AS PASSED BY HOUSE AND SENATE S.5 2023 Page 1 of 43 1 S.5 2 An act relating to affordably meeting the mandated greenhouse gas 3 reductions for the thermal sector through efficiency, weatherization 4 measures, electrification, and decarbonization 5 It is hereby enacted by the General Assembly of the State of Vermont: 6 Sec. 1. SHORT TITLE 7 This act shall be known and may be cited as the “Affordable Heat Act.” 8 Sec. 2. FINDINGS 9 The General Assembly finds: 10 (1) All of the legislative findings made in 2020 Acts and Resolves 11 No. 153, Sec. 2, the Vermont Global Warming Solutions Act of 2020 12 (GWSA), remain true and are incorporated by reference here. 13 (2) Under the GWSA and 10 V.S.A. § 578, Vermont has a legal 14 obligation to reduce greenhouse gas emissions to specific levels by 2025, 2030, 15 and 2050. 16 (3) The Vermont Climate Council was established under the GWSA and 17 was tasked with, among other things, recommending necessary legislation to 18 reduce greenhouse gas emissions. The Initial Vermont Climate Action Plan 19 calls for the General Assembly to adopt legislation authorizing the Public 20 Utility Commission to administer the Clean Heat Standard consistent with the 21 recommendations of the Energy Action Network’s Clean Heat Standard 22 Working Group. VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 2 of 43 1 (4) As required by the GWSA, the Vermont Climate Council published 2 the Initial Vermont Climate Action Plan on December 1, 2021. As noted in 3 that plan, over one-third of Vermont’s greenhouse gas emissions in 2018 came 4 from the thermal sector. In that year, approximately 72 percent of Vermont’s 5 thermal energy use was fossil based, including 29 percent from the burning of 6 heating oil, 24 percent from fossil gas, and 19 percent from propane. 7 (5) To meet the greenhouse gas emission reductions required by the 8 GWSA, Vermont needs to transition away from its current carbon-intensive 9 building heating practices to lower-carbon alternatives. It also needs to do this 10 equitably, recognizing economic effects on energy users, especially energy- 11 burdened users; on the workforce currently providing these services; and on 12 the overall economy. 13 (6) Vermonters have an unprecedented opportunity to invest in eligible 14 clean heat measures with funding from new federal laws including the 15 Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act 16 of 2022. 17 Sec. 3. 30 V.S.A. chapter 94 is added to read: 18 CHAPTER 94. CLEAN HEAT STANDARD 19 § 8121. INTENT 20 Pursuant to 2 V.S.A. § 205(a), it is the intent of the General Assembly that 21 the Clean Heat Standard be designed and implemented in a manner that VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 3 of 43 1 achieves Vermont’s thermal sector greenhouse gas emissions reductions 2 necessary to meet the requirements of 10 V.S.A. § 578(a)(2) and (3), 3 minimizes costs to customers, protects public health, and recognizes that 4 affordable heating is essential for Vermonters. It shall enhance social equity 5 by prioritizing customers with low income and moderate income and those 6 households with the highest energy burdens. The Clean Heat Standard shall, to 7 the greatest extent possible, maximize the use of available federal funds to 8 deliver clean heat measures. 9 § 8122. CLEAN HEAT STANDARD 10 (a) The Clean Heat Standard is established. Under this program, obligated 11 parties shall reduce greenhouse gas emissions attributable to the Vermont 12 thermal sector by retiring required amounts of clean heat credits to meet the 13 thermal sector portion of the greenhouse gas emission reduction obligations of 14 the Global Warming Solutions Act. 15 (b) By rule or order, the Commission shall establish or adopt a system of 16 tradeable clean heat credits earned from the delivery of clean heat measures 17 that reduce greenhouse gas emissions. 18 (c) An obligated party shall obtain the required amount of clean heat credits 19 through delivery of eligible clean heat measures by a default delivery agent, 20 unless the obligated party receives prior approval from the Commission to use 21 another method as described in section 8125 of this title. VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 4 of 43 1 (d) The Commission shall adopt rules and may issue orders to implement 2 and enforce the Clean Heat Standard program. 3 § 8123. DEFINITIONS 4 As used in this chapter: 5 (1) “Carbon intensity value” means the amount of lifecycle greenhouse 6 gas emissions per unit of energy of fuel expressed in grams of carbon dioxide 7 equivalent per megajoule (gCO2e/MJ). 8 (2) “Clean heat credit” means a tradeable, nontangible commodity that 9 represents the amount of greenhouse gas reduction attributable to a clean heat 10 measure. The Commission shall establish a system of management for clean 11 heat credits pursuant to this chapter. 12 (3) “Clean heat measure” means fuel delivered and technologies 13 installed to end-use customers in Vermont that reduce greenhouse gas 14 emissions from the thermal sector. Clean heat measures shall not include 15 switching from one fossil fuel use to another fossil fuel use. The Commission 16 may adopt a list of acceptable actions that qualify as clean heat measures. 17 (4) “Commission” means the Public Utility Commission. 18 (5) “Customer with low income” means a customer with a household 19 income of up to 60 percent of the area or statewide median income, whichever 20 is greater, as published annually by the U.S. Department of Housing and Urban VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 5 of 43 1 Development or a customer who qualifies for a government-sponsored, low- 2 income energy subsidy. 3 (6) “Customer with moderate income” means a customer with a 4 household income between 60 percent and 120 percent of the area or statewide 5 median income, whichever is greater, as published annually by the U.S. 6 Department of Housing and Urban Development. 7 (7) “Default delivery agent” means an entity designated by the 8 Commission to provide services that generate clean heat measures. 9 (8) “Energy burden” means the annual spending on thermal energy as a 10 percentage of household income. 11 (9) “Entity” means any individual, trustee, agency, partnership, 12 association, corporation, company, municipality, political subdivision, or any 13 other form of organization. 14 (10) “Fuel pathway” means a detailed description of all stages of fuel 15 production and use for any particular fuel, including feedstock generation or 16 extraction, production, transportation, distribution, and combustion of the fuel 17 by the consumer. The fuel pathway is used in the calculation of the carbon 18 intensity value and lifecycle greenhouse gas emissions of each fuel. 19 (11) “Heating fuel” means fossil-based heating fuel, including oil, 20 propane, natural gas, coal, and kerosene. 21 (12) “Obligated party” means: VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 6 of 43 1 (A) A regulated natural gas utility serving customers in Vermont. 2 (B) For other heating fuels, the entity that imports heating fuel for 3 ultimate consumption within the State, or the entity that produces, refines, 4 manufactures, or compounds heating fuel within the State for ultimate 5 consumption within the State. For the purpose of this section, the entity that 6 imports heating fuel is the entity that has ownership title to the heating fuel at 7 the time it is brought into Vermont. 8 (13) “Thermal sector” has the same meaning as the “Residential, 9 Commercial and Industrial Fuel Use” sector as used in the Vermont 10 Greenhouse Gas Emissions Inventory and Forecast and does not include 11 nonroad diesel or any other transportation or other fuel use categorized 12 elsewhere in the Vermont Greenhouse Gas Emissions Inventory and Forecast. 13 § 8124. CLEAN HEAT STANDARD COMPLIANCE 14 (a) Required amounts. 15 (1) The Commission shall establish the number of clean heat credits that 16 each obligated party is required to retire each calendar year. The size of the 17 annual requirement shall be set at a pace sufficient for Vermont’s thermal 18 sector to achieve lifecycle carbon dioxide equivalent (CO2e) emission 19 reductions consistent with the requirements of 10 V.S.A. § 578(a)(2) and (3) 20 expressed as lifecycle greenhouse gas emissions pursuant to subsection 21 8127(g) of this title. VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 7 of 43 1 (2) Annual requirements shall be expressed as a percent of each 2 obligated party’s contribution to the thermal sector’s lifecycle CO2e emissions 3 in the previous year. The annual percentage reduction shall be the same for all 4 obligated parties. To ensure understanding among obligated parties, the 5 Commission shall publicly provide a description of the annual requirements in 6 plain terms. 7 (3) To support the ability of the obligated parties to plan for the future, 8 the Commission shall establish and update annual clean heat credit 9 requirements for the next 10 years. Every three years, the Commission shall 10 extend the requirements three years; shall assess emission reductions actually 11 achieved in the thermal sector; and, if necessary, revise the pace of clean heat 12 credit requirements for future years to ensure that the thermal sector portion of 13 the emission reduction requirements of 10 V.S.A. § 578(a)(2) and (3) for 2030 14 and 2050 will be achieved. 15 (4) The Commission may temporarily, for a period not to exceed 36 16 months, adjust the annual requirements for good cause after notice and 17 opportunity for public process. Good cause may include a shortage of clean 18 heat credits, market conditions as identified by the Department’s potential 19 study conducted pursuant to section 8125 of this title, or undue adverse 20 financial impacts on particular customers or demographic segments. The 21 Commission shall ensure that any downward adjustment has the minimum VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 8 of 43 1 impact possible on the State’s ability to comply with the thermal sector portion 2 of the requirements of 10 V.S.A. § 578(a)(2) and (3). 3 (b) Annual registration. 4 (1) Each entity that sells heating fuel into or in Vermont shall register 5 annually with the Commission by an annual deadline established by the 6 Commission. The first registration deadline is January 31, 2024, and the 7 annual deadline shall remain January 31 of each year unless a different 8 deadline is established by the Commission. The form and information required 9 in the registration shall be determined by the Commission and shall include all 10 data necessary to establish annual requirements under this chapter. The 11 Commission shall use the information provided in the registration to determine 12 whether the entity shall be considered an obligated party and the amount of its 13 annual requirement. 14 (2) At a minimum, the Commission shall require registration 15 information to include legal name; doing business as name, if applicable; 16 municipality; state; types of heating fuel sold; and the exact amount of gallons 17 of each type of heating fuels sold into or in the State for final sale or 18 consumption in the State in the calendar year immediately preceding the 19 calendar year in which the entity is registering with the Commission, separated 20 by type, that was purchased by the submitting entity and the name and location 21 of the entity from which it was purchased. VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 9 of 43 1 (3) Each year, and not later than 30 days following the annual 2 registration deadline established by the Commission, the Commission shall 3 share complete registration information of obligated parties with the Agency of 4 Natural Resources and the Department of Public Service for purposes of 5 updating the Vermont Greenhouse Gas Emissions Inventory and Forecast and 6 meeting the requirements of 10 V.S.A. § 591(b)(3). 7 (4) The Commission shall maintain, and update annually, a list of 8 registered entities on its website that contains the required registration 9 information. 10 (5) For any entity not registered on or before January 31, 2024, the first 11 registration form shall be due 30 days after the first sale of heating fuel to a 12 location in Vermont. 13 (6) Clean heat requirements shall transfer to entities that acquire an 14 obligated party. 15 (7) Entities that cease to operate shall retain their clean heat requirement 16 for their final year of operation. 17 (c) Early action credits. Beginning on January 1, 2023, clean heat 18 measures that are installed and provide emission reductions are creditable. 19 Upon the establishment of the clean heat credit system, entities may register 20 credits for actions taken starting in 2023. 21 (d) Equitable distribution of clean heat measures. VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 10 of 43 1 (1) The Clean Heat Standard shall be designed and implemented to 2 enhance social equity by prioritizing customers with low income, moderate 3 income, those households with the highest energy burdens, residents of 4 manufactured homes, and renter households with tenant-paid energy bills. The 5 design shall ensure all customers have an equitable opportunity to participate 6 in, and benefit from, clean heat measures regardless of heating fuel used, 7 income level, geographic location, residential building type, or homeownership 8 status. 9 (2) Of their annual requirement, each obligated party shall retire at least 10 16 percent from customers with low income and an additional 16 percent from 11 customers with low or moderate income. For each of these groups, at least 12 one-half of these credits shall be from installed clean heat measures that 13 require capital investments in homes, have measure lives of 10 years or more, 14 and are estimated by the Technical Advisory Group to lower annual energy 15 bills. Examples shall include weatherization improvements and installation of 16 heat pumps, heat pump water heaters, and advanced wood heating systems. 17 The Commission may identify additional measures that qualify as installed 18 measures. 19 (3) The Commission shall, to the extent reasonably possible, frontload 20 the credit requirements for customers with low income and moderate income VT LEG #369948 v.1 AS PASSED BY HOUSE AND SENATE S.5 2023 Page 11 of 43 1 so that the greatest proportion of clean heat measures reach Vermonters with 2 low income and moderate income in the earlier years. 3 (4) With consideration to how to best serve customers with low income 4 and moderate income, the Commission shall have authority to change the 5 percentages established in subdivision (2) of this subsection for good cause 6 after notice and opportunity for public process. Good cause may include a 7 shortage of clean heat credits or undue adverse financial impacts on particular 8 customers or demographic segments. 9 (5) In determining whether to exceed the minimum percentages of clean 10 heat measures that must be delivered to customers with low income and 11 moderate income, the Commission shall take into account participation in other 12 government-sponsored low-income and moderate-income weatherization 13 programs. Participation in other government-sponsored low-income and 14 moderate-income weatherization programs shall not limit the ability of those 15 households to participate in programs under this chapter. 16 (6) A clean heat measure delivered to a customer qualifying for a 17 government-sponsored, low-income energy subsidy shall qualify for clean heat 18 credits required by subdivision (2) of this subsection.