The BTU Act Breaks Out

A 30% tax credit on qualifying appliances is a tailwind for the wood pellet sector. Now, the work of maximizing its marketplace impact falls to industry participants.
By Tim Portz | August 22, 2022

As this edition of Pellet Mill Magazine goes to press, the Inflation Reduction Act of 2022 sits in limbo, passed by the Senate but awaiting a vote by the House of Representatives and a signature from President Joe Biden. This feels largely like a formality as the Democrats look toward the midterm elections and delivering some tangible action on key pieces of their agenda, including investments in clean energy. The legislation includes over $350 billion in clean energy programs, including tax credits for everything from electric vehicles to hydrogen fuels cells to wood pellet stoves and boilers. Close observers of federal policy fully expect this legislation to pass through the House in an entirely party line vote, be signed into law and hailed as a significant victory for the Biden Administration. Supposing the predictions of a swift passage through the House and a signature by Biden play out, the domestic wood pellet will have achieved its most significant federal policy victory before this issue lands in industry mailboxes.

A short history lesson in industry efforts to establish provisions of the Biomass Thermal Utilization Act in the right policy vehicle are warranted to illustrate the long and winding road this market-boosting policy has traveled. The act was introduced in February 2015 by Sen. Angus King, I-Maine, and Congressman Peter Welch, D-Vermont, in a move hailed by both the Pellet Fuels Institute and the Biomass Thermal Energy Council. The policy chugged along in fits and starts for nearly five years before portions of it were included in the Consolidated Appropriations Act of 2021, signed into law by former President Donald Trump in December 2020. The policy included a tax credit for qualifying pellet appliances installed in residences for three years, starting out at a 26% credit (with no cap on the credit generated) and ratcheting down to 22% for 2022 and 2023.

The Inflation Reduction Act of 2022 extends those same provisions with three notable changes. First, the tax credit has been raised to 30% of cost of the appliance and installation. Second, a $2,000 cap has been introduced to the tax credit. There was no cap on the tax credit passed in 2020. For manufacturers of large, whole-home pellet-heating solutions, this cap dilutes the impact of a 30% tax credit. A consumer selecting an appliance and installation with a total cost of $10,000 would be capped at a $2,000 tax credit, effectively reducing the tax credit percentage to 20%. Finally, the tax credit has been extended through 2032, giving our industry and appliance manufacturers a much longer runway to capture the opportunities provided by the legislation. The tax credit on commercial installations of wood pellet appliances was not included in the legislation.

Taken as a whole, the membership at the PFI sees this as a significant federal policy achievement that we’ve been actively working toward for a decade. With a 10-year runway, the tax credit is arguably the biggest policy win in the industry’s history. Getting more appliances installed in American homes is fundamental to growing the market for wood pellets, and this tax credit puts another arrow in the quiver of the hearth retailers we rely on to promote, sell and install the appliances that burn wood pellets.

For the wood pellet sector to grow, either the number of installed appliances needs to increase, or the home heating season needs to deepen and lengthen. Anyone tracking heating degree days (HDD)  knows that the current trend is toward shorter, milder winters and the marketplace impact of those conditions is felt immediately. The 2021-‘22 heating season was largely a disappointment for wood pellet producers, as HDD numbers lagged well behind long-term averages, and pellet sales suffered as a result.

A 30% tax credit on qualifying appliances is a tailwind for the wood pellet sector. Now, the work of maximizing its marketplace impact falls to industry participants. The Pellet Fuels Institute looks forward to working with our customers and partners in the space to capture the full opportunity this policy victory has provided.

Author: Tim Portz
Executive Director, Pellet Fuels Institute
[email protected]