Recommendations for Pro-Growth Tax Reform

By Joseph Seymour | May 06, 2013

In mid-April, the Biomass Thermal Energy Council shared its perspective on federal energy tax policy in the context of comprehensive tax reform with the U.S. House Ways and Means Energy Tax Reform Working Group. BTEC is urging the working group to evaluate reform efforts that provide a level playing field for competing energy technologies, specifically for high-efficiency biomass thermal combustion technology.

Our nation’s tax code has long played a key role in shaping and influencing national energy policy. In the renewable energy arena, the current code features numerous incentives for most renewable energy technologies in residential, commercial and industrial installations (Sections 25D and 48, respectively, for investment tax credits, and Section 45 for production tax credits). The Joint Committee on Taxation has listed approximately 80 separate energy-related tax provisions in existing law. Unfortunately, none of these incentives extends to high-efficiency biomass thermal energy, despite the fact that biomass thermal energy fulfills all the same public policy objectives as other renewable energy sources, and despite the fact that the code recognizes other thermal technologies such as solar and geothermal. The end result is an uneven energy landscape that promotes certain technologies over others, both limiting consumers’ energy choices and their ability to utilize local fuels from landowners and farmers.

BTEC proposes parity in tax incentives for high-efficiency biomass thermal combustion technology to include:

• Eligibility for the 30 percent residential renewable energy tax credit under Section 25D of the Internal Revenue Code.

• Eligibility for the 30 percent business energy investment tax credit under Section 48 for commercial and industrial installations.

• Accelerated depreciation of capital investments similar to what also exists for other renewable technologies, including biomass electric generation.

Inclusion of biomass thermal in Sections 25D and Section 48 will provide the highest possible return for the country in terms of reductions in fossil fuel imports and jobs created. Per dollar of federal support, biomass heating displaces ten times more fossil fuel than solar installations or ethanol and is proven to create a greater number of ongoing jobs. Biomass has accounted for 40 percent of the renewable energy jobs in Germany, more than wind, solar or liquid fuels.

In regions such as the Northeast and north-central states that rely heavily on imported fossil energy for  home and business heating, biomass has the potential to greatly reduce our consumption of  higher-priced heating oil and propane. In particular, the Northeast is extremely vulnerable to heating oil price shocks and supply disruptions. In that region, biomass can sustainably offset as much as 25 percent of oil used to heat homes and businesses.

BTEC recommends that the Energy Tax Reform Working Group first focus on how the tax code addresses the major end uses of energy. Widely unknown, America’s energy consumption can be divided into thirds: roughly one-third transportation, one-third electricity, and one-third heat (or thermal). Energy policy to promote renewable energy has focused almost entirely on transportation fuels such as ethanol and biodiesel, and electricity from hydro, wind, solar, geothermal and biomass.

These fuels and technologies have received support from the federal government in the form of production and investment tax credits, accelerated depreciation, research and development funding, direct project grants, and renewable energy credits (e.g. state-level renewable electricity programs).

Although the tax code does address thermal energy in 25D and 48, it primarily promotes generating electricity from biomass and thermal energy from geo and solar systems. Biomass thermal, a proven pathway for reliable, base-load heating and cooling has been omitted from this larger concept of thermal energy.

The Energy Tax Working Group should also look to weigh how it determines what technologies are explicitly supported against a technology-neutral approach. Super clean, highly efficient combustion technology is rapidly entering the domestic U.S. marketplace, mostly developed in Europe in response to long-standing industry incentives to encourage technology development. Efficient fuel distribution systems are in place to expand the adoption of central heating systems in home and business heating, industrial process heat, district heating of whole communities, and combined heat and power. This proven technology has been widely deployed in Europe in homes, schools, municipal buildings, factories and any other large institutional, commercial or industrial setting.

The bottom line is that biomass thermal fulfills all the same public policy objectives that are by necessity the basis and justification for renewable energy tax incentives.

Author: Joseph Seymour
Executive Director, Biomass Thermal Energy Council
202-596-3974 ext. 302