Forewarned is Forearmed: Preparing for the Future Regulatory Environment– May/June

Written on: April 6, 2023

Author: Joe Uglietto

The energy industry is undergoing an enormous transition and the number of states that are considering regulatory programs to achieve their carbon-reduction targets is growing by the week. Over the next few years, heating oil, propane and natural gas companies across the Northeast and Mid-Atlantic will be dealing with increasing requirements to reduce their carbon impact. We can expect these new regulations will affect the price of our products and the day-to-day operations of how nearly every energy company conducts its business. Here’s a quick snapshot of what’s on the table around the region.

Massachusetts recently released a Clean Heat Standard (CHS) discussion document and straw proposal, with the goal of implementing a CHS by the beginning of 2024. A Clean Heat Standard is a market-based regulatory program that would require heating fuel companies to reduce the carbon intensity of their fuel by a certain percentage each year, typically aligning with the state’s greenhouse gas reduction goals. If these companies reduce the carbon intensity of their fuel by more than the goal each year, by blending biodiesel or other renewable fuels, they will generate credits that can be sold in the market for a profit. If these heating fuel companies do not reduce the carbon intensity of their fuel by the goal each year, they will be required to purchase credits in the market to meet the compliance requirements within the program.

Legislation for a Clean Heat Standard in Vermont was passed by the VT House in March and is likely to be voted on in the VT Senate in April. In New Jersey, Governor Murphy issued an Executive Order that required the Board of Public Utilities to conduct an 18-month study on the adoption of a Clean Heat Standard. Maryland has hired the Regulatory Assistance Project, the consulting firm that is helping design the Clean Heat Standards in Massachusetts and Vermont, to provide guidance in meeting their greenhouse gas reduction goals. Pennsylvania and New York are considering Clean Fuel Standards, which are transportation-focused regulatory programs aimed at achieving carbon reduction. Both states are considering including heating fuels as well.

Additionally in New York, there is a strong push to implement an economy-wide “Cap-and-Invest” program, which will cap the greenhouse gas emissions that businesses and facilities can produce each year. These businesses will have to purchase allowances at auction for the right to continue operating their business. A Washington Post article in April estimated that New York’s “Cap-and-Invest” will increase the cost of transportation fuels by 61% and increase the cost of heating a home by 80%. It remains to be seen whether the cost impact will deter or slow down the move to adopt such an impactful program.

While many of these programs are not yet finalized – either because details are still being worked out, or legislation has not yet passed to establish them – it is virtually certain that our industry will be dealing with these kinds of programs in short order. The first step for fuel companies is to recognize and embrace that change is coming, and in ways that are likely to squeeze your business. The second step is to prepare for this eventuality by developing a clear-eyed strategy to succeed in this new regulatory environment.

There will be companies that take full advantage of the new regulations in their states. Make sure that your company is one of them.

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.