For every ten homes that convert to pellet heating, the increase in state domestic product will support a new job in Maine. And, over 30 years, under this suggested policy, converting only 15% of Maine homes and businesses: Total ME Commerce would be $2.9 trillion, total ME Income Tax Revenue would be about $191 million, and nearly 95,000 jobs would be created and sustained.

This document focuses on economic impact from the pellet heating industry in terms of manufacturing, assembly, installation, and servicing of pellet heating systems. It explores the economic benefits in terms of commerce created, state income tax revenue raised, and jobs created or sustained by this industry. Specifically, impact that would occur were 15% of Maine’s homes and businesses to switch over to wood pellet heating incrementally over 30 years.

It should be noted that the environmental impacts of decreasing Maine’s carbon footprint along with economic impacts for the logging, sawmill, and distribution industries have been addressed in a separate document titled A Climate Strategy with Short- and Long-Term Economic Benefits.

Starting Assumptions

There are approximately 8,600 BTUs released by one pound of pellets and about 139,000 BTUs released per each gallon of heating oil.

At the time of writing, heating oil currently costs $2.41 per gallon and pellets currently cost $274 per ton delivered in bulk.

While we note that $2.41 per gallon for heating oil is relatively low, it was accurate at the time this summary was created and highlights the volatility of oil prices in contrast to the long-standing stability of pellet fuel pricing. There are no anticipations of pellet fuel changing in cost greatly in the near future, despite the nearly absolute probability of oil climbing and dropping constantly.

Below, we will compare economic impact per household using oil prices of $2.41, $2.60, and $2.80. It is clear that the higher the cost of oil, the greater the value in switching to pellet heat.

Impact by Household

The average home in Maine uses about 1000 gallons of heating oil each year which equates to 8.08 tons of pellets when comparing by BTU output. This means that the average cost to heat a home in Maine with heating oil is $2,410 and that the comparison with pellets is $2,214 using current pricing.

Each household saves $196 at current pricing just when purchasing fuel. This, of course, is subject to change based on current heating oil prices (as pellet fuel is relatively stable in comparison).

If oil were $2.60 per gallon, the average home would spend $2,600 to heat with oil and save $386 by switching to pellets. Further, if oil were at $2.80 per gallon the same home would spend $2,800 and save $586 by switching to pellets. The cost of pellets has remained stable for the last decade and is expected to continue to do so.

We mention this to highlight the stability of wood pellet pricing in comparison with its fossil fuel counterpart which is highly volatile.

68% of every dollar spent on fossil fuels in Maine leaves the state's economy. By switching to wood pellets from fossil fuels, each individual household would keep $1,639 in the state's economy using current pricing ($2.41 per gallon for oil).

Thus, even with very low oil prices currently, the total impact of one household switching to pellet heat is $1,834 when you combine savings on fuel purchases and the money that stays in Maine. This is exclusive of the impacts from assembly and installation costs, which will be discussed below.

Jobs Created by using Wood Pellets as Fuel

Using an economic multiplier of 2 and assuming that 90% of disposable income will be spent on consumer products, over one year each household contributes $3,302 to the Maine economy. Just ten homes switching to pellet heating from fuel oil would contribute $33,021 to Maine's economy each year.

According to US Census data, Maine's household median income is $55,425 and per capita income is $31,253. What this means is that every year for each ten homes that use pellet heating, the increase in the state domestic product can support one new job in Maine.

Next, jobs and sustained income created from the economic impact of assembling, installing, and servicing pellet heating systems will be accounted for as well. This portion is only addressing the total amount of commerce that households create by spending on local, price-stable wood pellets instead of on fossil fuels.

Economic and Job Impacts from Assembly, Installation, and Servicing

Jobs that contribute to the pellet heating industry involve the logging, sawmill, and distribution industries at the start. To further that, the industry employs those who assemble, install, and service each heating system. Only these heating industry jobs are included in this analysis.

For this analysis, current industry rates were used to calculate man-hour dollars per heating system. The business overhead for each boiler is approximately $2,500. The hourly cost to install and service a pellet heating system is $75/hour, to assemble is $25/hour, and each pellet delivery costs about $150. Each heating system requires 66 manhours its first year in operation and about 2 every year after.

These rates provide the means to assess the total amount of commerce that each pellet heating system contributes to the Maine economy along with the total income tax revenue generated. It’s worth noting that during the first year, installation costs are included so revenue and commerce generated that year are higher than the other years over the lifespan of a heating system.

Each heating system contributed about $13,000 of commerce in its first year, and about $1000 every year thereafter. Over 30 years, one pellet heating system contributed almost $45,000. Likewise, a new heating system in year one generated $862 in income taxes and $70 each following year for a 30-year contribution of $2,890. For income tax calculations, an average tax rate of 6.48% was used. Maine’s income tax currently ranges from 5.8% to 7.15% so 6.48% is a simple average. Additionally, a multiplier effect of 1.8 was used on this 30-year projection.

Further analysis was done over a 30-year timeframe to show the effects of 15% of Maine’s homes and businesses (about 83,690) switching over incrementally during the course of the first 20 years.

By assuming that only 5% of the goal amount (4,185) would switch per year, it’s clear that the first 20 years show greater commerce and income tax revenue than the last 10 because there is a shift from installations and maintenance to just maintenance for these later-year systems. The last 10 years are calculated based on the assumption that only maintenance occurs as the 15% goal of 83,690 installations will have been met at year 20.

If the assumption were that an entire 15% of Maine’s homes and businesses would switch over to pellet heating in one year, the overall economic impact would be greater.

Below is a graph that illustrates the trend of 15% of Maine homes and businesses moving to pellet heating over a 30-year timeframe.

Conclusions

For every ten homes that convert to pellet heating, the increase in domestic product can and will support and sustain a job in Maine.

Based on the data that is graphed above, over 30 years with 15% of Mainers switching to wood pellet heating in the first 20 years, Maine would see an aggregate total of $2,963,230,200 in commerce and an aggregate of $191,869,155 in income tax revenue.

And, by using Maine’s per Capita Income of about $31,000 annually, it is reasonable to state that the aggregate amount of commerce can create and/or sustain nearly 95,000 jobs in Maine. While it may be a shift in the fuel that homeowners and businesses use, heating systems need servicing and maintenance regardless of the fuel. Some of these jobs will likely transition from the fossil fuel sector into the wood pellet heating sector and thus will be sustained versus created. Even so, this prevents Maine from exporting “five billion dollars a year to out-of-state fossil fuel companies”. Currently, “Nearly two-thirds of Maine households use fuel oil as their primary source for home heating, a larger share than in any other state” so the savings by not exporting 68% of every dollar would be immense alone. We did not include jobs related to the delivery of fuel as we do not have a way to definitively say those would be a net gain.

These projections are separate and in addition to the estimated $22.9 million in annual income tax revenue that the state would see through the logging, sawmill, and distribution if 15% of Maine’s homes and businesses switched to wood pellet heating.