The Inflation Reduction Act: A Potential Catalyst for a U.S. Wood Burning Boom

Posted: October 23, 2024 | Industry News

The U.S. forest biomass industry, which has long struggled to compete economically within domestic markets, might soon see a significant shift in its fortunes due to recent federal climate policies. The Inflation Reduction Act (IRA), signed into law in 2022, aims to tackle climate change through substantial financial incentives, including billions of dollars in direct appropriations and tax breaks. As the act begins to take effect, there are growing concerns from environmental groups that the U.S. could replicate Europe’s controversial approach of burning wood for electricity, which many scientists argue is more damaging to the climate than burning coal.

The Rise of Forest Biomass

Forest biomass energy production, which involves burning wood and wood waste to generate electricity, currently makes up a small percentage of the U.S. energy mix. In 2022, only about 2% of the nation’s total energy consumption came from wood and wood waste, according to the U.S. Energy Information Administration. However, fueled by European subsidies, the wood pellet industry in the U.S. has rapidly expanded, particularly in the Southern states like Alabama and North Carolina, making the U.S. the largest wood pellet exporter in the world.

With the IRA now in play, this trend could accelerate domestically. The act includes provisions that could benefit wood burning as a form of renewable energy, though the language was carefully crafted to avoid explicitly favoring any specific energy source. Key players in the industry, such as the British utility Drax Group, have already begun to explore new opportunities in the U.S., opening offices and planning new biomass power plants equipped with carbon capture and storage technology.

Controversy and Environmental Concerns

While the industry sees the IRA as a transformative opportunity, environmental groups and some scientists are raising alarms. The practice of burning wood for electricity has been widely criticized for its potential to exacerbate climate change. Critics argue that the carbon released from burning wood creates a “carbon debt” that cannot be repaid quickly enough by replanting trees, especially within the critical two-decade timeframe needed to achieve significant carbon reductions under international climate agreements like the Paris Agreement.

Moreover, there are concerns that incentivizing biomass energy could lead to unsustainable levels of tree cutting, threatening local ecosystems and biodiversity. Reports from environmental advocates point to increased instances of clearcutting in areas like northeast North Carolina, driven by the growing demand for wood pellets.

“If harmful, polluting forest biomass energy production is wrongly credited under these IRA tax provisions, then the industry could grow and generate climate pollution in an exponential fashion, the way it has in the U.K. and the EU,” warned Sami Yassa, a senior research specialist with the Natural Resources Defense Council.

The Role of Federal Agencies

As the U.S. Treasury Department, specifically the Internal Revenue Service (IRS), begins to navigate these complex issues, their decisions on which businesses qualify for tax breaks will be pivotal. While the IRA does not overtly pick winners among various energy sources, the application of tax credits could significantly impact the biomass industry’s growth trajectory.

Environmental groups are closely monitoring the Treasury’s actions, particularly how it incorporates greenhouse gas emissions calculations and whether it recognizes the broader ecological impacts of biomass energy production. The agency has until the end of 2024 to finalize its guidelines, and both industry representatives and environmental advocates are actively lobbying to influence these outcomes.

A Divided Response

The biomass industry’s proponents argue that their operations represent a form of renewable energy that can contribute to the nation’s clean energy transition. Industry voices, like Elizabeth Woodworth of the U.S. Industrial Pellet Association, emphasize the innovation behind bioenergy and its role alongside other renewable sources such as wind, solar, and hydroelectric power.

“The thrust behind the IRA in general is to find alternative and renewable energy sources,” said Woodworth. “Our (energy) demand, unfortunately, is not going down. And yet, we are in a critical phase with climate change. So this bioenergy is a tiny part of it.”

On the other hand, environmental advocates argue that burning wood is an outdated and inefficient method of energy production that could undermine climate objectives. They point to the significant carbon emissions associated with logging, processing, and transporting biomass, which they argue must be fully accounted for in any climate impact assessments. They also highlight the potential socio-environmental injustices, as many pellet mills are located near marginalized communities.

The Future of Forest Biomass in the U.S.

As the Biden administration pushes forward with its clean energy agenda, the fate of the forest biomass industry remains uncertain. The extensive subsidies and tax incentives provided by the IRA are designed to promote renewable energy and reduce carbon emissions significantly, but how these incentives are applied will be crucial.

For now, the debate continues, with significant implications for both the climate and U.S. forests. Whether the IRA will spur a domestic wood-burning boom—or prevent it—depends on the balancing act federal agencies must perform in the coming months. The decisions made could shape the landscape of U.S. energy production and forest management for years to come, with both industry and environmental advocates watching closely.

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