by Myers Mermel

Implementation of the Affordable Heat Act (“AHA” or S.5) requires significant upfront investment across the households of 60% of all Vermonters, those who currently depend on heating fuel to warm their homes. This upfront cost will likely be over $5 billion dollars- more than twice the $2 billion dollars estimated by both Secretary Julie Moore of the Agency of Natural Resources and the Vermont Climate Council, even after $380 million in state and federal funding is included. 

This $5 billion cost is intended to provide weatherization, heat pumps, and heat pump water heaters, and will mostly be borne by low and moderate income Vermonters, those who primarily use heating fuel. Secretary Moore of the Agency of Natural Resources estimated these repairs had an average per home cost of $13,793, and we estimated the repairs had an average per home cost of $37,462. If you speak to local contractors you may know about the scope of repairs for an average home, we believe your numbers will resemble our estimates. These differences in cost across 145,000 homes translate into the difference between a program estimated at $2 billion by Secretary Moore and our estimate of $5 billion. The Affordable Heat Act will be the largest and most expensive social program ever paid for by Vermonters.

On February 16, I presented testimony, “AHA: Between Scylla and Charybdis” regarding the economics and morality of the Affordable Heat Act before the Senate Committee on Natural Resources and Energy. Despite my testimony and that of other concerned Vermonters, the bill was passed out of the Committee on February 17, 2023, with a unanimous 5-0 vote moving it forward.

The changeovers needed to transition homes from fossil fuels to electric are intended to take place in the 2026-2030 timeframe. The move away from fossil fuels will reduce carbon emissions in an effort to meet climate goals stipulated under the Global Warming Solutions Act. Of concern, the bill does not just allow voluntary migration over time; instead, it contains a reoccurring monetary penalty for non-compliance.  In order to force low and moderate income people to pay for their own energy improvements, the bill passes through a surcharge to repay the fuel dealers who are supposed to front the money. Basically, the money raised from the surcharges circles back to fund the improvements. Secretary Moore’s $2 billion cost calculation, which she translated to a seventy cents per gallon price increase on heating fuel, becomes an increase over $4.00 per gallon when the full costs of weatherization and heat pumps are correctly included. 

As part of my testimony, I took issue with the $6.4 billion NPV claimed as savings under the Climate Action Plan made by the Vermont Climate Council within its Cadmus Pathways Report. The Cadmus Pathways Report employed a financial model within its larger LEAP (Long-range Energy Alternatives Planning) model to predict the social cost of carbon. From my over 35 years of experience in finance and banking, it was clear to me that the social cost of carbon model was incorrect on its face because it used an inappropriately low discount rate which exaggerated time zero savings by billions. 

In addition, the overall savings model made a glaring omission. In the model, total savings were calculated over a 35-year time horizon. Given that the useful life of heat pumps is 10-15 years, the model should have provided for the complete replacement of heat pumps in year 15. However, it is clear from the graphs that the Climate Action Plan model does not include the $4 billion cost of replacing all heat pumps in year 15. So, once the additional $3 billion of upfront transition costs are included, the $4 billion of heat pump replacements are added, and the discount rate is adjusted upward, no savings from the program exist. The Affordable Heat Act will not produce any savings for Vermonters – ever.  

There may be progress towards climate goals, but the Affordable Heat Act program will not produce any economic savings for Vermonters. The actual economic model used by Cadmus has not been made public by the Vermont Climate Council, and Ethan Allen Institute has asked repeatedly for its public release. A review of the model by the Vermont Legislative Joint Fiscal Office could correct the continued misstatement by supporters of the Affordable Heat Act that the Act offers any long-term economic savings. It is our understanding, however, that the Joint Fiscal Office has inexplicably refused the request of legislators to review the costs of the Affordable Heat Act. 

In looking at the potential consequences of the Affordable Heat Act, we see its legislative supporters have put the well-being of climate above the well-being of low and moderate income Vermonters. The Affordable Heat Act will increase income inequality and punish low and moderate income people, particularly our BIPOC population. It is an immoral, regressive surcharge on the most vulnerable among us, with no long-term economic benefit for those low and moderate income Vermonters who will be forced to pay for their own climate home improvements through vastly inflated fuel costs. There is little government help, despite emphatic assertions to the contrary, as federal and state subsidies only account for 7% of upfront costs. 

Vermonters’ inability to pay for or borrow the huge upfront costs to pay for weatherization and heat pumps, while being forced to pay the inflated fuel surcharges, will ultimately lead low and moderate income Vermonters into a “Carbon Doom Spiral,” when legislators will inevitably keep increasing the annual surcharge penalties to force faster compliance with climate goals that cannot reasonably be reached under current Global Warming Solution Act deadlines. 

While we do not disagree with the aim of carbon emission reduction within the Affordable Heat Act program, the current structure of the policy lacks social equity and any economic benefits. Why were no alternative policy structures proposed by the Vermont Climate Council after its lengthy period of study?                          

Myers Mermel is President of the Ethan Allen institute (www.ethanallen.org)