AGH urges the IRS to issue guidance on wood heater eligibility for tax credits

Thank you for this opportunity to provide comments.  IRS guidance on wood heaters is long overdue.  The Alliance is an independent non-profit organization that strives to represent the interests of consumers of wood and pellet heaters.  We believe a tax credit for wood and pellet heaters is essential as we transition from fossil fuel to renewable fuels. 

The IRS asked whether guidance needed to define the term "thermal efficiency rating"? If so, what testing procedures should the Treasury Department and the IRS consider requiring or permitting to be used by manufacturers to measure thermal efficiency and demonstrate ratings that are valid for purposes of the § 25C credit?

 

Summary: The most reliable method to protect consumers, ensure that tax credits are going to compliant models and create a level playing field for manufacturers is for Treasury/IRS to specify that eligibility is limited to units listed in the EPA Certified Wood Stove Database that have an overall weighted average efficiency of 75% or more using the higher heating value of the fuel.  

 

Using the EPA database to determine eligibility is the most effective solution from a variety of public policy perspectives but it is not without problems: multiple test methods result in disparate EPA seasonal average efficiency results for wood and pellet boilers, which are not comparable, and which are not helpful for consumers or for the purposes of setting an efficiency threshold for the tax credit.  The EPA is aware of the problem but an impending change in IRS guidance on wood heater tax credits is likely to hurt members of the industry who sell some of the most sophisticated modern wood heating equipment.  We urge the IRS to consult with the EPA on this problem and find a solution as soon as possible.

 

In addition, we urge the IRS to make it clear that the $2,000 tax credit for wood heaters is in addition to the $1,200 for other 25C qualifying home projects, not instead of them. The IRS should clarify that the full $3,200 is available to taxpayers. We also urge the IRS to confirm that 25C tax credits are available to renters, not just to owners of residences, based on the removal of the term “owner” by Congress.

Finally, the IRS asked for comments on certification or other requirements for home energy auditors.  We urge the IRS to affirm that when energy auditors are directed to inspect HVAC systems, that wood and pellet heaters are recognized as legitimate heating devices and need to be inspected for safety based on nationally recognized criteria, just as other heating systems are.  Various agencies and institutions such as DOE, NREL and BPI have begun to address this problem but wood heater remain marginalized, leaving many older, self-installed units that pose fire hazards and are not being properly inspected.

Background on wood and pellet heater testing: There is universal acceptance among test labs and manufacturers that efficiency is measured using in accordance with CSA B415.1-10.  When stoves are tested for EPA certification, the traditional test is to use the EPA’s “Method 28” which consists of 4 burn rates, from low (Category 1) to high (Category 4).  The lowest burn rate allows the lowest amount of air to flow through the stove and typically produces a higher efficiency.  High burn rates allow maximum airflow through the stove, and typically produce lower efficiencies.  The labs then combine these 4 efficiency numbers and produce “a weighted average efficiency” which is what is recorded on the EPA database of certified heaters as “overall efficiency.”

CSA B415 produces three types of efficiency: Overall efficiency, combustion efficiency and thermal efficiency.  The EPA uses Overall Efficiency to get an Average Overall Efficiency” and EPA guidance on testing deficiencies makes no reference to “thermal efficiency.”  Even within the wood and pellet heater industry, there is confusion between the terms “overall efficiency,” “thermal efficiency” and “weighted average efficiency.” The image below is an representative example of how test labs report efficiencies.  

Each of the four burn rates produces an overall efficiency number, and combustion efficiency number and heat transfer, or thermal efficiency number.  The EPA averages the four overall heating efficiency numbers to get a weighted average efficiency.  In the EPA database, this weighted average efficiency is in the column titled “Overall efficiency- HHV.” (The EPA used to use the term “Actual measured efficiency CSA B415.1 after they stopped using default, estimated efficiencies in 2015.)

There are eight labs approved by the EPA to conduct certification testing, including one in Canada, Czech Republic, Denmark and Sweden.  The labs do not use efficiency terminology consistently, and often just refer to “efficiency” rather than “overall efficiency” or “weighted average efficiency” rather than “weighted average overall efficiency.” All labs clearly distinguish HHV and LHV, and no lab uses “thermal efficiency” in their weighted averages, as far as we know.

However, some manufacturers will use “Heat transfer efficiency” otherwise known as “thermal efficiency” numbers to qualify models for the tax credit because they tend to be 1-2% higher than “overall efficiency.” Thus, if a stove has an average overall efficiency of 75%, it could have a single burn rate as low as 69%, using thermal efficiency numbers.  No manufacturer uses combustion efficiency for purposes of the tax credit as far as we know.  Combustion efficiencies tend to be in the 96-98% range.

Wood heaters are tested by EPA approved labs and then the EPA uses the data in the report to certify the stove for sale. Once it’s certified the EPA puts summary data on its Database of certified wood heaters. Since 2015, the EPA has also required manufacturers to post the non-confidential parts of their lab test report on their website.  Those reports are public and you can find the efficiency numbers for each burn rate, but they are not easy for consumers to navigate. On the contrary, they are dense, full of fine, highly technical jargon and are only used by regulators and experts.

Statistics: Currently, 25 of the 31 central wood heaters are eligible for the tax credit, using the EPA list.  113 of the 262 room heaters are above 75%, using the EPA list.  Overall, that would make about half of all heaters eligible, if the IRS were to use the efficiencies listed on the EPA database.

Public policy considerations: To achieve a level of transparency for the consumer, using the EPA database of certified heaters is an obvious solution.  Some consumers care about efficiency and the only place that consumers can make side-to-side comparisons is on the EPA database.  With pellet stoves, efficiency typically matters more than wood stoves because unlike cordwood, all pellets must be purchased, and a more efficient stove can save consumers by using less fuel.

If the IRS wants to be more lenient with manufacturers and allow more than about half of heaters to qualify, it could keep allowing manufacturers to issue certificates without any guidance, or specifically say that if any burn rate achieves 75% efficiency or more, it can be eligible for the tax credit.  If the IRS specified this, we expect all manufacturers would quickly adopt this system and about 80% or more of appliances would be deemed eligible.

Public policy is also served by setting a level playing field for all manufacturers, instead of allowing some brands to undercut others by claiming their units are eligible for the tax credit when they are below 75% on the EPA database.  Almost all US manufactures now use the EPA database to determine if their models are eligible.  

By setting an efficiency threshold for wood heaters, certain types of wood heater benefit.  The Alliance for Green Heat has monitored the changes to efficiency in wood heater for more than 10 years and documented the various ways that manufacturers claim that their stoves are eligible for the tax credit.  The averages below were calculated several years ago, when efficiencies were lower but the conclusion is remains the same: hybrid wood stoves have on average, the highest efficiencies are virtually all of them qualify for the tax credit, under any definition.  More manufacturers are building hybrid stoves in order to qualify for the tax credit and whereas there were only 6 models several years ago, today there are at least 21. Non-catalytic stoves, the cheapest, most popular, and most basic stove, have the hardest time reaching 75% efficiency. Today, only 15 out of 113 non-catalytic models are 75% or over.

From a public policy perspective, setting a 75% efficiency minimum, using the EPA database of certified heaters, is positive in that it tends to favor stoves that emit fewer particulate matters (PM) emissions.  Non-catalytic stoves tend to have higher emissions both in the lab and in the hands of homeowners if other factors are equalized such as moisture content of wood and ability of the operator. Pellet stoves and hybrid stoves tend to the cleanest, as used by homeowners.

Many taxpayers want to be able to download a certificate of eligibility to keep in their files, and taking a screen shot of the EPA list may not be as easy or feel as secure. The owner’s manual of the stove almost always has the weighted average efficiency, so that can also serve as proof of eligibility for the taxpayer.

There are two classes of heaters that would be unfairly penalized by an IRS requirement to base eligibility off the efficiency numbers in the EPA database.  The first is that multiple test methods result in disparate EPA seasonal average efficiency results for some indoor wood and pellet boilers which are abnormally low and are not comparable to other boilers or helpful for consumers or for the purposes of setting an efficiency threshold for the tax credit.  The EPA is aware of the problem, as is NESCAUM and NYSDERDA who are involved in testing programs to try to identify the calculations and assumptions leading to this problem and then find a solution.

The second are Masonry heaters are also penalized but since they do not yet have a pathway to EPA certification, the solution is more complicated. There are consistent and reliable ways to test factory-built masonry heaters and those manufacturers could issue Certificates of eligibility for the tax credit, but they will not be listed on the EPA database.  Standard combustion chambers used in site-built masonry heaters could also be tested but this is more complicated.  The Masonry Heater Association is the point group on this issue.

IRS options

The IRS has several options, depending on what their goals are.  

 

1.     The first, and best option, in our opinion is to use the “overall efficiency” numbers listed on the EPA database of certified wood heaters be the sole arbiter and end the practice of using manufacturer certificates, or only allow manufactures to issue certificates for heater models that are listed at 75% efficiency or higher on the EPA database. Many of the benefits of this are discussed above in the public policy discussion.

 

2.     There is a hybrid option of allowing manufacturers to issue certificates of eligibility if a model exceeds is 75% efficient or over for stoves and outdoor boilers or furnaces, or is 75% or more overall efficiency on any of their burn rates for indoor boilers or furnaces. 

 

3.     There is the current system, where manufacturers self-issue a certificate to declare that a particular model is eligible, sometimes without any reference to efficiency figures or definitions. This has resulted in manufacturers claiming models with weighted average efficiencies as low as 64% to be eligible. This has also allowed manufacturers to claim units that are not EPA certified to be eligible without providing any efficiency data. Another weakness of this option is that there is no agency with the time, resources, or agility to provide enforcement in this area, leaving consumers vulnerable to false claims. 

 

On the following pages, we have included representative samples of four types of manufacture certificates of eligibility for the tax credit.  The disparity of the language used and the range of models that are claimed to be eligible for the credit show a clear need for more guidance for the IRS.

 

A. Example of a certificate that claims eligibility without reference to efficiency, even though it appears all units are above 75% efficiency based on the EPA database.

 

B. Example of a company that claims its units are eligible, even though they are well below 75% on the EPA list and do not meet 75% even on individual burn rates.

 

C. Example of EPA non-certified stoves without EPA approved third party lab efficiency data to claim eligibility.

 

D. Example of a certificate that claims models are eligible solely because they are “qualified energy property” with no reference to efficiency.

 

AGH urges IRS guidance to recognize efficiencies in the EPA Database

 Attorneys for AGH have facilitated numerous phone calls and correspondence between AGH and the IRS staff who write guidance for Section 25D of the US tax code that provides tax credits for residential renewable energy property.  This summarizes our communications with IRS attorneys and staff.

 

The Alliance for Green Heat (AGH) strongly urges the IRS to issue guidance on which wood and pellet heaters are eligible for the new 26% ITC tax in Section 25D.  Congress added  “qualified biomass fuel property expenditures” to section 25D.  Just as with Section 25C, this include stoves, boilers and furnaces that use biomass as fuel.  (Ninety-nine percent of biomass heaters use wood or wood pellets, but corn or wood chips could be used as well.)

 

Modern wood and pellet heaters are an important part of the array of renewable technologies we need to combat climate change. This tax credit is an important policy tool to help taxpayers reduce their fossil heating fuel usage with a renewable fuel.  By targeting wood and pellet heaters that are at least 75% efficient, Congress is helping taxpayers afford the more expensive and cleaner heaters.  Congress is also benefitting those stove manufacturers who invested in the R&D to make more efficient heaters and encouraging all manufacturers to reach higher efficiency levels in the future.  

 

Your guidance can be very simple: to be eligible for the 25D tax credit, wood and pellet heaters (e.g. qualified biomass fuel property expenditures) must have an efficiency of 75% or higher on the EPA-Certified Wood Stove Database.  

 

You may want to also add that manufacturers cannot issue certificates of eligibility unless their heater is rated at 75% efficient or higher on the EPA-Certified Wood Stove Database.  Instead of taxpayers keeping manufacturers certificates of eligibility in their files, they could simply rely on the EPA database. 

 

We urge the IRS to act quickly on this because the tax credit is already in effect and manufacturers, retailers and consumers need to be sure which heaters qualify.  While we believe the plain meaning of the credit already is clear and that the EPA database is the obvious, authoritative resource, significant abuse of the credit is likely unless you issue timely guidance.

 

To be eligible the biomass fuel property, Congress stated that heaters must have “a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel).”  The IRS should provide guidance that the EPA Certified Wood Stove Database is the way to determine which heaters are at least 75% efficient. Note that the EPA maintains a data for room heaters (stoves) and for central heaters (boilers and furnaces).  Both of these databases use the higher heat value to measure efficiency and every EPA certified heater has a verified efficiency from an EPA approved third party test lab. 

 

The column in the EPA database is titled “Overall Efficiency” which they define as “the percentage of heat that is transferred to the space to be heated when a load of fuel (e.g., firewood, pellets) is burned.” Thus it is clear that their use of “overall efficiency” refers to thermal efficiency, as used by the US Congress.  

 

There is no other consistent, reliable and transparent way for stakeholders to determine the efficiency of qualified biomass fuel property other than using the efficiency listings on the EPA Certified Wood Heater Database.  Allowing manufacturers to issue certificates of eligibility based on cherry-picking the highest efficiency of one burn rate, rather than using the average of all the burn rates does not conform to the plain meaning of Congress’s intention.  If Congress wanted virtually all wood and pellet stoves and boilers to qualify, it could have either removed any reference to efficiency, or specifically said that the efficiency of any burn rate or test would qualify. Note that Congress also did not specify that efficiency numbers had to come from a third party, EPA approved test lab during a certification test.  Thus, a clever industry lawyer could argue, that in addition to choosing the highest efficiency number from any burn rate, they could also use their own test labs to determine efficiency or use a test from third party lab that was not part of a certification test.

 

Unfortunately, the wood and pellet stove industry has a track record of subverting the plain language that Congress has used when it defined which stoves should be eligible for the previous, $300 tax credit under section 25C.  Up until Jan. 1, 2021, when wood and pellet heaters were under Section 25C manufacturers could use the lower heating value, but more importantly, they did not have to disclose the efficiency of the stove at all, or to disclose whether it was from a third-party lab or their own lab. Thus, virtually every single wood and pellet heater qualified for the Section 25C tax credit.  AGH wrote many blogs about this problem, and how manufacturers were able to take advantage of this tax credit and mislead consumers into thinking they were buying stoves at 75% efficiency or higher.

 

We do not recommend that taxpayers rely on a certificate from the manufacturer, unless the IRS states that a manufacturer can only issue a certificate if it is consistent with the efficiency listing on the EPA database of certified stoves.  

 

In addition, your guidance could state that in order to eligible for the 25D tax credit, the biomass fuel property must be EPA certified and appear on the Database of EPA Certified stoves.  All residential heaters on the market today are supposed to be certified by the EPA.  Fireplaces and chimeneas are not considered be residential heaters, thus they are not covered by EPA regulations. Typically, they also do not have or advertise thermal efficiency values.  But there is always some company that will try to get their uncertified product eligible for the credit unless the IRS makes it clear what can be eligible.

 

Various sectors of the wood heating industry may urge you to use a different definition of 75%.  Currently,  the website of the Hearth, Patio and Barbecue Association (HPBA) says that pending the expected IRS guidance, “the EPA certified wood heater database may be referenced.”  The Alliance for Green Heat worked with HPBA from 2017 through 2020 and they had been in agreement that the EPA database should be used to determine efficiency.  However, we understand that the Association’s Solid Fuel Section no longer has consensus on a position, and the Association is no longer able to take a position at this time. We understand that some leading companies believe that they can claim eligibility if any single burn rate was 75% or greater, instead of using the average of the burn rates.  This could result in an overwhelming majority of stoves being declared eligible.  Currently, about 45% of all wood and pellet stoves, boilers and furnaces would be eligible, based on the EPA list.

 

The only class of heater that has a good claim to high efficiency but cannot readily take advantage of this tax credit are masonry heaters.  Masonry heaters are currently exempt from EPA emission standards and thus do not have a pathway to measure and report emissions or efficiency.  While many masonry heater models are indisputable 75% efficient or higher, there is not a consistent, transparent way to compare them and find their efficiency, as there is with EPA certified stoves and boilers.  

According to the DOE website masonry heaters "produce more heat and less pollution than any other wood- or pellet-burning appliance."  The EPA website say Masonry heaters are typically very efficient heaters, and currently do not require EPA certification.   If the IRS is interested in finding a way to make masonry heaters eligible, I would encourage you to contact the Masonry Heater Association.  The Alliance for Green Heat is also available to provide you further detail about this uniquely clean and efficient class of wood heaters.

 

Congressional intent

 

AGH wrote a blog that looked at Congressional intent and noted that previous iterations of Congressional legislation included more detail.  For instance, For instance, the Home Energy Savings Act of 2019 said:

“This section would tighten energy efficiency standards for biomass stoves by requiring the efficiency to be determined in reference to the EPA’s “List of EPA Certified Wood Stoves,” “List of EPA Certified Hydronic Heaters,” or “List of EPA Certified Forced-Air Furnaces.” Biomass stoves, through 2020, would be required to have a thermal efficiency rating of at least 73 percent against these tighter standards. After 2020, biomass stoves would be required to have a thermal efficiency rating of at least 75 percent against these tighter standards.” 

This language was developed for Congress by a consortium of energy efficiency and other groups, including the Alliance to Save Energy, the ACEEE, our organization, HPBA and many others. This language turns up often in memos from this consortium to Congress, including this one on May 1, 2019.  If you scroll to the very bottom of the last page of that memo, you will find the suggested language for biomass heaters.

Biomass stove - Thermal efficiency of at least 75 percent. Product category cap of $300. 

o Proposed: Thermal efficiency of at least 73 percent higher heating value through 2020 – and 75 percent higher heating value after 2020 – as reported by the EPA on the "List of EPA Certified Wood Stoves" or “List of EPA Certified Hydronic Heaters” or “List of EPA Certified Forced-Air Furnaces.” Product category incentive cap raised to $400. 

Also please find attached an earlier memo signed by energy efficiency organization urging the IRS to use the North American higher heating value and the average efficiency.

Please do not hesitate to contact me if I can be of further assistance.  I can be reached at 202-365-4765.  

Sincerely,

 

John Ackerly,

President

 

 

 

Expanded tax credits for modern, high efficiency wood and pellet heaters a big step in the right direction

Maine Senators Collins and King were
primary, bi-partisan champions of an
investment tax credit for wood heat.

Update for 2023 - The legislative victory that achieved the 26% tax credit in 2020, has now been upstaged by a law that will give a 30% tax credit as of Jan. 1, 2023.  The only downside to the 30% credit is that is has a $2,000 cap, which makes it of little value for homeowners who want to install very expensive whole house wood or pellet heating systems. Click here for our blog on the 2023 - 2032 wood heater tax credit.

2020 - 2022 - On December 28, 2020 President Trump signed into a law legislation passed by Congress which was the largest renewable energy spending bill in a decade and included incentives for solar, wind, advanced wood heat and a host of other technologies. This marks the first-time modern wood heating systems have been granted an Investment Tax Credit (ITC), rather than the far smaller tax credit wood heating technologies had been receiving.

The incentive provides a 26% tax credit for stoves and boilers that are 75% efficiency or higher. Consumers can easily identify efficiency levels by checking the EPA lists of certified wood and pellet heaters. The credit has no upper limit and lasts for three years, declining to 22% in 2023.

The effort to pass such an ambitious bill was led by the Biomass Thermal Energy Council, who started lobbying for it in 2009. In recent years, another significant push was led by Charlie Niebling, a consultant for Lignetics and former Chairman of BTEC. The Alliance for Green Heat contributed time and resources to both of these efforts, along with many other BTEC members.

As the founding Chairman
of BTEC, Charlie Niebling
was a chief architect of the 
bill and perhaps its most
ardent advocate.

Many Senators and members of Congress signed on to various iterations of the bill over the last decade, but it was Senator Collins and Senator Angus King who provided the final push, along with Chairman Richard Neal in the House of Representatives.

The legislative effort gained momentum as new EPA regulations required wood and pellet heaters to be cleaner and to disclose their efficiencies. “This is an important step forward but it is only one piece of a much larger puzzle to modernize the technology and the test protocols,” said John Ackerly, President of the Alliance for Green Heat.

Analysis

Wood and pellet heaters that at least 75% efficient are cleaner on average than those that have efficiencies below this threshold. Pellet stoves that test over 75% efficient emit five times less carbon monoxide (CO) than those with efficiencies under 75%. Wood stoves that test over 75% efficiency emit less than half of the CO of their less efficient counterparts.

The 75% efficiency threshold favors pellet technologies, as consistently dry fuel and automated combustion make it far easier to achieve consistently higher efficiencies. Sixty percent of all pellet stove models are over 75% efficient, compared to only 40% of wood stoves. Most catalytic and hybrid wood stove models are above 75% efficient, but only 12% of non-catalytic stoves will be eligible for the tax credit.

The seventy-five percent efficiency requirement was originally chosen about seven years ago, when fewer appliances could meet that level. With today’s technology, 75% efficiency is not a particularly high threshold, but it is much higher than how the 75% threshold was interpreted by industry to meet the previous $300 wood heating technology tax credit. That credit, under Section 25C of the tax code was also pegged to 75% efficiency but Congress did not consistently specify high heating value.

Using efficiency as the sole metric to identify wood and pellet heaters to receive public subsidies is a blunt and imperfect metric but satisfies legislators’ need for simplicity. Particulate matter (PM) emissions from cord wood stoves and boilers are a more important metric for public health. Efficiency is a more valuable tool for pellet appliances since their lab tested efficiencies are a reliable indicator for the efficiency homeowners' get. But wood and pellet appliance manufacturers sometimes purposely lower their efficiency to achieve other goals valued by consumers. Some pellet stove manufacturers use excess oxygen, leading to lower efficiency, to keep the viewing glass clean. Some wood stove manufacturers use excess oxygen to achieve cleaner, faster combustion and to prevent the operator from giving the unit too little air, which causes smoldering. The State of Alaska is currently exploring new metrics to identify cleaner wood heaters, including using the amount of PM created during the first hour of certification test burns.

Using efficiency as a metric does help deploy heaters that will save consumers money with a low-carbon renewable. Since the early 1900s, wood fuel has been the primary way that American households have avoided or reduced fossil heating fuel. An estimated half of American households who heat with wood gather all or most of it themselves, making it a highly sustainable fuel in a country with extensive forest cover.

This bill will help Americans afford to replace older wood heaters or buy higher efficiency ones and have them professionally installed because the tax credit covers the cost of installation. It will also help scores of small pellet mills across the country that mainly use sawdust produced by sawmills. Finally, the bill will also help manufacturers of more efficient wood and pellet appliances and encourage them to redesign heaters to be more efficient.

Benefits of a tax credit do not help everyone equally. Lower income families benefit far more from a rebate granted at time of purchase and many do not have the income level to benefit from a tax credit. And, the 75% efficiency threshold excludes the value wood stoves sold at hardware chains that are affordable to lower income households. Unlike wood stoves, many low cost pellet stoves are at least 75% efficient.

“The Alliance for Green Heat applauds this increased tax credit and calls on Congress needs to do more,” said Ackerly. “We need a dedicated federal fund to switch old, uncertified stove to cleaner heating technologies, similar to the federal program for diesel trucks. We also need increased funding for DOE and National Labs to focus on R&D to develop a new class of automated wood stoves and smart pellet appliances that integrate with solar and heat pumps and reduce electricity demand during winter electricity peak events,” Ackerly continued.

A separate bill included report language that directs the DOE to continue the $5 million grant program for R&D to modernize residential wood and pellet heaters. The Alliance for Green Heat worked with Senator Collins’ office to ensure this report language was included again.

The massive omnibus package included other provisions that could help advance cleaner and more efficient wood and pellet heating:

• $1.7 billion reauthorization of the Weatherization Assistance Program to support low-income families by retrofitting homes with cost-saving clean energy technologies.
• Robust funding for EPA “core” programs to protect clean air.
• Reauthorization of the EPA Diesel Emissions Reduction Act (DERA) program, which is a model for a national wood stove change out program.
• $200 million timber hauling businesses that experienced a loss of at least 10% of gross revenue between January 1, 2020 and December 1, 2020, compared to the gross revenue earned in the same period in 2019.

 Related stories

Guidance on the 26% tax credit for 2022 and changes for 2023 (Oct. 2022)

AGH urges IRS guidance to recognize efficiencies in the EPA Database (Feb. 2021)

Alliance for Green Heat calls on President-elect Biden to support and help transform wood and pellet heating

Press release

Contact: John Ackerly

202-365-4765

Nov. 16, 2020 - The Alliance for Green Heat congratulates President-elect Joe Biden and Kamala Harris on their 2020 presidential victory and welcome their commitment to scale up renewable energy and energy efficiency.

This change of administration offers the United States a historic opportunity to reduce fossil fuels through a range of renewable heating solutions and energy efficiency measures. We have already begun to decarbonize our electric grid, and now it’s time to also focus on our heating sector which can reduce heating costs for families across the country, buoy economic recovery and create good-paying jobs.

The Alliance for Green Heat’s supports all renewable heating options as well as strategic pairing of heat pumps, geothermal, solar thermal and solar PV with wood and pellet heat technologies (our specialty). The role of decentralized renewable thermal technologies, including wood, solar thermal and geothermal is essential along with the electrification of heat as our electric grids slowly become more renewable. The electrification of transportation is creating massive demands for new generation and distribution. This combined with very high peak demands in the cold, short daylength northern tier of the country calls for strategic deployment and use of non-electric heating technologies. Rural areas need special attention given the cost of new infrastructure.

Executive Branch

The Biden Administration, through executive action, can immediately begin to drive markets toward beneficial forms of advanced wood heating. It is essential that Biden’s administration analyzes small-scale wood heating as having unequivocal carbon benefits. This includes:

• Ensuring there is an in-depth, science-based analysis to account for carbon content of wood used for residential and small-scale institutional heating that is separate and distinct from the analysis used for larger scale biomass to electric pathways.
• Use the power of procurement, as outlined by the Climate 21 initiative, to “bolster markets for climate friendly products such as … heating systems that use wood pellets” in federal buildings, starting with more rural buildings in colder climates.
• Directing the GSA to require rural federal buildings to consider heating with wood, chips or pellets where it is economically feasible.
• Prioritize an interagency working group on bioenergy to focus on small scale thermal wood.
• Include environmental justice considerations in bioenergy projects and expanding employment opportunities for Native Americans and low-income populations in rural areas.

Agencies

EPA: 

We urge the EPA, under new leadership to give more priority to one of the most popular and commonplace renewable energy solutions in the country. To this end, we encourage the EPA to

• Invest in the expeditious development and adoption of test protocols that resemble how homeowners use wood heaters (we use the term “wood heater” to include wood and pellet stoves, boilers and furnaces).
• Prepare the groundwork for a national wood stove exchange program to replace old wood heaters with cleaner alternatives.
• Put resources into the offices that certify wood heaters so that the process is expedited and includes a full review of all testing requirements
• Ensure the EPA’s Science Advisory Board (SAB) evaluates the carbon benefits of residential and small-scale institutional wood and pellet heating based on studies of how that wood is gathered and obtained by households and small institutions.

DOE:

• Issue a Statement on Scientific Integrity that reaffirms DOE’s commitment to renewable energy pathways that can be deployed in the short term, including wood heating.
• Expand the focus of the Bioenergy Technologies Office beyond liquid fuels to include biothermal and provide additional grants for automated, next generation wood heating technology.
• Develop strategies that utilize wood heating as an integrated approach to mitigate grid-load growth risks caused by rapid electrification in the country’s northern tier.

USDA:

• Prioritize the utilization of wood thinnings removed from high-hazard forests to be used for local heating of homes and institutions in those areas.
• Ensure Rural Development Housing programs allow for and encourage the installation of modern, automated wood heating.
• Increase funding to the Community Wood Energy program.

Congress:

We urge the Biden administration to work together with a closely divided Congress to:

• Incorporate the BTU Act into any renewable energy or tax legislation to ensure that the most carbon beneficial pathway for low-grade, bi products of sustainably harvested wood is included.
• Expand tax credits for energy efficient appliances including the cleanest and most efficient wood and pellet heaters,
• Expand funding for the DOE to continue the R&D program to modernize residential wood and pellet heating technology
• Establish a national program to retire older wood heaters in exchange for heat pumps, pellet heaters, and in some cases, new wood heaters.
• Ensure that weatherizing programs inspect wood and pellet stoves just as they do with gas and oil furnaces for both safety and efficiency and provide avenues for repair or replacement, if needed.

The Alliance for Green Heat promotes wood and pellet heat as a low-carbon, sustainable and affordable residential energy solution. The Alliance works to advance cleaner and more efficient wood heating appliances, particularly for low and middle-income families.  The Alliance runs the semi-annual Wood Stove Design Challenge to encourage innovation and automation in wood stoves. Founded in 2009, the Alliance is a 510c3 non-profit organization based in Maryland.  

Correspondence on HPBA policy on calculating efficiency for the IRS tax credit

After the $300 tax credit was extended to Dec. 31, 2020, AGH began seeing a number of manufacturers issues certificates statements claiming stoves from as low as 59% efficient were eligible for the tax credit. We were not as concerned with any claims of stoves between 70 - 75% efficiency as that could be explained by using lower heating value (LHV).  Our concern was with the many stoves between 59 and 69%.

As is our practice, we first contact companies to clarify what may be an error or a misunderstanding and we were told by one major manufacturer that HPBA had advised manufacturers that they could use a single efficiency number from a single burn rate, rather than using the average efficiency from all four burn rates. We then wrote to HPBA to confirm this.

HPBA published a letter they sent to us on their blog, claiming we posted incorrect information on our blog about the tax credit. They were correct that one sentence was misleading and we immediately changed it (our readers often suggest changes and we often make them).

We took this opportunity to post our communication to HPBA, which gives a flavor of scores of similar back and forths between AGH and HPBA over scores of issues where we have differences.  AGH is also an HPBA member and we have always worked to improve the functioning of the association.

Excerpt of a Jan. 17, 2020 email sent by John Ackerly to Jack Goldman, John Crouch and Rachel Feinstein of the HPBA

I would strongly request that you urge manufacturers to only use their average efficiency from certification testing to determine eligibility for the federal tax credit. While I don't believe there is any legal basis for using LHV, I realize that is a non-starter so I would at least urge you to tell manufacturers not to cherry pick from the efficiency of a single burn rate. Currently, there are a number of manufacturers claiming stoves that are below 70% efficient and at least one that is listed by the EPA at 66% efficient. Some manufacturer defend using an efficiency from a low burn rate saying that is where most customers use their stove (which also happens to be the most likely burn rate to smolder). And at least one says that HPBA provided guidance saying that it was acceptable to choose which burn rate had the highest efficiency. Enabling companies to mislead consumers into thinking they are buying a 75% efficient stove is bad policy for a trade group. Please help create an atmosphere where consumers are steered towards stoves that are at least 70% efficient, HHV.

Excerpt of an email from John Ackerly to Jack Goldman on Jan. 28, 2020

Thanks again for your reply last Friday…. As for the efficiency calculation, I will reach out to Rachel for a quote. As I said, I'm wondering if HPBA has any position - and it seems not - on whether manufacturers should use any common way of determining efficiency. For example, should they only use the weighted average efficiency, or should they pick which ever burn rate is best? The "law" doesn't stipulate some of the finer points for other appliances and that is where trade associations can help build or undermine consensus within their industry. I have been told by some manufacturers that they were advised by HPBA that using an efficiency of a single burn rate was acceptable. I want to get HPBA on record about that, and for the reputation of our industry, I very much hope HPBA can distance itself from such shenanigans that mislead consumers and waste taxpayer dollars.

New tax credit could tip balance toward modern, efficient pellet heaters

Solar panels have long enjoyed a 30%
federal tax credit. This Act could
provide some high efficiency wood
and pellet appliances the same support

A 75% efficiency threshold would help innovative stove and boiler manufacturers, set others back

Members of Congress unveiled a discussion draft for a wide range of energy tax credits from solar PV, geothermal and electric cars – to high efficiency wood and pellet heaters.  The tax breaks are part of  the Growing Renewable Energy and Efficiency Now (GREEN) Act.  The core tax breaks are in three areas - renewable energy production and storage, energy efficiency, and electric vehicles. Most of these provisions renew and or modify existing tax breaks and a few are new incentives meant to spur energy innovation.

Dec. 2020 update: Congress passed legislation, signed by the President, granting a 26% tax credit to stoves and boilers at 75% efficiency or higher.  The credit is reduced to 22% in 2023 and expires on Dec. 31, 2023, unless it is extended.

The provision for wood and pellet heaters is partially an extension of a pre-existing credit, but it vastly narrows which appliances would qualify and increases the amount of the credit to 30% of purchase and installation costs.  By setting a 75% threshold at the higher heating value (HHV), the credit would overwhelming favor pellet stoves and boilers, because pellet appliances tend to be much more efficient – and much cleaner.  On the other hand, the traditional wood stove that relies on the consumer to adjust the airflow, would be almost entirely shut out of the credit.

“This tax credit is exactly what is needed to modernize residential wood and pellet heating and tip the balance of government support toward pellet heating,” said John Ackerly, President of the Alliance for Green Heat. “Unlike Germany, Austria and Italy, the United States has never had federal policies to shift toward pellet appliances, which is necessary for this sector to help drive down fossil heating fuels.  In addition, this is an important step to using premium pellets in high efficiency, small-scale heating in the United States instead of shipping industrial pellets to Europe for low-efficiency power plants that just make electricity,” Ackerly said.

The increase in the value of the credit, from $300 in 2017 to 30% of costs if this provision were to become law, is the result of strong Congressional support from House and Senate delegations from New England, where efforts to move toward pellet heating have been the strongest.  The 30% credit proposal was in the BTU Act, part of which was rolled into the new GREEN Act.   The coalition of mainstream energy efficiency organizations such as American Council for an Energy Efficiency Economy (ACEEE), Alliance to Save Energy (ASE) and others had proposed an initial 73% efficiency threshold that later moved to 75%.  Ironically, the BTU Act, championed by an industry association, the Biomass Thermal Energy Council (BTEC), has always supported the higher limit of 75% efficient.  BTEC, breaking from other industry organizations, made a strategic decision nearly a decade ago, with input from the Alliance for Green Heat (AGH), that the future of small-scale biomass heating needed to focus on highly efficient, modern technology.  Over time, other industry groups supported BTEC’s position.

Timeline

As currently written, the Act provides for the residential non-solar energy technology investment tax credit for seven years with the full 30% credit for 5 years, and reduced ones for 2025 and 2026.  The timing of this tax credit coincides with stricter EPA emission standards that take effect on May 15, 2020, resulting in stoves, boilers and furnaces that will be far cleaner than those sold over the last 30 years.  The new EPA regulations also require all stoves and central heaters to be tested for efficiency, giving all heaters consistent efficiency ratings. 

Credits under the Green Act last for 7 years, providing certainty to the marketplace.

One major impetus for the Green Act is that solar tax credits are set to
go down to 26% in 2020 and in 2022 they would expire for residential installs.

Tax credits and demographics

Because this is a tax credit, consumers must pay the full price up front and wait until the following calendar year to claim the credit.  This limits the impact of the credit to consumers and families who can afford the higher up-front cost for high efficiency units and wait to deduct it the following year.  If someone owed no taxes, they could get the credit back as a refund.  Thus, the tax credit is not an effective vehicle for helping lower income families afford higher efficiency appliances.  Higher efficiency appliances and professional installation is often in the $3,500 - $5,000 range, far less than solar panels or electric cars and thus accessible to middle class  families, something that is likely appealing to both republicans and democrats. In addition, stoves and boilers are far more popular in rural and semi-rural areas and constitute a way for the Green Act to reach constituencies that may not be as easily reached with other technologies.

The credit is likely to drive more consumers toward pellet appliances and over the years, it will help tens of thousands of families afford the most efficient appliances that will enable them to reduce their fossil heating fuel consumption. The highest efficiency wood and pellet stoves and boilers tend to be the more expensive ones that are sold by specialty hearth retailers, not big box stores.  

Many new stove installs replace older uncertified stoves, a practice often touted by industry as a main benefit of selling more new stoves.  However, the more beneficial practice from an air quality perspective is moving from an old wood stove to a new pellet stove.  This transition from wood to pellet stoves would likely be hastened by this tax credit.

Impact on heater technologies 

Modern pellet stoves are
up to 87% efficiency

Of the 178 stoves that are 2020 certified by the EPA, 79 models are 75% efficient or higher, based on the EPA’s database of wood heaters.  Of those 79 models, 44 are pellet stoves.  Pellet stoves have made rapid advances as innovation in the US and Europe has driven down emissions.  

Of the 35 models that burn cordwood, 31 of them are catalytic or hybrid stoves. Catalytic and hybrid stoves have been a niche with less than 20% of overall cord wood stove sales, a percentage that would likely grow if this new credit were to become law. 

The category of wood stoves that is almost shut out of the tax credit is the popular, traditional non-catalytic stove.  It is very difficult for non-catalytic stoves to achieve 75% efficiency.  Only 5 non-cat models are 75% efficient or over and all of those are higher priced models sold by specialty hearth stores.  Of the 130 certified central heaters currently on the market, only 5 are 75% HHV efficiency or higher and compliant with the stricter EPA 2020 emission standard. 

One condensing pellet
boiler is at 90% efficiency

 

Masonry heaters do not have a certification pathway, and it may not be possible for them to take advantage of this credit.  Washington State and Colorado both have maintained list of approved masonry heaters.  However, those lists only cite PM emissions and not efficiency.  The well-known factory-built line of masonry heaters from Tulikivi may be able to get an alternative test protocol approved by the EPA and be certified.  Given the $10,000 - $20,000 price tag for masonry heaters, the tax credit would surely be a significant consideration by those interested in installing one.

Installation costs

Under this tax credit, labor and installation costs are also covered by the 30% credit.  IRS guidance states: "When calculating the § 25D credit, a taxpayer may include the expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the qualified property and for piping or wiring to interconnect the qualifying property to the home."  This presumes, but may not require, professional installation of the system.  Traditional wood stoves sold at big box stores that are under 75% efficient are the ones most often installed by consumers, often leading to safety problems.  Including installation costs in the amount covered by the 30% tax credit helps assure safe, professional installation as well as building out the network of NFI and CSIA certified professional needed to properly sustain this industry.

Impact on state incentives

If the federal government were to provide this tax credit, it may undermine the need and justification for certain state incentive programs.  However, an important function of stove and boiler change-out programs is getting old devices out of circulation.  Change out programs may be able to offer smaller amounts to achieve their goals and increase their targets for removals of old stoves.  Bounty programs may become more popular as a complement to the tax credit.

Impact on carbon reductions

Higher efficiency applications tilt the carbon benefits clearly in favor of using wood or pellets for heating.  From the pivotal Manomet study onwards, scientists have questioned burning biomass at 20 – 30% efficiency to make electricity, but high efficiency heating applications triple the energy from the fuel and triple and amount of fossil fuels that are displaced.  

There is also a distinctly different business model for companies making pellets to export to electric power plants in Europe and those who make premium pellets for domestic heating.  Companies that export pellets rely far more on cutting down whole trees whereas the domestic heating pellet market has always relied far more on procuring sawdust from lumberyards.  

The downside of residential wood heat has been the particulate matter emissions from traditional wood stoves and outdoor wood boilers, not the carbon equation from high efficiency wood and pellet heating.

Impact on industry

The main trade association representing stove, boiler and furnace manufacturers, Hearth, Patio & Barbecue Association (HPBA), supports the tax credit but some individual manufacturers and retailers are worried that it may tilt sales away from the product lines they make or carry.

Companies making central heaters may have a hard time competing in the marketplace without a unit that is 75% HHV or higher.  The companies that made big names selling outdoor wood boilers currently do not have any products to sell in 2020, much less ones that could meet a 75% efficiency threshold.  Of the 5 central units that would qualify, all but one is made in Europe, though some are assembled in the US.  Consumers buying higher priced central heaters that can cost anywhere from $8,000 - $20,000 will most likely base their decision on whether the unit is eligible for the tax credit.  

For companies making only pellet or only catalytic or hybrid stoves stand to benefit the most.  Many manufacturers make both wood and pellet stoves, and some may have both wood and pellet units that are 75% efficient or higher.  Companies that don’t have any units in excess of 75% may experience fewer sales.  Companies that make cordwood stoves for high volume sales at big box stores and the internet market, will likely have no models that qualifies for the credit. 

Unlike with the previous tax credit, where manufacturers used a variety of ways to claim that their products qualified at 75% efficient, this credit specifies 75% HHV and all 2020 compliant heaters have EPA approved HHV efficiency values.  Rachel Feinstein, Senior Manager for Government Affairs at HPBA, provided a statement that said “We are especially happy to see that the language specifies higher heating value (HHV) of the fuel as the efficiency measure. This more specific language will make it easier for the public to determine which products qualify for the tax credit.”

What comes next

The Green Act, or large parts of it, could be absorbed into other legislation that passes both houses of Congress this year.  Almost all the elements of the Green Act have been in play for some time and there is not much new there for Washington energy insiders.  Congress just passed a one month stop-gap funding measure, giving them until December 20^th to get real legislation passed. Stay tuned.