Clean heat standards set for states’ consideration

Vermont and Massachusetts are exploring legislation to adopt clean heat standards, a new policy tool to force natural gas, oil and other heating-fuel providers to reduce greenhouse-gas emissions.

Vermont Democrats are likely to take a second shot at passing a clean-heat-standard bill after Gov. Phil Scott (R) vetoed a measure this year. In Massachusetts, a commission empaneled by outgoing Gov. Charlie Baker (R) recently issued a report recommending that the state develop a clean heat standard measure as a way to meet statutory targets for reducing greenhouse-gas emissions from buildings.

In Vermont, “we have heard from many members of the legislature that a bill will be reintroduced in the coming to session, within the next couple of weeks probably,” said Richard Cowart, a principal with the Regulatory Assistance Project, a nonprofit think tank that has advised Vermont and Massachusetts on the issue.

Erin Cosgrove, public policy manager with the Northeast Energy Efficiency Partnerships, a nonprofit focused on promoting efficiency in the region, said Massachusetts is also likely to pursue it in the next legislative session, and that it will likely catch on with other states as well as a new way to rein in greenhouse-gas emissions for the building sector.

“It’s a way to start regulating the oil and propane sectors which have not really been touched by energy efficiency programs,” Cosgrove said. “I could see some other states doing it because it can help to regulate heating sources.”

A clean heat standard seeks to lower the use of natural gas, fuel oil, and propane by requiring the fuel providers to obtain a credit for each unit of fuel sold. Credits may be bought or sold in a newly created marketplace, similar to a cap-and-trade system, which also harnesses market-based mechanisms to provide economic incentives to lower greenhouse-gas emissions.

A clean-heat standard has a twist: companies earn credits that they may trade on the market by taking steps such as making efficiency upgrades or installing cold-heat pumps, according to an Energy Department description. Fuel providers may generate credits by weatherizing homes, installing heat pumps or taking other steps that reduce greenhouse gas emissions.

Fuel providers can also buy credits from the firms that install heat pumps, more-efficient appliances or weatherize homes. The vendors, in turn, are expected to pass along some of those proceeds in the form of a subsidy to residents paying for the products or services.

“It can end up flowing through potentially to the homeowner,” Vermont state Sen. Christopher Bray, who chairs the Senate Committee on Energy and Natural Resources, said during an April debate on a 2022 bill.

Had Vermont’s legislature succeeded in 2022, its measure would have been the first in the nation to cover all “thermal fuels,” said Jared Duval, executive director of Energy Action Network, a Vermont-based research nonprofit. No other state has a clean heat standard that applies to all heating fuels, which in essence forces gas and other fuel companies to sell less of their existing products and rethink their businesses.

“A clean heat standard is hugely disruptive to fossil fuel providers,” Neale Lunderville, the president and CEO of Vermont Gas Systems, said in a conversation with members of the Vermont Climate Solutions Caucus. “But it probably needs to be hugely disruptive. This is an industry that needs to be disrupted. We need to move in a different direction.”

Vermont’s clean-heat measure is designed to help meet statutory cuts to greenhouse gas emissions put in place in 2020. Those include a 26% cut below 2005 levels by 2025. Emissions would then need to be 40% below 1990 levels by 2030 and 80% below by 2050. Because thermal energy accounts for about 34% of Vermont’s greenhouse-gas emissions, the second-biggest source after transportation, state legislators view the heating fuels sector as a prime target for meeting the statutory requirements.

Critics have argued that the bill amounts to a carbon tax and will drive up the price of heating fuels, as companies pass along the costs of the clean-heat credits to consumers.

“Wholesalers who sell CO2 producing heating fuels would be mandated to buy these credits, if they couldn’t create them themselves, in order to sell their products to you and me, driving up the cost,” wrote Rob Roper, a former chairman of the Vermont Republican Party who is now co-host of a radio program produced by The Ethan Allen Institute, a Vermont free-market group.

Some Democrats have also been worried about costs, out of concern that low- and moderate-income people would lack the means to pay for weatherization, heat pumps, or other equipment while also being hit with higher rates. The 2022 bill was intended to protect low- and medium-income residents, but it left the details up to Vermont’s Public Utility Commission, which regulates gas and electricity rates.

“I’m afraid that policies like this, if they’re not implemented properly and fairly, are going to have a detrimental impact on lower income Vermonters that are going to increase that wealth gap, “ state Sen. Andrew Perchlik (D) said in an April debate. “But I really look forward to having the PUC come up with some policies that can make me feel better about the possibility of doing that.”

Massachusetts faces the same legal pressures as Vermont. A 2022 law calls for a 28% reduction in residential and commercial building emissions by 2025 and a 47% reduction by 2030. The report issued by the outgoing governor’s commission said that targets for cutting greenhouse gas emissions from residential and commercial buildings would be challenging to meet and implementing a clean heat standard would help.

“To comply with Massachusetts law and achieve net zero greenhouse gas emissions by 2050, the Commonwealth needs to rapidly scale up decarbonization efforts within the residential and commercial buildings sector,” the report said. “Given the complexity and diversity of the Massachusetts buildings sector, a reduction of 47% by 2030 represents a dramatic and rapid transition, well beyond anything experienced in the sector to date.”

Details of any bill are likely some time away given that newly elected Massachusetts Gov. Maura Healy (D) still has a cabinet to fill out, said Larry Chretien, executive director of New England-based nonprofit Green Energy Consumers Alliance.