Wood Heat Tax Credit Gives New England Industry ‘Something To Rally Around’
Congress included the new tax credit in December’s COVID-19 stimulus bill, offering 26 percent off the cost of installing high-efficiency wood boilers.
New England’s wood heat industry is hoping a new tax credit and marketing campaign can convince more homeowners to buy a high-efficiency wood boiler.
While more common in New England than other regions, wood heat is still a relatively small niche, especially beyond a handful of northern counties. About 3.5 percent of homes in the six-state region are heated by wood, according to the U.S. Census 2019 American Community Survey.
Central wood heating systems can cost upward of $15,000 — twice the cost of typical oil or gas systems, which the region has long relied on. Clean energy advocates have been trying to increase the use of higher-efficiency heating systems, including wood heat as well as electric heat pumps. Several states offer rebates for wood heat, and a new federal tax credit could be a tipping point for customers still trying to make up their minds.
Federal lawmakers included the credit in the stimulus and spending law passed in late December. The 26 percent credit is applied to the installed cost of home heating and hot water systems, including boilers and stoves, that use wood pellets, chips and cordwood at efficiencies greater than 75 percent high heat value. The credit drops to 22 percent in 2022 and 2023, after which it’s set to expire.
Supporters had lobbied for the tax credit over the last decade, but it didn’t begin to gain traction until 2019, said Charles Niebling, a partner and principal at the consulting firm Innovative Natural Resource Solutions. While they’d been hoping it would find its way into the pandemic stimulus bill, they weren’t sure it would happen until the final bill was released in December.
Wood burning for fuel has been a controversial practice, particularly for electricity. Proponents say burning wood for heat is more efficient than doing so for electricity. Many clean energy groups in the Northeast support the technology, saying it can complement building electrification, especially in cold climates where heat pumps alone may not meet homeowners’ needs. They say the wood pellets and other low-grade wood-based fuels used are the product of responsible, often local, forest management. When managed sustainably, they say, wood can be more responsible than electrifying with fossil fuels.
“We cannot say that we will only accept perfect solutions because … there are no perfect solutions,” said Madeleine Mineau, executive director of Clean Energy New Hampshire. The forest products industry in the state is hugely important, she said, and the wood heat market stimulates local business.
“We are also supportive of putting restrictions on making sure that the systems are efficient,” she said, adding that new wood heating technologies are far more efficient than they used to be.
“Using wood has come a long way,” Niebling said. The efficiency threshold in the new law “sets a high bar,” he said. “And I know for a fact that appliance manufacturers are already reconfiguring” so their equipment meets that threshold.
Currently, there are questions over how to measure efficiency: Some boilers, mostly manufactured by European companies, have been tested to other internationally recognized standards but aren’t recognized by the Environmental Protection Agency, Niebling said.
“The solution is either for those manufacturers to test to EPA-approved standards, or for the IRS to recognize a broader set of criteria or methods for ascertaining the efficiency of the appliances,” he said. “I’m not sure there is a simple solution.” He added that some stove manufacturers are going to invest to improve their efficiency to meet the EPA’s standards.
The credit “shows confidence at the federal government level for what we do,” said Scott Nichols, owner and president at New Hampshire-based Tarm USA. The company sells wood heat systems throughout the country, mostly to customers in the Northeast.
Nichols added that the exclusion of commercial customers from the tax credit was “a major disappointment to us, because that market, I think, would have been able to take advantage of tax credits more easily than the residential.”
Niebling said he’ll continue to lobby for the inclusion of commercial customers. He also hopes the credit can be extended beyond the current three years.
“It does take time for the market to respond to the policy signal,” he said, “and there’s a lot of effort now to get manufacturers of systems that can meet the efficiency requirement and retailers and vendors to be aware of the credit and to promote it.”
He said all the stakeholders whose businesses or goals can benefit from this credit — retailers and fuel producers, as well as efficiency utilities distributing rebates — should promote this to their customers.
The new tax credit also happens to coincide with a marketing campaign meant to educate customers about high-efficiency wood heat.
The Northern Forest Center has convened a group of about 35 partners, including sellers, pellet manufacturers and advocates, to educate customers and, when they’re ready, point them where to go so they can get a new efficient wood boiler. The $400,000 effort, supplemented with an additional $200,000 of in-kind donations, is the latest iteration of the Feel Good Heat campaign, which began in its current form about two years ago.
“We’ve kind of convened these stakeholder groups around the idea that if we create a market for low-grade wood, then all parties would be impacted in a positive way,” said Mitch Breton, marketing manager at the Northern Forest Center.
A newly redesigned website is the main landing spot for the campaign. Some spending will go toward social media, Google and Pandora radio ads to drive potential customers to the site.
For the most part, the campaign is targeting upper Northeast customers who are environmentally conscious and already considering new boiler systems, whether because their current system needs to be replaced or they’re buying a new home and are evaluating their heating needs, Breton said. The site features educational materials on wood heat and its environmental appeal, and testimonials from people who have already tried the technology.
Users can fill out a form to provide information like their location and heating needs. After that, they’ll be connected with an industry member who can help them — either a seller or another expert who can answer their questions. They can also sign up for a newsletter if they’re not ready yet to buy a system. Breton said that while the initiative currently focuses on directing customers to boiler installers, stoves will be included in the future.
The tax credit “definitely catalyzed a lot of energy,” Breton said. It “gave us a big kick in the pants and gave us something to really rally around.”