The clean heat standard (which many have called a carbon tax) was undoubtedly the most controversial law passed during the 2023 legislative session. While its aim is a worthwhile reduction in carbon emissions from home heating, the mechanism employed raises the cost of heating fuels for households still using carbon-based fuels.

Analysis:

While we agree with the goals of carbon reduction and the concept that Vermont should do its part to stem global carbon emissions, we also need to approach this issue with humanity and compassion. Too many Vermonters are dependent upon fossil fuels for heat and do not have an easy transition to some of the technologies considered by this legislation. For example, older houses often cannot be retrofit with better insulation or heat pumps because of their construction. And even if they can, it is almost always prohibitively expensive. Mobile homes have the same challenge, where they often cannot be retrofit.

Further to this point, heat pumps require a backup (fossil) fuel source for operation below freezing temperatures and in the event of power loss. This means you have to run two systems in parallel, you cannot simply swap one system for the other. Due to some of these complicating factors, in many cases shifting from a high-carbon fuel source to a low-carbon one may be the best option to reduce emissions, but the bill prohibits that. Our best strategies for thermal sector emissions might actually be in the biofuel and synthetic fuel space where carbon offsets exist in production as liquid fuels transport and store well and heat very efficiently. Some of these fuels may only require swapping out burners on existing furnaces. In case you missed it, we put out a policy brief on this topic in February.

Finally, the costs of this program are still unknown. This is perhaps the most concerning aspect of this legislation. While opponents have thrown out numbers ranging from $0.70 to $4.00 per gallon in additional costs, proponents of the Clean Heat Standard have be reluctant to do so. For us, just the fact that the legislature has chosen to move forward with putting this system in place without understanding its impact on Vermonters is concerning enough. Good government principles tell us that you study and issue, gather all the facts, then make a decision and move forward. This legislation reads more like a ready, shoot, aim scenario where we won't know all the facts until after aspects of the system are already in place. Not a great way to go about public policy.

Bill Summary (as passed):

• Findings:
  • The Vermont Global Warming Solutions Act (GWSA) of 2020 requires Vermont to reduce greenhouse gas emissions to specific levels by 2025, 2030, and 2050. The Initial Vermont Climate Action Plan calls for the legislature to adopt legislation authorizing the Public Utility Commission to administer the Clean Heat Standard.
  • The Vermont Climate Council published the Initial Vermont Climate Action Plan on December 1, 2021, which noted that over one-third of Vermont's greenhouse gas emissions in 2018 came from the thermal sector.
• The Public Utility Commission (PUC) shall establish a clean heat standard compliance program for the thermal sector that requires obligated parties to retire a certain number of clean heat credits each calendar year.
  • Clean heat credits are a tradeable, nontangible commodity that represents the amount of greenhouse gas reduction attributable to a clean heat measure. A clean heat measure does not include switching from one fossil fuel use to another fossil fuel use.
• Each entity that sells heating fuel into or in Vermont must register annually with the PUC.
• The PUC will identify default delivery agents (DDAs) to deliver clean heat measures on behalf of obligated parties who pay the per-credit fee to the DDA.
• Beginning in 2023, clean heat measures that are installed and provide emission reductions are creditable. The PUC may identify additional measures that qualify as installed measures.
• Obligated parties shall retire at least 16% of their annual requirement from customers with low income.
• If an obligated party fails to retire the required number of clean heat credits in a given year, the PUC will order the obligated party to make a noncompliance payment to the DDA.
• The PUC may adopt rules to implement the Clean Heat Standard program, and may issue orders to implement the program both before and after final rules take effect. 
• The PUC may revise its Clean Heat Standard rules, provided they properly notice of any proposed changes, allow for a 30-day comment period, respond to all comments received on the proposed change, and provide language assistance as requested.
• The PUC shall establish a standard methodology for determining who owns clean heat credits. Clean heat credits are created for each year of the expected life of the installed measure, based on the lifecycle CO2 emissions savings of the clean heat measure.
• The PUC shall review harmful consequences of the implementation of specific types of clean heat measures and shall set standards or limits to prevent those consequences.
• The PUC is required to hold at least six public hearings or workshops to gather information and receive comments on the design and implementation of the Clean Heat Standard.
• The PUC shall create an administrative system to register, sell, transfer, and trade clean heat credits to obligated parties (a marketplace).
• The Technical Advisory Group (TAG) shall consist of up to 15 members appointed by the PUC and shall have expertise in measuring lifecycle greenhouse gas emissions, energy modeling and data analysis, clean heat measures and energy technologies, and other similar skillsets.
• The Clean Heat Standard Equity Advisory Group will provide feedback to the PUC on strategies for engaging Vermonters with low income and moderate income in the public process for developing the Clean Heat Standard program, and will help identify actions needed to provide customers with better service and mitigate fuel price impacts.
• The PUC shall submit final proposed rules to the legislature by January, 2025 for approval.
• $825k is appropriated to the Department of Public Service for the purpose of carrying out implementation of the Clean Heat Standard, including marketing and public outreach for the PUC's proposed rules. $900k is appropriated to the Department of Public Service from the General Fund in fiscal year 2024 for positions, consultants, and associated operating costs related to the Clean Heat Standard.

Current Status:

Governor Scott's veto of the bill was overridden on May 11, 2023 and the bill will go into law.