Tax credit will help grow Iowa's biochemical industry

Tax credit will help grow Iowa's biochemical industry

New Iowa law offers up to $10 million annually in tax credits for renewable chemical production.

Iowa’s fledgling value-added biochemical industry will get a boost from the state in the form of a tax credit. Senate File 2300, signed into law April 6 by Gov. Terry Branstad, provides for up to $10 million annually in state tax credits for Iowa’s renewable chemical industry.

The signing ceremony took place on the Iowa State University campus with many of the industry’s stakeholders present. The bill that was signed into law is one of the most important pieces of economic development legislation in years, say state officials, and it involves agriculture.

BOOST FOR BIOCHEMICALS: Last week Gov. Terry Branstad signed one of the most important pieces of economic development legislation in years. It provides up to $10 million annually in tax breaks for Iowa’s newly emerging biochemical industry.

Tax credit for biochemical products is first of its kind
“This legislation, the first of its kind in the nation, will help build Iowa’s renewable chemicals industry by using biomass as feedstocks for the production of building block chemicals,” said Branstad. “Iowa is the nation’s premier leader in the renewable fuels industry and we will now build on our legacy of leveraging homegrown renewable resources to produce the next generation of building block chemicals.”

Lt. Gov. Kim Reynolds added, “Production of biochemicals is perhaps the fastest growing segment of the bioscience industry. It represents one of Iowa’s best opportunities for development of a high density industry cluster. I commend the Iowa Legislature on passing this bill in a bipartisan fashion to put Iowa in a unique position to grow the biorenewables industry in our state.”

What will this newly signed legislation do for Iowa?
The bill passed the Iowa Senate 46-3 on March 16 and the Iowa House 95-1 on March 28. It relates to the administration of programs by the Iowa Economic Development Authority by creating a renewable chemical production tax credit program, modifying the high quality jobs program, and including effective date and other applicability provisions.

Getting this legislation passed and signed into law was a priority of Branstad, the Greater Des Moines Partnership economic development organization, the Iowa Board of Regents, and farm and business groups. The goal is to attract investment in renewable chemical manufacturing and biorefining.

Iowa has an advantage over other states to start growing a bio-based chemical production industry because of the massive ethanol, biodiesel and other bioprocessing infrastructure already built here, say industry sources. For example, the starch that comes from corn, as well as from crop residue or other biomass, is made into sugar that can be used to make bio-based chemicals.

Tax break will help co-products of biofuels industry
“The idea is to promote the growth of new, value-added ag industries in Iowa,” says Joe Hrdlicka, executive director of the Iowa Biotechnology Association. “Many of the biochemical products likely to be helped by the tax credit are byproducts or co-products of the biofuels industry. Iowa is the leader in ethanol and biodiesel production. This tax credit gives Iowa a tremendous economic development tool.”

The tax credit will not go into effect until the start of the 2017 calendar year and can be applied to products made that year. It sunsets after 10 years. The measure provides a 5-cent-per-pound tax credit for high-value chemicals produced in Iowa. It’s capped at $10 million per year and $1 million per company (or $500,000 per company for firms more than 5 years old).

State revenue officials estimate that over 10 years, 25 existing companies will produce eligible renewable chemicals totaling 1.25 billion pounds or more and receive a combined $62.5 million in renewable chemical production tax credits.

Bi-partisan cooperation is alive and well at Iowa Capitol
Democrats and Republicans worked together to pass the tax credit incentive for production of renewable biochemicals. The idea of a tax credit for biochemicals started in the 2015 Iowa Legislature, and was discussed again this year. The 2016 Iowa Legislature passed Senate File 2300 by wide margins and Branstad signed it.

There was strong support for the bill early on, but lawmakers struggled to find common ground on some issues, such as how to make it revenue-neutral. Sens. Rita Hart, D-Wheatland, and Bill Dotzler, D-Waterloo, along with representatives Mary Ann Hanusa, R-Council Bluffs and Chip Baltimore, R-Boone, led efforts to pass the legislation. “This is truly a made-to-order bill for the state of Iowa,” said Hanusa, chair of the economic growth committee of the Iowa House of Representatives.

Hrdlicka observes, “This legislation represents the next great opportunity in economic development for our state by creating incentives to expand Iowa’s leadership and innovation in the field of bioprocessing. With Iowa’s 55-plus bioprocessing facilities and leading status as a supplier of biomass materials, the state is poised to expand its leadership in biofuels production into production of high-value chemicals for a variety of consumer and industrial applications. Studies estimate the market for U.S. biochemical production to reach $250 billion—a market Iowa is poised to seize given its record of innovation.”

Market for biobased products continues to grow
Studies show approximately 50,000 jobs will be created in Iowa by 2020 in this industry.

“I commend the Iowa Legislature, Gov. Branstad and the state of Iowa for leadership and vision in passing and supporting this biochemical tax credit,” says William Feehery, president of DuPont Industrial Biosciences. “This sends a strong signal that Iowa recognizes the potential for biobased business and the economic growth it represents.”

Each year, biobased products contribute $369 billion to the U.S. economy and support 4 million jobs, many of them in rural Iowa. As biobased products increasingly compete favorably against conventional products on both price and performance, they offer additional advantages of being renewable and more sustainable then traditional chemical products.

Iowa positioned to attract new biobased businesses
“For Iowa, deep roots in agriculture and innovation, complemented by this tax credit, mean that the state is well-positioned to attract new businesses that want to capitalize on the fast-growing biobased sector,” says Feehery. “This will incentivize job creation and create other economic benefits up and down the supply chain. Everyone from farmers who grow corn and other feedstocks, to equipment manufacturers and truck drivers, to biobased businesses like ours, will be better poised to succeed with the innovation-friendly ecosystem taking shape in Iowa.”

Feehery sums up: “DuPont is proud of its deep roots in Iowa, as well as our tradition of innovation and collaboration, most recently exemplified by the opening of the world’s largest cellulosic ethanol biorefinery at Nevada in central Iowa. We have no doubt that Iowa’s biobased sector will only grow stronger as a result of the biochemical tax credit, positioning the state as a global hub of innovation and discovery. Congratulations on a job well done.”

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