Written on: August 5, 2024 by Joe Uglietto
Fuel companies that are “plugged in” have been hearing about market-based decarbonization programs for a while. Industry leadership has featured these issues at conventions and conferences; State association executives are sharing details with their members as they become available; and you’ve heard from me about these programs in my previous ICM columns.
Here’s where we stand at this point in the Summer of 2024: Nearly every Northeast and Mid-Atlantic State is considering or is in the process of developing a market-based decarbonization program for the thermal sector. These programs will significantly impact the way heating oil and propane retailers run their businesses. How should heating fuel retailers in each State be preparing for these programs? Let’s take a State-by-State look starting with the programs that are set to go live first, and what retailers in each State should be preparing to do.
2025
New York’s “Cap-and-Invest” program is scheduled to be implemented on Jan. 1, 2025. Even though the program launch is just a few months away, New York State Research & Development Authority (NYSERDA) has not yet released the price ceiling for allowances in its planned quarterly auction. This makes it difficult for heating fuel retailers to understand and plan for the cost impact of this program. NYSERDA has also not yet indicated if renewable fuels will be exempt from the obligation or if the carbon intensity of renewable fuels will be scored.
Despite the many uncertainties of New York’s Cap-and-Invest program, retailers should be preparing with speed. Firstly, I would encourage every New York fuel company to read the Cap-and-Invest regulations in order to understand the details of the program. For heating fuel retailers offering cap and fixed-price plans, it is critical to factor in the reality that, if implemented on schedule, Cap-and-Invest will add to the cost of fuel and overall operations. It will be important to include language in cap and fixed-price contracts that clearly explains that fuel prices may increase on Jan. 1, 2025, and that pricing may need to be adjusted as a result.
There are other critical steps that New York retailers should be taking this year; I’ll be covering those in the future.
2026
The Massachusetts and Vermont Clean Heat Standards (CHS) are scheduled to be implemented on Jan. 1, 2026. There are still many uncertainties surrounding these programs as well, but we know enough for dealers to be getting ready. In Vermont, heating oil retailers that have blended biodiesel or renewable diesel blended into their heating oil will be able to generate CHS credits retroactive to Jan. 1, 2023. My advice to every Vermont heating oil retailer is to blend biodiesel and/or renewable diesel now and keep records of all purchases and sales of blended fuels. This will allow you to take advantage of this unique opportunity to lower your compliance obligation once the program begins.
Massachusetts retailers don’t have a retroactive blending opportunity built into their CHS at this point in time, but it is just as important to begin blending and establishing strong relationships with renewable fuels suppliers in anticipation of the 2026 program launch. The compliance obligation that heating oil and propane retailers will need to meet in Massachusetts will be on a trailing basis. This means that heating oil and propane retailers will have to demonstrate that they’ve generated or acquired the obligated number of credits on a date that trails the compliance year. For example, the date to demonstrate compliance for the 2026 trading year would be June 15, 2027. As a result, heating fuel retailers will need to price the cost of the program into the fuel they sell, so that they’ve covered their obligations when payments come down in the following year.
2027 & Beyond
New Jersey, Maryland and Rhode Island are next. Maryland’s governor recently signed an executive order that includes a CHS. The good news for retailers in these States is that their programs will trail those around the rest of the region, and the expectation is that program developers can learn from what works and what doesn’t. Retailers in these States should familiarize themselves with the executive orders and proposed bills that have been introduced regarding decarbonization programs. Additionally, it will absolutely be a benefit for retailers to begin establishing relationships now with renewable fuel suppliers and, where possible, to begin blending renewable fuels into their supply.
While these programs are often challenging to comprehend, each one provides a significant opportunity for heating fuel retailers to capitalize on a changing market. Diversified Energy Specialists will keep retailers, wholesalers and Industry stakeholders abreast of the various regulatory programs and their rule-making processes. If you’d like to join our email list to receive updates, email me at joe@diversifiedenergyspecialists.com. ICM
