Blog Post

A Big (Tax) Break for Algae Fuel Makers

Although algae fuel is likely decades from powering our vehicles, federal lawmakers already are focusing on tax breaks for companies in the field. Just yesterday the House of Representatives passed H.R. 4168 that gives $1.01 per gallon of production tax credit to algae fuel producers.

The bill, which now heads to the Senate, modifies the Internal Revenue Code to give algae fuel companies the same incentives enjoyed by cellulosic biofuel makers, who use non-food crops and agricultural wastes to produce transportation fuels. The bill also allows algae fuel producers to take a 50 percent bonus depreciation deduction on their production plants.

Algae is rich in oil, but growing it and squeezing the oil out of these organisms has shown to be difficult and expensive. The concept isn’t new, but it has received a lot more government support in recent years because of a national agenda to find alternatives to fossil fuels. Some algae fuel developers won a share of the more than $600 million in biofuel project funding announced last December.

The strong government backing has helped to make algae companies attractive to venture capital firms and high-profile individual investors, including Richard Branson of the Virgin business empire, who recently put money into startup Solazyme. And Bill Gates invested in San Diego-based Sapphire Energy via his Cascade Investment. Sapphire has won not only a $50 million grant from the energy department but also a $54.5 million in loan guarantees from the agriculture department to build a demonstration project in New Mexico.

Given the difficult path to mass production, some companies have sought market opportunities outside transportation fuel to get more near-term revenues. Aurora Biofuels recently changed its name to Aurora Algae to help it market the omega-3 fatty acids from algae for pharmaceuticals and high-protein feed for fish farms and other customers. Solazyme also is marketing its algae oil as ingredients for food and cosmetics and has lined up food and personal care product giant Unilever as an investor and customer.

If this federal tax breaks come through, perhaps they will be able to help algae makers get over the economic hump, and transition from selling beauty products to selling fuel.

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Image courtesy of Synthetic Genomics.