Biomass Sustains Business

A producer and collector tax credit has improved economic sustainability in Oregon’s biomass industry
By Luke Geiver | February 21, 2012

When Cassandra Moseley, Max Nielsen-Pincus and the rest of the team at the University of Oregon’s Ecosystem Workforce Program (EWP) first started their research into the impact of the state’s biomass producer and collector (BPC) tax credit, they had no preconceived notions about whether the tax credit was good or bad.

They were interested in forest restoration and intrigued by the job creation possibility of a policy linked to biomass. And they planned on letting Oregon’s policymakers decide whether a tax credit that awards $10 for every green ton of biomass delivered to a bioenergy facility is worth the money. But that was before the team, which also included members of Oregon’s Department of Energy, finished its work.

Now, after biomass prices and regression analyses simulating a world without the BPC tax credit, the results are in. And they show that policymakers have an easy choice to make.

The Main Effects

When the team’s research into the BPC began in 2010, the amount of information on wood fuels markets and the economics of biomass collection was limited. With the help of Forest2Market, the research team compiled biomass prices dating back 10 years. The team also reached out to several Oregon businesses to discuss the typical costs of transporting woody biomass. “We tried to tie any information that did exist to this particular tax credit program,” Pincus says.

Moseley says the researchers had three goals. First, determine if the tax credit was actually financially affecting the wood fuels market. Second, find out if the amount of biomass flowing into the market was fluctuating in relation to the BPC. And the third goal was centered around employment. “We wanted to know whether it was creating or sustaining any new or existing jobs,” Moseley says.

To satisfy those goals, the team created a statistical model based on figures from before the tax credit, and then projected the fuels market pricing out through 2010 as if the credit had never been implemented. The team then compared the fuel pricing market conditions, with the tax credit versus without.

“What we’ve learned is that the tax credit has helped prices in the wood fuels market,” Pincus says. But that’s only one of the ways the BPC tax credit impacted the state. The research by EWP shows the tax program also supported between 32 and 73 jobs in 2010. The most powerful testament to the effectiveness of a state’s commitment to the growth and health of the biomass industry, however, is a comparison between what the state got out of the BPC and what it had to put in.

At an average price of $30.11 per bone dry ton (BDT), the EWP calculated that 10,000 BDT equaled $301,000, and would be eligible for $178,571 in tax credits. That means 10,000 BDT of forest biomass delivered to a bioenergy facility would support roughly 5.1 jobs, $241,000 in wages and benefits, and $868,000 in direct, indirect and induced economic activity. The net tax expenditure cost of all that is about $143,000.

“This study shows that the tax credit seems to have generated more economic activity than it cost the state in tax,” Moseley says. “The credit moderated the price increases that would have happened otherwise in the wood fuels market caused by the economic downturn.”

As of March 2011, 52 biomass providers and collectors requested nearly $6.6 million in BPC tax credits for fiscal year 2010, according to the research. About $5.5 million of that came from more than 550,000 green tons of woody biomass. The average amount request by each participant totaled $126,931.

And it all came at a time of economic peril, during a downturn in the housing market that was creating typical sources used in bioenergy facilities, such as hog fuel and mill residues. But, decreased demand didn’t follow the decrease in supply. “The demand (for biomass) was still growing because of our increasing demands for renewable energy,” Pincus says.

That steady demand for biomass-based energy was still met, however, through the BPC tax credit. “The credit essentially allowed for material to come out of the woods that wouldn’t have otherwise come out,” Pincus says. “It allowed that demand for wood fuels and for biomass to continue to grow.” And without the BPC in place, the price of woody biomass would have climbed during the decrease in supply. According to the research, the price of forest biomass would have been roughly 20 percent higher, and availability would have been 20 to 30 percent lower.

The BPC not only helped sustain the health of the woody biomass supply market in Oregon, but it also helped sustain jobs involved with the handling, delivering and storing of biomass.

The Future

Matt Krumenauer is a senior policy analyst at the Oregon Department of Energy and an integral part of the BPC program. Krumenauer helped assemble the team tasked with analyzing the effectiveness of the tax program. He was responsible for implementing and evaluating the BPC credit, and says he’s happy it has been extended through 2018.

But a few changes have been made to the program. Most notably, the unit of measure will switch from green tons to bone dry tons. In addition, stand alone electricity generation sites will not be eligible for the tax credit because combined-heat-and-power facilities will better assist in reaching energy efficiency standards set by the state’s DOE.

Krumenauer doesn’t envision any more changes to the BPC program in the foreseeable future, and is already working to implement more biomass programs. In the past, his department created incentives for equipment, or for the construction of new facilities, and now is looking at the biomass thermal sector. “We are starting to focus more on our heating sector…trying to provide our communities with access to biomass heating systems,” he says. That could include applications in hospitals, schools, commercial buildings and prisons.

But for now, Krumenauer and his EWP team have one more major task at hand: analyze the effect of the BPC tax credit in the absence of major federal incentives such as the USDA’s Biomass Crop Assistance Program. Although the analysis is still in progress, Moseley, Pincus and Krumenauer agree that the information for 2010, and most likely for 2011, shows that the BPC undoubtedly stimulates at least one important part of the market: the middle of the supply chain. “It doesn’t stimulate final demand, it doesn’t create more consumers, nor is it directly building any new production facilities,” Moseley says. “But it could potentially create some investment decisions.”

“One could imagine that with a time horizon of this particular tax credit being here until 2018, that that might impact somebody’s investment decision about building new biomass capacity,” Pincus adds.
And, although neither Pincus nor Moseley believe the BPC program is a silver bullet, they do adamantly argue for its strengths. The link the team found between the BPC and the wood fuels market is more than merely casual, they say. They both believe the market would have been far less fiscally successful and sustainable over the past few years without such a program in place.

For Krumenauer, the choice to extend the program through 2018 was an easy one, given its economic sustainability factor. “I think that being a resource-dependant state, the value that the legislature saw was really being able to put loggers and farmers and contractors back to work creating energy products when the markets for housing products, timber and forest products markets declined.”

And, of course, the program will lower Oregon’s carbon impact through the next six years of its life. But in today’s economic climate that starts and ends with jobs, the research by the EWP team proves bioenergy affects more than just greenhouse gas emissions.

“(Legislators) extended it through two other legislative cycles and I believe they wanted to provide some assurance that the program would be available so that they could begin to make business decisions,” Krumenauer says.

Author: Luke Geiver
Associate Editor, Biomass Power & Thermal
[email protected]
(701) 738-4944