IRS proposes using EPA database to verify 75% efficiency for tax credit

Industry is split three ways on question of eligibility.

July 2025 update: Congress revoked the wood heater tax credit as of Dec. 31 2025, ending what was meant to be a 10 year extension under President Biden. Expenses are eligible for stove purchases and installation of stoves prior to Dec, 31. 

Nov. 2024 - The IRS issued a proposed rule on October 25 to give guidance on how manufacturers can interpret“75% efficiency.” They are proposing to adopt the EPA database as the means of determining efficiency, which has been long expected by many in industry. 

The proposed rule is long-awaited by many who grew frustrated over the years that the IRS could not do what many felt was obvious: recognize the EPA efficiency listing. AGH was a prominent advocate for a uniform way to list efficiency as a way of protecting consumers, making a level playing field for manufacturers and instilling more faith in the industry. AGH often publicized exaggerated and misleading efficiency claims over the years.

Comments to this IRS notice are due by December 24, 2024 and a hearing is scheduled for January 21, 2025. The IRS notice can be found here.

Congress stipulated that biomass heaters at 75% efficiency, using the higher heating value, were eligible for a 30% tax credit, up to $2,000. However, Congress revoked that as of Dec. 31, 2025.

Most manufacturers were already using the efficiency numbers on the EPA database as the arbiter of which stoves or boilers were 75% efficient or higher. The EPA number is an average of the efficiencies on all the certification tests. But a few manufacturers chose to say their stoves qualified for the tax credit if any of the certification tests were 75% or higher.

The third faction, made up of masonry stove manufacturers, urged the IRS not to issue any further guidance, so that they could claim masonry stoves at 75% or higher could qualify even though they are not listed on the EPA database because they are not required to be EPA certified.

According to the Congressional Research Service, approximately 48,300 taxpayers claimed the biomass tax credit in 2023, making it the least likely tax credit that taxpayers claimed other than for home energy audits. There is no public data on how many biomass stoves and boilers were sold in recent years, but experts say that an average of 200,000 is plausible. EPA has the data but it is not organized or compiled.

Currently 67% of the 101 certified pellet stoves are 75% or higher, based on the EPA database figures and 45% of wood stoves are. However, 92% of cat and hybrid stoves are 75% or higher and only 15% of the 106 non-cat stoves on the market are 75% or higher.

The legacy of using efficiency to qualify for this tax credit, that started in 2008, raises many questions. Arguably, cleanliness is more important than efficiency when using wood, a renewable fuel that a substantial percent of Americans cut or collect on their own instead of purchasing it. The result is that stove manufacturers now focus more on efficiency, while sacrificing R&D to achieve incremental reductions of particulate matter. Congress controls the efficiency number, while EPA sets emissions levels, and a lower efficiency threshold could allow the EPA more leeway to set stricter emissions standards.

Most manufacturers did not submit comments on the proposed regulations. All comments can be found here. Among stove manufacturers, some manufacturers who make lower efficiency stoves (e.g. US Stoves) argued for the stricter definition of efficiency, while those making higher efficiency stoves (Hearth & Home Technologies) argued for a more lenient definition.

The comments by stakeholders outside the wood and pellet heating community provide an interesting snapshot into views on incentives for wood and pellet stoves and boilers. For instance, the American Lung Association does not support biomass stoves or boilers should be qualified energy property regardless of efficiency rating. The California Air Resources Board (CARB) and the Attorney Generals of MA, CO, DE, IL, ME, MD, MI, NJ, NY OR, RI and DC believe a full carbon lifecycle analysis should be done to better calculate an efficiency rating.

However, based on their comment and the sources in the footnotes, it appears that they are confusing biomass to electricity, rather than focusing on biomass heat. While this is a common mistake in the media, it is notable that whoever drafted this comment for these states also made it. Nevertheless, these states do not oppose the tax credit but argue that a stricter one could be better. No commentator suggested that only pellet heaters, that are consistently cleaner and more efficient, should receive the tax credit. A carbon life cycle analysis however, would most likely favor cordwood over pellets.

Support using EPA database

Alliance for Green Heat: 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. (AGH’s full comment can be found here.)

BPA, ACEEE, ASE: The most reliable method to protect consumers and to ensure that tax credits are going to compliant models is for Treasury/IRS to specify that eligibility is limited to units listed in the EPA Certified Wood Stove Database as having an overall efficiency of 75% or more using the higher heating value of fuel.

Blaze King: Our company has always viewed the overall efficiency to be the metric intended by the IRS as the qualifier for the 75% high heating value.

Travis: In the interest of efficiency and the preservation of resources, the IRS should rely on EPA’s database to confirm whether biomass stoves meet the 75 percent rating requirement.

US Stove Company: Therefore, for a biomass stove or boiler regulated by the EPA to qualify for the 25C credit, only the average “overall efficiency” is reported in the EPA Certification report should be recognized. In addition, this same efficiency number will be posted on the EPA Wood Heater Database, therefore easily verifiable. This will eliminate any question or “gaming” of the tax credit.

Support using any single test run

Hearth & Home Technologies: In our view, the Treasury Department and the IRS should issue guidance stating that biomass stoves meet the definition of "qualified energy property'' provided they have a "a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel as reflected in a single certified test run)." Providing this guidance will resolve the current uncertainty about how to meet the HHV requirement. By establishing the single test criteria, a greater number of biomass stoves could qualify for the tax credit, thereby giving consumers more affordable choices to replace noncertified heaters while burning an efficient renewable energy source.

Stove Builder International: Manufacturers should be able to qualify a property …provided this efficiency number is 75% or greater and can be found in the property’s test report. An efficiency number of 75% or greater should be obtained when the property is used at a combustion setting typically used by consumers. For instance, in the case of a wood stove, the products are typically used by consumers at the low setting. That is, consumers use their stoves in slow-combustion mode to get an “overnight burn”. The stove can be used at a higher setting, but this setting is normally recommended upon start-up only. The basis of their argument is that manufacturers will “make up any number they want.” This could not be farther from the truth. We don’t know where this paranoia comes from.

If the efficiency criteria do not offer enough flexibility and most non-catalytic wood stoves cannot qualify for the 25C tax credit, we feel that the IRS misses its objective of helping the middle class to switch to cleaner, more efficient biomass appliances.

Support current language without further guidance

Masonry Heater Association: the IRS not to issue guidance that conflates the regulations of different types of biomass heaters, potentially imposing the requirements of one category of biomass heater onto another category, for tax credit eligibility. For example, woodstoves must be on the EPA's certified list, EPA Wood Stove Database, to be legally installed; however, this is not a legal requirement of all categories of biomass heaters, e.g. masonry heaters. Masonry heaters are a category of biomass heating appliance that the EPA has chosen to defer regulating.

Tulikivi: we feel that guidance is not needed as the original text is clear enough and allows masonry heaters that meet the efficiency requirement to qualify for the tax credit despite not being on the EPA list of certified appliances

Support strict enforcement based on efficiency tiers

Comments Of The Attorneys General Of Massachusetts, Colorado, Delaware, Illinois, Maine, Maryland, Michigan, New Jersey, New York, Oregon, Rhode Island, And The District Of Columbia; The California Air Resources Board; And The Ramsey County, Minnesota, Attorney: With respect to Section 25C’s biomass provisions, we urge Treasury and the IRS to strictly enforce energy efficiency tiers to verify qualification for biomass stoves and boilers. Per British thermal unit (BTU), wood has about the same carbon content as coal, and, according to EPA, wood contains about 75% more CO2 per BTU than natural gas. As a result, wood that is harvested and burned for energy immediately increases greenhouse gas emissions—even where it is displacing fossil fuels. Biomass combustion also emits other harmful air pollutants, like particulate matter, which is connected to a multitude of adverse health consequences including premature death, cardiovascular effects, asthma, bronchitis, pneumonia, chronic obstructive pulmonary disease. To avoid inadvertently increasing greenhouse gas and other harmful pollutant emissions through biomass incentives, Treasury and the IRS should comprehensively evaluate lifecycle greenhouse gas emissions in calculating the efficiency rating of eligible biomass. If, however, Treasury and the IRS elect to rely on EPA wood stove certifications to demonstrate efficiency ratings, they should not allow certification based on test methods 125 and 127 (relying on ASTM 3053), which allow too much variability and manufacturer and laboratory manipulation.

Do not support including biomass heaters in the 25C tax credit

American Lung Association: The ALA recognizes that pollution from the combustion of wood and other biomass sources poses a significant threat to human health and supports measures to transition away from using these products for heat production. As such, we do not believe biomass stoves or boilers should be considered as part of a qualified energy property regardless of efficiency rating.

Other comments

Governor’s Office of NJ: Biomass stoves and boilers are a concern. It’s likely we would have difficulty supporting incentives for biomass but there may be cases that make sense.

Rewiring America: Treasury should structure the updated Form 5695 such that each product category (heat pumps for space heating/cooling, heat pump water heaters, biomass stoves, and biomass boilers) has its own line and can be tracked accordingly. This is crucial to track how many claims are filed for heat pumps and heat pump water heaters; otherwise, it would be impossible to distinguish between claims filed for heat pumps and biomass products.

Consumers can now rely on almost all stove tax credit certificates issued by manufacturers

A sampling of tax credit certificates
issued by various manufacturers 

After ten years, almost all stove and boiler manufacturers appear to be accurately informing their consumers about which models are eligible for the tax credit for wood heaters that are at least 75% efficient.  Some outlets, such as We Love Fire, a network of 280 hearth retailers, go out of their way to educate customers on how to ensure the stove they are buying qualifies for the credit and urges them to check the EPA’s database.

There was widespread exaggeration and misleading advertising about stove efficiencies in the preceding decade, and the EPA did not require wood and pellet stove manufacturers to disclose the efficiency of their models, or even to test for it until 2015.

Consumers are often advised to download the manufacturer certificate and keep it in their files, along with the receipt for the stove, as proof that they properly took the credit.  However, the IRS does not require manufacturer certificates, and a screenshot of the EPA database, showing an efficiency of at least 75% for your model is even better documentation.

 

When Congress passed the new, higher tax credit legislation in 2020, they specified that the minimum 75% efficiency level must be measured using the higher heating value (HHV), eliminating previous ambiguity. However, Congress did not specifically refer to the EPA’s database, which lists the HHV efficiency of all stoves, boilers and furnaces.  Almost all of industry accepts the EPA database should be used to confirm efficiencies and encourages consumers to check it.  The Hearth, Patio & Barbecue Association (HPBA), the industry’s largest association, broke from its past practice and took a strong position that consumers should rely on the EPA database to determine efficiency.

 

The Ashley line of stoves is owned 
by US Stove, which issued this
current certificate.

AGH reviewed scores of certificates issued by stove and boiler manufacturers by brands such as Hearthstone, Jotul, Lopi, Quadrafire and many others and found for the first time that they all were providing their consumers accurate information.  We found only one stove manufacturer, US Stove Company, still willing to list stoves as qualifying for the tax credit that are under 75% efficient.  US Stove issued a certificate saying that four of its pellet stove models qualified for the credit despite test reports from third party EPA-approved labs showing the models have efficiencies of 64%, 66% and 69% (which is also how they are listed on the EPA database).  (As of Sept. 2022, US Stove still claims these units qualify for the tax credit.) The average pellet stove is about 73% efficient. Their test reports are provided on the US Stove website.  

John Voorhees, Vice President for Compliance at US Stove, signed the tax credit certificate that states

The Ashley certificate juxtaposed with
the EPA database 

“Under penalties of perjury, I declare that I have examined this certification statement, and to the best of my knowledge and belief, the facts are true, correct, and complete.”  AGH reached out to Mr. Voorhees for clarification and to ensure the US Stove position was included in this blog, and though we exchanged many emails and US Stove provided relevant information, the company declined to permit AGH to quote from that exchange.  AGH will update this blog if US Stove chooses to provide any information that we can make public.

 

It is unclear why US Stove singled out the four models on this certificate when other models are listed with higher efficiencies, though none are above 75% except for one pellet stove made by their Breckwell brand.  When the tax credit was first passed by Congress in 2009, most companies declared that all of their models qualified.  That year, US Stove issued a certificate saying that 24 models were eligible for the credit requiring a minimum of 75% efficiency.  

In 2009, like many manufacturers, US
Stove listed all or almost all of of their
 models as meeting the requirements of
the 75% minimum efficiency tax credit.

Today, most boiler and furnace companies also seem to be following Congress’s plain language and only certifying units at 75% or more.  Boiler efficiencies are more complex because there are several test methods and the resulting efficiencies aren’t as comparable as they are with wood and pellet stoves. AGH found one indoor wood furnace manufacturer, Hy-C who makes the Shelter furnace, tested at 70% efficiency by the lab but the company issues a Certificate of Qualification that it meets the 75% HHV threshold. 

 

Tax credits for consumer appliances have a variety of purposes, in addition to incentivizing consumers to buy higher efficiency appliances.  They are designed to influence manufacturers to improve product efficiency, accelerate market penetration of more efficient products and potentially prepare the market for future mandatory requirements.  Currently, there is no required minimum efficiency for wood and pellet heaters.  For pellet stoves like the ones in question, they range from 58% efficient for a model produced by US Stove, to an 87% efficiency unit from Cleveland Iron works.

 

Wood and pellet stoves and boilers are an excellent way to reduce fossil fuels and affordably heat your home, especially in seasons like this one when fossil fuel prices are high.  Federal tax credits are an efficient way to help households reduce fossil fuel use with a renewable, low carbon fuel.  However, unless consumers use seasoned wood of under 20% moisture content, wood stoves can produce excessive smoke and will not reflect the efficiency achieved in the test lab.  AGH considers pellet stoves to be the optimum choice, as their combination of high efficiencies and very low particulate matter make them suitable for both rural and more densely inhabited towns and suburban areas.  Unlike wood stoves, the efficiency numbers achieved in the lab can generally be achieved by consumers if the unit is maintained properly. 

 

Even though most manufacturers are now issuing tax credit certificates for stoves that are at least 75% efficient, AGH urges consumers to also check the EPA’s database of wood heaters to be sure.  AGH has been in touch with IRS officials, urging them to issue guidance that wood heaters must be listed at 75% efficient or higher on the EPA database to close any remaining loopholes that a few manufacturers still try to use.  

Further reading

AGH urges the IRS to recognize efficiencies in the EPA database, Feb. 2021

Guidance on the 26% tax credit for wood heaters, Jan. 2021

A review of wood and pellet stove efficiency ratings, Jan. 2014, updated May 2020

How to claim the tax credit, Feb. 2018, updated Jan. 2021

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

 

 

 

Guidance on the wood stove tax credit for 2022 and changes for 2023

July 2025 update: Congress revoked the wood heater tax credit as of Dec. 31, 2025. Expenses toward stoves and stove installations must be paid prior to Dec. 31, and the stove must be installed prior to Dec. 31.

The Inflation Reduction Act, signed into law in 2022, changed the tax credit for wood and pellet heaters to 30% with a cap of $2,000.  The efficiency qualification remained the same at 75% or more and it covered all associated costs of installation, stove pipe, etc. 

For more details about the 30% tax credit that becomes effective in 2023, see our 2-page overview here.

The tax guidance needed from the IRS remains the same: can a manufacturer simply, with little or no evidence, that their stove is eligible, or does it have to be third party tested and listed on the EPA database at 75% or above?  We urge all consumers to be safe and ensure they get a genuinely more efficient appliance by relying on efficiency listings in the EPA database.  This blog looks at how the tax credit has been interpreted in the past for solar panels and other technologies, as well as the intent of the lawmakers who wrote and passed the provisions.  The Alliance for Green Heat cannot give tax related advice and interested parties should always consult a tax professional.

Tax credit info for 2022

At the end of 2020, Congress passed an omnibus relief package (download  PDF version, page 2449) that included numerous provisions on renewable energy and energy efficiency.  Among those was the inclusion of biomass heaters in section 25(D) of the IRS tax code, the investment tax credit (ITC) that has applied to residential solar panels.  The technical term used in the omnibus bill is “qualified biomass fuel property expenditures” which is defined as “the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and which has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel).”

Congress removed biomass stoves from section 25(C), which had provided a $300 tax credit up until December 31, 2020, to prevent a “double benefit,” or double dipping under two sections of the tax code.

The credit is set at 26% of the installed cost for 2021 and 2022, then drops down to 22% in 2023. It is set to disappear altogether in 2024 unless extended, which is common.  

Congressional intent

Much of the guidance the IRS is expected to issue about wood heaters is non-controversial and will likely to be consistent with solar.  There is one distinct issue that has plagued this industry in the past: how is 75% efficient at the higher heating value defined and how much leeway do manufacturers have to stretch the meaning?  Congress stipulated that it must be HHV, but the final language did not say that the EPA list of certified heaters is the definitive way to determine efficiency, although that is almost certainly what the IRS will allow. There is no other consistent, reliable way for retailers and consumers to know which heaters are actually 75% efficient or higher. 

Over the past 7 years, there have been a number of bills and extensive correspondence about strengthening the definition of 75% efficiency and moving wood heaters from section 25(C) to 25(D).  The only method that Congress has referred to is using the efficiencies on the EPA list of certified stoves.  No other method has been suggested. For instance, the Home Energy Savings Act of 2019 introduced by Senators Hassan and Collins, 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 crafted in conjunction with the Biomass Thermal Energy Council, the main architect of the language and the years-long advocacy process.  A final effort led by Innovative Natural Resource Solutions culminated in the residential portions of the BTU Act being included in this ominous spending package in December, 2020. The Alliance to Save Energy. the American Council for an Energy Efficient Economy, the Alliance for Green Heat and HPBA also agreed on parallel language that would have strengthened the efficiency criteria for an enlarged credit under 25(C) by referencing the EPA's database of certified wood and pellet heaters.

Until the IRS issues guidance, AGH urges retailers and consumers to rely on the EPA's database of certified heaters to ensure that the heater you install will be eligible for this credit.  Anyone who relies on claimed efficiencies in marketing materials should do so at their own risk and be prepared to forgo the tax credit if the stove is labeled under 75% efficient on the EPA list.

 

Updating IRS Form 5695

In 2022, taxpayers will need to fill out IRS Form 5695 to get the new, increased tax credit for installations in 2021.  Taxpayers will not need an updated Form 5695 until winter of 2022, when they fill out their 2021 taxes.  The current version of IRS Form 5695 is accurate for taking the $300 tax credit under section 25(C) for purchases made in 2019.

When the IRS updates a form, such as Form 5695, they issue an “early release draft” in advance, along with draft instructions.  For instance, you can see a previous early release draft for Form 5695 here, issued September 25, 2020, for changes they needed to make at that point.  This draft does not include the new 26% tax credit for wood heaters, which will appear in a draft released later in 2021.

 

What is included in the new tax credit?

The new tax credit is for the installed cost, including purchase price, sales tax, labor costs, and items necessary for installation, such as venting and floor protection.  The IRS is expected to provide more detail on items associated with installing wood heaters. In the meantime, consumers should retain receipts for all those expenditures.

Some stove  manufacturers issued
certificates for stoves under 65%
to claim eligibility for the $300
tax credit. 

AGH expects the IRS to update their current guidance later in 2021 to accommodate issues specific to high efficiency wood and pellet heaters. They may address, for instance, the cost of sweeping a chimney prior to installing a new heater eligible for the 26% tax credit, or the cost of upgrading floor and wall protection.  It is unclear if the IRS could bar manufacturers who issued an erroneous certificate claiming a stove was eligible for the $300 credit under 25(C) from issuing certificates for their stoves that would be eligible for the larger credit under 25(D).

Some issues are more complicated, such as how to calculate the tax credit when you also received a state rebate or tax incentive, or a rebate or discount from a wood stove change out program.  The tax credit should help change out programs offer even greater savings to consumers, and program managers will have to prepare to give advice on it.

This DOE publication on calculating the tax credit for solar panels is very instructive on the range of issues that will apply to installing high efficiency wood heaters.  For issues pertaining to stove manufacturers issuing certificates of eligibility, this blog provides more detail.

Much of the existing IRS guidance for solar panels, reproduced below, will likely to apply to wood heaters.  Text in italics are quotes from IRS guidance on the 25(d) tax credit.  

2019 IRS Q&A on Tax Credits for Section 25D 

Manufacturers Certification. “A taxpayer may rely on a manufacturer’s certification that property is eligible for the credit so long as the Service has not withdrawn the manufacturer’s right to make the certification. The notices further clarify that the Service may determine that a manufacturer’s certification is erroneous; in such cases, the Service will withdraw a manufacturer’s right to provide a certification on which future purchasers of the component or property may rely, and taxpayers purchasing the component or property after the date on which the Service publishes an announcement of the withdrawal may not rely on the manufacturer’s certification.”

Can a taxpayer claim the credits for expenditures incurred for a newly constructed home? 

“A taxpayer can claim the § 25D credit for qualifying expenditures incurred for either an existing home or a newly constructed home.” 

May a taxpayer claim the credits in the year of purchase if installation of the qualifying property occurs in a later year? 

“No. A taxpayer may not claim the credits until the year the property is installed.”

Are the credits available for improvements made to a second home (for example, a vacation home or an investment property)? 

“A taxpayer may claim a § 25D credit for other qualifying properties described in § 25D for solar electric property, solar water heating property, small wind energy property, and geothermal heat pump property installed in or on a dwelling unit used as a second home or a vacation home by the taxpayer. But a taxpayer may not claim the § 25D credit for expenditures for improvements made to an investment property, such as rental property, that is not also used as a residence by the taxpayer.” AGH expects guidance on wood heaters to be the same as these other technologies. 

May a taxpayer claim a credit if the qualified property is also used for business purposes, such as in a dwelling unit in which the taxpayer also conducts a business? 

“For 25D, if a taxpayer uses property solely for business purposes, the property will not qualify for the credit. For a taxpayer who otherwise qualifies for the credits, but whose use of the qualified property for business purposes exceeds 20 percent, §§ 25C(e)(1) and 25D(e)(7) provide that the taxpayer, when calculating the amount of credit, may take into account only that portion of the expenditures for the property that are properly allocable to use for nonbusiness purposes. A taxpayer who qualifies for the credits and whose use of the qualified property for business purposes is not more than 20 percent may claim the full credit.” 

May a taxpayer include labor costs when calculating the credits? 

“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.” 

May a taxpayer include sales tax when calculating the amount of expenditures eligible for the credits? 

“Generally, yes. Because the sales tax on a qualifying property is part of the amount paid or incurred, a taxpayer may include the amount of sales tax when calculating both the § 25D credit.” 

If a government or a public utility provides a subsidy (for example, an incentive, grant, or rebate) to a taxpayer to purchase or install a qualifying property under § 25C or § 25D, is the taxpayer required to reduce the cost basis of the property by the amount of the subsidy received, thereby reducing the amount of the qualified expenditure for which a credit may be claimed? 

“Rebates generally represent a reduction in the purchase price or cost of property, and the taxpayer must exclude the amount of the rebate from the amount of the qualified expenditure on which the taxpayer calculates the tax credit. In general, in order for a receipt of funds to be considered a nontaxable rebate, the rebate must be based on or related to the cost of the property; the rebate must be received from someone having a reasonable nexus to the sale of the property, for example, the manufacturer, distributor, or seller/installer; and the rebate must not represent payment or compensation for services. 

Generally, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy-efficiency incentive that is not a rebate. Many states label their energy-efficiency incentives as rebates, but these incentives may not in fact constitute rebates or purchase-price adjustments for federal income tax purposes.” 

“The taxpayer does not reduce the amount of the qualified expenditure by the amount of the state tax credit claimed in calculating the credits.” 

If a taxpayer finances the purchase of a qualifying property under § 25C or § 25D through the seller of the property, may the taxpayer calculate the amount of the credit based on the full cost of the property if the taxpayer is contractually obligated to pay that entire amount? 

“Yes. If the taxpayer is contractually obligated to pay the full cost of the qualifying property, the taxpayer may claim a tax credit based on that amount.” 

May a taxpayer claim a credit for payments of interest owed through financing or for expenses such as an origination fee or an extended warranty? 

“No. Interest expense is not part of the expenditure for qualifying property under § 25C or § 25D. Other miscellaneous costs such as an origination fee or an amount paid for an extended warranty are also ineligible for the credits.” 

May a taxpayer claim a credit for property that the taxpayer leases rather than purchases? 

“No. A taxpayer must purchase the qualifying property to claim the credits under §§ 25C and 25D.” 

May a taxpayer claim the credits when the taxpayer does not have a manufacturer’s certification that the property is eligible for the credit? 

“Yes. A taxpayer may qualify for the credits under §§ 25C and 25D without a manufacturer's certification statement if the taxpayer can show that the property meets the required efficiency standards. A taxpayer should retain documentation sufficient to establish the entitlement to, and amount of, any credit.” 

Is an expenditure for a solar air heater eligible for the § 25D credit? 

No. Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit. Section 25D(d)(1) defines a qualified solar water heating property expenditure, in part, as an expenditure for property to heat water for use in a dwelling unit if at least half of the energy used by such property for such purpose is derived from the sun. A solar air heater that warms air and does not generate electricity or heat water is not eligible for the § 25D credit. 

Is a manufacturer of geothermal heat pump property that provides a certification pursuant to Notice 2009-41 required to become an Energy Star partner? 

No. A manufacturer of geothermal heat pump property is not required to become an Energy Star partner to provide a certification pursuant to Notice 2009-41. However, the geothermal heat pump property must meet the requirements of the Energy Star program in effect at the time the taxpayer purchases the property. Furthermore, any manufacturer that provides a certification must retain in its records documentation establishing that the property meets those requirements and, upon request, make such documentation available for inspection by the Service. 

 

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)

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.