Even seemingly obscure legislative committees can have huge consequences for the timber industry, and no one should assume that the summer months will necessarily be quiet. In Washington state, the Joint Legislative Audit and Review Committee (JLARC) came out this week with a preliminary report that recommends allowing an exemption on sales and use tax for woody biomass, otherwise known as hog fuel, to expire in 2013.
The end of this exemption would obviously have huge ramifications on the timber industry. Biomass generation is a critical factor in ensuring the survival of the industry, which is still so important to rural communities across the West. And as any biomass plant developer will tell you, support from federal and state officials, including grants and tax exemptions, are what allow the plants to be economically viable in a field with already slim profit margins. Without governmental support, the plants don’t pencil out.
The preliminary report this week from JLARC in Washington was actually researched and written by the committee’s staff members, and the recommendations would need to be approved by JLARC and then the Legislature next year. But the very idea that the committee would consider throwing out the biomass tax exemption is troubling.
In a hearing this week, the biomass exemption was one of only two tax exemptions that the JLARC staff members recommended allowing to expire. They said it would save the state $3 million in the 2011-13 biennium and should expire because the Legislature made a conscious decision to put an expiration date on the exemption when it was approved in 2009. The staff members also said they thought the Legislature wanted the exemption in 2009 because oil and natural gas prices were low at the time, and woody biomass needed some incentives in order to compete in the energy marketplace.
Rep. Ed Orcutt, R-Kalama, a member of JLARC and also a forestry consultant, questioned the staff during the hearing about how they reached their conclusions. He said it was clear that problems in the timber industry, not low oil and natural gas prices, were the motivator behind the approval of the biomass exemption in 2009. For instance, between 2007 and 2009, the gross price of Douglas Fir timber declined from $600 per 1,000 board feet to $275 per 1,000 board feet.
“It was a huge disincentive for landowners to harvest timber,” Orcutt said.
The committee staff members added that they could no find no evidence that the exemption had helped promote the use of biomass to generate energy. No evidence? Just look at all the biomass facilities that have been built or designed in Washington over the last few years, as well as the older facilities that are flourishing.
The proposed end of the biomass tax exemption will come up next in September, when a citizen committee called the Citizen Commission for the Performance Measurement of Tax Preferences takes public testimony. It will be critical for the timber industry to have its say and ensure this exemption is extended.