Preparing for the Future Regulatory Environment

The energy industry is undergoing an enormous transition and the number of States that are considering regulatory programs to achieve their carbon-reduction targets is growing by the week. Over the next few years, heating oil, propane and natural gas companies across the Northeast and Mid-Atlantic will be dealing with increasing requirements to reduce their carbon impact. We can expect that these new regulations will affect the price of our products and the day-to-day operations of how nearly every energy company conducts its business. Here’s a quick snapshot of what’s on the table around the region.

Massachusetts recently released a Clean Heat Standard (CHS) discussion document and straw proposal, with the goal of implementing a CHS by the beginning of 2024. A CHS is a market-based regulatory program that would require heating fuel companies to reduce the carbon intensity of their fuel by a certain percentage each year, typically aligning with the State’s greenhouse gas reduction goals. If these companies reduce the carbon intensity of their fuel by more than the goal each year, by blending biodiesel or other renewable fuels, they will generate credits that can be sold in the market for a profit. If these heating fuel companies do not reduce the carbon intensity of their fuel by the goal each year, they will be required to purchase credits in the market to meet the compliance requirements within the program.

Legislation for a Clean Heat Standard in Vermont was passed by the State House in March and, as we go to press, is likely to be voted on in the State Senate in April. In New Jersey, Governor Murphy issued an Executive Order that required the Board of Public Utilities to conduct an 18-month study on the adoption of a Clean Heat Standard. Maryland has hired the Regulatory Assistance Project, the consulting firm that is helping design the Clean Heat Standards in Massachusetts and Vermont, to provide guidance in meeting its greenhouse gas reduction goals. Pennsylvania and New York are considering Clean Fuel Standards, which are transportation-focused regulatory programs aimed at achieving carbon reduction. Both States are considering including heating fuels as well.

Additionally in New York, there is a strong push to implement an economy-wide “Cap & Invest” program, which will cap the greenhouse gas emissions that businesses and facilities can produce each year. These businesses will have to purchase allowances at auction for the right to continue operating their business. A Washington Post article in April estimated that New York’s “Cap & Invest” will increase the cost of transportation fuels by 61% and increase the cost of heating a home by 80%. It remains to be seen whether the cost impact will deter or slow down the move to adopt such an impactful program.

While many of these programs are not yet finalized—either because details are still being worked out or legislation has not yet passed to establish them—it is virtually certain that our industry will be dealing with these kinds of programs in short order. The first step for fuel companies is to recognize and embrace that change is coming, and in ways that are likely to squeeze your business. The second step is to prepare for this eventuality by developing a clear-eyed strategy to succeed in this new regulatory environment.

There will be companies that take full advantage of the new regulations in their States. Make sure that your company is one of them. ICM


Renewable Energy Insights is a regular column by Joe Uglietto, President of Diversified Energy Specialists, consultant to the industry with a focus on emissions reductions and renewable energy innovation.

Electrify everything” is gaining ground at the Federal level and in many Northeast States. Heat pump incentives, clean energy tax credits and legislation to ban fossil fuels are all on the table in some shape or form. In States such as Massachusetts and Vermont, policies to create new Clean Heat Standards have either passed or are likely to pass in the coming months.

A key driver of the electrification movement in 2023—and likely for many years into the future—is the Inflation Reduction Act (IRA). The recently passed IRA will provide substantially higher incentives for homeowners to install electric heat pumps than what has been offered in the past. Rebates for low-income households can reach up to $14,000 for an air-source heat pump system. These rebates will make converting to heat pumps financially competitive in comparison to the installation of new, higher efficiency, low carbon liquid fuel and propane systems.

Additionally, several Northeast States have earmarked millions of dollars of IRA funds for broad-based consumer education campaigns to promote heat pumps and improve perceptions of heat pumps and heat pump technology among the public. The use of IRA funds for consumer outreach and education is likely in response to the relatively slow adoption of heat pumps thus far. Massachusetts provides an excellent example: the State set a target of installing 100,000 heat pumps beginning in 2020 with the goal of one million heat pump installations completed by 2030. According to reporting conducted by The Boston Globe, 461 heat pumps were installed in 2020.

However, the slow adoption of heat pumps hasn’t given electrification advocates pause about the merits of wholesale electrification. The “carrot” of rebates and incentives will likely give way to the “stick” in the form of attempted non-electric fuel bans and clean heat standards. A State-by-State clean heat standard would require the heating oil, natural gas and propane industries to reduce the carbon intensity of their fuel, sell less of their fuel or pay others to reduce the carbon intensity from heating technologies. Clean heat standards would increase the cost of energy and further incentivize the installation of cold-climate air-source heat pumps.

It is crucial that every stakeholder in the industry prepare for a future that completely embraces renewable, low-carbon heating fuels, a future of clean heat standards and carbon reduction, and a future that will require a strategic and forceful response in the form of political advocacy and consumer outreach.

Renewable Energy Insights is a regular column by Joe Uglietto, President of Diversified Energy Specialists, consultant to the industry with a focus on emissions reductions and renewable energy innovation.