Time for Federal Tax Policy to Recognize Biomass Thermal

By Charlie Niebling
America's energy consumption can be divided into roughly equal thirds: transportation, electricity and heat (or thermal). Policies to promote renewable energy have focused largely on transportation fuels such as ethanol and biodiesel, and electricity from hydro, wind, solar, geothermal and biomass.

Conspicuously absent from America's support for renewable energy is biomass used to make heat. Congress overlooked biomass thermal because lawmakers were unaware of its enormous potential to cost-effectively address U.S. energy and climate challenges. In short, nobody asked. The Biomass Thermal Energy Council was formed to make the case for these and other policies that will enable biomass thermal to gain a solid place in the market. With the possibility of a comprehensive Energy Bill in 2010, we have the opportunity to correct this oversight.

Biomass can be used to make heat in many forms including pellets or briquettes, wood chips, agricultural residues, willow, poplar, switchgrass and miscanthus.

Highly efficient combustion technology is rapidly entering the market. Bulk fuel distribution systems are in place to expand the adoption of central heating systems in home and business heating, industrial process heat, district heating of whole communities, and combined heat and power.

Biomass thermal fulfills all the same public policy objectives that are by necessity the basis and justification for energy tax incentives. These include:

Reduced consumption of foreign fossil energy

Increased efficiency of utilization for equivalent energy output, as compared to biomass electric generation and cellulosic biofuels

Reduced greenhouse gas emissions due to the carbon lean status of biomass

Reduced emissions of certain air pollutants such as sulfur dioxides and mercury, as compared to fossil fuels

Strengthened local economic development and job creation

Because of the small market penetration of new biomass combustion, these systems are expensive compared with fossil-fueled systems. Fuel transport logistics have yet to reach critical mass with few customers spread over large geographic areas, thus increasing the distribution cost. Incentives are necessary to make biomass thermal more competitive. In time, with increasing market penetration, these incentives can be scaled down or eliminated.

The renewable fuels standard (enacted in 2007) and the renewable electricity standard (pending) provide mandates for renewable transportation fuels and electricity. No such mandate exists for thermal. Therefore, tax incentives are the logical mechanism to promote biomass thermal. Ironically, the federal government has already established tax incentives for other thermal renewable technologies such as solar thermal and geothermal.

BTEC seeks parity treatment for biomass thermal. In the 2008 Troubled Assets Relief Program, a modest credit for residential thermal systems was established under the efficiency title, 26 USC § 25C. This credit was enhanced in the American Recovery and Reinvestment Act in February. This incentive should be strengthened and reauthorized beyond 2010. For commercial and industrial installations, the most logical place to establish parity is in 26 USC § 48, the 30 percent business energy investment tax credit.

Legislation has been introduced to achieve these goals. Sens. Jeff Bingaman, D-N.M., and Olympia Snowe, R-Maine, have introduced S. 1643, the Cleaner, Secure, and Affordable Thermal Energy Act, to strengthen the residential credit. Sens. Jeanne Shaheen, D-N.H., Lisa Murkowski, R-Alaska, and others have introduced S. 3188, the American Renewable Biomass Heating Act to extend section 48 tax treatment to commercial/industrial biomass thermal. In the House, companion bills have been introduced by Rep. Paul Hodes, D-N.H., also called the American Renewable Biomass Heating Acts (HR 2080 and another as yet un-numbered). BTEC is working hard to gain co-sponsor support for these bills and position them for consideration should a larger Energy Bill move in this session of Congress.

Ultimately we view these as short-term goals. Longer term, we need one mechanism that provides support for biomass in all its uses. The answer may lie in a production credit under 26 USC § 45, which provides a tax credit based upon an equivalent million Btu or megawatt hour output basis from each of the three energy pathways for biomass. BTEC sees an important opportunity to work with groups such as the Biomass Power Association and the Renewable Fuels Association to advance this idea.
It is time that this simple technology was accorded the same incentives that have benefited virtually every other renewable energy technology.

Charlie Niebling is the general manager of New England Wood Pellet in Jaffrey, N.H., and chair of the Biomass Thermal Energy Council's board of directors.