax credit of one cent per gallon for each percent of biodiesel (up to 20%, or 20 cents per gallon) included in the biodiesel blended heating fuel (heating fuel) a state taxpayer buys between January 1, 2008 and December 31, 2012. The heating fuel must be used for space heating or to heat water for residential purposes.

If a taxpayer makes more than one qualifying purchase of heating fuel, and the percentage of biodiesel varies, he must calculate each purchase separately. If two or more taxpayers share in the purchase of heating fuel, the amount of the credit must be prorated according to the percentage of heating fuel purchased by each. For the purposes of the tax credit, heating fuel is home heating oil blended with at least 2% biodiesel, and a residence is any structure, or part of a structure used as a place of abode, whether or not the person living there owns it. It includes multifamily dwellings, apartment buildings, condominiums and cooperative apartments, but does not include places where people level on a temporary or transient basis or hotels or motels, except for units where the same occupant lives for at least 90 consecutive days. The credit cannot exceed $500 for each taxable year. In the case of two or more taxpayers sharing in the purchase of bioheat, the total credit allowed in a taxable year cannot exceed $500.

EFFECTIVE DATE: Upon passage and applicable to income years beginning on or after January 1, 2008.

§ 15 — PETROLEUM PRODUCTS GROSS EARNINGS TAX EXEMPTION

By law, commercial heating oil blends containing at least 10% of alternative fuels derived from farm produce, food waste, waste vegetable oil, or municipal solid waste, including biodiesel or low sulfur diesel fuel, are exempt from the petroleum products gross earnings tax. The bill expands this exemption to include such blends containing at least 5% of these alternative fuels.

It exempts, starting July 1, 2007, the first sale of biofuels or biodiesel that meet ASTM designations for D6751 (pure biodiesel), or D396 (home heating oil) or D975 (diesel fuel) that contain at least 5% renewable fuel. It also exempts, starting July 1, 2009, the first sale of heating oil additives used to maintain the stability or operational performance of petroleum products.

EFFECTIVE DATE: July 1, 2007

§ 16 — USE OF BIODIESEL BLENDS IN STATE BUILDINGS

The administrative services commissioner, in consultation with the Office of Policy and Management, must establish a program to encourage the use in state buildings and facilities of biodiesel blends according to the following schedule: from July 1, 2008 until June 30, 2010, up to 95% ultra low-sulfur number 2 heating oil and at least 5% biodiesel; from July 1, 2010 until June 30, 2012, up to 90% ultra low-sulfur number 2 heating oil, and at least 10% biodiesel; and from July 1, 2012 until July 1, 2017, up to 80% ultra low-sulfur number 2 heating oil, and at least 20% biodiesel.

By January 1, 2008, the commissioner must prepare a plan to implement this program, including identifying state buildings and facilities suitable for the use of biodiesel blended heating fuel, evaluating energy efficiency and reliability of biodiesel blended fuel in such buildings, and the availability and feasibility of exclusively using such fuels produced from Connecticut agricultural products or waste grease.

EFFECTIVE DATE: July 1, 2007

§ 17 — GRANTS FOR SCHOOL BUSES AND SCHOOL AND MUNICIPAL BUILDINGS

By July 1, 2008 and until June 30, 2010, the bill requires the education commissioner, within available appropriations, to award annual grants to municipalities and local and regional school boards for the purchase of diesel fuel containing at least 5% biodiesel for school buses and school and municipal buildings. He must award such grants for the purchase of diesel fuel containing at least 10% biodiesel starting July 1, 2010 until June 30, 2012, and for diesel fuel containing at least 20% biodiesel between July 1, 2012 and June 30, 2017. The commissioner must adopt regulations for the grant program.

EFFECTIVE DATE: July 1, 2007

§§ 18, 27, AND 28 — STATE BIODIESEL TESTING CENTERS

The Connecticut Agricultural Experiment Station, in consultation with the UConn Biodiesel Consortium, state universities and agencies, must develop a program to enable it, UConn and other state universities and agencies to serve as testing centers for biodiesel and biodiesel fuels for heating and transportation, and to develop quality monitoring standards that comply with those of ASTM. The experiment station must report on its progress by February 28 annually to the Energy and Technology and Environment committees. The bill appropriates $1,300,000 to the experiment station for FY 08 and $800,000 for FY 09 for biodiesel crop research and biodiesel testing.

Effective Date: July 1, 2007, except the funding for FY 09 is effective July 1, 2008.

§§ 19, 25, AND 26 — FUEL DIVERSIFICATION GRANT PROGRAM

CCAT must establish a fuel diversification grant program for higher education or research institutions. The institutions must use the money to (1) research (a) biofuel production from agricultural products, algae and waste grease, and (b) fuel cell technology development, commercialization, and economic analysis; and (2) develop education and outreach programs. The bill appropriates $5 million annually for the CCAT grant program to DECD for FY 08 and FY 09.

Effective July 1, 2007, except the funding for FY 09 is effective July 1, 2008.

§ 20 — BIODIESEL TASK FORCE

The bill creates a task force to explore the commercial and industrial applications of biodiesel fuel and promote its use. The study must include an examination of the steps needed to (1) help develop a regional network of alternative fueling stations and encourage broad public and private use of alternative fuels; (2) develop infrastructure in the northeastern states to further the ability to travel on alternative fuels; (3) identify regional areas where publicly accessibly biofuel stations should be developed; (4) establish working relationships with northeastern and regional petroleum transporters and suppliers or retailers to convert existing tanks or pumps into public biofuel depots, or build new systems to dispense biofuels; (5) identify and develop incentives to encourage use of alternative fuels and alternative fuel vehicles; and (6) maintain an information clearinghouse and education center to effectively encourage participation by public and private fleets, vehicle manufacturers, fuel producers and suppliers, retail marketers, and private individuals.

Membership

Task force members must include:

1. two representatives of a biofuels association, appointed by the House speaker;

2. a representative of the Independent Connecticut Petroleum Association, appointed by the Senate president;

3. three representatives of Connecticut universities, appointed by the House majority leader;

4. a representative of CCAT, appointed by the Senate majority leader;

5. a member of the transportation industry, appointed by the House minority leader;

6. a member of the Connecticut Petroleum Council, appointed by the Senate minority leader; and

7. a member of the Energy and Technology committee, appointed by the House majority leader.

Task force appointments must be made no later than 30 days after the bill's passage. Vacancies must be filled by the appointing authority. The House speaker and Senate president must select the chairpersons from the task force members. The chairpersons must schedule the task force's first meeting, which must occur within 60 days of the bill's passage. The task force must report to the Environment, Energy and Technology, and Transportation Committees by January 1, 2008 and will terminate when it submits the report, or on January 1, 2008, whichever is later. Environment Committee staff must staff the task force.

EFFECTIVE DATE: Upon passage

§ 21 — USE OF BIODIESEL FUEL BY INTRASTATE BUSES, TRAINS AND FERRIES

The bill requires that transit buses, railroad locomotives and ferry boats used solely for intrastate travel and powered in whole or in part by diesel fuel use a diesel blend containing the following minimum percentages of biodiesel fuel: (1) from July 1, 2008 until June 30, 2010, 5%; (2) from July 1, 2010 until June 30, 2012, 10%; and (3) from July 1, 2010 until June 30, 2017, 20%.

EFFECTIVE DATE: July 1, 2007

§ 22 — USE OF HOV LANES BY HYBRID OR ALTERNATIVE FUEL VEHICLES

The bill allows an operator of a hybrid passenger vehicle or a motor vehicle exclusively powered by a clean alternative fuel to drive in a high occupancy vehicle (HOV) lane when he is the only occupant of the vehicle. Federal law allows such use by certain single-occupant vehicles if certain conditions are met.

EFFECTIVE DATE: Upon passage

§ 23 — HYBRID CAR SALE TAX EXEMPTION

Current law exempts from the sales tax hybrid passenger cars purchased between October 1, 2004 and October 1, 2008 that have a U.S. Environmental Protection Agency (EPA) highway mileage rating of 40 miles per gallon (mpg). The bill also exempts, for vehicles purchased between those dates, (1) all hybrid passenger vehicles, not just cars, that attain such a mileage rating, and (2) hybrid passenger vehicles with an EPA city mileage rating of at least 40 mpg.

EFFECTIVE DATE: July 1, 2007

§24 — LOCAL PROPERTY TAX OPTION FOR HYBRID MOTOR VEHICLES

The bill permits municipalities to abate by ordinance, in whole or in part, personal property taxes on hybrid passenger vehicles or motor vehicles exclusively powered by a clean alternative fuel.

EFFECTIVE DATE: July 1, 2007

BACKGROUND

The Safe, Accountable, Flexible, Efficient Transportation Equity Act

This 2005 federal law authorizes states to allow certain single-occupant low-emission and energy-efficient vehicles to use HOV lanes. The vehicles must be certified according to federal law, and the state agency authorizing such use must first show the secretary of transportation that it has established a program to monitor, assess, and report on the use of HOV lanes by these vehicles. The transportation secretary also requires an adequate enforcement program.

Connecticut Center for Advanced Technology

Universities, businesses, and state and federal agencies established CCAT in 2002 with a $ 1.5 million grant from the U.S. Air Force. CCAT focuses on developing the next generation of technological systems for military and civilian applications. Its initiatives include creating centers to (1) develop and deploy advanced technologies; (2) help entrepreneurs launch new, technology-based businesses; and (3) encourage colleges and universities to train students for advanced technology fields.

Institute for Sustainable Energy

The Institute was established in 2001 at Eastern Connecticut State University to identify, develop and implement the means for achieving a sustainable energy future. It is funded and supported by the Connecticut Energy Efficiency Fund through the Energy Conservation Management Board and the Department of Public Utility Control.

American Society for Testing and Materials

ASTM is a not-for-profit organization that provides a forum for the development and publication of voluntary consensus standards for materials, products, systems, and services.

COMMITTEE ACTION

Environment Committee

Joint Favorable Substitute

¹ According to information obtained through fueleconomy.com two additional 2007 models will qualify for the exemption, the Toyota Camry Hybrid and the Nissan Altima Hybrid. Currently, the Honda Civic Hybrid and the Toyota Prius qualify. Therefore, the estimates assume only a small number of overall new vehicles sales will be affected.

² The fringe benefit costs for state employees are budgeted centrally in the Miscellaneous Accounts administered by the Comptroller. The estimated first year fringe benefit rate for a new employee as a percentage of average salary is 25.8%, effective July 1, 2006. The first year fringe benefit costs for new positions do not include pension costs. The state's pension contribution is based upon the prior year's certification by the actuary for the State Employees Retirement System (SERS). The SERS 2006-07 fringe benefit rate is 34.4%, which when combined with the non pension fringe benefit rate totals 60.2%.

³ The fringe benefit costs for state employees are budgeted centrally in the Miscellaneous Accounts administered by the Comptroller. The estimated first year fringe benefit rate for a new employee as a percentage of average salary is 25.8%, effective July 1, 2006. The first year fringe benefit costs for new positions do not include pension costs. The state's pension contribution is based upon the prior year's certification by the actuary for the State Employees Retirement System (SERS). The SERS 2006-07 fringe benefit rate is 34.4%, which when combined with the non pension fringe benefit rate totals 60.2%.