Tuesday, March 24, 2020

Coronavirus & the wood heating community: agencies, industry and consumers brace for impacts

The coronavirus tidal wave has begun to break, and consumers, industry and agencies will all be impacted. An economic shock in March/April --- one of the least active seasons for stove and fuel sales and installs --- would be the best possible timing for the wood stove industry most years. But this year, the pandemic hit virtually during the same week that oil prices fell off a cliff and the EPA made a final ruling that industry had not made a sufficient case for a sell-through for Step 1 heaters. 
 
In eight states, wood heating soared by more than 100%
as a result of a recession --- and a spike in oil prices.
The recession of 2008/09 provides some valuable lessons. Like that recession, the one hitting now will make consumers drastically cut back on spending. We don’t yet know how much this will impact the fall sales season but we can expect stove sales will be reduced.  In the 2008/09 recession, wood heating increased by up to 50% in many states – and so did wood smoke problems – but that was when oil prices were at an all-time high.

While wood heating increased drastically back then, wood stove sales stayed flat or declined. Tens of thousands of homes that had relied on other heating fuels now relied on their stoves far more. As the buying power of consumers dwindles, people hang on to their old stoves or even dust-off ones that had not been used much. AGH tracked this trend in a 2013 blog:

 “The surge in wood heating between 2000 and 2010 was partly due to reduced buying power and job loss. New studies show that lower income families have locked in that reduced buying power since the end of the recession … and is also likely contributing to the growth in the sales of less expensive wood stoves such as those sold at big box stores, compared to higher priced specialty hearth stoves.”

The health crisis may be under control by the fall, but the economic fall-out will likely be with us still. Last week, a record 3.2 million Americans filed for unemployment.  Thousands of those worked in the home energy sector.  Savings and retirement accounts ravaged by the stock market’s implosion will lead consumers to put off larger purchases, like stoves.  
 
As wood heating soared after 2008, sales of new stoves
drastically declined, with pellet stoves and boilers
more susceptible in changes to oil prices.
Pellet stoves sales will likely be hit even harder, as economic recessions favor wood stoves, where fuel is cheaper or free. Some families that have relied on pellet heat may turn back to cordwood if their budgets can’t sustain pellet fuel purchases. Factories making spare parts for pellet stoves, some of which are in Wuhan Province where the Coronavirus originated, are resuming operations after a 2-month shut down.

Most manufacturers and retailers are diversified. Gas stoves have taken over market share from wood stoves, and pellet grills have taken over market share from pellet stoves.  

Covid-19 poses a massive threat to the wood heating industry because it coincided with a historic free fall in the price of oil, not seen since 1991. With little prospect for oil prices to rise in the near future, the renewable heat sector faces the prospect of going through the winter of 2020/21 at a huge disadvantage. 

Coronavirus and the EPA Final Rule

The timing of the coronavirus outbreak also coincided with the EPA’s final announcement  that it was would not extend compliance deadlines. The EPA found that industry did not present any data to show "manufacturers could not develop Step 2 models in time" and "provided insufficient data showing a percentage decrease in sales approaching 2020." 

Inside EPA, an insider, subcription only publication noted this in its analysis: “The Trump administration is taking the rare step of rejecting an industry call to ease EPA emissions standards … [which is ] … notable for appearing to be at odds with the administration’s overall deregulatory agenda that has included softening many other agency air, water and other rules.” 
 
Gas appliances increasingly dominate the market for both
manufacturers and retails but they too will be hit by the
Covid-19 fallout. Source: Hearth & Home, April 2017.
Time had been working against industry, as manufacturers kept proving the Step 2 emission limits were reasonable by certifying stoves under 2 – 2.5 grams and boilers under 10 – 15 lb/mmBtu.  The same cannot be said of warm air furnaces, as only two models have been certified in the last 4 years. But no one could have foreseen the perfect storm that would unleash a pandemic virtually the same week that EPA issued its ruling. 

The EPA’s ruling and the intervening years of certifications to Step 2 standards has also likely dealt a major blow to the industry’s lawsuit, which is still pending. The coronavirus storm comes after manufacturers made most of their investments to retest their stoves, but before they could recoup those costs. Now, test labs may have to close, throwing yet another wrench into the timeline to get remaining stoves certified before May 15, 2020.

The role of the federal government

The federal government is rolling out a series of stimulus packages with provisions that may blunt some of the blow for manufacturers, retailers and employees. Again, industry will have to see if it has the connections and goodwill to convince Congress to provide specific relief for wood heating.  Democrats are floating various provisions to help renewable energy sectors, in part to balance the stimulus aid that fossil fuel companies are likely to get. One group urged a $2 trillion “green” stimulus plan that includes everything from $1 billion cash for trading in old energy-wasteful household appliances to an extension of renewable energy and electric-vehicle tax credits.  This could extend or even raise the $300 tax credit for wood and pellet heaters, a small but important incentive for the wood heater community.

The wood and pellet heating industry helps roughly 10 million households reduce fossil heating fuel and plays a vital role in the residential renewable energy fabric of America. With the new emission standards that took effect in 2015 and those scheduled for May 2020, the stock of stoves and boilers in America is slowly becoming cleaner and more modern. The growing pellet heat industry in America is especially vulnerable to low oil prices and needs support.

HBPA sent a letter to congressional leadership on March 20 urging Congress to extend the deadline for selling Step 1 stoves to Dec. 31, 2020.  This would help those retailers who just lost their window to sell-off their stranded inventory. The HPBA letter included testimonies from scores of retailers, relating how sales have dried up, foot traffic in their stores halted and employee layoffs begun. A December deadline would “give retailers time to sell these soon-to-be stranded products. Without this relief, and in combination with impacts all small businesses are facing at this time, numerous stores will close permanently.” (As of March 26, it appears that the proposed language from HPBA did not make it into the stimulus package passed on March 25.  However, talks are already starting for energy and energy efficiency relief in a fourth stimulus bill.)

The 2009 Economic Stimulus legislation signed by President Obama included a 30% tax credit (up to $1,500) for the purchase of a 75%-efficient biomass-burning stove. That tactic could work again and give retailers of wood and pellet stoves and boilers a much needed boost in the summer and fall of 2020 and through 2021. This policy response, being pushed by BTEC, is at the core of the residential parts of the BTU Act that came close to passing in 2019.

An even longer term, badly needed program is a federally-funded change out program which also has some traction in Congress. Subsidizing the swap out of an old stove for a new one targets people who need or want to heat with a renewable energy source. It sustains and creates jobs, helps family affordably heat their homes, and reduces air pollution. This policy mechanism, proposed by Senators Murkowski and Carper, would mainly benefit areas experiencing high wood smoke pollution out West, but would not equally benefit most states and retailers like the BTU Act. 

Additional funding will also be needed for LIHEAP, the federal low-income energy assistance program.  An additional $900 million is reportedly in the latest stimulus package.

Powerful lobbyist groups from big industries like airlines, cruise ships and fossil fuel companies are already lining up at the federal trough, ready to absorb anything and everything they can get. AGH calls on Congress to support small businesses, employees and consumers in the renewable heat sector. 

Implications for state and local agencies
This shows a spike in wood smoke following the 2008
recession in one county due in part to a renewed
 reliance on older stoves.

If this economic downturn lasts through the winter of 2020/21, heating with wood may soar, like it did in 2009, however low oil and gas prices may ameliorate this. When wood heating soars, so does wood smoke. This will put additional strains on air agencies, particularly in Western states that experience far worse weather inversions than Great Lakes and eastern states. Burn bans will be even tougher on families who cannot afford propane and electric heating.  

Bad recessions lead to major rises in the use of coal in much of eastern Europe and Turkey.  In Greece, the economic crisis in 2013 was so bad that people were cutting trees in public parks, burning furniture and fouling cities with wood smoke on an unprecedented scale. All of this taxed various government agencies as they struggled to help households secure affordable heat and combat air pollution.

AGH urges states to maintain funding for programs that replace old stoves with cleaner, renewable heating options and for incentive programs that help households purchase cleaner and more efficient renewable heating technologies, such as advanced wood and pellet heaters. 

The coronavirus has helped bring much cleaner air to countries around the world as industrial activity slows or stops, airlines cancel flights and commuters work from home. One study, featured in a headline said: “Coronavirus Lockdown Likely Saved 77,000 Lives In China Just By Reducing Pollution.”  

What consumers can do

It is still too early to tell if there could be disruptions in the domestic firewood and heating pellet markets. Nonetheless, those who heat with pellets ought to think about buying early and stocking up this spring and summer.

Consumers who heat with cordwood can prepare by making sure they have plenty of firewood split, covered and ready for next winter – which starts in 7-8 months. As unemployment soars this spring, many people should have more time on their hands. And if you purchase your firewood, you can help by supporting the firewood industry during the warm months, before wood is in short supply this coming winter.

Getting your chimney swept by a professional is vital before the next heating season, especially if you plan to use your stove more, and you used at least one cord last year. It’s also a great way to support your local chimney sweep or stove retailer during this downturn.  

For households who use stoves for most of their home heating, it’s important to upgrade to an EPA certified model if they don’t have one already. And this spring is a time when your local retailer may be offering rock bottom prices. It’s even more important for households with old stoves to get a professional chimney sweep as they can tell you how safe your install is and keep you as safe as possible for another winter. If you do need to upgrade but can’t afford a new stove, there are now many decent certified stoves on the second-hand market. There are also some decent brands at big box stores, and your local chimney sweep can likely install those for you to ensure its safe enough for you, your family and your insurance company.   

Implications for the wood heater industry

Like many industries, the economic impact of Covid-19 could be very serious for the wood heater supply chain. Retailers with underlying health conditions are also among the most vulnerable. A slowdown in new construction will mostly likely impact the gas stove and fireplace market and pellet stoves are more vulnerable to cheap oil and gas than wood stoves.

The wood and pellet stove industry has moved past much of the impacts of the new EPA regulations, but this economic downturn could cause a prolonged problems on many fronts. Warm winters, low gas and oil prices, high unemployment and a host of other factors all also point to an extremely tough year or even two.  

The immediate impacts are being felt by stove retailers, many of whom are required to shutter their shops. HPBA laid out the impacts to this sector extensively in their letter to Congressional leadership. Chimney sweeps are more likely to be considered essential and may weather this storm better than the equipment sales and installation side.  

European stove production lines are already shut down and many, if not most, US stove factories will likely be shut down soon.  

Today is Tuesday, March 24. This post will quickly become out of date as things are moving fast. Stay tuned. 

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