Understanding the Clean Heat Standard and Its Potential Impact on Home Heating Fuel Prices
A Complete Overview All in One Place.
Regular and careful long-time readers of BTL know all this, but I have been getting requests to do a soup to nuts, sharable “pocket guide” for this issue and, well, here you go!
There has been a lot of discussion about the Clean Heat Standard (Act 18), dubbed the “Affordable Heat Act” by its backers and the “Unaffordable Heat Act” by its critics as the controversial law has become a political hot potato. Vermonters deserve a clear picture of what this law is supposed to do, how it’s supposed to work, and what it looks like it will cost to fully implement.
Where did this come from?
The Clean Heat Standard is an outgrowth of the Global Warming Solutions Act (GWSA), passed over the veto of Governor Scott in 2020. The GWSA mandated that Vermonters lower our greenhouse gas emissions to 26% below 2005 levels by 2025, 40% below 1990 levels by 2030 and 80% below 1990 levels by 2050. How we were going to do this, what it would cost, or if it were even possible the lawmakers who passed the GWSA did not know, but if we failed to meet these deadlines, they inserted a provision in the GWSA that gave literally anyone standing to sue the state at taxpayer expense. (The Conservation Law Foundation is already suing Vermont regarding the 2025 deadline.)
Not knowing how to meet the mandates of the GWSA themselves, the legislature created in that law the twenty-three member Vermont Climate Council, charged with coming up with the Climate Action Plan. This plan, released in December 2021, recommended that for the thermal sector of our economy (how we heat our homes and businesses, make hot water, and cook our food), which accounts for over 40 percent of our overall greenhouse gas emissions, that the legislature pass another law establishing a Clean Heat Standard. The legislature did this in 2023 over Governor Scott’s veto with Act 18 -- again not knowing what it would cost, how it would work, or if it were possible. (Governor Scott successfully vetoed their first attempt in 2022, H.715.)
What Is This Clean Heat Standard?
In a nutshell, the Clean Heat Standard is a system requiring importers/sellers of heating oil, kerosene, propane, natural gas, and coal, to obtain (in most cases, especially for smaller dealers, this means buy) “credits” based on the amount of carbon released into the atmosphere when the fuels they sell are ultimately burned. According to the law, a carbon credit is defined as “a tradeable, nontangible commodity that represents the amount of greenhouse gas reduction attributable to a clean heat measure.” A “clean heat measure” is one of a dozen legally approved actions taken -- by anyone -- to reduce greenhouse gas emissions such as weatherizing a building or installing a heat pump.
Practically speaking, a carbon “credit” it is a financial instrument, much like a cryptocurrency, that a fuel importer/seller must obtain in order to legally sell their product(s) either by “mining” the credits themselves (performing clean heat measures) or buying them from a “Default Delivery Agent” (likely Efficiency Vermont) appointed by the state.
How many clean heat measures will it take to meet the legally mandated reduction deadlines for the thermal sector under the Global Warming Solutions Act? According to a taxpayer funded analysis done by The Cadmus Group for the Climate Council, in order to meet just the 2030 targets Vermonters will have to weatherize 120,000 homes, install 177,107 heat pumps, 136,558 heat pump water heaters, 14,992 advanced wood heating systems, and switch 21,086 homes to using biofuels before the end of the decade. This is an expensive proposition. Where does the money come from? Some private. Some federal. Some from existing state revenue sources. But mostly it will come from the mandated purchasing of carbon credits by fuel importers/sellers, and those costs will necessarily be passed along to customers as with any excise tax. (More on costs later.)
But how is the state even supposed to ensure and verify that all of these clean heat measures take place, calculate exactly how much greenhouse gas reduction will result from each unique measure so that each measure can be monetized into a tradable carbon credit value, assign ownership of the credits, and then establish a financial exchange where the creators of credits and the parties obligated to obtain them can buy and sell them while at the same time regulators track ownership and ensure compliance? When the legislature passed Act 18, they had no idea so handed off the task of figuring all that out to the Public Utilities Commission (PUC).
If that task sounds impossibly complicated, it is. In fact, Efficiency Vermont released a memo to the PUC on September 19, stating, “The complexity of these arrangements also give rise to concerns over the veracity of projects claiming credits and the rigor of their completion… Efficiency Vermont is unsure of the efficiency or efficacy of monetizing credits…. [and] that while compliance may ultimately be achieved after several years, the buying and selling of credits itself becomes grossly inefficient, asymmetrical, and potentially more costly for all parties.” Not an expression of confidence that this is going to work at all, let alone be cheap.
How Much Will the Clean Heat Standard Cost?
Supporters of the Clean Heat Standard say we don’t know what it will cost, shouldn’t speculate, and that all indications so far are that the cost to implement the program will be minimal for consumers. This first position is misleading, and the second is demonstrably false.
As for not knowing what the Clean Heat Standard will cost, that’s only true if you’re looking for an exact price tag, which, of course, can’t be determined until the program’s rules are fully designed and approved. However, it is not difficult to get a ballpark figure with all of the data that has been collected and testimony taken over the three-plus years that this policy has been under consideration.
Since the Climate Council began looking into a Clean Heat Standard for Vermont in 2020, Vermont taxpayers have spent over $2 million on consultants to study the program including Cadmus, NV5, and Opinion Dynamics, hired dedicated staff in the Agency of Natural Resources, Public Service Department, Public Utilities Commission, and even created a new Climate Action Office staffed by seven people. We have set up three committees of experts to explore the intricacies of the program, the Vermont Climate Council, and the Technical and Equity Advisory Groups working with the PUC, not to mention the attention of two legislative committees of jurisdiction (House Energy & Environment and Senate Natural Resources & Energy) and the Joint Fiscal Office when passing two Clean Heat Standard bills through both chambers of the legislature.
Given this level of financial and human resources engaged over this extended period of time the claim that we still don’t have enough information to know basically what the Clean Heat Standard will cost – not even a ballpark understanding – defies credulity. It’s just not true.
In fact, we’ve known for years what the scope of work (number of clean heat measures) necessary to meet GWSA mandates in the thermal sector is, and we know the mandated timeline. We know generally what clean heat measures cost. We know how many gallons of home heating fuels are burned each year, and, because we already have a 2 cent per gallon excise tax on home heating fuels that is dedicated to paying for subsidized weatherization projects, we know how much each penny of tax (surcharge, fee, whatever you want call it) on these fuels will raise (around $2 -$2.5 million) and how far that money goes when put into government programs that perform these types of services.
It was this data that Agency of Natural Resources Secretary, Julie Moore, used in January 2023 to come up with her famous/infamous “back of the napkin” estimate that the price per gallon impact of the Clean Heat Standard would be 70 cents, which now appears to be low.
According the newly released potential study done by NV5 through the Department of Public Service, the estimated incentive spending required to fund the number of clean heat measures necessary to meet the GWSA reduction mandates will cost about $3.3 billion over the first four years leading up to the 2030 target (and about $10 billion total to meet the 2050 target). To raise that much money off the sale of 200 million gallons of fossil heating fuel sold annually comes out to a just over $4 per gallon.
Is that the exact figure you’ll see on your home heating bill? Probably not. But that’s the ballpark the Clean Heat Standard advocates are playing in.
Is It a Fee, a Surcharge, a Tax or Something Else?
Now here is a major point of contention between critics of the law and its supporters: is the requirement for fuel importers/sellers to purchase these credits a tax? Critics say it is a de facto carbon tax. The government mandating that a business pay for a carbon-based credit, the revenue from which will be used to fund a government policy, functions exactly as an excise tax. Supporters say it’s not a tax because technically the state doesn’t collect the money; it’s paid directly to a Default Delivery Agent. The law itself calls it a “per credit fee” (§ 8125 (a)) Others have described it as a surcharge. But from a fuel-bill-payer’s perspective, be it a tax, fee, surcharge it represents a government manufactured increase in your heating bill, the revenue from which will pay for a government program/policy directive. Pick your term. The price will be the same and it will come out of the same pocket — yours.
Who Pays and Who Benefits?
Initially, the cost of the clean heat credits will be paid by whoever owns the fuel when crosses over the Vermont border, either a dealer or a wholesaler. However, this cost, just like any excise tax, will ultimately be passed along to the consumer and will be reflected in your fuel bill. Supporters of the Clean Heat Standard are trying to escape blame for future price increases because the dealers don’t legally have to pass along this cost, but in the world of financial reality fuel dealers are in no position absorb them. They have to add the cost of purchasing or manufacturing credits into the price of the fuel they sell or they will go out of business.
Who benefits? The overall objective of the Clean Heat Standard program is to take money from all users of fossil heating fuels and use it to subsidize the transition of some of those users away from using those fuels. If you are one of the lucky ones to have your house weatherized, electrical system upgraded, heat pumps installed for free (paid for by your fossil fuel burning neighbors), you can certainly be said to have benefited from the program.
Who loses? Over 70 percent of Vermonters heat their homes with oil, kerosene, propane, or natural gas. These folks will see the cost of the carbon credits reflected in their higher heating bills for as long as they continue to do so. They will pay for but receive no benefit from this program.
The biggest losers in this scheme are those who can’t transition away from heating with fossil fuels even if they want to because, for example, they can’t afford the upfront costs of doing so, can’t find the labor to do the work in a timely fashion, or their homes are logistically difficult or impossible to retrofit such as those living in mobile homes, older housing stock lacking open floor plans, or multi-unit apartment buildings. This is not an unintended consequence of the program; it is a design feature. Because if people are not buying fossil heating fuels and therefore paying the carbon credit fees, there would be no funding for the program.
Just one example of the regressive impact this will have, Vermont’s director of the LIHEAP (Low Income Heating Assistance Program) testified that if the Clean Heat Standard were to become law with a cost increase of just 70 cents per gallon (a low estimate), those needing home heating assistance to get through the winter would see an average loss in benefits equivalent to $500. (Video)
But Isn’t Act 18 Just a Study?
Supporters of the Clean Heat Standard are saying that Act 18 is just a study. To quote a recent op-ed by two supportive Representatives, “The unprecedented ‘check back’ provision guarantees that the entire proposal will come back to the legislature in 2025.” This is not accurate. Act 18 says, “§ 8122. (a) The Clean Heat Standard IS established. Under this program, obligated parties SHALL reduce greenhouse gas emissions attributable to the Vermont thermal sector by retiring required amounts of clean heat credits to meet the thermal sector portion of the greenhouse gas emission reduction obligations of the Global Warming Solutions Act.” [Emphasis added]
So, Act 18 commits Vermont by law to have some form of carbon credit trading system in place, and that system must be sufficient to meet the 2025, 2030, and 2050 mandates of GWSA for the thermal sector. This is not up for review or debate in 2025. In other words, according to the law the legislative review after January 2025 is not a question of if we will have a Clean Heat Standard or on what scale, it’s only a question of how it will be administered.
The only aspect of Act 18 up for review in 2025 is the specific rules currently being designed by the PUC to govern the mandated carbon credit exchange. But this is significant. If the legislature can’t or won’t pass the PUC’s rules or come up with its own rules, then the Clean Heat Standard will be for all practical purposes mothballed – not repealed, but not in force – until such a time as rules are passed. Which could theoretically be never.
Vermonters have to decide between now and election day if they want this program, if they can afford this program, and who they trust to send to Montpelier to make the final decisions about whether or not to move forward with the Clean Heat Standard at this time. Your vote in November will determine how that vote in January turns out.
Rob Roper is a freelance writer with 20 years of experience in Vermont politics including three years service as chair of the Vermont Republican Party and nine years as President of the Ethan Allen Institute, Vermont’s free market think tank.
Event Notes: Rob Roper will be speaking on October 1, at the Wyckoff Sugarhouse, 18 Catamount Ln, Smugglers Notch, VT on “The Policies Making Vermont Unaffordable: A Look at what what Montpelier has been up to and has in store for VT taxpayers.” 5pm meet and greet with local candidates with the presentation beginning around 5:45 - 6pm.
Also Thurs, Oct 3, 6:30 pm, Ferrisburgh Town Hall.
And Tues, Oct 8, in Londonderry, details TBD.
Clean heat standard mothballed?? How would the buffoons in the Legislature be able to tolerate that? Not meeting the GWSA mandates will compel a flurry of lawsuits to compel the state to meet those requirements…and all costs (both plaintiffs and defendants)of the lawsuits and monetary awards to be paid by Vermont taxpayers! Grifting on a mammoth scale. The only solution is voting out enough Progressive/Democrats to maintain Gov. Scott’s vetoes and electing enough Legislators who will repeal the monstrosity titled the GWSA.
The new mantra from the incumbents, “just imagine the future, unencumbered by what has been!” (This was also the slogan of the Bolsheviks during the Russian revolution).