What Was the Vermont Clean Heat Standard?
Thermal electrification still lacks a business model at scale
On 11 May 2023, the Vermont legislature passed a law colloquially known as the “Affordable Heat Act.” The law sought to tip the scales of heating costs away from fossil fuel heating towards electric heating, by way of a tradable compliance credit akin to those used for New England Renewable Energy Standards. Governor “Racecar” Phil Scott vetoed the bill, citing confusing language in the law, but he was overruled.
Importantly, the law doesn’t immediately kick off the credit system—it starts by asking the Vermont Public Utilities Commission to design a system with a budget of $1.7 million and check back in eighteen months. Eighteen months later, the PUC kicked off the 2025 legislative session with their Second Checkback Report.
On its own…Vermont doesn’t really matter. Montpelier can attempt to shake down oil companies with market caps larger than the state’s GDP for a doomed facsimile of the EPA’s “Superfund” program,1 and the nation will collectively shrug. But Massachusetts is also working on a Clean Heat Standard,2 and I suspect Beacon Hill is reading the Vermont PUC’s assessment of the idea.
This report might kill the whole enterprise.
Why Do This?
In now-deindustrialized New England, the single largest contributor to carbon emissions is building space heat from fossil fuels—natural gas in populated areas, No. 2 heating oil or propane in the boonies. Any attempt to decarbonize New England necessitates electrifying these heating systems, primarily towards cold-climate air-source heat pumps: effectively, an air conditioner than can run in reverse. In 2025, these are proven systems. They will keep your house warm, even in a cold snap…provided that your house is better insulated than a cardboard box.3
There are two problems with these systems:
They cost $30-50 thousand to install in a fully-electrified single-family home.
Switching from natural gas to heat pump raises your net heating bill.
Switching from the oil and propane used outside urban areas, the economics trend positive—but that upfront cost is massive.
The Clean Heat Standard seeks to address this by adding a levy on gas, oil, and propane sales and funneling the money towards incentives on electric heat pumps. The mechanism would be a clean heat credit: a tradeable certificate that represents an amount of avoided carbon emissions. Notionally, this structure would reflect the Renewable Energy Credits (RECs) that underpin the Renewable Energy Standards of every non-New Hampshire state in New England.
“Why Me?”
The Vermont Public Utilities Commission (PUC) was unhappy with its assignment. The PUC is a quasi-judicial organization, speaking the language of dockets and litigation and holding itself at arm’s length from the legislative and executive branches. Back in 2021, they handed Montpelier a report on a proposed “all fuels” energy efficiency program:
The report concluded that “Vermont already has the organizational structures, regulatory oversight, and experience to implement the programs we need” and stated clearly that the primary concern was ensuring adequate funding for these programs.
The legislature was not convinced. So they asked for a few more reports:
In November of 2023, the Agency of Natural Resources conducted an economic impact analysis of the thermal sector. Separately, the Department of Public Service completed relevant analysis through its September 1, 2024, Thermal Sector Carbon Reduction Potential Study. Yet the [Public Utilities] Commission, as an administrative agency independent of executive branch oversight, was being asked to develop a fresh analysis [in the Affordable Heat Act].
The PUC’s account calls to mind a young woman consulting all her friends on whether she should get back with an ex, texting them sequentially until one of those friends gives the answer she was looking for.
Challenges in Implementation
In the absence of in-house analytical staff because why would the PUC have them, the PUC enlisted Waltham-based consulting firm Opinion Dynamics to build a wireframe model of a Clean Heat Standard. The first step was building a registry of “obligated parties,” which encompassed all companies that brought fossil fuels across state lines into Vermont. There were two key problems:
Heating fuel delivery companies do not necessarily get their fuel from out-of-state. Some of them buy fuel from in-state suppliers who in turn procure the fuel from out-of-state—meaning that these retail delivery companies were not obligated parties, but their suppliers were.
Fuel delivery companies are archetypal Boomer Small Businesses: local shops wholly owned by aging, widening men who has not learned a new fact since 2005. These guys might use TurboTax, but they make the customer service rep do the paperwork.
The registration was a disaster. Companies registered months late, filled forms incorrectly, or straight-up didn’t bother. The PUC refuses to endorse it as a reliable source.
But that was only step one.
Opinion Dynamics mocked up a structure for a basic clean heat credit system—calculating obligations, setting fuel price levies, structuring the incentives—and came out with a preliminary program cost: $956 million from 1 Jan 2026 to 31 Dec 2035. That’s the cost of running program administration and mailing out incentives. It does not include customers’ out-of-pocket installation costs or increased electric bills, it does not model the cost effects of pushing an already-strained network of HVAC technicians, electricians, and plumbers, and it does not account for the impending increases in the price of electricity.4
For what it’s worth, the report estimates that the social benefits of this program—heating bill savings, greenhouse gas reductions—would be $1.5 billion over that same period.
Additional Devils in Details
The PUC ultimately agrees with Governor Scott’s assessment that the bill was poorly written:
The law’s definition of heating fuel would catch bottled propane tanks for camp stoves…in Vermont.
The law mentions “thermal sector life-cycle CO2e emissions”…which aren’t a thing.
The description of a clean heat credit is imprecise, and it doesn’t line up with existing Vermont certificate structures for the exact same technologies.
Customers did not understand how this Clean Heat Standard would work, and the PUC struggled to explain it in public comment sessions.
Customers did not understand how heat pumps work or where to learn about them. Some said they didn’t trust the State of Vermont to give accurate information.
The PUC notes that building a registration system that allows for fluid trading would be an immense lift, even beyond the near-billion dollars to manage a baseline compliance tracking tool. And it leads to a more pressing question—who would buy or sell a clean heat credit? You could list these things in the Regional Greenhouse Gas Initiative (RGGI) carbon market, but Efficiency Vermont already pulls funding from RGGI. You could tie them into a mandate to retire a certain number of credits per year, but Vermont’s Tier 3 Renewable Energy Credits already do that.
The idea was to model clean heat credits after the New England RECs market, but I’ve peered into that market—it’s not as liquid as you think. These RECs are tracked and transferred through a database managed by the New England Power Pool (NEPOOL), but that interface doesn’t touch your money or log price data. Instead, RECs are solicited, offered, negotiated, contracted, and invoiced through informal email exchanges.
The Business Model Just Doesn’t Pencil
Ultimately, the Clean Heat Standard cannot overcome the baseline hurdles that natural gas heating is cheap and heat pump installations are too expensive for most New Englanders. Even if a customer is weighed down by $3,000/year winter heating bills, that does not mean they have the capex or faith in their electric utility necessary to install spooky electric heaters in their homes. And the Clean Heat Standard would worsen their energy burden by 10-50 cents per gallon of fuel oil, so that people who could install a heat pump can get a larger incentive.
It would take a turnkey, fully-subsidized, zero-upfront-cost, just-sign-here installation program to convince (some) low- or moderate-income customers on heat pumps…if they use oil or propane heat. If the customer has gas heat, they can only be convinced to go electric by 1) an ideological commitment to carbon reduction or 2) being lied to by their state government because a heat pump would make their net heating bills go up.
This program only works by throwing money at the problem. That money can be pulled from all residents, through increases in energy bills, or through some residents, through specified taxes. And the math doesn’t improve in Massachusetts; the scale simply increases.
The Cost of Carbon is Not Infinity
The report concedes that at Vermont’s social cost of carbon of $230 per ton of CO2e, the cost of program administration is less than the benefits possible out of a Clean Heat Standard.5 But compared to World Bank estimates, that $230 price is 2-10 times “normal” carbon costs. Even if you subscribe to carbon cost, the benefits estimated by this Clean Heat Standard are a stretch. And if you include the costs paid by customers dumping tens of thousands of dollars each on heat pumps (instead of cars, kids, old debt, etc.), the cost-benefit of this program sinks underwater.
Modeled costs of carbon are typically generated through elaborate economic models that rely on squidgy assumptions and twenty-year forecasts. It’s eminently possible to juice the underlying numbers to generate whatever output an analyst likes. But to what end? When I listen to climate activists, from the polished presentations of Greta Thunberg and Clover Hogan to the histrionics of TikTok doomers, they tend to describe business-as-usual climate action as a trajectory toward apocalypse. And if your climate change projection reflects Mad Max or Gears of War, then perhaps you’ll seek out carbon reduction at any cost. Perhaps you’ll realize that market economies of the world will only listen to USD, so you’ll tell them that refusing to abate climate change will cost them…one trillion dollars.
But that’s just the annual GDP of Saudi Arabia, or half the annual GDP of Brazil, or 5% of the GDP of China. The initial skirmishes of the US-China trade war may have already cost the world one trillion dollars.
The cost of carbon—the cost of climate change, or nuclear war, or even apocalypse—is not infinity. Hiroshima was nuked only eighty years ago, but it looks pleasant on Google Street View. Kazakhstan was ravaged by both nuclear testing and the draining of the Aral Sea, and yet Astana gleams. California burns down on an annual basis, and yet some of you sickos move there. One must ask whether stopping the production of steel, of cement, of pharmaceutical products, of low-cost fuels underpinning transportation and logistics and electricity, is worth preserving the natural beauty of the old-growth forests that only cover 1,000 acres in Vermont.
I can’t tell you what the “right” cost of carbon is—that’s an ideological question, not an empirical one. But if you claim the cost of carbon is infinite, I will consider you delusional at best and a threat to modern civilization at worst.
This post and the information presented are intended for informational purposes only. The views expressed herein are the author’s alone and do not reflect those of their current or previous employers or any elected officials. The author makes no recommendations toward any electric utility, regulatory body, or other organization. While certain information contained herein has been obtained from sources believed to be reliable, the author has not independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author assumes no liability for this information and no obligation to update the information or analysis contained herein in the future.
“Take that, Big Oil!”
The last developments on that seem to be from the end of 2023, soooo…
This is not the case for most New England homes.
A 1.5x increase from 2025 to 2035 would have been a good swag.
If the program works as intended…