Be Careful What You Wish For: How Vermont’s Pivot Away from the CHS Could Affect the Industry.

Written on: October 22, 2024

Author: Joe Uglietto

There is big news out of Vermont, with the Vermont Public Utilities Commission recommending that its Clean Heat Standard – one of two CHS’s scheduled to go into effect within the next 12-18 months – be abandoned. This 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 the 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 blush, you might think this is an exciting development that will allow fuel dealers in Vermont to get back to focusing on taking care of their customers and delivering fuel during the heating season instead of worrying about onerous regulations and policies that would increase costs for dealers and their customers. Unfortunately, that’s not a very likely outcome.

Vermont – like other Northeast states – is focused on developing policies to meet their 2030 and 2050 greenhouse gas reduction goals for the building sector. Unlike some of those states, Vermont has been at the vanguard, with the 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?” And 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 and 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. But 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. But 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. And the 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 and is 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, with the express intention of putting them out of business.

And there is no guarantee that decarbonization solutions that our 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. But the devil we know – the Clean Heat Standard – gave us a pathway forward. This 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. Up next is likely to be Massachusetts and its release of its draft regulation on its CHS. 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 Clean Heat Standard is not. Stay tuned.

Renewable Energy Insights is a regular column by Joe Uglietto, president of Diversified Energy Specialists, a leader in the renewable energy markets and consultant to the industry with a focus around emissions reductions and renewable energy innovation.