in 2025, 49% emissions reduction below 1990 levels in
2030, 75% emissions reduction below 1990 levels in 2040,
and 85% emissions reduction below 1990 levels in 2050.
These increases in obligation will be linear in the years
between benchmarks.
The CHS will be a market-based program where entities
can buy and sell Clean Heat Credits. In order to meet
their compliance obligation, regulated entities need to
retire credits in one of four ways:
1. Purchasing credits in the open market
2. Generating credits through the direct
delivery of eligible clean heat measures
to end-users
3. Hiring contractors to install clean heat
measures on their behalf
4. Paying the alternative compliance payment
(ACP)
Each Clean Heat Credit in the market will have an underlying
value of one metric ton of CO2 reduced by the
clean heat measure.
There has been significant discussion about the clean
heat measures that will be considered eligible to qualify
for Clean Heat Credits. In the vetoed Vermont bill, the
eligible measures included:
• Installation of air- and ground-source heat
pumps
• Energy efficiency improvements
• Weatherization
• Solar thermal
• Delivery of biodiesel, renewable diesel, renewable
natural gas, clean hydrogen, and
wood pellets.
It will be critical for the future of our industry that biodiesel
and renewable diesel be considered eligible clean
heat measures within future CHS programs.
Who Will Generate and Own
Clean Heat Credits?
This has been a measure of debate in both states. In Vermont,
the end user would retain possession of the credit
for all installed clean heat measures in their home and
the retailer would retain possession of the credit for all
delivered clean heat fuels to the end user. Therefore, it
can be expected that in Vermont and Massachusetts that
the wholesaler (or first point of sale within the state) will
face a compliance obligation and that retailers selling
biodiesel blends to their customers will generate Clean
Heat Credits that can be sold in the open market.
This type of market-based compliance program provides
ample opportunities for both retailers and wholesalers to
generate a competitive advantage against other heating
fuels and against other competitors within the industry.
Wholesalers selling biodiesel blends will face a lower
compliance obligation within a Clean Heat Standard than
wholesalers that do not. Retailers that deliver biodiesel
blends, install air-source heat pumps, and provide weatherization
will generate credits in a Clean Heat Standard
that can be monetized and increase their profits. Propane
retailers that sell renewable propane will also generate
credits and increase their profits.
Impact on the Heating Fuels Industry
It’s understandable for retailers and wholesalers to be
concerned about the impact a Clean Heat Standard will
have on their business and the industry at large. It’s likely
that the compliance obligation placed on wholesalers (or
on the first point of sale within the state) will increase
the price of fuel to retailers and ultimately to consumers.
However, the companies that are blending or making
renewable fuels available for purchase to their customer
base will have a new method of increasing their margins
and holding down the price of renewable energy to the
end-user by generating credits within the CHS.
Whether you view a Clean Heat Standard as an interesting
pathway to accelerate our industry’s transition
to renewable energy or yet another serious threat for
the delivered fuels industry to deal with, the reality is
these types of programs are coming and most of us will
have to deal with them in our states at some point in the
future. Companies that are preparing to be successful
in an environment with a Clean Heat Standard will be
head and shoulders above their competition when a CHS
finally comes to your state. ICM
About the author: Joe Uglietto is President of Diversified
Energy Specialists (DES), a renewable energy consulting
and environmental markets trading company that has
represented retail heating oil companies as an aggregation
within the Massachusetts APS Program. Joe regularly consults
on energy projects for the Clean Fuels Alliance America,
National Oilheat Research Alliance, and many state and
regional energy associations. Joe's recent work has focused
on the flaws of thermal electrification policy and the design
of Clean Heat Standards.
(978) 245-8730, Joe@DiversifiedEnergySpecialists.com
DiversifiedEnergySpecialists.com
12 ICM/November/December 2022