California takes bold steps to make electricity the fuel of choice for new buildings

A first-of-its-kind building code will create strong incentives for homebuilders to use all-electric heating and appliances. Next challenge: existing buildings.

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California has become the first state in the U.S. to pass building codes to make all-electric heating and appliances the default choice for newly built homes. It’s a win for advocates of limiting natural gas use in California’s buildings — and a potential precedent for other states to follow.

At the same time, California must take on the natural gas already in buildings if it is going to meet its own decarbonization mandates. Codes for new construction are an important first step to prime the private sector to meet this need, advocates say. But more work remains to build the economic and policy structures to extend the shift to existing buildings.

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That’s the upshot from this week’s actions by the California Energy Commission. On Wednesday the agency approved long-awaited rules that will give builders strong incentives to choose electric over natural-gas-fired heating for new residential and small commercial buildings from 2023 onward.

The new Title 24 Building Energy Efficiency Standards have emerged from a yearlong process that pitted advocates of banning natural gas in new buildings against industry groups that argue the move could drive up costs in a state already mired in an affordable housing crisis. Nearly 50 California cities and counties have already taken steps toward restricting natural gas in new construction. 

The final rules from the CEC don’t ban natural gas. But their efficiency baselines will make electric heat pumps a far more cost-effective choice than natural gas heaters and boilers. The rules also require new buildings to come with the electrical wiring to switch to all-electric appliances in the future.

Builders will now save thousands of dollars per home if they opt for heat pump technologies, said Pierre Delforge, senior scientist with the Natural Resources Defense Council. The cost of heat pumps has fallen in recent years to match their natural-gas counterparts. Because heat pumps capture temperature differentials between indoor and outdoor air, they are also cheaper to operate over the long term, particularly when paired with the rooftop solar that’s also required for all new homes under California building codes, he said.

Builders that choose natural gas appliances, by contrast, will have to meet more complex efficiency mandates that could add thousands of dollars in costs, Delforge said. And that’s not counting the cost of extending natural-gas pipes, which can add thousands of dollars more per building. Because heat pumps provide both cooling and heating, they eliminate the need for both air conditioning and natural-gas space heating, he added. 

These changes add up to a clear incentive for the builder to switch” to all-electric construction, Delforge said. While it’s up to individual builders to choose the path forward, he estimates that half of all new builders could end up choosing all-electric in the coming years.

They might take time to align their business processes and train their workforce, and then test it out at small scale first before they move along to 100 percent,” he said. But if you’re in a competitive business and can save thousands of dollars in construction costs, the vast majority are going to try to do that.”

Weighing cost and climate benefits

Some building industry groups have opposed all-electric mandates, voicing concerns that it will cost more to construct lower-carbon buildings. The CEC’s final rule has eased those concerns somewhat by keeping builders’ options open.

We’ve got a climate crisis; we get it. But we also have a serious housing crisis,” Chris Ochoa, senior counsel at the California Building Industry Association, told Emma Foehringer Merchant writing for Inside Climate News last week. We’ve got to balance all these things out.”

During the CEC meeting on Wednesday, Bob Raymer, technical director at the California Building Industry Association, said, We have a neutral position on the overall standards. Now we intend to focus our efforts on training and education of builders and code officials, and to implement an incentive program that will support all-electric construction.”

Natural-gas industry groups and utility Southern California Gas have been fighting efforts to restrict gas use in buildings at the state and local level, both in regulatory proceedings and with an anti-electrification campaign across California. The California Public Utilities Commission last year forced the utility, which is owned by Sempra Energy, to refund customers for the ratepayer funds that were used to promote that public relations and lobbying effort.

Similar dynamics have been playing out across the country. Cities in Massachusetts and the state of Washington have sought to limit or ban natural gas in new buildings. On the other hand, nearly 20 states have passed or considered laws to ban local governments from restricting gas in new construction. In May, E&E News reported on a nationwide effort backed by utilities and natural gas producers to lobby against gas bans, claiming they threaten energy reliability and raise consumer costs.

Backers of all-electric buildings argue that they’re a cheaper, safer and healthier option than appliances that run on natural gas, which research has shown cause harmful pollution both inside and outside buildings. More than 100 public commenters spoke at the CEC’s Wednesday meeting, with all but a handful voicing support for the new code. Several asked commissioners to go further to reduce the use of natural gas in buildings.

People are literally dying because of the climate crisis,” Amy Wong, program specialist at Active San Gabriel Valley, a community sustainability nonprofit in Southern California, told commissioners, citing this week’s United Nations report on the increasingly dire impacts of climate change. We still need to do more to reduce greenhouse gases overall, but this will help California become a national leader on building electrification.”

Denise Grab, manager in the carbon-free buildings program at RMI, agreed in a Wednesday interview on the need to get fossil fuel combustion out of all of our buildings.” Failing to do so could lead to up to $1 billion in new gas distribution infrastructure over the next five years in California, she said. Those costs will largely be borne by the customers of gas utilities, even as California’s broader decarbonization mandates make it increasingly likely that demand for the fuel will decline over time, she said. (Canary Media is an independent subsidiary of RMI.)

Residential and commercial buildings are responsible for one-quarter of California’s greenhouse gas emissions, with about 10 percent associated with burning natural gas. The remainder comes mostly from the carbon footprint of the electricity that buildings use, which is set to fall as the state moves to clean up its power grid over the next decade.

There’s no way to eliminate carbon emissions that come from burning gas in buildings, however. Potential carbon-neutral replacements for natural gas, such as biomethane or synthetic gas, aren’t expected to be able to scale up to meet demand or compete with electrification on cost.

In that light, California’s new building codes are a first step” toward replacing gas with electricity in existing buildings, Grab said. When you’re in a hole, the first thing you need to do is to stop digging. California is putting down the shovel and starting to look for a ladder.”

Many of the rungs will involve support for lower- and middle-income households” to ensure that people who might struggle to finance the switch from natural gas to electric appliances won’t be left in a shrinking pool of customers paying for the costs of a natural-gas system serving them, she said.

Others will be sending clear signals to the market through regulation that we need to stop selling gas appliances,” Grab added. That needs to be clear and needs to be communicated to the market and manufacturers.”

Delforge highlighted the critical role that new buildings can play in this effort. New construction itself [does not account for] a huge amount of carbon — they’re relatively efficient buildings, and there are not as many of them,” he said. But every new building has new equipment, whereas existing buildings only turn over their equipment every 15 to 20 years, so the new-construction market commands a significant share of the equipment market.”

We’re really developing and transforming the market for the equipment we need to decarbonize existing buildings,” Delforge said. We’re making it more available, more affordable, higher-performance, and getting the workforce trained to install and service it.”

Building up the private-sector capacity to electrify existing buildings is only one piece of the broader challenge, however. We’ll need programs and investments,” he said, particularly in affordable housing where people can least afford to renovate their buildings.”

Making the leap from new to existing buildings

Wednesday’s approval of the CEC’s new building codes was accompanied by the agency’s latest report on its progress toward meeting a state mandate to cut greenhouse gas emissions from buildings. AB 3232, a 2018 law, requires the CEC to assess the potential of reducing residential and commercial building greenhouse gas emissions by at least 40 percent below their 1990 levels by 2030. Depending on how that task is defined, the state is either close to achieving that goal or still quite far from it. 

The difference depends on whether progress is being measured on a systemwide” or direct” basis, the report states. On a systemwide basis, the expected reduction in California’s electricity carbon footprint, along with the expected impacts of a state law curbing the use of hydrofluorocarbon refrigerants, will put the state within AB 3232’s mandate with its existing policies, according to the report. But direct emissions — those tied up with the combustion of fossil fuels, almost all of that natural gas — will need far more aggressive decarbonization efforts” to meet that 40 percent target, according to the report.

Traditional fuel-specific efficiency” — making more efficient use of natural gas — isn’t enough to hit the target on its own, the report states. Neither is behind-the-meter renewable energy (i.e., rooftop solar). Instead, “[a]ccelerating efficient electrification…represents the most predictable pathway to achieve deep reductions in building emissions,” with two key steps being large-scale deployment of electric heat pumps [and] large investments in existing buildings.”

The report also enumerates the many barriers to achieving those goals, ranging from the cost, complexity and time involved in retrofitting older buildings to aligning private- and public-sector capacity to make them happen.

The new construction is a no-brainer for us,” said Tim Kohut, director of sustainable design for National Community Renaissance (National CORE), one of the country’s largest affordable housing developers. His company has moved to all-electric, solar-powered buildings for all of its next round of projects across California, based on the payback delivered from cutting utility bills and simplifying infrastructure costs.

We’re breaking even on first costs right now, and we’re saving money [in the] long term,” he said. But replacing natural-gas-fired boilers, heaters and stoves in the properties that already have them is the most challenging thing I’ve ever looked at as an architect.”

Some of these properties are decades old, Kohut said. Even the more modern ones, including those eligible for new rooftop solar backed by state incentives, will face steep costs to replace existing natural-gas appliances and add new electric infrastructure. Those costs must be covered by financing backed by rents that are fixed at no more than 30 percent of their occupants’ annual income since they’re designated as affordable housing.

Kohut hopes new state programs will help boost these financials. Last year, the CPUC allotted $200 million over four years for these efforts — $80 million for the Building Initiative for Low-Emissions Development (BUILD) program, which will provide incentives for buildings that lower carbon emissions through electrification, and $120 million for the Technology and Equipment for Clean Heating (TECH) program, which will aid manufacturers, distributors and vendors of heat pump technologies.

Delforge said the California legislature is considering a bill this year that would add $75 million to the BUILD program, boosting the financial incentives for builders to act quickly to implement electrification and grab a part of the funding. Another CPUC initiative that’s mainly been focused on behind-the-meter batteries, the Self-Generation Incentive Program, was expanded last year to direct $45 million toward heat-pump water heaters.

Boosting electrification is one part of the puzzle; removing incentives to continue to build out natural-gas infrastructure is another. CPUC policy currently directs utilities to subsidize the cost of extending gas lines to new housing, RMI’s Denise Grab noted. As part of a building decarbonization proceeding launched last year, the CPUC is considering eliminating that allowance.

The Greenlining Institute, a nonprofit that supports equitable energy policy, has developed a framework for helping low-income communities electrify, Grab added, including policies to manage the disconnect between landlords that would bear the costs of retrofits and upgrades and renters responsible for paying utility bills.

Taking building electrification national

To put California’s innovations to use outside its borders, RMI is working with the New Buildings Institute, a nonprofit developing model building electrification codes for states and local governments, Grab said. Those proposals are being taken up by cities and environmental groups in states including Michigan, Minnesota and Wisconsin, where cold winters drive outsized heating energy demands and the latest heat-pump technologies can offer significant efficiency and carbon benefits.

These state-level efforts are important, given the resistance from building industry and natural-gas industry groups, Grab said. States are widely divergent in their adoption of building codes, with more than half using versions of a model code, the International Energy Conservation Code (IECC), that are more than five years out of date, according to federal data. The International Code Council, the industry group that sets IECC model codes, came under fire earlier this year for weakening the role of city and state governments in proposing more energy-efficiency standards for upcoming versions.

The [International Code Council] should be seen as a very low floor in terms of what needs to be done,” Delforge said. There’s a lot of space for state leadership.”

There’s also room for federal leadership. The Biden administration’s goal of cutting U.S. carbon emissions in half by 2030 includes policies to drive efficiency investments in federal buildings, which could prime the market for broader private-sector investment, as well as to direct tens of billions of dollars to efficiency programs focused on buildings. In May, the administration announced a new residential efficiency and electrification upgrade program and launched work on new Energy Star efficiency standards for cold-climate heat pumps.

The U.S. Department of Energy, which reviews the energy-saving potential of new building codes being adopted across the country, last month cited the potential for the latest batch of codes to cut more than $160 per month from average household energy bills over the next 30 years, while cutting carbon emissions by 900 million metric tons, the equivalent of the annual emissions of 200 million cars.

But it also highlighted that the country’s 129 million residential and commercial buildings have annual energy expenditures totaling more than $400 billion, account for 35 percent of U.S. carbon emissions and waste at least 30 percent of the energy they consume.

Rewiring America, a nonprofit promoting mass electrification of buildings, has cited the potential for aggressive action to retrofit buildings with heat pumps — along with the beefed-up electrical service needed to support those new loads — to help between 65 million and 103 million households save $37 billion a year on energy costs while also cutting carbon emissions by 240 million metric tons per year. The group has asked Congress to pass legislation to offer hefty upfront incentives to support homeowners and contractors to make the switch to electric appliances when their fossil-fueled ones need replacement.

If we’re going to make a dent in climate change,” National CORE’s Kohut said, we need to be going into these projects right now and doing fuel-switching.”

(Lead photo: Brett Jordan)

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.