Written on: March 6, 2020 by Michael Trunzo
Michael Trunzo is the Director of Government Affairs at Shenker Russo & Clark LLP. The National Biodiesel Board has contracted SRC to coordinate public policy activities in the Northeast. Additionally, Michael represents the New York State Energy Coalition, whose members sell approximately 70% of the heating oil volume in the state.
In order to move toward a low-carbon future to combat global climate change, many State governments have, or are planning, policies to drastically reduce carbon emissions from all fossil fuel sources. ICM spoke with Michael Trunzo about these policy initiatives and how they will impact the home heating industry.
Trunzo: Every state in the Northeast has adopted carbon policies, which are aimed at reducing greenhouse gas emissions and those emission reductions are squarely focused on fossil fuels. Heating oil for space-heating and diesel fuel for transportation are square in the sites of these policies.
ICM: Are the other fossil fuels for space-heating such as natural gas and propane also in the crosshairs?
Trunzo: Yes. Natural gas, propane and heating oil are all in the crosshairs. Heating oil, I would say, is an immediate risk. More than propane.
ICM: Why would that be if they are all fossil fuels and targeted for reduction?
Trunzo: Because you can, in the government’s eyes, replace the home heating system with a high-efficiency electric heat pump. In their opinion, heating oil is the dirtiest fuel, the one they want to get rid of first. Oil is on the top of the list and then propane. Natural gas is also at risk but replacing that, due to the market size, is a larger undertaking.
ICM: If they get rid of oil or propane, what are the alternatives?
Trunzo: Heat pumps. Many states have incentives to increase heat pump installations. New York has been investing with local utilities, incentivizing heat pump replacements for their customers. Massachusetts has had a heat pump incentive program for several years. Now Maine has a very aggressive heat pump incentive installation program targeting 100,000 heat pump installations
in the next five years.
ICM: Are they concerned with heat pumps’ performance in extremely cold climates?
Trunzo: Some concern, but the states are counting on the technology of heat pumps to continue to improve and make them viable. According to the literature, the newest generation of heat pumps can operate below zero degrees. Vermont, through Efficiency Vermont, had a program that was very aggressive for years. However, they abandoned it when the heat pumps did not perform as expected in very cold weather.
ICM: Of course, heat pumps use electricity and the grid is already stretched at times. Where do the states assume they’re going to get this electric power for literally millions of additional heat pumps?
Trunzo: Well, that’s the big question before the regulators: how do they transition an economy to electric power, increase the load on the system and ensure reliability and resiliency of the system? That is the question that many of the states and the independent system operators in the region are looking at.
ICM: Without using fossil fuels to generate the electricity, how will they produce it?
Trunzo: It might vary by region, but in New York for instance, they’re aggressively looking at off-shore wind and solar as the two biggest additions to the already existing hydro power.
ICM: Who is driving this movement? Governors, legislators, environmental groups, the scientific community?
Trunzo: The alarm had been sounded by the United Nations’ climate change reports, which have given the environmental community many concerns. In turn, they have gotten elected officials much more active in policy discussions.
With the more recent election of progressive officials in government throughout the region, there seems to be more of a movement to drive these low-carbon policies as fast as possible.
ICM: Is this a political position? Could a change in administration or legislature make it shift, or is this a done deal?
Trunzo: This could potentially vary state-by-state based upon their leadership, but I think once a state adopts low-carbon policies and starts developing rules and regulations to move towards the low carbon future, it’s difficult for either party to roll back the movement.
ICM: Is there a unified movement by the states?
Trunzo: When we are speaking about space-heating, I don’t see there being a regional solution that all the state governments are putting together. You see that on the transportation side as well as for a decade on the power generation side.
ICM: Let’s put this into geographical perspective. We are talking about 12 states and DC: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware and Virginia.
Trunzo: There are different initiatives happening in each state. For space heating, New York is looking at biodiesel blending requirements and upping the current percentage of biodiesel blending as a means of lowering greenhouse gases. The same is happening in Rhode Island.
In Connecticut, they’re looking at an incentive program like the Alternative Energy Portfolio Standard (mass.gov/alternative-energy-portfolio-standard) that currently exists in Massachusetts.
Other states, including Maine, are looking at converting buildings to heat pumps. Vermont continues, and has for many years, to move legislation for a low carbon tax to phase out the use of fossil fuels across the board.
In New Jersey, the Governor has an energy plan underway that would phase-out fossil fuels. It recognizes that biodiesel is potentially a component that could help with the heating sector, but that doesn’t seem to be as strong a direction as converting those homes to heat pumps.
ICM: So, the timelines and the end carbon reduction levels for space-heating are state-by-state. However, what we’ve generally been hearing is a 40% reduction by 2030 and an 80% by 2050. Is that still valid?
Trunzo: That is still the goal of each state to try to meet those thresholds. How they can get there, if they can get there, is the big question.
ICM: What might be the ramifications of the heating oil industry if it couldn’t reach those deadlines by 2030? What kind of teeth would these regulations have?
Trunzo: I’m not sure there are rules and regs in place yet to speak to that. They’re probably more regulations that need to be created as time goes on as the states move towards these targets. In general though, there is a sense that government wants to legislate fossil fuel space-heating out of business.
The home heating oil industry has a solution in-hand, at least the 2030 goal of 40% reduction and potentially the 2050 of 80% reduction, through the application of biofuel blends into the heating oil. A 50% biodiesel blend into heating oil will help the industry meet the 2030 goal of a 40% reduction. The potential for 100% biodiesel heating fuel can bring the industry in-line to meet even the most ambitious goals.
Many of the heating equipment manufacturers are working on this now from the equipment side.
ICM: Are all the states in question open to biodiesel or another low-carbon liquid fuel as a solution or does that have to be argued and agreed upon state-by-state?
Trunzo: There still needs to be a lot of education with policy makers about the ability of biodiesel to replace heating oil from the economic standpoint of supply-and-demand as well as fully understanding the life-cycle analyses and the greenhouse gas savings across the spectrum. Also, the low to no-cost solution for homeowners that biodiesel brings to the table versus the high cost of converting their homes to the pumps or some other technology is important. This education with policymakers is an ongoing process as we speak.
ICM: It appears the oilheating industry has a potential solution. It’s already been demonstrated carbon fuels work. What are the propane or natural gas industries going to do?
Trunzo: Well, I’m not an expert in those two heating fuels but my understanding is there is renewable natural gas that can be made from methane capture. There is also a renewable propane product. I don’t believe that they can produced those in volumes great enough to replace the current volumes.
ICM: The existing delivery and service infrastructure that the heating oil industry has in place seems to be a compelling argument in its favor as it can deliver and service any blend of liquid fuel.
Trunzo: Yes, as I speak to various government policymakers about the heating oil industry and how it can convert to a Bioheat industry, I do speak about the fact that it is a generally a small family-owned business enterprise. They have a liquid deliverable fuel infrastructure and the state can achieve its greenhouse gas goals by simply working with that industry and requesting or requiring that they deliver fuel that burns cleaner. You are keeping an industry viable—you’re not displacing jobs and you are meeting carbon emission reduction goals all at the same time.
How that fuel gets delivered isn’t an issue as long as it can deliver a low a low-carbon-emitting liquid fuel. That could be the future of energy for the millions of homes that currently heat with oilheat.
ICM: The home heating equipment, even if it requires modification to use high blends, could still be almost all the same equipment. The investment to make this transition is minimal versus converting to a heat pump, which might cost $20,000 or more. Is that argument getting traction?
Trunzo: It’s received fairly well. We know the cost of installing a full home heat pump system is in the $21,000 range based upon what we have seen in Massachusetts. There is still a sense from some regulators that perhaps biodiesel can help in the short run, but we still need to move towards electrification.
As we speak about the minimal costs of having a home liquid fuel heating system that can emit less carbon, they tend to take pause to some degree. It’s a learning curve and you need to have policymakers and elected officials who are willing to listen to the whole argument.
There is a good message being delivered. I think it’s finding its way, but there’s so much talk from so many quarters about an electrification future that there’s a lot of noise to get through.
ICM: Speaking of delivering the message, how is it being delivered? Is there an oilheating industry organization with an overriding strategy or is it happening at the State Association level?
Trunzo: Here is a good example—recently many members of the heating oil industry came together at the New England Fuel Institute’s Summit in Providence, RI, where they adopted a resolution, referred to as the Providence Resolution, which formalizes moving forward with transitioning heating oil to low-carbon—15% reduction in CO2 emissions by 2023, a 40% reduction by 2030 and net-zero-carbon emissions by 2050. Additionally, some state associations, not in attendance at Providence, have separately adopted the resolution on their own. I work with the National Biodiesel Board and we are coordinating with each of the State Associations to help them move policies forward that would bring higher biodiesel blending requirements into home heating.
ICM: The requirements to bring low-carbon fuel in—what might they look like?
Trunzo: The way to drive the carbon emissions to their lowest levels in the fastest manner would be a bending requirement across the states. Whether it be 20%, 40%, 50%, or potentially 100% at some point in the future, that will drive greenhouse gas emissions the lowest and quickest for the home heating sector. Some states, as I mentioned, are already looking at that—New York and Rhode Island in particular.
Other states have incentive programs they’ve opted to put in place. Massachusetts has one that has resulted in approximately a 4% biodiesel usage in that state. Connecticut is in rulemaking for a thermal renewable energy credit program that will hopefully incentivize biodiesel blending on a similar level. Maine has a similar statute as well, so, it varies state to state.
We hope to be able to drive a more unified model across the region. We are working with each state within the realm of the policy potential it has.
ICM: You are working with the National Biodiesel Board, which represents manufacturers of biodiesel and renewable diesel. If we are looking at a 40% reduction in less than 10 years, and that will require a 50% blend in short of window of just a few months a year, are they confident that they can meet that demand for production and distribution?
They need to understand the survival of their industry and their business model can hinge on the delivery of just a slightly different fuel than what they have now.
Trunzo: The short answer is yes. There are about a hundred biodiesel production plants in the country. They currently produce about 2.5 billion gallons of biodiesel annually. They have the capacity to produce four billion gallons if they were running at 100% capacity. There are domestic feedstocks to support upwards of six billion gallons of biodiesel production.
Look at what took place in California when it adopted a low carbon fuel standard in 2009. They were using 14 million gallons of biodiesel then, and today the state uses over 600 million gallons of biodiesel and renewable diesel. All that didn’t exist prior to California adopting that rule. The industry positioned itself, expanded and has been shipping biodiesel and renewable diesel to the West Coast from all over the U.S.
I think if the Northeast were to adopt policies for biodiesel blending, you would see production ramp-up and you would see the transportation capabilities expand as needed as well.
ICM: You mentioned renewable diesel. How does that fit into this picture?
Trunzo: Renewable diesel has different production process than biodiesel. It goes through the same manufacturing process as crude oil except it uses the same renewable feedstocks as biodiesel. In the end, you get a molecule that has energy in it based upon the renewable feedstocks, creating a much cleaner fuel than petroleum diesel. It has similar characteristics to biodiesel terms of greenhouse gases.
Renewable diesel has a market more on the transportation side and that market was made by California when they put their low carbon fuel standard in place. Renewable diesel can be used in space-heating as well. It’s a little bit more expensive than biodiesel at the current time and the market for that fuel is really the West Coast.
Potentially, it could be a fuel used for space-heating in the Northeast, but now right now there isn’t demand in place to drive that.
ICM: Is there anything retail members of the heating oil industry can do to assist to move this forward?
Trunzo: In the short term, the industry has recognized, through the Providence Resolution, the need to move towards a low-carbon burning liquid fuel. That was a big statement noticed by policymakers. It may also provide the potential to have model state legislation that would drive the adoption of mandates/blending requirements. The only two states where that is happening right now are New York and Rhode Island. I do think if those two states universally adopted biodiesel blends, it will help drive the other state governments in the region to look at the same type of policy.
There may also be an opportunity here. As states move off of fossil fuels, and are converting natural gas or propane users to something cleaner as well, the oilheating industry, or as we like to say the Bioheat industry, is positioned to have a low- carbon, net zero liquid fuel that could potentially be part of that conversion methodology compared to the cost of heat pump conversions. It could be a signal for growth.
As for the heating oil retailers,
they need to recognize that they need to move to a cleaner burning fuel and that these carbon policies, although they’ve been around for many years, are now real in their rulemaking and implementation. They need to understand the that survival of their industry and their business model can hinge on the delivery of just a slightly different fuel than what they have now. ICM