This commentary is by Myers Mermel, president of the Ethan Allen Institute with a career in finance and advanced degrees in history and theology. He lives in Manchester
The Clean Heat Standard is dead. That’s not to say that S.5 won’t become law, because it will. But the fatal flaws in the policy which will prevent its implementation became very clear this past week.
The primary flaws are excessive upfront cost and resulting noncompliance. It is good that the policy will eventually collapse. But until that time, it will prevent us from reaching critical climate targets and it will punish low- and middle-income Vermonters for the rest of this decade.
While cloaked in the rectitude of punishing polluters, the Clean Heat Standard is an immoral policy that shifts the full cost of the entire state’s climate compliance onto the less fortunate. It is classist. It creates further income inequality through a regressive surcharge and will cause human needs to go unmet.
We agree with the VT Renews BIPOC Council that it harms BIPOC people and upholds white supremacy. The moral underpinning of the Clean Heat Standard is not virtue. To further attempt the enactment and imposition of this policy from this point forward is no more than vanity.
After graduating from UVM, I left Vermont for 35 years to have a career in real estate finance and banking in Manhattan. Over my professional career, I supervised the renovation of over 60 million square feet of real estate, which is about four times the total inventory of our state.
While there are many real estate experts in Vermont, my breadth of experience should put the validity of my assessments among theirs. Last week, Secretary of Natural Resources Julie Moore made her own “really rough” assessments of the renovation costs of the policy, and she admitted she “was confident that it’s wrong,” that she could “easily be off by a factor of two.”
Our calculations are that she is indeed off by a factor of two, if not more, on her gross costs. We believe that gross renovation costs will be impacted by inflation, and the scope of heat pump placement in each typical home will be larger, including electric upgrades, and overall weatherization more expensive.
Further, we also believe that her deductions ranging from “free” state administration, a “free” default delivery agent, continued large federal subsidies, and fuel dealer cooperation to eliminate their own profits are not guaranteed or achievable. The Ethan Allen Institute plans to conduct further detailed analysis of the costs.
But the net result of our own “really rough” math using Moore’s model with our inputs is that fuel costs will not increase by 70 cents per gallon under the Clean Heat Standard; they will increase by over $3.50 to $4 per gallon. Some renovation cost data indicate the actual amount required to be passed through on a surcharge could increase fuel costs by more than $5 per gallon.
This excessive upfront cost will unravel the policy. The tipping point of the policy, in our estimate, is likely around $1 per gallon. At that price, it will be more cost-effective to purchase black-market fuel imported from other states. Vermonters will react just like it did to other bad policies, namely the Embargo Act of 1807 (War of 1812), Vermont Alcohol Ban of 1853, and later the 18th Amendment (Prohibition), all of which strained the economy and created widespread noncompliance.
Just as in the past, Vermonters will rampantly smuggle contraband into the state from any number of sellers out of state at much lower prices. Why pay $4 per gallon more when for just $1 per gallon you can get it delivered for a lot less? And since the state currently cannot stop fentanyl, it is unlikely it can stop fuel. The lesson for lawmakers to learn today is the same learned by the British and Yorkers in Vermont’s Revolutionary days: Never underestimate a farmer.
Once it is passed, there will be legal challenges. In our view, the policy violates the 14th Amendment due process and equal protection clauses because it makes a portion pay for the mistakes of the whole. It also violates the Fifth Amendment, because through its structure, it effectively takes the fuel dealer’s private property without compensation.
But legal challenges may fail. Yet the basic structure mandating fuel dealers to front billions to improve homes won’t work. Under the plan, the fuel dealers pass the improvement cost back to the consumer. But if the fuel dealers don’t have the sales at first to advance the money through credits, improvements won’t be made quickly, yet fuel prices will be high under the grand design. As prices stay high, consumers will move to cheaper wood heat or start smuggling.
As total gallons sold by Vermont dealers decrease, the $4-per-gallon surcharge will escalate, as the retrofit cost will be spread over a smaller group of fuel buyers. The downward spiral of the policy will pick up speed. Predictable outcomes will result.
Seniors will have to choose between heat and health, stress on families will build, domestic violence will increase, declines in education will happen, despair will bring more drug use, and there will be more strain on municipal services like police and fire. The policy will hurt the least among us and the vulnerable like BIPOC. Because the policy will rest on the backs of the poor, it is structurally racist.
While we believe the Clean Heat Standard is unworkable, the moral imperative of combating climate change will likely continue to be put ahead of the moral imperative of being compassionate to the less fortunate. Despite its classist and racist failings, the Clean Heat Standard will become law, and the state will achieve neither climate compliance nor moral justice. And a decade in which we could do both will be lost.