Congress May Extend Biomass Stove Tax Credit

Alliance for Green Heat, July 25, 2012 - The 25C tax credit for wood and pellet stoves and boilers that began at $1,500 in 2009, dropped to $300 in 2011, and then expired last January, may return.  While nothing is expected to be passed in Congress before the election, a variety of bills could be passed soon after, during what is known as a “lame duck session”.

One possibility is that Congress will simply extend the 2011 version of the bill, which would cap the tax credit for 75% efficient (LHV) biomass heaters at $300.  There has been talk of implementing this retroactively, so that purchases made earlier this year would be eligible for the tax credit.  Another option would be for legislators to create a standalone bill that could change the eligibility criteria and raise the credit up to $500 or even $1,000.

Various organizations in the biomass space are pushing for an extension of 25C, including the Alliance for Green Heat, Hearth, Patio & Barbeque Association, the Pellet Fuels Institute and the Biomass Thermal Energy Council.  For more background on the tax credit, see http://www.forgreenheat.org/incentives/federal.html, and for background on attempts to establish an alternative performance-based credit, see http://www.forgreenheat.org/incentives/homestarpage.html.

The currently expired 25C tax credit was a cost-based credit, meaning it was based on what the consumer spent on their biomass heater – not the amount of energy saved.  Many in the energy community, including the three big non-profit players in DC – the American Council for an Energy Efficient Economy, National Resources Defense Council and the Alliance to Save Energy – have been trying to craft and push a performance-based credit. This would involve having an energy auditor measure the expected energy savings and then basing the total credit on that. 

The 2010 Home Star bill and the 2012 HOMES Act were both performance-based systems but the legislation never passed.  Congress asked the GAO to study which system would be more cost-effective and would result in greater energy savings.  The report found strengths and weaknesses in both approaches and did not make any recommendation about which one was better.  Here is part of their summary:

Under criteria for evaluating a tax credit design, both the performance-based and cost-based credits have advantages and disadvantages with neither design being unambiguously the better option based on current information.

Both a cost-based and a performance-based credit are designed to reduce energy use and CO2 emissions by providing incentives for energy conservation investment. However, they differ in their relative effectiveness and costs. In general, a performance-based credit is more likely to effectively reduce energy use and CO2 emissions because it rewards energy savings from the investment rather than the cost-based credit’s rewarding of spending regardless of whether this spending results in energy savings.

However, the performance-based credit may have significant up-front costs for energy audits, not required by the cost-based credit, which could reduce its effectiveness by discouraging investment. In addition, for taxpayers who do invest, these up-front costs may mean that a performance-based credit may have significantly higher taxpayer compliance and IRS administrative costs than a cost-based credit. A credit’s fairness depends on subjective judgments of how a credit varies with a taxpayer’s income level.

Various groups took issue with the GAO’s report, including the National Association of Home Builders (NAHB) who found that it missed the bigger picture. They said in a recent blog post that “failure to extend the 25C tax credit undermines a successful policy that created jobs in the hard hit residential construction sector and yielded long-term gains for homeowners’ energy bills.”

Generous Wood Stove Incentives May Return in France

Written by John Ackerly, President
Alliance for Green Heat

The recent election of Socialist François Hollande as France’s next President may herald a return of generous incentives for renewable energy, including wood and pellet stoves and heaters.

Ousted President Nicolas Sarkozy, a conservative, was a staunch supporter of nuclear power. Under his presidency, incentives for renewables were drastically reduced.

Unlike the United States, France and most of Europe includes thermal energy in its renewable energy standards. In France, wood heat was projected to produce 7.2 Mtoe (million tons of oil equivalent) of energy by 2020, whereas geothermal and thermal solar was only projected to produce a combined 2.9 Mtoe.

France has been active in promoting residential wood heat through its policies, which have so far been effective in increasing the number of households using wood. For instance, the country developed an extensive program to encourage the use of wood fuel for heating in collective housing and as a result, experienced an increase of 37.5% in this area between 2006 and 2007. In individual households, the Wood Energy Plan  in 2007 led to an increase of 82.5 % of the wood energy equipment sales.

In 2005, tax credits were set at 50% for equipment using renewable energy sources including efficient wood fired boilers, masonry stoves, etc. The sustainable development tax credit was planned through 2012, but the rates fell rapidly from 50% to being phased out altogether. For more info.

In 2005, stoves that were eligible for tax credits had to be at least 65% efficient. This standard was later increased to 70%. France uses the Flamme Verte eco-label, which sets some of the lowest standards of any eco-label in Europe, according to stove experts.*

In the US, the nationally recognized, government sanctioned label Energy Star doesn't have a program for wood and pellet stoves yet, so federal and state incentive and change-out programs are left to determine what emission and efficiency standards government funds should incentivize.

The national tax credit that expired at the end of 2011 set a 70% lower heating value threshold, but it did not stipulate how efficiency should be measured, nor did it require independent third party testing and reporting. Manufacturers were allowed to certify that their own products met the threshold (virtually every stove did).

It's far too early to tell whether incoming President Hollande will also work to increase efficiency and emission standards in France or whether the incentives will return to the 50% level any time soon. It may be more likely that the incentives would be in the 20 - 40% range.

Hollande also says that he will work to reduce France’s dependence on nuclear power to 50 percent by the year 2025. Currently, 75% of France's power comes from nuclear. It also exports some to Germany and other countries.

* Many European countries have adopted their own eco-labels to serve as minimum standards for the equipment that receives government incentives. Some of the stoves that met the 65% and 70% efficiency thresholds in France are widely regarded as being very basic stoves and would not receive incentives in many other European countries.

Wood Heat Symposium Challenges Policy Makers to Address Wood Heat’s Potential

This last Tuesday, Washington DC witnessed a rare event; a group of policy makers, industry officials and environmental organizations gathered to discuss the renewable energy contributions of everyday Americans using wood to heat their homes. The basics of this technology has been around for hundreds of years, but its modern form has yet to earn the same respect and attention flashier renewable energies such as wind or solar power receive. Wood heat provides 80% of residential renewable energy in America, solar PV 15% and geothermal only 5%, but wood heat has consistently been neglected by state and federal policy makers. On Tuesday, the Alliance for Green Heat’s Symposium, “Scaling up Residential Biomass Heating” helped to raise the profile of residential wood heat in Washington.

This symposium explored the opportunities for policy makers to maximize the potential of residential wood heat to reduce fossil fuel use in a tight fiscal climate, while minimizing its drawbacks. The eleven expert speakers covered the policy landscape, sustainability and emissions issues, state and federal case studies and results of a newly released study on wood heat incentives. The discussion was divided into two panels, the first, “Wood Heat in America: The People’s Renewable,” was a bright look at the scale and potential of wood heat in America, with Dave Atkins from the Forest Service outlining the ecological benefits of firewood harvest, John Ackerly of the Alliance for Green Heat presenting on how wood heat will continue to outplace solar, Jack Goldman of the Hearth Industry discussing how technological innovations are cleaning up wood smoke and Jon Strimling of American Biomass discussing how the country can further scale up wood heat. This panel was introduced by Edmund Gee of the USDA, and moderated by Lily Donge of the socially responsible investment group, Calvert Asset Management.

The second panel outlined various policy and incentive options for residential wood heat. The Alliance for Green Heat’s Tatiana Butler both moderated and discussed their newly released 130 page policy toolkit on Transforming Wood Heat in America. Scott Nichols of Tarm USA began the discussion by comparing the US’s progress on promoting wood heat as a valuable energy solution with the great advancements Europe has made. Steve Nadel from the American Council for an Energy Efficient Economy discussed how incentives can act to drive the market towards the most efficient appliances. Finally Chris Rice from the Maryland Energy Administration gave a real life example of how Maryland has tried to integrate wood heat into their renewable energy policies. Ed Cesa concluded the symposium with a discussion of the valuable educational work the Wood Education and Resource Center performs and finances.

Stakeholders who attended included representatives from the Forest Service, EPA, state energy offices, the EIA, environmental groups, non-profits, the Congressional Research Service and many wood heat related businesses. There was concern expressed over how we would know when the nation would hit the point of unsustainable harvest. While that point is far in the future, attendees felt it was important to consider when growing the use of woody biomass while other uses of it may grow quickly as well. Other discussion centered on how low-income families would be affected by tightening emission standards and the difficulties invasive species such as the Emerald Ash Bore, pose to the firewood industry.

The Alliance for Green Heat wishes to express its thanks to everyone who participated and contributed to a valuable and ongoing discussion, and especially to the Wood Education and Resource Center, and the Forest Service headquarters. For copies of the power point presentations, click here.

Report Finds Wood Heat Dominates Residential Renewable Market

Consumer demand, not government incentives, driving the most cost-effective residential renewable energy sector

July 11, 2011 - A report released today by the non-profit group, Alliance for Green Heat, finds that wood heating in America is dominating the residential renewable energy market, and doing so with virtually no government subsidies.

Approximately 13 million wood and pellet stoves are in operation today in about 10% of American homes, saving American families hundreds of millions of dollars in fossil fuel bills. 80% of residential renewable energy comes from wood and pellets, while only 15% comes from solar and 5% from geothermal, according to the US Department of Energy.

“Wood and pellet heating in America proves that low and middle-income families can lead the way, not follow, when it comes to using renewable energy,” said John Ackerly, President of the Alliance for Green Heat. “While federal and state subsidies flow to wealthy families to install solar panels, ordinary American families are reducing their reliance on fossil fuels much faster with wood and pellet heating,” Ackerly said.

However, the group warns that while wood heat is growing in popularity, many of the stoves and boilers in operation today are too polluting, and programs to replace old appliances with new ones are badly needed.

The report, “Transforming Wood Heat in America: A Toolkit of Policy Options,” found that biomass heating equipment excels at quickly and affordably reducing fossil fuel use, but few states provide incentives for the most modern, clean units. The report concluded that a $1,000 stove incentive could reduce as much fossil fuel as a $10,000 solar incentive, drive consumers towards extremely low emitting units, and help ordinary Americans affordably meet their utility bills.

A Wood Heat Task Force comprised of industry, air quality experts, non-profits and foresters helped guide the yearlong study that was partially funded by the US Forest Service. The report found that while emissions were a barrier to widespread use of some existing technologies, wood and pellet harvesting was generally very sustainable. The report’s authors interviewed more than 150 stakeholders to assemble a policy toolkit to help local, state and federal officials promote cleaner wood heating in America and maximize its potential as a core renewable energy technology.

The report will be released Wednesday, July 13 at a symposium held at the US Forest Service and the results will also be presented at a webinar on July 19.

Salt Lake AGH Workshop

The Alliance for Green Heat (AGH) ran a round-table discussion/workshop on incentive programs at the 2011 HPBA Expo. The Alliance presented on the different types of incentive programs, the possible rational and goals behind many incentive programs and an example of the legislative process in Maryland. There were twenty-five people total in attendance and participants ranged from appliance manufacturers, retailers, fuel producers and suppliers to EPA officials and non-profits. The appliance industries represented included outdoor wood boilers, pellet stoves, masonry stoves, catalytic and non-cat wood stoves. While this group was only a small percentage of the industry, many of the participants represented large companies and/or had great depth of policy experience. The discussion provided excellent feedback for AGH’s incentive project and helped focus some of the key issues that need to be investigated.

Efficiency: The EPA will require reporting of actual efficiency numbers in the NSPS and there was a debate about whether there should be a minimum efficiency threshold required by EPA. A Task Force member spoke out strongly against focusing on how high efficiency numbers could go because in wood stoves, extremely high efficiency numbers means lots of problems with draft, condensation and creosote formation – issues that go to heart of safety and effective functioning of the stove. A lively debate ensued about whether wood stove owners care about efficiency and whether we should. Most participants seemed to think some focus on efficiency was important, but not as a way to incentivize the best stoves.

Change-outs (and rental units): A task force member emphasized that the public dollar is best spent on change-out programs, particularly focusing on low-income households. He praised the Idaho tax deduction program for requiring an older stove to be recycled for the deduction. He also suggested that incentive programs should focus on renters more often as they are a huge source of residential wood stove home heating (often using an un-certified stove due to financial constraints).

LIHEAP Benefits: A task force member explained that wood stoves for home heat actually help low-income families stay off of government assistance programs such as LIHEAP, which allows the LIHEAP dollars to stretch further.

Lower Emission Limits for Incentive Programs: One of the liveliest discussions was around the pending Maryland biomass stove incentive bill that sets emissions standard for wood stoves at 3g/hr and pellet stoves at 1.5 g/hr. Participants cited the new Rick Kurkeet study showing the margin of error for EPA studies could range from 2.5g/h - 6.5g/hr, so putting the requirements lower than the EPA standard is arbitrary and will not necessarily incentivize cleaner stoves. A counter point is that stricter standards are inherent in virtually all incentive programs and often form the core rationale for them, and that popularizing the idea that wood stove emission tests are unreliable may be counterproductive with incentive program managers.

Wood vs. Pellets

Wood stoves should always be an option for people in incentive programs. The fact is people won’t want the expense and trouble of pellet stoves and will instead prefer to stick to their old and possibly dirty stoves rather than use the incentive to buy a pellet stove. However, pellets, not cordwood, are likely to be the future of biomass heat in this country. Many people are too lazy to stick with cordwood. Ideally in the future pellet heat will be as easy as oil. Wood stoves equal operator error, and no matter how clean they are regulated to be, people will always be able to burn them dirty. Are there other creative ways that incentive programs can address this?

Replacement on sale of Home

The Oregon law requiring old stoves to be replaced upon sale of property is a great law and bundles the cost of replacing an old stove into the purchase price of the home. This should be a federal program. The NSPS cannot accomplish this, and Congress unlikely to do it, so it may be left to states. Some in Washington State are considering it. Oregon achieved it by having local jurisdictions do it first, creating an incentive for consistency state-wide.

Replacement Parts

Since old stoves in the market are the main source of our air quality issues, perhaps regulations could focus on eliminating the market for parts for non-compliant stoves, so when old stoves break, they are forced out of use. Europe places a ‘born on’ date on all of their wood stoves, this makes it easy to phase out/in stoves when they are outdated or too polluting. France had an excellent change-out program.

Other Points

· 25c was not that effective since people used it to replace broken things they were already planning on replacing and did not spur people to buy energy efficiency things they weren’t already considering. There were few water heater change-outs, for example.

· Some incentive programs, like that in Montana, had a hard time giving away new stoves since people only wanted to keep their old stove. “If it ain’t broke, why fix it?”

· One way to sell incentive programs in the future to consumers might be to highlight savings in time and money, rather than health and abstract efficiency concepts.