Window of Opportunity
As if to underscore that 2020 would go down as the most unpredictable year in all our lives, a long-sought tax credit for wood and pellet heating appliances was signed into law in the year’s final week.
As if to underscore that 2020 would go down as the most unpredictable year in all our lives, a long-sought tax credit for wood and pellet heating appliances was signed into law in the year’s final week. The inclusion of select provisions of the Biomass Thermal Utilization Act (BTU Act) in the massive COVID relief bill came with little notice, and almost before the news was widely disseminated, the entire relief bill—BTU Act provisions included—was signed into law by Donald J. Trump.
This policy victory comes with an asterisk, as commercial installations were left out of the relief package, as well as an expiration date, currently set for Dec. 31, 2023. While industry advocates are at work to ensure that the full vision of the BTU Act is eventually signed into law, specialty hearth retailers and appliance manufacturers have moved on to the task of raising consumer awareness of the tax credit with the hopes of selling more stoves. Early reports from the field suggest their efforts are already bearing fruit.
After a decade of advocacy to gain a tax credit on qualifying wood and pellet appliances, the broader wood heating category pivots to maximize potential while this window of opportunity remains open. For the inclusion of the provisions of the BTU Act in the Federal Register to represent a victory for wood pellet producers, annual demand for heating pellets must increase appreciably. As obvious as that assertion may be, it does not mean the desired outcome is guaranteed. For this tax credit to move the needle for pellet producers, consumers who otherwise would not have purchased a pellet appliance must choose to do so. A consumer already considering a pellet appliance purchase selecting a more efficient model to qualify for the tax credit does not create additional demand. For the tax credit to meaningfully increase the market opportunity for wood pellet producers, a consumer walking into a specialty hearth retailer without a predetermined idea of which appliance they intend to purchase must leave with a pellet appliance. When that happens, the market-expanding promise of the BTU Act will be fulfilled.
How, then, does the Pellet Fuels Institute leverage this tax credit to increase overall market opportunity for all pellet manufacturers? I think the answer is two-fold.
First, the Pellet Fuels Institute must position itself as a curator and distributor of information about the tax credit and how it works. Which appliances are eligible? What costs are covered? How do consumers claim the credit on their income taxes and what supporting documentation will they need to keep? Already, we have built a page on pelletheat.org to serve as a repository for answers to these and other questions. Now we need to work hard to keep it current, robust and helpful enough that retailers will see it as a resource worthy of their recommendation to interested consumers.
Next, the PFI must reinvigorate the overall value proposition of wood pellets. It would be hard to deny that the tax credit will increase consumer interest and inquiries about wood pellet appliances, but I think its dangerous to assume it will automatically guarantee an increase in pellet appliance sales.
Remember that the BTU Act extends the same tax credit to qualifying wood stove appliances that it does to qualifying pellet appliances, and while most appliance manufacturers and hearth retailers benefit from either sale, wood pellet manufacturers do not. In this regard, the work of putting pellet heating in the most favorable light and extolling its virtues as compared to other fuel types falls to the PFI.
Finally, I think it will be critical over the life of the tax credit—however long that may be—to shore up confidence in the surety of pellet supply. While the last two months of 2020 have not yet been captured in the EIA data, it seems all but certain that 2020 set a record (in the life of the report) for overall pellet sales. Additionally, the BTU Act is not the only wind in our sector’s sails right now. Robust growth in BBQ demand is drawing interest across the sector, and producers are contributing more press time and fiber to their BBQ product offering. The market drivers our sector has asked for have finally been realized, and the challenge of meeting this increased demand starts now.
Author: Tim Portz
Executive Director, Pellet Fuels Institute