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									UNOFFICIAL COPY AS OF 07/20/10                            09 REG. SESS.    09 RS HB 537/GA



       AN ACT relating to implementation of the state's comprehensive energy strategy.

Be it enacted by the General Assembly of the Commonwealth of Kentucky:
       Section 1. A Kentucky Renewable and Efficiency Portfolio Standard (REPS) is

established whereby twenty-five percent (25%) of Kentucky's projected energy demand

for the year 2025 shall be derived from energy efficiency measures, conservation,

renewable energy, and biofuels. The goals of the REPS include the following:

       (1)     At least eighteen percent (18%) of Kentucky's projected energy demand for

2025 shall be offset through improved energy efficiency with at least two percent (2%) of
the efficiency gains coming from the transportation sector;

       (2)     By 2025, Kentucky will meet twelve percent (12%) of its motor fuels demand

from biofuels; and

       (3)     By 2025, Kentucky's renewable energy generation capacity shall triple to

provide the equivalent of one thousand (1,000) megawatts of clean energy.

       SECTION 2.         A NEW SECTION OF KRS CHAPTER 152 IS CREATED TO

READ AS FOLLOWS:

(1)    The Environmental and Public Protection Cabinet, the Finance and

       Administration Cabinet, the Governor's Office of Agricultural Policy and the

       Kentucky Public Service Commission shall develop policies and programs

       supporting attainment of the Renewable and Efficiency Portfolio Standard

       (REPS) established in Section 1 of this Act.

       (a)     The Environmental and Public Protection Cabinet shall establish an

               Energy Efficiency Resource Standard to support the REPS. To achieve the

               REPS, a combination of both utility sponsored and non-utility sponsored

               energy efficiency programs shall be developed and implemented.

       (b)     By 2025, the Division of Fleet Management in the Finance and
               Administration Cabinet shall improve the state vehicle fleet fuel economy by

               fifty percent (50%) over the 2008 baseline.

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HB053710.100-1419                                                                        GA
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       (c)     By 2012, all fueling stations under contract with Kentucky state government

               shall provide gasoline with blends of ethanol of ten percent (10%) or higher

               (E10) and biodiesel blends of two percent (2%) or higher (B2), where cost-

               effective.

(2)    The Environmental and Public Protection Cabinet shall develop and submit to

       the Legislative Research Commission a report on the progress made toward

       meeting the goals of the REPS by October 31 of each odd-numbered year through

       the year 2025. The report shall also identify new opportunities available through

       technological advances, determine short-term goals, and recommend legislative

       action for the upcoming session.

(3)    (a)     To develop strong education, outreach, and marketing programs that

               support the REPS, the Environmental and Public Protection Cabinet shall

               create an Energy Education Workgroup. The membership shall include:

               1.    The executive director of the Kentucky Environmental Education

                     Council, or designee;

               2.    The executive director of the Kentucky National Energy Education

                     Development Project, or designee;

               3.    A representative of the Kentucky University Partnership for

                     Environmental Education, appointed by the secretary of the

                     Environmental and Public Protection Cabinet;

               4.    A representative of the Kentucky Association for Environmental

                     Education;

               5.    The director of the Governor's Office for Energy Policy, or designee;

               6.    The commissioner of the Department of Education, or designee;

               7.    The commissioner of the Department of Workforce Investment, or
                     designee;

               8.    The Associate Dean for Extension and Associate Director, University

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HB053710.100-1419                                                                        GA
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                    of Kentucky; and

               9.   A Kentucky certified environmental educator, appointed by the

                    Secretary of the Environmental and Public Protection Cabinet.

       (b)     The workgroup shall be chaired by the director of the Governor's Office of

               Energy Policy or the director's designee. The workgroup shall be attached

               administratively to and staffed by the Environmental and Public Protection

               Cabinet.

       (c)     The workgroup shall meet within thirty (30) days of the effective date of this

               Act. Further meeting and working procedures shall be established by the

               workgroup.

       (d)     The chair may invite other individuals to participate in meetings and

               discussions as needed.

       (e)     The workgroup shall:

               1.   Set goals, objectives, and measurable outcomes for the education

                    program;

               2.   Identify existing energy-related education programs and determine

                    how they might be incorporated into a comprehensive energy

                    education program;

               3.   Develop strategies for teaching the public how to make energy

                    efficiency a priority in purchasing decisions and in energy usage. The

                    workgroup shall target strategies for specific consumer sectors

                    including    agriculture,   transportation,     residential,   commercial,

                    industrial, and schools at the primary, secondary and post-secondary

                    levels;

               4.   Develop strategies to raise public awareness of incentives available at
                    the state and federal levels to offset portions of the cost of energy

                    efficiency-related technology and renewable energy technology;

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HB053710.100-1419                                                                           GA
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               5.   Identify potential partners that can leverage resources to achieve goals

                    set by the workgroup; and

               6.   Identify possible funding sources.

       (f)     The workgroup shall report its findings and recommendations to the

               secretary of the Environmental and Public Protection Cabinet on or before

               October 30, 2009.
       Section 3.       A Kentucky Alternative Transportation Fuel Standard (ATFS) is

established whereby Kentucky shall, by December 31, 2025:
       (a)     Eliminate sixty percent (60%) of its use of foreign petroleum, relative to 2008

usage;

       (b)     Require that thirty-six percent (36%) of the transportation fuels used in

Kentucky are derived from biofuels, electricity through hybrid automobiles, compressed

natural gas, and coal-based liquids;

       (c)     Develop a coal-to-liquid (CTL) industry that produces four billion

(4,000,000,000) gallons of liquid transportation fuel per year;

       (d)     Meet twelve percent (12%) of its motor fuel demand with biofuels, while

continuing to produce safe, abundant, and affordable food, feed, and fiber; and

       (e)     Make recommendations for legislation to the General Assembly, including

program and incentive proposals to encourage attainment of these goals.

       SECTION 4.         A NEW SECTION OF KRS CHAPTER 152 IS CREATED TO

READ AS FOLLOWS:

(1)    The Environmental and Public Protection Cabinet, in coordination with the

       Finance and Administration Cabinet, shall conduct a study of the feasibility of

       fueling a portion of the state vehicle fleet with compressed natural gas, including

       the purchase or conversion of vehicles and the necessary fueling and
       maintenance infrastructure to support the fleet. Results of the study shall be

       submitted to the Governor by November 1, 2009.

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HB053710.100-1419                                                                          GA
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(2)    The Environmental and Public Protection Cabinet shall report annually on

       progress made toward achieving the Alternative Transportation Fuel Standard

       established in Section 3 of this Act, including identifying new opportunities

       available through technological advances, determining short-term goals, and

       recommending legislative action. The report shall be submitted to the Legislative

       Research Commission by October 31 of each odd-numbered year through the

       year 2025.
       SECTION 5.         A NEW SECTION OF KRS CHAPTER 152 IS CREATED TO
READ AS FOLLOWS:

A carbon management legal issues study group shall be established to identify and

analyze legal issues that may hinder development of solutions for the management of

carbon dioxide in Kentucky. The group shall support research into carbon capture and

sequestration pursuant to the Incentives for Energy Independence Act, KRS Chapter

154.27. The group shall be staffed by and attached administratively to the

Environmental and Public Protection Cabinet.

(1)    Membership shall include at least the following individuals:

       (a)     The Secretary of the Environmental and Public Protection Cabinet or

               designee who shall serve as chair;

       (b)     The Director of the Center for Applied Energy Research at the University of

               Kentucky, or designee;

       (c)     The Director of the Kentucky Geological Survey or designee;

       (d)     A representative of an environmental advocacy group;

       (e)     A representative of the oil and gas industry;

       (f)     A representative of the electric power industry;

       (g)     A representative of the Kentucky Public Service Commission; and
       (h)     A representative of the Governor's Office of Energy Policy.

(2)    The Governor shall appoint the members listed in paragraphs (d) through (h) of

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HB053710.100-1419                                                                         GA
UNOFFICIAL COPY AS OF 07/20/10                           09 REG. SESS.         09 RS HB 537/GA



       subsection (1) of this section. Additional members may be added at the discretion

       of the secretary.

(3)    The group shall meet as called by the chair.

(4)    The group shall report to the Legislative Research Commission by October 31,

       2009. The report shall include a list of recommendations which shall address at

       least the following:

       (a)     Ownership of geologic pore space;

       (b)     Liability for carbon dioxide leakage following sequestration;

       (c)     Avoidance of lawsuits based on nuisance, obstruction, and harassment; and

       (d)     Methods to expedite right-of-way acquisition.
       Section 6. KRS 141.422 is amended to read as follows:

As used in KRS 141.422 to 141.425:

(1)    "Annual biodiesel and renewable diesel tax credit cap" means:

       (a)     For calendar years beginning prior to January 1, 2008, one million five

               hundred thousand dollars ($1,500,000);

       (b)     For the calendar year beginning on January 1, 2008, five million dollars

               ($5,000,000); and

       (c)     For calendar years beginning on or after January 1, 2009, ten million dollars

               ($10,000,000);

(2)    "Annual cellulosic ethanol tax credit cap" means five million dollars ($5,000,000),

       unless the annual cellulosic ethanol tax credit cap is modified pursuant to KRS

       141.4248, in which case the cap established by KRS 141.4248 shall be the annual

       cellulosic ethanol tax credit cap for that year. Any adjustments to the annual

       cellulosic ethanol tax credit cap made pursuant to KRS 141.4248 shall be made on

       an annual basis and shall not carry forward to subsequent years;
(3)    "Annual ethanol tax credit cap" means five million dollars ($5,000,000), unless the

       annual credit cap is modified pursuant to KRS 141.4248, in which case the cap

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HB053710.100-1419                                                                           GA
UNOFFICIAL COPY AS OF 07/20/10                            09 REG. SESS.         09 RS HB 537/GA



       established by KRS 141.4248 shall be the annual ethanol tax credit cap for that

       year. Any adjustments to the annual ethanol tax credit cap made pursuant to KRS

       141.4248 shall be made on an annual basis and shall not carry forward to

       subsequent years;

(4)    "Biodiesel" means a renewable, biodegradeable, mono alkyl ester combustible

       liquid that is derived from algae, agriculture crops, agriculture plant oils, agriculture

       residues, animal fats, or waste products that meets current American Society for

       Testing and Materials specification D6751 for biodiesel fuel (B100) blend stock
       distillate fuels;

(5)    “Biodiesel producer” means an entity that manufactures biodiesel at a location in

       this Commonwealth;

(6)    "Cellulosic ethanol" means ethyl alcohol for use as motor fuel that meets the current

       American Society for Testing and Materials specification D4806 for ethanol that is

       produced from cellulosic biomass materials of any lignocellulosic or hemicellulosic

       matter that is available on a renewable or recurring basis, including:

       (a)     Plant wastes from industrial processes such as sawdust and paper pulp;

       (b)     Energy crops grown specifically for fuel production such as switchgrass; or

       (c)     Agricultural plant residues such as corn stover, rice hulls, sugarcane, and

               cereal straws;

(7)    "Cellulosic ethanol producer" means an entity that uses cellulosic biomass materials

       to manufacture cellulosic ethanol at a location in this Commonwealth;

(8)    "Blended biodiesel" means a blend of biodiesel with petroleum diesel so that the

       percentage of biodiesel in the blend is at least two percent (2%) (B2 or greater);

(9)    "Ethanol" means ethyl alcohol produced from corn, soybeans, or wheat for use as a

       motor fuel that meets the current American Society for Testing and Materials
       specification D4806 for ethanol;

(10) "Ethanol-based tax credits" means the cellulosic ethanol tax credit provided for in

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HB053710.100-1419                                                                            GA
UNOFFICIAL COPY AS OF 07/20/10                            09 REG. SESS.       09 RS HB 537/GA



       KRS 141.4244 and the ethanol tax credit provided for in KRS 141.4242;

(11) "Ethanol producer" means an entity that uses corn, soybeans, or wheat to

       manufacture ethanol at a location in this Commonwealth;

(12) "Renewable diesel" means a renewable, biodegradeable, non-ester combustible

       liquid that:

       (a)     Is derived from biomass resources as defined in KRS 152.715; and

       (b)     Meets the current American Society for Testing and Materials Specification

               D396 for fuel oils intended for use in various types of fuel-oil-burning
               equipment; D975 for diesel fuel oils suitable for various types of diesel fuel

               engines; or D1655 for aviation turbine fuels; and

(13) "Renewable diesel producer" means an entity that manufactures renewable diesel at

       a location in this Commonwealth.

       Section 7. KRS 141.423 is amended to read as follows:

(1)    (a)     A biodiesel producer, biodiesel blender, or renewable diesel producer shall be

               entitled to a nonrefundable tax credit against the taxes imposed by KRS

               141.020 or 141.040 and KRS 141.0401 in an amount certified by the

               department under subsection (4) of this section. The credit rate shall be two

               dollars ($2) per biodiesel gallon produced from algae by a biodiesel
               producer, one dollar ($1) per biodiesel gallon produced from feedstocks other

               than algae by a biodiesel producer, one dollar ($1) per gallon of biodiesel

               used in the blending process by a biodiesel blender, and one dollar ($1) per

               gallon of renewable diesel produced by a renewable diesel producer, unless

               the total amount of approved credit for all biodiesel producers, biodiesel

               blenders, and renewable diesel producers exceeds the annual biodiesel and

               renewable diesel tax credit cap. If the total amount of approved credit for all
               biodiesel producers, biodiesel blenders, and renewable diesel producers

               exceeds the annual biodiesel and renewable diesel tax credit cap, the

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HB053710.100-1419                                                                          GA
UNOFFICIAL COPY AS OF 07/20/10                            09 REG. SESS.       09 RS HB 537/GA



               department shall determine the amount of credit each biodiesel producer,

               biodiesel blender, and renewable diesel producer receives by multiplying the

               annual biodiesel and renewable diesel tax credit cap by a fraction, the

               numerator of which is the amount of approved credit for the biodiesel

               producer, biodiesel blender, and renewable diesel producer and the

               denominator of which is the total approved credit for all biodiesel producers,

               biodiesel blenders, and renewable diesel producers.

       (b)     The credit allowed under paragraph (a) of this subsection shall be applied both
               to the income tax imposed under KRS 141.020 or 141.040 and to the limited

               liability entity tax imposed under KRS 141.0401, with the ordering of credits

               as provided in KRS 141.0205.

(2)    Re-blending of blended biodiesel shall not qualify for the credit provided under this

       section.

(3)    The credit shall not be carried forward to a return for any other period.

(4)    Each biodiesel producer, biodiesel blender, and renewable diesel producer eligible

       for the credit provided under subsection (1) of this section shall file a tax credit

       claim for biodiesel gallons produced or blended in this state or for renewable diesel

       produced in this state on forms prescribed by the department by the fifteenth day of

       the first month following the close of the preceding calendar year. The department

       shall determine the amount of the approved credit based on the amount of biodiesel

       produced, biodiesel blended, or renewable diesel produced in this state during the

       preceding calendar year and issue a credit certificate to the biodiesel producer,

       biodiesel blender, or renewable diesel producer by the fifteenth day of the fourth

       month following the close of the calendar year.

(5)    In the case of a biodiesel producer, biodiesel blender, or renewable diesel producer
       that has a fiscal year end for purposes of computing the tax imposed by KRS

       141.020, 141.040, and 141.0401, the amount of approved credit shall be claimed on

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HB053710.100-1419                                                                          GA
UNOFFICIAL COPY AS OF 07/20/10                             09 REG. SESS.         09 RS HB 537/GA



       the return filed for the first fiscal year ending after the close of the preceding

       calendar year.

       Section 8. KRS 141.4248 is amended to read as follows:

(1)    (a)     If, in any calendar year, all approved applications for credit filed pursuant to

               KRS 141.4242 and 141.4244 do not completely use the annual cellulosic

               ethanol tax credit cap established by KRS 141.4244 or annual ethanol tax

               credit cap established by KRS 141.4242, as the case may be; and

       (b)     The other ethanol-based tax credit program has total approved applications for
               credit that exceed the annual cap established for that program;

       then the unused annual ethanol tax credit cap may be transferred to the annual

       cellulosic[ other] ethanol[-based] tax credit cap, and half of the unused annual

       cellulosic ethanol tax credit may be transferred to the annual ethanol tax credit
       cap[program].

(2)    The amount of credit cap transferred from one (1) program to the other shall not

       exceed the amount necessary for all approved applicants to receive the[ one dollar

       ($1)] per gallon credit provided for in KRS 141.4242 and 141.4244, as the case may

       be.

(3)    Any unused cap remaining for any calendar year after both programs have been

       fully funded shall not be available to be used in any other year.

       Section 9. KRS 152.715 is amended to read as follows:

As used in KRS 152.710 to 152.725, unless the context requires otherwise:

(1)    "Alternative transportation fuels" means crude oil or transportation fuels produced

       by processes that convert coal, waste coal, or biomass resources or that extract oil

       either from oil shale or tar sands to produce crude oil or fuels for powering

       vehicles, aircraft, and machinery. "Alternative transportation fuels" may include but
       are not limited to petroleum, jet fuel, gasoline, diesel fuel, hydrogen derived from

       coal, and diesel fuel and ethanol derived from biomass;

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HB053710.100-1419                                                                             GA
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(2)    "Synthetic natural gas" means pipeline quality or industrial quality natural gas

       produced from coal through gasification processes;

(3)    "Fossil energy resources" means reserves of coal, oil shale, and natural gas; and

(4)    "Biomass resources" means any organic matter that is available on a renewable or

       recurring basis, including agricultural crops and trees; wood and wood residues;

       plants, aquatic plants, and plant oils; grasses; animal fats and animal by-products;

       animal manure; residue materials; and waste products.

       Section 10. KRS 154.27-020 is amended to read as follows:
(1)    This subchapter shall be known as the "Incentives for Energy Independence Act."

(2)    The General Assembly hereby finds and declares that it is in the best interest of the

       Commonwealth to induce the location of innovative energy-related businesses in

       the Commonwealth in order to advance the public purposes of achieving energy

       independence, creating new jobs and new investment, and creating new sources of

       tax revenues that but for the inducements to be offered by the authority to approved

       companies would not exist.

(3)    The purpose of this subchapter is to assist the Commonwealth in moving to the

       forefront of national efforts to achieve energy independence by reducing the

       Commonwealth's reliance on imported energy resources. The provisions of this

       subchapter seek to accomplish this purpose by providing incentives for companies

       that, in a carbon capture ready manner, construct, retrofit, or upgrade facilities for

       the purpose of:

       (a)     Increasing the production and sale of alternative transportation fuels;

       (b)     Increasing the production and sale of synthetic natural gas, chemicals,

               chemical feedstocks, or liquid fuels, from coal, biomass resources, or waste

               coal through a gasification process; or
       (c)     Generating electricity for sale through alternative methods such as solar

               power, wind power, biomass resources, landfill methane gas, hydropower, or

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HB053710.100-1419                                                                           GA
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               other similar renewable resources.

(4)    To qualify for the incentives provided in this subchapter, the following

       requirements shall be met:

       (a)     For an alternative fuel facility or gasification facility that uses oil shale, tar

               sands, or coal as the primary feedstock, the minimum capital investment shall

               be one hundred million dollars ($100,000,000);

       (b)     For an alternative fuel facility or gasification facility that uses biomass

               resources as the primary feedstock, the minimum capital investment shall be
               twenty-five million dollars ($25,000,000); and

       (c)     For a renewable energy facility, the minimum capital investment shall be one

               million dollars ($1,000,000).

(5)    The incentives under the Incentives for Energy Independence Act are as follows:

       (a)     An advance disbursement of post-construction incentives for which an

               approved company has been approved, the maximum amount of which is

               based upon the estimated labor component of the total capital investment of

               the eligible project, and the utilization of Kentucky residents during the

               construction period as set forth in KRS 154.27-090;

       (b)     Sales and use tax incentives of up to one hundred percent (100%) of the taxes

               paid on purchases of tangible personal property made to construct, retrofit, or

               upgrade an eligible project, as set forth in KRS 139.517 and 154.27-070;

       (c)     Up to eighty percent (80%) of the severance taxes paid on the purchase or

               severance of coal that is subject to the tax imposed under KRS 143.020 and

               that is specifically used by an alternative fuel facility or a gasification facility

               as feedstock for an eligible project, as set forth in KRS 143.024 and 154.27-

               060;
       (d)     Up to one hundred percent (100%) of the Kentucky income tax imposed under

               KRS 141.040 or 141.020, and the limited liability entity tax imposed under

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HB053710.100-1419                                                                               GA
UNOFFICIAL COPY AS OF 07/20/10                            09 REG. SESS.          09 RS HB 537/GA



               KRS 141.0401 on the income, Kentucky gross profits, or Kentucky gross

               receipts of the approved company generated by or arising from the eligible

               project, as set forth in KRS 141.421 and 154.27-080; and

       (e)     Authorization for the approved company to impose a wage assessment of up

               to four percent (4%) of the gross wages of each employee subject to the

               Kentucky income tax:

               1.   Whose job was created as a result of the eligible project;

               2.   Who is employed by the approved company to work at the facility; and
               3.   Who is on the payroll of the approved company or an affiliate of the

                    approved company;

               as set forth in KRS 154.27-080.

(6)    The maximum recovery from all incentives approved under this subchapter for an

       eligible project shall not exceed fifty percent (50%) of the capital investment in the

       eligible project.

(7)    The incentives available to an approved company shall be negotiated with and

       approved by the authority.

(8)    If a newly constructed facility that qualifies for incentives under this subchapter is

       later upgraded or retrofitted in a manner that would qualify for incentives under this

       subchapter, the retrofit or upgrade shall be a separate eligible project, and the

       minimum investment requirements and carbon capture readiness requirements, if

       required, shall be met for the retrofit or upgrade to qualify for incentives under this

       subchapter.

(9)    The General Assembly finds that the authorities granted by this subchapter are

       proper governmental and public purposes for which public moneys may be

       expended.
       Section 11. Sections 6 through 10 of this Act apply to taxable years beginning

after December 31, 2010.

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HB053710.100-1419                                                                             GA

								
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