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The Oregon Biomass Tax Credit: A Model for Other States?

December 16, 2011

In November, the Oregon Department of Energy issued the final rules for the Biomass Producer or Collector (BPC) Tax Credit program. The program, which provided a $10/ton per green ton tax credit for biomass delivered to biofuels facilities, was set to expire on December 31, 2011. The new rule provides for a $10/ton biomass tax credit per dry ton, effectively cutting the credit in half; it also extends the credit through 2017.

The BPC tax credit program has been around since 2007; its enactment happened to coincide with the housing market crash and subsequent recession. In the midst of the downturn, the tax credit provided some support to the sagging forest industry sector.

A new report, Impacts of the Biomass Producer or Collector Tax Credit on Oregon’s Wood Fuels Market and Economy, by the Ecosystem Workforce Program (EWP) at the Institute for a Sustainable Environment at the University of Oregon, quantifies the amount of support the credit provided to both wood fuels markets and Oregon’s economy:

  • The BPC tax credit likely prevented “higher feedstock prices and lower market volumes than would have otherwise occurred. Forest biomass vol­ume increased between 100,000 and 190,000 bone dry tons (BDT) more than the [EWP’s] forecast models pre­dicted, and prices were about $7 per BDT less than predicted after the BPC tax credit became avail­able.”
  • The BPC tax credit likely “acted as an economic lever that provides in­centives for more economic activity than it costs.” The “collection and delivery of biomass under the BPC Tax Credit Program cre­ated an average of about five jobs, nearly $250,000 in wages and benefits, and more than $850,000 in total economic activity per 10,000 BDT of forest bio­mass.” For an explanation, read Suz-Anne Kinney's “What is Total Economic Activity?”
  • As a result, “the forest biomass portion of the tax credit program likely supported between thirty-two and seventy-three jobs in Oregon in 2010, or approximately 11 percent to 24 percent of the total forest biomass portion of the wood fuels market.”
  • In addition, the EWP estimates that the tax credit “likely generated at least as much value for Oregon’s economy as the program cost in foregone tax revenues, and may have produced up to 2.4 times more value for Oregon’s economy than it cost.”

In light of this report, the Oregon legislature’s decision to extend the BPC tax credit appears to be a good one.  Will slicing the credit in half reduce the program’s effectiveness? The EWP says the nature of that effect is “uncertain, but may hinge on whether a constrained supply of mill residuals continues and whether demand for bioenergy production continues to grow.”

In addition to reducing the amount of the credit, the rules that go into effect for 2012 include the following clarifications and changes:

  • Clarification: the tax credits belong to the entity that holds title to the biomass at the time it is delivered to an eligible facility.
  • Clarification: torrefied biofuels are not charcoal (which is prohibited from eligibility) and therefore eligible for the credits in 2012 and beyond.
  • Change: the legislature removed a thermal efficiency requirement, allowing stand-alone electricity generation facilities qualify as eligible facilities.
  • Change: material from pre-construction and construction activities, as well as golf courses, yard debris and urban wood waste do not qualify.
  • Change: the delivered price of shipments in dry tons must be provided in application.
  • Change: the deadline for submitting applications was extended from 45 to 60 days; application fees were reduced from $0.007 to $0.006 per credit.

Read the text of the administrative rule governing Oregon’s BPC tax credit program.

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