Massachusetts Clean Heat Standard – No More Business as Usual for the Heating Sectors

Massachusetts Department of Environmental Protection (MassDEP) is gearing up for a massive regulatory effort aimed at reducing greenhouse gas emissions from the residential heating sector and the commercial and industrial heating sector. The Global Warming Solutions Act requires the Secretary of the Executive Office of Energy and Environmental Affairs to establish emissions limits for the sectors. The Clean Energy and Climate Plan for 2025/2030 introduced the “clean heat standard” (CHS) as a regulatory option for meeting the emissions limit for what it termed the “thermal sector.” Last year, the Commission on Clean Heat endorsed CHS as “a powerful tool for creating a new market for clean heating solutions by incentivizing obligated parties to deliver cleaner heating technology, electrify our building stock, increase building efficiency, and move away from fossil fuels.” After circulating a CHS discussion draft this spring, MassDEP just published over 50 comments spanning nearly 300 pages. While CHS would create a new market aimed at incentivizing the desired behavior, some proposals pass judgment on current efforts by this sector and disregard national governance trends to reduce greenhouse gases. CHS also appears aimed at ultimately ending the fossil fuel supply business – one commenter called it the “heat pump standard.” Consumer choices would also be limited, and reporting requirements will involve accounting for what happens inside homes and buildings.

MassDEP’s Stakeholder Discussion Document says the CHS “concept builds on the many successful energy and environmental ‘standards’ that use marketable credits to support and document the use of clean energy technologies,” citing MassDEP’s Clean Energy Standard, California’s Low Carbon Fuel Standard, and the federal Renewable Fuel Standard. Yet CHS would diverge from these precedents in important ways. California’s LCFS, as well as Oregon’s Clean Fuels Program, are performance-based and avoid choosing technologies, which encourages innovation and promotes competition for price. Other states and the U.S. EPA recognize crop-based biofuels as contributing to clean energy. MassDEP, however, would allow CHS market credits to be generated for bioenergy from “waste feedstocks” if they do not adversely affect local air quality, but “current-generation crop-based biofuels” would be ineligible. Massachusetts fuel sellers are already selling soy-based biofuel and other low-carbon biofuels. The U.S. EPA’s federal Renewable Fuel Standard requires a 50% lifecycle GHG reduction based on a 2005 baseline. Taking proven biofuels off the table will reduce biofuel sales and harm current progress. The proposal to assign carbon intensity values to credits using a unique Massachusetts-based approach also drew criticism from the industry, which prefers the “widely accepted and sophisticated” GREET Model developed by Argonne National Laboratory.

Federal law may limit states’ authority to force energy choices. In April, a three-judge panel of the 9^th Circuit Court of Appeals found that the federal Energy Policy and Conservation Act, 42 U.S.C. sec 6297(c), preempted a City of Berkeley ordinance prohibiting natural gas piping installation in newly constructed buildings. The decision in California Restaurant Association v. Berkeley, from which Berkeley has requested a rehearing by the full court, states:

“Put simply, by enacting EPCA, Congress ensured that States and localities could not prevent consumers from using covered products in their homes, kitchens, and businesses.”

While the 9^th Circuit is not controlling law in Massachusetts, similar legal arguments could be made in the 1^st Circuit. The Berkeley case focused on natural gas delivered via pipelines and applied to buildings having physical access to existing gas infrastructure. The decision did not touch on delivered fuels, but EPCA broadly defines “energy” as “electricity” or “fossil fuels.” If a consumer’s right to use energy is protected by federal law, can they be forced to stop using fossil fuel-powered products? Such questions will no doubt be raised in challenges to CHS.

A fundamental assumption made in establishing this new standard is well-stated in a footnote to the Commission’s report: “building sector sub limits do not include accounting for any emissions due to electricity generation precipitated by the displacement of fossil fuel heating by electricity, further underscoring the importance of clean energy generation and transmission and distribution system improvements to the Commonwealth’s overall decarbonization goals.” In other words, when a fossil fuel customer switches to electric power from ISO New England, the customer is simply replacing oil and gas with whatever fuel resource the grid uses to meet customer demand – presently, that is more than 50% natural gas. (The current Clean Energy Standard plan requires electricity sales to be 80% renewable by 2050.) CHS would create a small market inside of a much larger one, and the small market participants would be playing by different – and unfavorable – rules. A more equitable scheme would adjust the targets for shifting fossil fuel customers to electric based on the electric grid’s decarbonization progress.

A major issue will be tracking compliance. The Clean Energy and Climate Plan for 2025/2030 says the state has 2.7 million housing units, of which half use pipeline gas for heating and a third use delivered fuel. So data are needed for slightly more than two million households, not to mention commercial and industrial buildings. How will “weatherization” – efforts made by individual home and building owners to insulate, which could be used to generate CHS credits – be tracked or audited? What about fuel users who install electric heat pumps but keep their fossil fuel equipment as backup for the coldest days? Will MassDEP or a third party audit homeowners and businesses? Will fuel suppliers need to audit their customers to determine how they use the fuel? To demonstrate that fuel sales are declining and that 3% of their customers are converting to electric heat annually, suppliers would need to report quantities and types of fuel purchased by each and every customer. CHS will “include and protect” low- and moderate-income customers, who would need to be reported separately. Reporting of these data would make public contractual relationships between fuel suppliers and their customers—which suppliers may view as confidential business information and customers may prefer to remain private.

Though preemption questions remain, states are making their own choices about whether or how to meet climate-related challenges. Perhaps not surprisingly, “Live Free or Die” New Hampshire’s approach benefits consumers and energy service providers. In August 2021, Governor Sununu signed a bill amending the State Building Code and local land use law to prohibit the adoption of any code or practice that “prohibits or restricts a person or entity from installing a safe and commercially available heating or other energy system of their choice” or to engage the services of an energy provider “to install, connect, or resupply” such energy system. Such free-market ideas are given little weight in Massachusetts, but the Commonwealth can better serve its businesses and residents by making CHS more equitable.

MassDEP seeks more stakeholder input “to inform the development of a proposed CHS regulation and related heating fuel supplier reporting requirements.” A draft regulation is reportedly expected by the end of this summer. The first CHS Virtual Community Meetings will be held via Zoom on Tuesday, June 20, at 10 a.m. and 6 p.m. Links to register are available here.