College of Engineering News • Iowa State University

Report: Tax credit would help Iowa biochemical industry

(Photo: The Register)
(Photo: The Register)

This story was originally published by Donnelle Eller and Matthew Patane with The Des Moines Register

Iowa could take a chunk of the nation’s $250 billion chemical market with greener replacements, but a state tax incentive is needed to help build the new industry, according to a report released Thursday.

The state’s already established renewable energy sector makes it an ideal location for companies looking to manufacture bio-based chemicals, since they use some of the same processes and feedstock, such as corn, soybeans and crop residue, the report and experts say.

Iowa will have to compete, however, with other states going after a slice of the pie.

“If you are not there at the nucleation, you can be left at the sideline and not be part of it,” Brent Shanks, one of the report’s authors, said during a news conference Thursday.

Shanks and two other Iowa State University professors wrote the report. The Iowa Biotechnology Association and the Cultivation Corridor, a regional effort to bring more bioscience companies to central Iowa, commissioned it. The report cost about $15,000.

The biotech association, Cultivation Corridor and other business groups, are pushing for a state tax incentive meant to spur the production of bio-based chemicals.

They have argued that Iowa needs to take advantage of its position before other states catch on. Many also were disappointed similar legislation did not receive enough support to pass last year.

Iowa Gov. Terry Branstad called for a revenue-neutral bio-renewable tax credit in his Condition of the State address this week.

Legislative leaders have said they are intrigued by the idea, but want to ensure the tax credit would not hurt state revenues.

“I think we want to do our due diligence to make sure what’s been proposed, No. 1, we can afford and, two, we can get some measurable results for Iowa taxpayers,” said state Sen. Joe Bolkcom, D-Iowa City and chair of the Senate Ways and Means Committee.

A tax credit to support bio-based chemical manufacturing came before lawmakers last year. The Iowa House passed it, but it failed to get through the state Senate due to concerns over the program’s price tag.

How much Iowa can snag of the $250 billion industry or a projected 50,000 new jobs nationally is not clear from the report.

“We don’t have a specific number. We do know this industry is growing at a dramatic pace, that there are a limited number of states in this country which maintain adequate supplies of feedstock and Iowa is one of them, but that we’re not the only one,” Cultivation Corridor Executive Director Brent Willett said.

Building on ethanol

Iowa has an advantage over other states to start growing a bio-based chemical production industry because of the massive ethanol, biodiesel and other bio-processing infrastructure already built here, Shanks told the Register.

The starch that comes from corn, as well as from crop residue or other biomass, is made into sugar that can be further processed into ethanol. Or the sugar can be used to make bio-based chemicals, Shanks said.

“You can take a stream of sugar that goes into ethanol manufacturing and instead convert that sugar to something else,” said Shanks, director of the Center for Biorenewable Chemicals, a National Science Foundation engineering research center at Iowa State University.

Bio-based chemicals also can be made from a biodiesel byproduct called glycerin and vegetable oil. They could go into products such as plastics, household cleaners, cosmetics and laundry detergents.

The new industry could help boost prices for corn and soybeans, commodities that have recently struggled with low prices due to oversupply, Shanks said.

He sees bio-chemical manufacturers mostly co-locate near existing dry-mill and wet mill production plants that make ethanol and other products.

Eddyville, Fort Dodge and Clinton are examples of Iowa cities where several companies have located on the same campus to take advantage of each other’s co-products.

Manufacturers are looking at bio-based chemicals to lower costs, to find greener materials and to develop better products. The report, for example, says Coke and Pepsi are in a race to make more environmentally friendly bottles.

And DuPont is making a carpet from a biorenewable chemical that performs better than some existing products, Shanks said.

Why they’re calling for a tax credit

The report indicates a tax credit could spur the industry in Iowa, using as an example how state tax incentives helped boost Iowa into an ethanol-making juggernaut.

“A similar opportunity now exists to make Iowa the leader in the development of the bio-based chemicals industry,” the report reads. “While this industry has more diverse products than the biofuels industry, the required capabilities for it are all present in Iowa.”

Between about 2006 and 2014, Iowa supported about 38 ethanol plants, providing them with about $61.7 million in tax credits, according to the report. Capital spending on the plants exceeds $4.4 billion, they employ about 1,500 people and pay annual wages of $59 million, the report reads.

The Iowa State professors also interviewed industry executives — including from Kemin Industries, Renewable Energy Group and Archer Daniels Midland — to get their thoughts on Iowa’s biofuels and biomanufacturing landscape.

The executives commonly said Iowa has multiple advantages suitable for a quickly growing bio-based chemical industry. They also said a “modest tax credit” could entice them to locate a plant in Iowa.

For example, Kemin Industries, Corn Oil One and Rewewable Energy Group all said in the report they plan to build bio-based chemical production plants and are looking at Iowa as a potential location. A tax credit, they said, could push their decision to the Hawkeye State.

This year’s legislation

Like last year, the Iowa Economic Development Authority has put a renewable chemical production tax credit proposal before lawmakers this session.

“My hope is and my request, if I had to ask, is let’s get this done quickly. … Let’s own this and let’s do it quickly,” Authority Director Debi Durham said.

The state agency would administer the tax credit. 

It is seeking to provide up to $10 million per year through the renewable chemical tax credit program, according to a study bill filed in the Iowa Senate this week.

The legislation would create a 5-cent tax credit for every pound of a bio-based chemical a company produced. Tax credits would be refundable, meaning companies with no tax liability that use the credit would receive money from the state.

To reduce the effect of the new tax credit on state revenues — a key sticking point last year — the authority is proposing to temporarily reduce how much it gives out through another program — the High Quality Jobs tax credit — by $25 million. 

State Sen. Joe Bolkcom, D-Iowa City, said he had some doubts the reduction would create the savings necessary to make the proposal revenue neutral. He also cited budget concerns with starting a new tax credit program that he said could give out $100 million over 10 years as Iowa deals with trying to give enough funding to schools.

“This may be a really good idea but so is having every third-grader being able to read at their grade level,” he said.

The High Quality Jobs reduction would be in place for five years. If enacted, the renewable chemical production tax credit would be in place for 10 years.

The authority provides tax credits through the High Quality Jobs program for companies seeking to expand or build in the state.