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Cobbling together existing funding and programs isn’t going to cut it, state utility regulators warn in a new report.
Vermont won’t be able to make a serious dent in its transportation and heating emissions unless state leaders come up with significant new revenue sources.
That’s the conclusion of a report released this month by state utility regulators, whose recommendations included fuel taxes, heating bill charges, and participation in the regional Transportation and Climate Initiative—something the governor has resisted so far even as neighboring states join.
The report was the second of two ordered by the state legislature seeking advice on the role energy efficiency could play in meeting the state’s climate goals, which include lowering emissions at least 40% from 1990 levels by 2030 and 80% by 2050.
While Vermont has made progress transitioning to cleaner electricity, relatively little has been done on transportation and heating. In 2016, transportation accounted for about 45% of the state’s emissions and thermal energy was responsible for nearly 28%, according to the state Department of Environmental Conservation.
“Without a stable, sizable stream of public funding in those two sectors, Vermont will not meet its carbon-reduction commitments,” the Public Utility Commission’s report says. Those commitments recently became legal requirements.
It’s not popular to recommend raising taxes or adding efficiency charges, said Tom Knauer, the commission’s policy director. There will undoubtedly be political considerations, he said, but “that’s not the commission’s job. The commission’s job is to take an objective view of the problem and give its objective analysis to lawmakers.”
Lawmakers and Gov. Phil Scott have clashed on energy policy previously, and the administration has opposed decisions that could raise costs for consumers.
Vermont won’t join the Transportation and Climate Initiative (TCI) at this point, making it one of eight states that are holding back but continuing to participate in discussions. Among the top concerns since the program was first proposed is that it could end up raising gasoline costs for customers. The increase was originally estimated to be between 5 and 17 cents per gallon.
The Commission’s report notes that a 5- to 20-cent increase is within the range of normal fluctuations for gasoline. Additionally, it says, as other states join — particularly big ones like Massachusetts — regional gas prices could rise anyway. That would mean Vermont risks paying for the program without reaping the benefits.
The report notes that TCI could bring in as much as $40 million annually, and a 2-cent fuel tax increase could bring in about $9 million annually. Funding on the transportation side could be used for things like public transit upgrades, electric vehicle charging infrastructure and bike lanes, while the extra funds from the fuel tax could help the state weatherize low-income residents’ homes. An additional efficiency charge on heating fuels could be used for programs that benefit all customers.
“At a high level, I think there’s a lot of good things in the report,” said TJ Poor, director of the efficiency and energy services division at the Vermont Department of Public Service, part of the state’s executive branch. “The commission did a really good job of summarizing the issues,” he said.
The state has invested in electric vehicle incentives and expanding public charging infrastructure, Poor said, and officials will continue to try to lower barriers to electrification. He said the state has spent $18-20 million on weatherization each year and that simply scaling up public investment this way “is not going to truly transform the building energy market and allow us to meet weatherization goals or greenhouse gas targets.
“We need to do a better job of leveraging that significant investment to facilitate more private capital injected into the market,” he said.
The Department of Public Service agrees with the report’s prioritization of low-income customers for opportunities like weatherization, he said. It also agrees with the report’s advice that it’s best to obtain funding for initiatives from the fuels those initiatives target. In other words, don’t charge electricity customers more for programs to curb the use of transportation or heating fuels.
But rather than raising funds through a tax increase and efficiency charge, Poor said the department supports efforts to leverage private capital. This could include options like loan loss reserves or revolving loan funds that reduce risk for contractors and creditors so upfront costs are less for consumers.
As an example, he said, the state could set up an insurance pool for contractors. An efficiency contractor could pay into it, then either guarantee savings or make the upfront project investment for their customer, who would pay back the cost through energy savings. If the customer doesn’t save money to pay back the original cost, then they or the contractor would still have the insurance to guarantee they don’t lose on the investment.
Something like that might work on a small scale, perhaps for customers looking to switch out equipment or for low-income customers or renters, said Olivia Campbell Andersen, executive director of Renewable Energy Vermont. But, she said, “the type of capital that is needed to really transform the whole system is not really something that can be… folks might take out an equity loan or go to their local bank.”
“Far more is definitely going to be needed,” she said. She agreed with the report’s revenue-focused recommendations. Joining TCI and leveling a 2-cent increase on the fuel tax would be easy short-term steps that bring in significant revenue to cut heating emissions and move toward transportation electrification, she said.
The legislature originally asked the Commission to assess the need for a new “all-fuels efficiency” program or entity to oversee the new initiatives. The Commission in the report recommends against an all-fuels program, saying the state would better meet its commitments by building on existing programs.
“Coordination is already happening among electric companies, efficiency utilities, car dealers, weatherization agencies, contractors, and retailers across the state,” it says. The state’s many efficiency-related programs “all require specialized knowledge and unique objectives and as such may not fit well under the umbrella of one all-fuels entity or program.”
Campbell Andersen said that while she appreciates the state has a diverse array of programs, an all-encompassing one could more directly approach the recommendations made in the report and do so across the state.
“What’s also important… is making sure that there’s statewide equity,” she said. For example, while Green Mountain Power and Burlington Electric Department have certain electric vehicle rebates for their customers, customers in other service territories don’t have the same opportunity. “I think relying exclusively on distribution utilities to implement these programs unintentionally creates some of these inequities,” Campbell Andersen said.
The General Assembly will now consider the report’s recommendations. While this could set up disagreements between the legislative and executive branches, Campbell Andersen said she’s “confident that the legislature can overcome” objections from the governor’s office. “At the end of the day, it’s what Vermonters want and it’s what is legally mandated.”
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