Commentary: Clean heat ‘carbon tax’ 2.0 has a new name and number

Last year H.715, an act relating to the Clean Heat Standard, which would have mandated that fossil-based heating fuel dealers pay a carbon-based “credit” fee for selling their products, was vetoed by Gov. Phil Scott and that veto was sustained by one vote (99-51) in the state House of Representatives. Democrats and Progressives are hoping that newly elected supermajorities in both the House and Senate, along with a new name for what is essentially a carbon tax on home heating fuels, will ensure that that the Clean Heat Standard will become law this year.

S.5 is sponsored by 13 of Vermont’s 30 senators, including Sen. Christopher Bray, D-Addison.

For 2023, the clean heat standard bill has been officially re-christened S.5, an act relating to affordably meeting the mandated greenhouse gas reductions for the thermal sector through electrification, decarbonization, efficiency and weatherization measures. The shortform name is now the brazenly misleading “Affordable Heat Act.”

In a nutshell, how the clean heat standard would operate is that the state will force sellers of home heating oil, propane, natural gas and kerosene to either generate or, in most cases, purchase “clean heat credits” to legally sell their products. The credits operate essentially as a carbon tax (in addition to existing taxes) on fossil-based home heating fuels, the cost of which will be passed along to customers, artificially raising the price to heat homes with those fuels.

Supporters of the clean heat standard argue that the pain of higher costs to heat with fossil fuels created by the credit system is a necessary stick to motivate consumers to switch heat sources, and the revenue raised through the mandatory sale of “clean heat credits” will provide a corresponding and lucrative carrot for those who comply, or more directly to those who facilitate the adoption and installation of non-fossil-fuel heating options.

According to research by the Vermont Climate Council, over 70 percent of all carbon emissions from home, business and industrial heating in Vermont comes from these fossil-based fuels, so the clean heat standard will have an expensive, negative impact on a majority of the state’s residents. Vermonters who have oil, gas, or propane furnaces and/or water heaters, gas stoves, and so on will be the “losers” in the new policy, paying even higher prices to operate these appliances.

The “winners” will be the politically favored “entities” (businesses and government affiliated non-profits) that are allowed and able to generate the “clean heat credits” by weatherizing homes, installing electric heat pumps, etc. (S.5 lists 11 specific measures that will be acceptable for generating credits but leaves the door open for more). Because the fuel dealers have no choice but to buy these credits or face even more severe penalties if they want to stay in business, the clean heat standard creates a government mandated revenue stream of “free money” from fossil fuel users to those politically favored entities.

While the bill would allow a wide variety of businesses and individuals to generate, own and sell credits, it also seeks to designate a “default delivery agent” that would be the authorized go-to entity for fuel dealers to purchase credits. Though not yet designated, conversations in the Vermont Climate Council deliberations indicate strongly that the default delivery agent will be Efficiency Vermont, technically a non-profit organization but funded through the “energy efficiency charge” that appears on Vermonters’ electric bills. Efficiency Vermont would receive another enormous windfall of revenue as a result of being the default delivery agent for the clean heat standard.

It is worth noting that Peter Walke, who served as commissioner of Vermont’s Department of Environmental Conservation in the Scott administration, used that position to advocate strongly within the Vermont Climate Council that Efficiency Vermont be the default agent for the clean heat credit system. Shortly after the Climate Council presented its Climate Action Plan to the Legislature in December 2021, Walke left his post to take the top job of Managing Director of Efficiency Vermont.

The other “winners” will be the new army of government bureaucrats and/or government sub-contractors necessary to run this program.

S.5 states:

Clean heat credits shall be based on the accurate and verifiable lifecycle CO2e emission reductions in Vermont’s thermal sector that result from the delivery of eligible clean heat measures to end-use customer locations into or in Vermont. (1) For clean heat measures that are installed, credits will be created for each year of the expected life of the installed measure. The annual value of the clean heat credits for installed measures in each year shall be equal to the lifecycle CO2e emissions of the fuel use that is avoided in a given year because of the installation of the measure, minus the lifecycle emissions of the fuel that is used instead in that year.” (Emphasis added)

This means that it will be somebody’s — many somebodies’ — job to verify (as well as weed out any fraud) and calculate according to the formula outlined above the clean heat credit values for literally tens of thousands of unique, uncoordinated actions across 11 or more areas of technology/construction, performed by a multitude of individuals, businesses and organizations all across the state. The Climate Action Plan calls for nearly 13,000 weatherization projects alone to occur annually between now and 2030 to meet the greenhouse gas reduction goals set out in the Global Warming Solutions Act.

Once a credit-eligible action has been verified to have taken place and the number of credits created from that action (one credit per ton of greenhouse gas mitigation) has been established, it will be somebody’s — likely many somebodies’ — job to assign a monetary value to each credit, assign ownership of each credit to a particular party, track the sales of each credit to obligated parties over its lifetime, and ensure each credit is “retired” at the end of its life-cycle.

This proposed credit system is often compared to the Regional Greenhouse Gas Initiative (RGGI) “allowance” system. However, RGGI is far simpler than what S.5 is proposing as RGGI has fewer obligated parties and the number of RGGI “allowances” are set and issued from a single central exchange rather that created “in the field” by random acts of hundreds or potentially thousands of entities, and the allowances are auctioned off directly to the obligated parties. Even so, according to the RGGI website, its 2022 operating budget was $3,118,019.00. The cost to operate RGGI is shared among 11 participating states, whereas the total burden of supporting larger and more complicated clean heat standard system would be borne by Vermonters alone.

Of course, the major cost of this clean heat standard proposal is not the operating expense but rather the cost of the credits themselves. Though advocates have been careful to avoid any substantive discussion of what the cost of a credit might be, if the expectation is that the credit sales will be the primary revenue source for subsidizing the thermal sector programs necessary to meet the greenhouse gas reduction benchmarks in the Global Warming Solutions Act, the total annual cost of clean heat credits will more than likely exceed $100 million annually. Some 13,000 home weatherization projects estimated at an average of $10,000 per project is $130,000,000 alone. No other revenue source to pay for these projects has been identified or discussed.

S.5 is sponsored by 13 of Vermont’s 30 senators: Christopher Bray (D-Addison), Senate President Pro Tem Philip Baruth (D-Chittenden), Brian Campion (D-Bennington), Senate Majority Leader Alison Clarkson (D-Windsor), Ann Cummings (D-Washington), Martine Gulick (D-Chittenden-C), Ruth Hardy (D-Addison), Mark MacDonald (D-Orange), Dick McCormack (D-Windsor), Andy Perchlik (D/P-Washington), Kesha Ram Hinsdale (D-Chittenden), Anne Watson (D-Washington) and Becca White (D-Windsor).

The Senate committee of jurisdiction for S.5, which will radically restructure Vermont’s economy, will be Natural Resources & Energy (though that name may change), chaired by Sen. Bray, whose legislative bio boasts a degree in zoology from UVM and a master’s degree in English. Other members of the committee are Sen. Dick McCormack, a folk musician from Bethel, Sen. Mark MacDonald, an 80-year-old retired teacher who recently suffered a stroke, and two new senators, Becca White, a cashier at the Upper Valley Food Coop in White River Junction, and Anne Watson, the former mayor of Montpelier and a high school math and physics teacher.

Rob is a partner in Water Cooler LLC and a long time Board member of the Ethan Allen Institute


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