McClaughry: Watch out for a heating oil crunch

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McClaughry: Watch out for a heating oil crunch

Sun, 06/26/2022 - 5:33am -- tim

by John McClaughry Governor Phil Scott’s veto of the Vermont Climate Council’s urgently desired tax on heating oil for homes, businesses, churches, schools and government buildings stopped that plan dead in its tracks. That’s the good news.

The bad news is that the governor and the Democratic leadership will try to find common ground to enact the vetoed Clean Heat Standard in 2023, to be put into effect in 2024.

But right now Vermonters face a pressing problem: steadily rising gasoline, diesel and heating fuel prices.

Sixty percent of Vermont’s homes depend on oil heat. Over the past eight months heating oil prices, like gasoline and diesel prices at the pump, have marched steadily upward. At the beginning of last year’s heating season (10/4/21), the average retail price was $3.002/gallon.  At the end of the season (3/28/22) it had risen to $5.052/gal. 

Many variable factors will determine the heating oil price next January. The war in Ukraine is causing a massive and unpredictable restructuring of global petroleum supply chains. Europe is bidding up fuel prices to replace Russian oil and gas imports. 

The New England power grid may need to commandeer heating oil to power the grid if natural gas supplies aren’t enough to meet New England demand. A key unknown is the depth and duration of the next northern hemisphere winter.

Then there’s the refining problem. Jim Geraghty of National Review reports that “we’re getting back to pre-pandemic  levels of demand, while our refineries are pumping out about a million fewer gallons of fuel per day than they did before the pandemic.” Six U.S. refineries have been shut down in recent years, a seventh is in the process, and only one new refinery has been built since 1977.

Geraghty observes that “successive administrations and the cultural zeitgeist made it clear to the oil industry that their product did not have a future – and so the oil companies reduced their investments at all stages of seeking out, drilling, obtaining, and refining their product.”

Two oil industry analysts in the Wall Street Journal write “Devon Energy obviously believes it’s better to return capital to its shareholders than to reinvest in the business. The reason is the left’s incessant demonizing of the fossil-fuel industry, leading to near pariah status, which has succeeded in driving capital away from the industry.”

In a May 23 interview in Japan, President Biden said he is encouraged by the rising petroleum prices. “when it comes to gas prices, we’re going through an incredible transition that is taking place, God willing. When it’s over we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over.”

American homeowners will not be reassured by this when the truck arrives with heating oil at $6.00 a gallon. That’s not a sure thing, but it’s clearly possible.

For years Vermont’s climate change warriors have urged driving up oil and natural gas prices to force consumers to weatherize, and switch to alternatives such as “cold climate heat pumps” and advanced wood pellet furnaces.

The Climate Action Plan says, with commendable clarity, “The energy transition will not and cannot happen overnight. Many Vermonters are tied to investments they made in fossil vehicles or heating systems, with no realistic choice but to keep using them in the near term. Instead, a cost-effective and practical approach is to focus on the next point of purchase: that time—whether one, five, or ten years away—when a piece of equipment reaches the end of its life and needs to be replaced anyway. When that situation comes, we should use multiple policy, program, and incentive-based tools to equitably help people choose clean transportation and heating options and discourage locking in decades more of fossil fuel dependence that we can no longer afford—for consumer protection, health, and climate reasons.”

Until last year the favored “incentive based tool” was a carbon tax to drive up oil and gas prices. When that proved politically toxic, the Climate Council produced the Clean Heat Standard – not technically a tax, but an equally costly charge on your heating fuel bill to finance a complicated government-managed program to subsidize heat pump conversions and the like.

The CHS advocates must be rejoicing at the alarming runup in heating fuel prices, but instead of producing revenue to finance subsidizing of heating system conversions, the price increase is going into the private sector supply chain. Not only that, but the higher prices will probably make it impossible for the legislature to add a new charge on homes and businesses groaning under the cost of staying warm.

Over time, higher fossil fuel prices will drive a shift to more energy efficiency. Unless governments screw them up, markets work. Meanwhile, let’s hope that global warming brings us a string of milder winters.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org)