Downtown Boston. Photo: Emmanuel Huybrechts via Wikimedia Commons
This post was co-authored by Chris Neme, Co-Founder and Principal of Energy Futures Group
The concept of a Clean Heat Standard (CHS) is gaining traction in multiple jurisdictions as a way to drive larger, faster reductions in the thermal sector’s greenhouse gas emissions. At least ten U.S. states are considering the policy, with Colorado and Vermont having enacted legislation and Massachusetts and Maryland considering a CHS regulation.
A new report commissioned by Environmental Defense Fund and prepared by Energy Futures Group provides an overview of key design elements that can be used for a CHS, as well as a look at how four states are approaching these elements in their own CHS development process.
While CHS deployment is still in relatively early stages, there are already opportunities to learn from the varying approaches different jurisdictions are taking in structuring and implementing the standards, and to compare various policy approaches and program design details.
What is a Clean Heat Standard
A CHS is a performance standard that requires thermal fossil fuel suppliers to deliver a steadily increasing percentage of low-emission heating services to customers. That means that there is at least some level of flexibility in terms of which mix of measures is used to meet emission reduction goals.
Compliance with a CHS is demonstrated through a “bottom up” tallying of estimated emission reductions from individual measures such as heat pump installations, weatherization jobs, and sales of different types of low-emission fuels.
The importance of reducing emissions from the thermal sector
Existing policies to reduce emissions associated with heating buildings and completing various manufacturing and industrial processes are important, but more is needed to drive emissions down at the pace and scale required to address climate policy goals.
Climate policies in the U.S. have generally been more heavily focused on the electricity sector — and, increasingly in recent years, the transportation sector. As progress is made in reducing emissions in these two sectors, policy makers are beginning to turn to the challenge of reducing emissions from the third largest source of emissions, the thermal sector.
Ideal CHS design elements
Our new report identifies nine key design elements that contribute to an effective CHS. These include the standard’s scope, size, who is obligated to participate, examples of activities that could be covered by credits, how credit values should be set, how they can be traded, how to build in crucial equity provisions, and how to measure and verify compliance with market rules.
Going into more detail, the report identifies how each of these key design elements should ideally work. For example:
- A CHS should apply to all thermal sectors, including residential, commercial and industrial sectors; it should apply to all conventional fossil fuels, including fossil gas, fuel oil, propane and other delivered fuels.
- A CHS should be designed for equity, including a requirement that a minimum percentage of credits must come from long-lived clean heat measures provided to low and middle-income customers, who should also be involved in the CHS design and implementation.
- Mechanisms for generating, acquiring, and selling credits should be clearly defined and controlled by a Technical Advisory Group that updates rules periodically but “locks” them between updates.
Our report provides a status review of four states — Colorado, Vermont, Massachusetts and Maryland — that are all in dynamic, early stages of considering, passing and implementing CHS programs. The descriptions of these programs’ evolution and status provides readers with a rare chance to see how various contexts and forces have come to bear on these four “early adopter” states’ programs.
Benefits and Challenges of a CHS
A CHS provides a consistent and clear signal to a range of market actors – be they propane fuel deliverers, heating equipment installers, or regulated monopolies providing piped gas – that there is a monetary value to reducing emissions in the thermal sector. A well-designed CHS can maximize flexibility and choice for all market actors. A CHS also allows for market players other than gas utilities and other obligated fossil fuel providers to influence the mix of emission reducing measures that are pursued, and for potentially greater levels of innovation in the market. Ideally, CHS programs will work with other, related policies to create incentives to create a mix of opportunities to reduce emissions at scale.
As for challenges, a CHS can be complex, relying on that same range of market actors to take measures to generate and sell clean heat credits. To create an effective standard, CHS administrators need to establish credit values for different measures as well as clear market rules; review or update those values and rules periodically; and track actual emission reductions.
Conclusion
Clean Heat Standards are an important tool to reduce emissions from the thermal sector, the third largest source of climate pollution in the U.S.
While even the most advanced existing CHS are still in relatively nascent stages, our new report provides a wealth of information that both these and other states can use to help decarbonize the thermal sector at this critical time.