Electrification Nation

The inclusion of a 30% tax credit for qualifying residential pellet appliances in the sweeping Inflation Reduction Act of 2022 has rightly been called the single largest policy victory for the wood pellet industry to date
By Tim Portz | February 21, 2023

The inclusion of a 30% tax credit for qualifying residential pellet appliances in the sweeping Inflation Reduction Act of 2022 has rightly been called the single largest policy victory for the wood pellet industry to date. Certainly, there were some disappointing caveats. The tax credit doesn’t extend to commercial installations, and a $2,000 cap on the credit was introduced, significantly blunting the impact of the tax credit on larger, more expensive whole home pellet boiler systems. Still, producers and the Pellet Fuels Institute cheered the tax credit and its 10-year runway. With a trend toward warmer and shorter heating seasons, it is imperative that more pellet-burning units be installed if wood pellet demand is expected to remain stable, to say nothing of experiencing even modest growth.

With nearly $370 billion of the legislation’s $433 billion in total spending earmarked for energy security and climate change, it is crystal clear that the Biden administration has ambitions for the rapid acceleration of clean energy to be its enduring legacy. Considering the disappointment many in the broader clean energy sector felt when the Obama administration chose instead to feature health care reform as its legacy platform, the Inflation Reduction Act’s sharp focus on clean energy may initially feel like a policy dream come true, not only for wood pellet producers, but also for the broader biomass sector. Still, a close read and analysis of the Inflation Reduction Act suggests that the clean energy future that this piece of federal policy imagines and is aiming for is shifting toward an energy system less concerned with “renewable resources” and is instead tightly focused on net zero carbon.

The pivot is understandable, as climate scientists stress that to slow the pace of climate change, carbon is all that matters, along with technologies that have no carbon consequence but deliver energy for our cars, trucks, homes, businesses, airplanes and data centers. The easy targets, of course, are the carbon-dense fossil fuel energy sources the global economy has relied upon since the earliest days of the Industrial Revolution. While opinions may vary about how likely human beings are to actually divorce themselves from the use of fossil fuel, what is not up for debate is that policymakers around the world, heading the pleadings of climate scientists, intend to do exactly that.

A close read of the Inflation Reduction Act reveals that electrification will be incentivized to unseat fossil fuels from its incumbent position wherever practicable. Electric vehicles are the most widely reported on and visible manifestation of this aim, but work is being done to electrify almost every other place humans need energy, including space heating. Heat pumps are a mature technology, incentivized by the Inflation Reduction Act to the same degree as qualifying wood heat appliances, and are increasingly being tabbed as the swiftest way to the decarbonization of our space heating load. Many states are aligned in this thinking.  The report, “Building Electrification: Programs and Best Practices,” authored in February 2022 by the American Council for an Energy Efficient Economy, found 42 state or local program incentivizing a transition to electrified space and/or water heating via heat pumps, up from 22 in 2020. Of these programs, 13 can be found in the heart of traditional wood pellet markets, the U.S. Northeast.

The drive for decarbonization need not be regarded as a death knell for the biomass nor pellet sector. Each corner of the biomass industry points regularly to carbon benefits, and in many instances have earned policy victories and market growth as a result of successfully connecting biomass use to delivered carbon benefit. Consider the subsidies and feed-in tariffs that gave rise to the industrial wood pellet market. That example, however, can be viewed as a cautionary tale, as well as the continued support of power production using biomass fuel, which continues to draw scrutiny and legions of detractors who call for the end of continued subsidization.

The domestic wood pellet market for home heating operates in a wholly different marketplace than global power markets. Take away the one piece of policy support the industry currently enjoys, the tax credit for qualifying stoves, and market and industry would continue to march forward. Growing its reach would be a steeper hill to climb, but the industry would remain in place. That said, it is becoming increasingly clear that the long-term prospects for this sector and its continued support from policymakers and regulators alike will hinge on its ability establish and defend its place as a clean, carbon-beneficial solution for space heating.

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