As of the 2020 Residential Energy Consumption Survey (RECS), 66 percent of American households primarily relied on a fossil fuel to heat their home. Over half of American households heat their homes with piped gas, while propane and fuel oil users sat at about four percent each. Some climate-minded states with large shares of households reliant on fossil fuels for space heating have pursued a relatively new strategy to encourage building electrification: Clean Heat Standards (CHSs).
While CHSs come in many forms, they generally focus on decreasing emissions from heating via an economy-wide emissions reduction goal. That reduction goal acts as a cap on the thermal sector’s total allowed emissions. Individual heating fuel providers — gas utilities as well as fuel oil and propane distributors — earn credits by implementing building decarbonization activities, such as incentivizing customer efficiency upgrades or installing electric heating systems; providers are also incentivized to adopt low-carbon heating measures as the sector emissions cap decreases over time. Tradeable credits have value that heating fuel providers may trade amongst themselves and that some states leverage to generate revenue.
This policy approach to decarbonizing heating has gained traction as it leverages a bottom-up strategy with clear a clear goal and trajectory. Utilities and other heating providers can foresee what the next cap will be and submit long-range clean heat plans to state public utility commissions (PUCs). In revenue generating policy models, states are also able to direct revenue to fund further building electrification and energy equity programs.
Currently, only two states have active CHS policies, Colorado and Vermont. Colorado’s CHS is more accurately characterized as a clean heat target. It was approved in 2021 and required gas utilities to submit to PUCs clean heat plans to reduce their greenhouse gas emissions from distribution and end-use combustion by four percent from a 2015 baseline by 2025 and 22 percent by 2030. Colorado’s primary residential space heating fuel mix is predominated by piped gas at 76 percent as of the 2020 RECS. The program’s design focuses on reducing emissions from the main fossil fuel used for heating, while setting reasonable annual costs for utilities at 2.5 percent of annual gas bills for each utility’s full-service customers. Eligible activities to decrease emissions include quantifiable leak repairs, reducing customer combustion, and (for up to five percent of the required reduction) employing recovered methane.
Vermont’s CHS framework was legislatively approved in 2023 as the Affordable Heat Act and will be up for approval by the Vermont legislature in 2025. Its scope is wider than Colorado’s. It relies on a clean heat credit system, where fossil fuel customers earn credits for installing more efficient or electric heating systems. Heating fuel providers then purchase these credits from customers, resulting in the customer being compensated and the provider inching closer to the annual credit target. Heat providers accrue credits — or pursue independent decarbonization activities — to offset the “lifecycle carbon emissions” they brought online the previous year. In Vermont, gas utilities as well as providers of fuel oil, propane, and wood are obligated to participate in the program.
Annually, 16 percent of credits claimed by heat providers must be from low-income customers, and another 16 percent must be from low- to moderate-income customers. This policy displays a clear prioritization of equitable distribution of clean heat measures written into the bill. Minimum credits per year are determined by the Vermont PUC. These credits are tradeable between heat providers and represent units of carbon dioxide equivalent.
Vermont’s space heating fuel mix is even more fossil fuel dense than Colorado’s — as of the 2020 RECS, 46 percent of the state primarily relied on fuel oil, 21 percent on piped gas, 13 percent on propane, and 12 percent on wood. Governor Phil Scott of Vermont has recently stated that implementation of the policy will be too costly and too complex to roll out, especially given its estimated $9.6 billion price tag. Proponents of the policy, on the other hand, point to its estimated benefits of $12 billion and its long-term climate benefits. Governor Scott attempted to veto the Affordable Heat Act last year; it was overridden by the Vermont legislature.
In addition to Colorado and Vermont, Maryland and Massachusetts are in the process of designing CHSs. Also, in this past legislative cycle, three states proposed CHSs. In Illinois and Rhode Island, these bills have met roadblocks; New Jersey’s credit trading CHS is still working its way through the legislature. CHSs are an emerging type of utility decarbonization policy that functions differently than the tax credits and rebate programs set up in the Inflation Reduction Act. How these emerging frameworks are established and managed will set a tone for the rest of the nation, displaying the feasibility and margins for successful decarbonization of heat providers.
