The Vermont Public Utility Commission has published a draft of the Clean Heat Standard mandated by a landmark decarbonization law but declined to include the specified credit-trading system.
In a report accompanying the draft, the PUC said it makes no sense for a single small state to create such a costly and complex system. It is looking instead at other options to reduce the greenhouse gas emissions produced by heating fuels and will propose an alternative mechanism before the January deadline set by the legislature.
Vermont Act 18 became law in May 2023 when the legislature overrode a veto by Gov. Phil Scott (R), who cited cost concerns. (See Vermont Governor to Veto Building Decarbonization Measure.) He had vetoed a similar measure in 2022.
Act 18’s full title — “An act relating to affordably meeting the mandated greenhouse gas reductions for the thermal sector through efficiency, weatherization measures, electrification and decarbonization” — summarizes the intent of the 41-page measure.
There is much to reduce. Like residents of the two other northern New England states, Vermonters rely heavily on delivered fossil fuel to heat their homes. The U.S. Energy Information Administration reports that 59% of housing units in Vermont were heated with kerosene, propane or fuel oil as of 2020, compared with 13% nationwide.
The use of electric heat pumps is gradually increasing in Vermont. (See Vermont Heating Fuel Sales Decreasing in Recent Years and Vermont Gas Utility Explains its Effort to Electrify Customers.)
But many people still rely on fossil fuels to heat their homes through what historically have been long, cold winters. As elsewhere, there are concerns about equity: Those unable to afford electrification of their homes may be most vulnerable to the added costs resulting from policies that attempt to speed electrification.
The legislature sent the matter to the PUC to research (23-2221-INV) and codify (23-2220-RULE). The commission issued its draft CHS rule on Oct. 1 and set an Oct. 30 public hearing on the document. Also on Oct. 1, the PUC issued a companion report explaining the 16 months of work that produced the draft.
After the hearing, the PUC must, by Jan. 15, 2025, submit the draft rule to the legislature, which then will decide whether and how to implement the CHS.
Central to the CHS’ goal of reducing greenhouse gas emissions from heating fuel is a requirement that entities importing heating fuel into Vermont reduce their emissions by generating or purchasing clean heat credits earned from delivery of clean heat measures. These can include weatherization, heat pumps, advanced wood heat and biofuels. At least 32% of annual clean heat credits were mandated to come from customers with low or moderate income.
Given the substantial cost and complexity of developing a credit management platform, the PUC did not create or recommend such a mechanism until the legislature decided whether and how to continue develop a CHS.
But the PUC’s companion report cast doubt on the very idea of a Vermont-based credit-trading system. Among other things, it would involve participation and regulatory oversight of hundreds of fuel dealers and other entities not historically regulated by the PUC, and the potential would exist for market manipulation or outright fraud, the authors wrote.
“Our work over the past year and a half on the Clean Heat Standard demonstrates that it does not make sense for Vermont, as a lone small state, to develop a clean heat credit market and the associated clean heat credit trading system to register, sell, transfer and trade credits,” the report says. “Because the Clean Heat Standard introduces these additional regulatory hurdles and costs, the commission is considering other options to achieve Vermont’s greenhouse gas emission-reduction goals for the thermal sector.”
The PUC said one of those options is a new thermal energy benefit charge on sale of fuel oil, propane and kerosene, with proceeds going directly to fossil fuel-reduction efforts such as weatherization and electrification.
