PR: The Affordable Heat Act Offers No Savings- Ever

Implementation of the Affordable Heat Act (“AHA” or S.5) requires significant upfront investment across the households of 60% of all Vermonters, those who currently depend on heating fuel to warm their homes. This cost will likely be over $5 billion dollars- more than twice the $2 billion dollars estimated by the Agency of Natural Resources and the Vermont Climate Council, even after $380 million in state and federal funding is included. This $5 billion cost to provide weatherization, heat pumps, and heat pump water heaters, will mostly be borne by low and moderate income Vermonters, those who primarily use heating fuel. The Affordable Heat act will be the largest and most expensive social program ever paid for by Vermonters.

That’s the conclusion of an analysis of the bill by Myers Mermel, President of the Ethan Allen Institute, made in testimony before the Senate Natural Resources & Energy Committee on February 16th. Mermel came to his present position at the Ethan Allen Institute after 35 years in corporate finance and real estate banking. This experience has helped him unravel the true cost of the off-balance financing that is the substance of the AHA. Despite his testimony and that of other concerned Vermonters, the bill was passed out of the Committee on February 17, 2023, with a unanimous 5-0 vote moving it forward.

This massive $5 billion cost of home improvements is intended to take place in the 2026-2030 timeframe and to reduce carbon emissions in order to meet climate goals under the Global Warming Solutions Act. In order to force low and moderate income people to pay for their own energy improvements, the bill is designed to pass through a surcharge to repay the fuel dealers who are supposed to front the money. Basically, the money raised from the surcharges circles back to fund the improvements. ”ANR Secretary Julie Moore’s $2 billion cost calculation, which she translated to a seventy cents per gallon price increase on heating oil and propane, becomes over $4.00 a gallon when the full costs of weatherization and heat pumps are correctly included,” Mermel said.

Mermel took issue with the claims of $6.4 billion NPV savings under the Climate Action Plan made in the Cadmus “Pathways” Report. Mermel stated that the discount rate used in the model was incorrectly chosen and that current borrowing costs are 45 times greater than the implicit interest rate apparently used in the Cadmus “Pathways” savings model.

In addition, the model looked at a time horizon of 35 years for calculating savings when the useful life of heat pumps is only 10-15 years. The model should have included costs for the full replacement of heat pumps over the 35-year timeframe, but it appears it did not. Replacing all the heat pumps in year 15 would add another $4 billion cost. Combined with findings that upfront costs are $3 billion more than Cadmus estimated, and the discount rate is inappropriately low thereby exaggerating savings, the true long-term savings from the whole program do not exist.

“There may be progress towards climate goals, but the Affordable Heat Act program will not produce any economic savings for Vermonters,” stated Mermel. The actual economic model used by Cadmus has not been made public by the Vermont Climate Council/Cadmus, and Ethan Allen Institute has asked repeatedly for its public release. A review of the models by the Vermont Legislative Joint Fiscal Office could correct the continued misstatement by supporters of the Affordable Heat Act that the Act offers any long-term economic savings.

“Most disturbingly, legislative supporters of the Affordable Heat Act have put the well-being of climate over the well-being of low and moderate income Vermonters,” said Mermel. The Affordable Heat will increase inequality and punish low and moderate income people, particularly our BIPOC population. Summing it up, Mermel said, “It is an immoral, regressive surcharge on the most vulnerable among us, with no long term economic benefit for those low and moderate income Vermonters who will be forced to pay for their own climate home improvements through vastly inflated fuel costs.” There is little government help, despite emphatic assertions to the contrary, as federal and state subsidies only account for 7% of upfront costs.

Vermonters’ inability to pay for or borrow the huge upfront costs to pay for weatherization and heat pumps, while being forced to pay the inflated fuel surcharges, will lead low and moderate income Vermonters into a “Carbon Doom Spiral,” when legislators will inevitably keep increasing the annual surcharge to force faster compliance with climate goals that cannot reasonably be reached under current Global Warming Solution Act deadlines. 

Myers Mermel is President of the Ethan Allen institute.

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