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)

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.