State regulators are quickly approaching a fork in the road when it comes to developing Clean Heat Standards (CHS) and compliance markets. They will either choose program guidelines that are designed only to incentivize the electrification of buildings, or they will choose program guidelines that are designed to reduce carbon emissions from the thermal sector from all technologies.
Let’s take a look at what’s happening right now in Massachusetts. The Department of Environmental Protection (DEP) has indicated that its CHS is designed based on the California Low Carbon Fuel Standard (LCFS). However, there are many differences between these two programs. One example is that the LCFS treats all emissions reductions equally; each ton of carbon dioxide reduced is worth one credit regardless of the energy source. The Massachusetts DEP indicated during its Aug. 15 public hearing that it is leaning towards a “yard stick” method that would assign the value of one credit as the equivalent of one electrified home. While the stated goal of the CHS is to reduce emissions from the thermal sector, the adoption of this “yard stick” method to value credits would indicate that the actual goal of the CHS is to electrify all buildings in Massachusetts, not maximize greenhouse gas reductions.
Digging a bit deeper into the suggested program guidelines, we find that in the Massachusetts CHS’s first discussion document published a few months ago, the DEP suggested a mandate that all heating fuel suppliers convert 3% of their customer base annually to Air Source Heat Pumps (ASHP) or face a large fine. In this scenario, whether the customer wants to switch to heat pumps or not is irrelevant. The DEP has also considered treating electricity as carbon-neutral. The fuel used to power our electric grid would be irrelevant and all electricity would be considered to be renewable—despite the reality that more than half of winter electric generation would continue to come from natural gas. To cap things off, heating fuel suppliers would be required to either reduce the carbon intensity of their fuel or lower their sales by 29% in 2025 and by 49% in 2030. There would be no time built in for capital investment or to effect a transition as was afforded to the power and transportation sectors.
The problems with these kinds of program guidelines are myriad. Tracking fuel from out of State, regulating out-of-State entities, accurately carbon-scoring each fuel and a large compliance obligation in year one are just a few problems that come to mind. Let’s not forget to mention the harm brought to the end-user or consumer, who will bear the financial burden of these programs and be stripped of the ability to choose how best to heat and cool their home.
It is absolutely a possibility that these guidelines will be written into the CHS in Massachusetts. However, this story is far from over. DES—along with other stakeholders—has been heavily engaged in the process. It is critical that our industry continues to shine a light on the deeply negative outcomes that may result from these guidelines. Only then can we convince regulators that the greatest promises for effective Clean Heat Standards are ones that support a realistic approach. 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.
Our Industry must deal with enormous threats to its existence each and every day. Many of us have gotten used to the usual suspects—State legislatures considering electrification mandates, clean heat standards that regulate all heating fuels and electric vehicle and electric equipment incentives to entice our customers to make the switch. However, another approach is gaining steam and will add to the squeeze should it become commonplace. This new-ish threat comes to us in the form of Building Performance Standards.
A Building Performance Standard is yet another attempt to regulate emissions, deployed primarily at the State and local levels. Colorado, Maryland and Washington State have already enacted Building Performance Standards. Boston, MA, New York City and Washington, D.C. have joined the party at the local level; Cambridge, MA, is expected to enact its own Building Performance Standard later this year.
The goal of a Building Performance Standard is to reduce emissions in commercial and industrial buildings. This is a worthy goal, to be sure, but as with the rest of the electrification plans that fit into the “nice idea, not so nice results” category, the devil—and the cost—is always in the details. Let’s take a look at a one example: Boston’s Building Performance Standard.
Building Emissions Reduction & Disclosure Ordinance (BERDO) is Boston’s recently enacted standard. BERDO sets requirements for all qualifying large buildings within the city limits to reduce their greenhouse gas emissions gradually, with a goal of net zero by 2050. Buildings larger than 20,000 sq ft or with 15 or more individual dwelling units are required to reduce their carbon footprint on an annual basis. All buildings must be carbon neutral by 2050, but the annual reduction requirements vary based on building use. Healthcare facilities, universities, multi-family housing, manufacturing/industrial and all other building uses will have different reduction requirements. All qualifying buildings will be required to report their emissions on an annual basis to the State. The entire carbon footprint of the building is measured—electricity, heating, hot water and any other activity that produces greenhouse gas emissions. If a building does not reduce its emissions by the required amount each year, Renewable Energy Credits (RECs) will need to be purchased or the building owner will be required to pay a fine in the form of an Alternative Compliance Payment (ACP) per ton of carbon dioxide emitted above the requirement. Unfortunately for these buildings, there is no incentive for reducing emissions beyond the minimum requirement.
As we have seen in virtually every State that has attempted to adopt narrow policies or regulations to force electrification on its consumers and businesses, the unintended—and in some cases, intended—consequences may be significant. Building owners will incur increased costs whether they are actively complying with the standard or paying for RECs or fines. In either case, operating costs will increase, rent will increase and consumers will bear the brunt of these regulations.
Building Performance Standards are just another example in a long line of legislative and regulatory threats to our Industry that will squeeze our businesses, impact consumers and have a negligible impact on reducing emissions. It will be critical that we remain vigilant as individual business leaders and as an Industry to vocally oppose these poorly thought-out regulations whenever and wherever we can. 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.
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
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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.
