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Get a Free QuoteAct 18 makes Vermont the first state to require fossil fuel dealers to earn credits by helping customers switch to cleaner heating. Here is exactly how it works, what it costs, and how you can benefit.
What it is:Vermont Act 18 (2023) requires heating fuel dealers to earn "clean heat credits" by helping customers reduce fossil fuel use — through heat pumps, weatherization, biofuel blending, or advanced wood heating.
Who is affected: Heating oil, propane, and natural gas dealers must comply starting January 1, 2026. Homeowners are NOT directly mandated to do anything.
What it means for you: Your fuel dealer may offer you incentives to switch to a heat pump (because they earn credits). If you already heat with electricity or a heat pump, you are not affected. Fuel prices may increase modestly ($0.02-$0.05/gal).
Bottom line: This creates a new financial incentive for switching away from fossil fuel heating — stacking on top of existing Efficiency Vermont rebates to lower your costs even further.
The Clean Heat Standard, established by Act 18 (S.5)and signed into law in June 2023, is a first-in-the-nation policy that addresses Vermont's largest source of greenhouse gas emissions: heating buildings with fossil fuels.
Vermont's thermal sector (heating homes and buildings) accounts for 33% of total statewide emissions— the single largest sector. Approximately 65% of Vermont homes still heat with fossil fuels: 35% heating oil, 20% propane, and 10% natural gas.
Rather than taxing carbon or banning fossil fuels, Vermont created something entirely new: a performance-based credit trading system. Here is the key distinction:
The system creates a cycle where fossil fuel sales generate an obligation, and clean heat actions generate credits to satisfy that obligation. Here is the step-by-step flow:
Every gallon of fossil fuel sold creates a compliance obligation. In 2026, the obligation is 2% of total sales volume. A dealer selling 1 million gallons must earn credits equivalent to reducing 20,000 gallons of fossil fuel use.
The dealer has multiple options to earn credits: directly install or subsidize heat pumps, fund weatherization projects, blend biodiesel into their fuel supply, or purchase credits from the market.
Highest credit value. Help customers switch from oil/propane to electric heat pumps.
Fund insulation, air sealing — reduces fuel consumption even without switching fuels.
Mix biodiesel (B20-B100) or renewable propane into existing fuel deliveries.
EPA-certified pellet boilers and high-efficiency wood stoves.
If a dealer cannot or does not want to earn credits directly, they can purchase them from heat pump installers, weatherization contractors, or other registered credit generators. This creates a market where clean heat work has monetary value beyond the rebate.
All qualifying measures are tracked in the Clean Heat Measure Registry. The Vermont Public Utility Commission verifies that each fuel dealer meets their annual obligation. Non-compliant dealers face penalties.
The credit market means that multiple parties are now financially incentivized to help you switch to a heat pump. Your fuel dealer earns credits. Your heat pump installer can sell credits. This competition drives down your costs beyond what Efficiency Vermont rebates alone provide.
From legislation to active compliance — here is how the Clean Heat Standard has progressed and where it is heading:
Governor Phil Scott signed the Clean Heat Standard into law, making Vermont the first state to create a mandatory credit-trading system for thermal sector emissions. Scott expressed concerns about cost impacts but signed the bill.
The Vermont Public Utility Commission conducted extensive rulemaking, defining credit values, qualifying measures, registry requirements, and compliance timelines through public hearings and stakeholder input.
PUC-adopted Clean Heat Standard rules became effective. The Clean Heat Measure Registry opened for registering qualifying actions. Fuel dealers began preparing compliance strategies.
Fuel dealers must now earn clean heat credits equal to 2% of their fossil fuel sales volume. This is the first year of mandatory compliance with the Clean Heat Standard.
The percentage obligation ramps up each year, driving more investment in clean heat measures. Exact percentages are set by the PUC based on market conditions and emission reduction targets.
By 2030, fuel dealers are expected to meet an obligation of approximately 10% or more. Vermont targets a 40% reduction in thermal sector emissions by this year under the Climate Action Plan.
The impact depends on how you currently heat your home. Here is a straightforward breakdown:
Your fuel dealer is now motivated to help you switch. Because every gallon they sell creates an obligation, they benefit financially from helping you reduce your fuel consumption — either by switching to a heat pump or by weatherizing your home.
What to expect:
You are largely unaffected. Since you are not purchasing fossil fuel for heating, you do not pay any pass-through compliance costs. The Clean Heat Standard does not apply to electricity rates or electric utilities.
If you switched recently and your installer registered the installation as a clean heat measure, credits were generated from your project — though the financial benefit of those credits goes to the registered entity (installer or fuel dealer), not directly to you.
You are not directly affected. Wood and pellet fuel are not fossil fuels, so wood fuel dealers do not have a compliance obligation. However, if you upgrade to an EPA-certified advanced wood heating system, that installation can generate clean heat credits — meaning your installer may offer better pricing.
About 15% of Vermont homes heat primarily with wood — one of the highest rates in the country. The Clean Heat Standard recognizes advanced wood heating as a qualifying clean heat measure.
The Clean Heat Standard creates a new layer of incentive that stacks on top of existing Efficiency Vermont (EVT) programs. Here is how the full incentive picture looks in 2026:
| Incentive Layer | Ductless Mini-Split | Ducted Central HP | Notes |
|---|---|---|---|
| EVT Standard Rebate | $475/head | $2,200/system | Available to all VT residents |
| GMP Income Bonus | $2,000/condenser | $2,000/condenser | GMP customers at or below 80% AMI |
| VEC/VPPSA Bonus | $1,000 | $1,000 | VEC/VPPSA customers, income-eligible |
| Clean Heat Credits | Varies (new in 2026) | Varies (new in 2026) | From installer or fuel dealer |
| Federal 25C Tax Credit | $0 (expired) | $0 (expired) | Expired Dec 31, 2025 |
With the federal 25C tax credit expired (previously worth up to $2,000), the Clean Heat Standard credit market provides a new financial incentive layer. While credit values are still being established in the market, they represent real money that flows to installers — and smart installers will pass some of that value to homeowners as lower prices. Ask your installer if they are registered to generate clean heat credits.
Critics worry the Clean Heat Standard will make fuel unaffordable. Here are the actual numbers:
A typical Vermont home using heating oil burns approximately 700 gallons per year at current prices of $4.00+/gallon. That is $2,800+ per year on heating fuel alone.
The Clean Heat Standard adds $0.02-$0.05 per gallon — roughly $14 to $35 per year. That represents a 0.5% to 1.2% increase on your annual fuel bill.
Compare that to what switching to a heat pump saves: a typical Vermont home switching from oil to a cold-climate heat pump saves $1,000 to $2,500+ per year depending on electric rates and system efficiency. The Clean Heat Standard encourages this switch and creates additional financial incentives to make it happen.
| Annual Heating Cost | Current | With CHS | With Heat Pump |
|---|---|---|---|
| Heating Oil (700 gal) | $2,800 | $2,835 | $800-$1,200 |
| Propane (900 gal) | $3,060 | $3,095 | $800-$1,200 |
| Natural Gas (800 therms) | $1,600 | $1,620 | $800-$1,200 |
Clean heat credits are the currency of the Clean Heat Standard. Every qualifying action that reduces fossil fuel heating emissions generates a specific number of credits. Here is what qualifies:
Cold-climate air-source heat pumps (ductless mini-splits or centrally ducted). Must meet NEEP cold-climate specification for VT climate zones.
Air sealing, attic insulation, wall insulation, basement insulation. Must be performed by a certified contractor and meet BPI standards.
EPA-certified wood pellet boilers, stoves, and furnaces. Must meet EPA 2020 emission standards. Vermont has a strong tradition of wood heating.
Blending biodiesel (B20, B50, B100) into heating oil or renewable propane. Easiest path for fuel dealers who want to maintain their delivery business.
ENERGY STAR certified heat pump water heaters that replace conventional electric or fossil fuel water heaters. Significant energy reduction.
The Clean Heat Standard creates a true market for emission reductions. Credits are tracked in the Clean Heat Measure Registry, operated by the Vermont Public Utility Commission. Here is the market structure:
The tradeable nature of credits is crucial. It means a small fuel dealer in rural Vermont does not have to become a heat pump installer — they can simply purchase credits from existing installers. And it means heat pump installers have a new revenue stream beyond installation fees and rebates.
The Clean Heat Standard has generated significant public debate. Let us separate fact from fiction:
"The Clean Heat Standard is a carbon tax."
It is not a tax. There is no tax assessed on carbon, fuel, or consumers. It is a performance standard that creates a credit market. Fuel dealers have multiple compliance pathways and can trade credits. Costs may be passed to consumers, but this is fundamentally different from a direct carbon tax.
"The government is forcing me off heating oil."
No one is forced to stop using heating oil. The obligation is on fuel dealers, not homeowners. Dealers can comply through biofuel blending without any customer switching fuels. The standard creates incentives for switching, not mandates on homeowners.
"This will make heating fuel unaffordable."
Estimated cost impact is $0.02-$0.05/gallon — roughly $14-$35/year for a typical VT home. Meanwhile, heating oil already costs $4.00+/gallon and propane $3.40+/gallon. The Clean Heat Standard cost is a tiny fraction of existing fuel prices. Switching to a heat pump saves $1,000-$2,500+ per year.
"Heat pumps don't work in Vermont winters."
Modern cold-climate heat pumps operate efficiently down to -15°F to -22°F. Vermont's design temperatures range from -10°F to -15°F. Major brands (Mitsubishi hyper-heat, Fujitsu XLTH, Daikin Aurora) are specifically designed for climates like Vermont. Over 60,000 heat pumps have already been installed in Vermont.
"Only rich people benefit — low-income families get stuck with higher fuel bills."
The Clean Heat Standard specifically prioritizes equity. Low-income households qualify for enhanced Efficiency Vermont rebates ($3,000/unit heat pumps, free insulation) and GMP income bonuses ($2,000/condenser). The standard requires that a portion of credits serve income-eligible households.
Vermont is a pioneer. No other state has implemented a mandatory credit-trading system for thermal sector emissions. Here is where other states stand:
| State | Clean Heat Policy | Status |
|---|---|---|
| Vermont | Clean Heat Standard (Act 18) — credit trading | Active — Jan 2026 |
| Massachusetts | Clean Heat Commission studying options | Studying |
| Maine | Efficiency Maine rebates + Climate Action Plan | Rebate-based |
| New York | CLCPA mandate, building performance standards | Regulation-based |
| California | Building code mandates, cap-and-trade | Cap-and-trade |
| New Hampshire | No clean heat mandate — voluntary rebates only | No mandate |
Vermont's approach is unique because it uses a market mechanism rather than direct regulation or taxation. This means:
Vermont's thermal sector is the state's largest source of greenhouse gas emissions — and the hardest to decarbonize. Here is the breakdown:
Vermont's Global Warming Solutions Act (2020) set legally binding emission reduction targets: 26% below 2005 levels by 2025, 40% by 2030, and 80% by 2050. The thermal sector is the key to meeting these targets because:
The Clean Heat Standard targets this largest emission source with a market-based mechanism designed to be cost-effective and flexible.
If you heat with fossil fuels, the Clean Heat Standard creates a window of opportunity. Here is how to maximize your benefit:
Your heating oil or propane dealer may now offer discounted heat pump installations or weatherization services because they earn clean heat credits from those actions. Contact your dealer and ask what programs they are offering under the Clean Heat Standard.
Work with an installer who is registered to generate clean heat credits. You can combine the credit value with Efficiency Vermont's standard rebates ($475/ductless, $2,200/ducted) and utility income bonuses. The more incentive layers you access, the lower your out-of-pocket cost.
Before or alongside a heat pump installation, weatherizing your home (insulation, air sealing) reduces your heating load. This means a smaller, less expensive heat pump can heat your home effectively. EVT offers 75% off insulation (up to $4,000) and the weatherization work also generates clean heat credits.
Because clean heat credits have market value, different installers may pass different amounts of that value to you. Get at least three quotes and ask each installer how they factor clean heat credits into their pricing. Some may offer lower upfront costs because they earn credits from your installation.
In the early years of the program (2026-2027), demand for credits is growing as dealers build compliance strategies. This is when credit generators (installers) may offer the best deals to build volume. As the market matures and more installers enter, competition will increase but so will the obligation. Switching now positions you to benefit from both the incentives and the long-term energy savings.
The Clean Heat Standard means more incentives than ever to switch from fossil fuel heating. Stack EVT rebates, utility bonuses, and clean heat credits to minimize your costs. Get a personalized estimate in under 2 minutes.
NuWatt Energy serves Vermont homeowners with expert heat pump installation. We are registered to generate clean heat credits — ask us how this benefits your project.