Clean Heat Standard (S.5) - April 18, 2023

On Tuesday, Representative Sibilia gave the Committee the history leading up to the S.5.

  • In 2016, Governor Scott joined other states in committing Vermont to meeting goals of the Paris Climate Accords.
  • In 2020, Vermont passed Global Warming Solutions Act (GWSA). The GWSA sets the mandates for greenhouse gas reductions, established the Climate Council to come up with the Climate Action Plan (CAP). The Clean Heat Standard (CHS) is the primary thermal sector solution for the CAP.

Sibilia claimed that Vermonters wanted them to act on climate, citing a poll that says 76% support climate action.

NOTE: This discounts polling which shows that Vermonters don’t support specific policies and greatly prefer incentives over carbon-pricing.

Moving forward, the Public Utilities Commission (PUC) will create the CHS with help from the Technical Advisory Group (TAG) and the Equity Advisory Group. The PUC will complete a “potential study” and create and implement the rules governing the CHS. In 2025, the general assembly will vote on those rules. If the legislature approves the rules in 2025, the Governor has to sign off as well.

If the CHS goes forward in 2025, “obligated parties will have to retire Clean Heat Credits,” which means they will have to buy them from entities that generate these credits, such as a weatherization or heat pump installer.  

She admitted that “Vermont doing this won’t stop future climate patterns,” but claimed that people will “save money in the long term,” and we need to help low-income people transition away from fossil fuels. She claimed that wealthier people are paying on their own to make this transition.

NOTE: It is still unclear if the operational costs of alternative heating sources will save people money long-term but the up-front costs are currently much higher for heat pumps than other solutions.

Sibilia proceeded to go through the major points of the bill: 

  • The number of total credits necessary will be determined by the PUC.
  • Obligated parties (fuel dealers) must tell the PUC how they plan to retire their credits.
  • PUC ‘shall’ establish rules to establish and govern the CHS.
  • Determining the carbon intensity value of each fuel is key to determining the value of credits.
  • The PUC can adjust the number of credits for “good cause” for up to three years.
  • Early action credits can take place in 2023, prior to the legislative check-back. 

Representative Harrison asked if individual people performed an action that qualified for a Clean Heat Measure (CHM) how they would receive a credit. Sibilia was unsure, but Legislative Counsel clarified that the “early action” credits don’t exist nor does the credit market. But if installers keep all the records related to CHMs, they can apply for credits when the market opens.

Sibilia added that Efficiency Vermont (EVT), for example, is doing these projects now. If they pass S.5, EVT would get a “bonus” for those activities in the form of a credit. Chairwoman Lanpher clarified that installers have to be able to show the work that took place resulted in carbon-reduction. “It’s not just that you bought a roll of insulation,” she stated. She gave the example of insulating a house that is fully solar, depending on the heating source there may be little to no carbon savings.

Representative Stebbins said she thinks, “fuel dealers are going to start pitching jobs to consumers based on credits,” once the market is in place. She noted that she has been involved in setting up several “market-based systems.” Even people who are “unhappy with the idea” are “eager to participate” once the program is in place. However, she admitted that she’s biased because she’s on the board of Vermont Energy Investment Corporation.

Representative Dickinson said she had a person at a legislative breakfast who has a fuel tank that, with the 70-cent estimate, means another $350 per tank. She noted that other companies, like Global Foundries, are trying to become their own energy utilities to avoid this and exempt themselves. She also added that the maple industry is “very worried” about what this is going to do to their industry.

NOTE: The credit system would also apply to cooking fuels so the fuel that sap boilers use would be subject to these increased costs.

Sibilia stepped in to argue that Secretary Julie Moore’s $0.70 per gallon number was “not accurate.” She claimed that it measured what we would need to do to meet the 2030 goals without taking into account “long-term lifecycle savings.” She argued that they would know a lot more in 2025, noting that Vermonters are paying $2 more per gallon this year as it is. She also pointed to a measure the House had added allowing line extensions to qualify as a CHM, an incentive to electrify a sugar shack.

Stebbins agreed that the number was not accurate but did not offer an alternative. They both lamented that the $0.70 number was “put out there.” She added that the “analysis says Vermonters will save $2B by 2030.”

Harrison appreciated the fact that “whatever we’re paying for fuel” is too much. It’s always too much, he noted, but it fluctuates. He asked how they would explain to people that their bill is going to go up 70 cents. “If that’s not the number, what’s the number?” he asked.

Legislative Counsel stated that it is a “market-based system, there is no specific cost.” Because of this, it’s based on “choices people make.”

NOTE: Later testimony from the Joint Fiscal Office (the legislature’s economists) refuted this claim, saying that it was not, in fact, a “market based” policy, but a regulatory one.

 Moving on to equity, Sibilia noted that:

  • 16% of credits are required to come from low-income Vermonters.
  • Local fuel dealers and other obligated parties can bank credits for future years.
  • Penalties are 2x the credit amount, but the PUC can wave the fee for good cause. They are working with the fuel dealers to ensure the bill doesn’t disincentivize their participation in LIHEAP.
  • The Default Delivery Agent (DDA) will be how the obligated parties dispose of their credit obligation UNLESSS the obligated party presents a plan to the PUC for approval.
  • The PUC may adopt rules and orders, however they may be appealed to the Supreme Court.
  • Establish the Technical Advisory Group (TAG) had “public health benefits” added to their purview by the Environment & Energy Committee.
  • Establish the Racial Equity Group.
  • Check-back requirement requires that the rules to implement the CHS return to the Legislature for a vote in 2025. Those rules must also include public hearings and outreach by the PUC.
  • PUC must also recommend revenue streams to fund the CHS beyond the first year (this appropriation).

Representative Mihaly questioned why there were just three full-time employees being added to the Department of Public Service and the PUC. Sibilia indicated that it came over from the Senate with those. Stebbins noted that the TAG would bring in volunteer (per diem) “brain power.”

A member of the Joint Fiscal Office (JFO) joined the Committee and referred them to the Fiscal Note, which had not been updated yet with the newest House draft of the bill. She noted that the first-year appropriations are not reflective of the long-term appropriations because there will have to be “more state support” for the Clean Heat Standard going forward. But this fiscal note focuses ONLY on the FY24 fiscal impact because it only funds the startup costs for that year. JFO found a $1.725M fiscal impact on the General Fund for the upcoming fiscal year. And the fiscal impact in future years will likely be greater because of “increased investments over time.” 

Harrison commented that he didn’t “see anything here for IT,” noting that those types of projects cost a lot. He asked if there had been any discussions about what it might cost to set up the system required for trading these credits.

JFO responded that they had talked to the PUC and they put in $100K for a database consultant for the first year, and that consultant is supposed to think through how to set up the database. “So, we don’t know the number,” Harrison asked, “they could tell us it will cost $5M to set up this IT system.” JFO confirmed that we don’t know yet how much it will cost.

Mihaly asked how they felt about the $20K appropriation for public engagement. JFO noted that was what the PUC had asked for. 

The Department of Public Service (DPS) has asked for three new permanent FTEs. Their job is to evaluate what’s happening with Clean Heat Credits. There is also a $250K appropriation for a potential study that is a one-time cost. Total appropriation for DPS is $900K. 

Chairwoman Lanpher reiterated to the Committee that these appropriations are “just for FY24, and we don’t know what we’ll see in FY25.” How future costs add up is for future consideration. 

Representative Dolan commented that the “market-based approach” is typically more efficient and cost effective than other options, such as a regulatory approach. JFO pushed back, stating they were “a little bit surprised that you would consider this to be a market-based approach.” They see this as a “regulatory approach in that we are assigning credits to wholesalers and so forth, and it’s the PUC who determines how much each fossil fuel distributor and so forth is assigned. The price of those credits will be determined, in part, by what the market can bear, but the number of credits required by each fossil fuel distributor is going to increase over time as we get closer to the 2030 cap on GHG emissions. So, in my mind I see it as a regulatory approach.” 

Mihaly snapped back, saying “it’s a market-based approach.” He claimed “a regulatory approach would be a carbon tax. I know people are afraid of complexity, but that’s life. In the future, we’re just going to have to see what it’s going to cost to monitor.” 

Representative Page asked, what are our New England neighbors doing. If so, how effective have they been? Sibilia responded that “there are a number of different standards, but I believe this is the first one enacted for thermal. Massachusetts and Maryland are also looking at thermal.” “They’re copying us,” quipped Mihaly.

After a minor amendment related to naming conventions, the Committee moved the bill. Harrison was adamant that he wasn’t voting for the bill, saying that “there are too many unknowns, and my constituents oppose it. It is my job to represent them.”

The final vote was 8-3-1.




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