From the Director's Desk:
Wood Appliance Tax Credit Extension Included in Inflation Reduction Act of 2022
If you read the July 29, 2022 edition of the Pellet Wire you know that the last two weeks have included a number of twists and turns. I left the commentary that I had authored on the 26th as an illustration of how quickly things can change. Just a day later Senator Joe Manchin (West Virginia) and Senator Charles Schumer (New York) had come to an agreement on a budget reconciliation package, the Inflation Reduction Act of 2022. I’m well aware that hanging a title like that on a $460 billion spending package is likely to generate more than a few eye rolls, but I’m limiting my gaze on this legislation to the impact it has on this industry. In that context, I would assert that this is the domestic wood pellet industry’s largest federal policy win in the history of the industry.
Before I defend that statement, let’s take a quick look at exactly what is (and is not) included in the IRA of 2022.
What’s in:
- The 25C Residential Tax Credit is extended to 2032.
- The tax credit is raised to 30% with an annual limit on the tax credit of $2,000. It is important to note here that the limit is on ALL technologies that qualify for a tax credit. For example, a homeowner looking to buy and install a heat pump and a wood pellet appliance (both qualifying technologies) can only generate $2,000 of credit in a single tax year. This is a departure from the tax credit program as written into the spending bill passed by then President Trump in December of 2020.
What’s not in:
- The business tax credit was not included in this legislation.
- The $2,000 limit does introduce a ceiling of sorts at roughly $6,800 and any appliance/installation with a sales price higher than that will experience a lower credit percentage.
When we began our advocacy efforts we were hopeful that we would be able to expand and extend the provisions of the BTU Act we were successful in getting included in the 2020 package. A ten-year extension is a big deal. In my 12-year career in renewables, I don’t believe I’ve seen tax credits of any kind extended more than a small handful of years. Manufacturers of products and fuels that receive tax credits have long bemoaned the challenges of on-again, off-again tax credits or tax credits applied retroactively. Tax credits with a longer time horizon are more effective at catalyzing investment. I look forward to hearing more from our appliance manufacturer members as to their thoughts about a ten-year runway and its impact on their overall business strategy.
Finally, I’ll offer this. Old Man Winter seems to be losing some of his vigors. The heating season of 2021-22 was a disappointment as sales never really found their footing. The EIA data speaks volumes about the bottom-line impact on producers of unseasonable warm winters. The back of the envelope math says it all. From January-April of 2022, total heating pellet sales in the United States were 371,184 tons. Compared to that same time frame in 2019 (648,987), we’re looking at a 277,803-ton difference. At $185.00/ton (U.S. avg. in 2021) last winter’s dud left over $50 million on the table.
If fewer Heating Degree Days (HDD) per winter is the new norm, a bigger installed base of wood-burning appliances is our only opportunity to shore up demand and hold serve. A 30% tax credit on qualifying appliances for ten years then, is a crucial piece of the puzzle to grow this vital installed base of appliances that burn wood pellets.
What Now?
This edition of the Pellet Wire will likely arrive in your Inbox while the U.S. House of Representatives is voting. The House is expected to pass this bill as written in a strictly party-line vote and send the bill to President Biden’s desk, which everyone expects him to do. It would be a surprise if this wasn’t all put to bed and inked before the next edition of the Pellet Wire came out. The PFI will issue a press release offering our reaction once President Biden signs the legislation. At that point, our attention will turn to maximize the opportunity in front of us.
Government Relations Committee Seeking Members
In the context of the PFI actively engaging in targeted federal policy action, the PFI Board of Directors directed me to reestablish an active Government Relations Committee. The reality is our organization is always engaged with federal and state governments because our industry operates in those jurisdictions. An active Government Relations committee is a way of formalizing the PFI’s efforts to monitor, act and react to state and federal policy and regulatory matters that impact wood pellet producers. Many of you have been engaged in active government relations efforts periodically via our fly-ins and most recently our spring Senate outreach efforts.
I’m actively seeking members who would like to formalize their participation in the PFI’s government relations work. Please consider committing some time to this important discussion. The committee will meet monthly and participation in state ad federal outreach outside of the committee meeting should be anticipated. Please e-mail or call me directly and I will add you to the roster. I’ve included a short list of potential agenda items informed by active conversations and efforts that have crossed my desk in the last six months:
- Advocacy Effort to Extend and Expand the Wood and Pellet Heating Tax Credit
- Monitoring of Anti-Combustion Policies in International Building Codes
- Monitoring of Anti-Combustion Policies in State and Federal Governments or Wood Heat Exclusion in Renewable Energy Portfolios
- The PFI Standards Program and the NSPS
- Wood appliance stove testing protocols
—Tim Portz Executive Director
