BD Zones and BDO Zones: Weaponizing Biomass to support a Bio-Fueled Economic Recovery

Step 2: Clarify OZone Guidance and Designate BDO Zones

The Opportunity Zone Program is an untapped engine for making the bio-economy a key component of the economic recovery. By combining the benefits of BD Zones with tax incentives, we can create supercharged potential for bioeconomy development, related employment and economic recovery.

There are 8,764 OZones located in distressed communities across the country.  Not all Opportunity Zones overlap with BD Zones, but those that do could easily be eligible for existing OZone tax incentives. Where there is overlap, there is opportunity. We call these overlapping regions Bioeconomy Development Opportunity Zones or simply, BDO Zones (Fig. 2).

The latest round of revised OZone Guidance issued by Treasury and the IRS made clear that green energy projects can qualify for OZone tax treatment.[vi]  Already, there has been over $46 billion invested in 209 Qualified Opportunity Funds (QOFs) with 16 QOFs designated for clean energy- primarily solar. But there are no QOFs yet for investment into the bio-sectors.

The reason is that Ozone Guidance still does not make clear to bio-investors and developers that investment in OZones will definitely qualify for Ozone tax incentives. For the bioeconomy to be a major pillar of the economic recovery, this needs to change.

We believe that a relatively minor clarification to the OZone Guidance that spells out how bio-projects located in OZones could qualify for OZone tax incentives would unlock billions of development dollars for bioeconomy development in BDO Zones.

Clarifications to OZone guidance are made by US Treasury and the IRS under IRC 1400Z-2. New OZone guidance must take into account the characteristics of bio-economy projects. For example, biomass supply chains are typically 50 – 75 miles from the plant: BD Zones typically cover an area that stretches 7,800 – 17,600 square miles or more. If an advanced biofuel plant locates inside an OZone and derives most its revenue within the OZone, but creates a significant portion of its jobs outside the OZone, will it qualify for OZone tax incentives? New guidance from Treasury must be issued to make the answer clear—and the answer needs to be ‘yes’.

This guidance clarification would enable bio-development within BDO Zones to tap the three separate yet related tax inducements[vii] under the OZone program:

1. Temporary deferral of taxes on previously earned capital gains.Existing assets with accumulated capital gains are eligible for investment in Opportunity Funds. Those existing capital gains are not taxed until the end of 2026 or at such time as the asset is disposed of
2. Basis step-up of previously earned capital gains invested.For capital gains placed in Opportunity Funds for at least 5 years, investors’ basis on the original investment increases by 10 percent. If invested for at least 7 years, investors’ basis on the original investment increases by 15 percent.
3. Permanent exclusion of taxable income on new gains.For investments held for at least 10 years, investors pay no taxes on any capital gains produced through their investment in Opportunity Funds.

Click on the next page to read about BDO Zones De-risking and Driving Investment, why the time to move is now, and 3 recommendations to government.