Written on: December 16, 2024 by Joe Uglietto
There is big news out of Vermont, with the State’s Public Utilities Commission (PUC) recommending that its Clean Heat Standard (CHS)—one of two CHSs scheduled to go into effect within the next 12–18 months—be abandoned. This comes after nearly a year and a half of development and work completed by two separate technical committees. The legislature will still have the final vote in January, but the PUC took a strong stance and the smart money is that Vermont’s CHS will be no more. In favor of what, you might ask? That is the million-dollar question.
Before I answer that question, it’s important to take stock of what this decision will mean. At first, you might think this is an exciting development that will allow Vermont fuel dealers to return their focus on taking care of customers and delivering fuel during the heating season instead of worrying about onerous regulations and policies that would increase costs. Unfortunately, that’s not a very likely outcome.
Vermont—like other Northeast States—is focused on developing policies to meet its 2030 and 2050 greenhouse gas reduction goals for the building sector. Unlike some of those States, Vermont has been at the vanguard, with its CHS originally scheduled to go into effect in 2025. More importantly, Vermont is legally required to meet its carbon reduction obligations or it will open itself up to legal action. This is true in Massachusetts, as well. In these States, the question is not “Should there be a carbon-reduction program established in the State?” but rather “What carbon reduction program should be introduced?” As one of the first States to implement a carbon-reduction regulation or policy, Vermont will establish precedent. What that precedent is will have ramifications well beyond the Green Mountain State’s borders.
Why Embracing a Clean Heat Standard Makes Sense
As the various regulations—Clean Heat Standards, Cap & Invest programs, etc.—have been developed in the States, one of the industry’s primary concerns has been the cost of these programs, both to the retailers themselves and to customers. However, the ability for fuel companies to remain competitive is of far greater concern. Dealers can handle cost increases that are measured in cents per gallon; they cannot survive cost increases that are measured in dollars.
There is no question that a CHS formed in even the most market-friendly way will add costs to a gallon of propane or heating oil. If conceived correctly, there would be large financial opportunities for heating oil retailers that blend biodiesel or renewable—and perhaps for propane retailers down the road who offer renewable propane—through the generation of tradable energy credits. These credits would offset the cost increases and potentially generate additional profits.
Given that States like Vermont and Massachusetts are legislatively mandated to achieve their 2030 and 2050 carbon reduction goals, it is not reasonable for us to hope that the Northeast will eventually move away from these goals or pass legislation to override them, especially since alternatives to a Clean Heat Standard are far more problematic to the interests of our industry.
If Not a Clean Heat Standard, Then What?
The Vermont PUC offered an alternative to the CHS in their report, an increase to the “thermal energy benefit charge” already in existence. This “charge” is essentially a tax on heating oil, propane and kerosene, currently set at a modest $0.02 per gallon. Proceeds are used for low-income efficiency and weatherization programs. While the PUC didn’t elaborate on the details of this increased fee as an alternative to a CHS, it can be inferred that this $0.02 per gallon fee would have to be increased substantially to reduce emissions from the building sector by 40% by 2030. The revenue from the fee would then be spent directly on weatherization initiatives as well as the electrification of the building sector.
Simply put, revenues from the “thermal energy benefit charge” would be used against the companies paying it. In addition, there is no guarantee that the decarbonization solutions the industry can deliver would be given special consideration. The PUC will have to decide whether to exempt renewable fuels from having to pay the per gallon fee or not. While the Clean Heat Standard gave Industry a pathway forward, this “thermal energy benefit charge” or other possible alternatives may not.
The next few months will be instructive as to where Vermont goes with its plans and what that will mean for other States. Massachusetts is likely to be next with the release of its CHS draft regulation. The industry needs to be ready for whatever comes next and continue to fight hard for commonsense regulations that give us a seat at the table. Fossil fuel taxes are poison to our interests; a well-formed CHS is not. Stay tuned. ICM
Renewable Energy Insights is a regular column by Joe Uglietto, President of Diversified Energy Specialists, consultant to the industry with a focus on emissions reductions and renewable energy innovation.
