Bay Area finalizes rules to boost heat-pump water heater adoption

San Francisco Bay Area regulators have finalized a long-awaited rule that limits pollution from residential water heaters. 

In 2023, the Bay Area Air District board passed first-in-the-nation regulations setting zero-nitrogen-oxides (NO_x) emissions standards on new home water heaters and space-heating systems sold in the region. 

Last week, board members voted on final amendments for the water-heater measure, ensuring it will now take effect in 2028 — one year later than planned. The regulation includes several exemptions to address affordability concerns; about half of Bay Area installations are expected to qualify. Rules regarding the sale of home heating systems have yet to be finalized.

“The vote is an enormous victory for clean air and the climate in the Bay Area — and really, for the nation,” said Sam Fishman, senior sustainability and resilience policy manager at the nonprofit San Francisco Bay Area Planning and Urban Research Association. The regulations put forward ​“a new model for how to transition the market away from polluting equipment in our buildings to clean equipment in a way that ensures a smooth, affordable, and equitable implementation.” 

With the water-heater rules now firmly moving forward, ​“there’s no additional opportunity to roll them back,” Fishman noted.

The Bay Area’s newly cemented measure could guide other regulators in crafting clean-appliance rules, including those in California, Maryland, and a handful of other states that are exploring similar standards.

In the Bay Area, home to more than 7 million people, gas appliances emit more smog- and particulate-forming NO_x pollution than the region’s passenger vehicles, according to the district. The bulk of those home emissions come from their fossil-fueled furnaces and water heaters.

Their pollution causes up to 85 premature deaths and 15,000 asthma attacks in the region annually, and eliminating it would deliver health benefits valued at $1.1 billion per year, according to Greg Nudd, deputy executive officer of policy at the air district. Space heating is responsible for the vast majority of the emissions.

Cost remains the main drag on heat-pump water heater adoption. On average, replacing an old gas water heater with a new gas model is about $3,600, the district says, while switching to a heat-pump option is around $7,100. Homeowners may also need to pay for changes to their property, like running an electrical line or remodeling a utility space, in order to accommodate the heat-pump water heater.

To address these economic barriers, regulators decided to allow certain property owners to continue to install gas water heaters: low-income households, owners of small water heaters for which heat-pump options don’t exist, and those with space or electrical constraints. Multifamily-building owners, who may need to plan system upgrades years in advance, won’t need to make the switch until 2033.

Costs could decline as the technology matures and policy support builds, however. For example, home-electrification startup Jetson Home told Canary Media that next year it expects the average Bay Area installation cost of a 50-gallon unit will be about $4,500. Plus, California has incentives worth hundreds to thousands of dollars for qualified homeowners, including 0% state-backed financing, which can make a heat-pump version the cheapest option.

Once a water heater is paid off, the air district expects that a household will save $40 to $50 per year on its utility bills. Clean energy think tank RMI has estimated far higher average savings for the majority of households: $360 per year. The nonprofit attributes the difference to its analysis’ inclusion of a change to California’s electricity rate structure that makes electrification more cost-effective, especially for low-income customers.

Several industry and property-owner groups opposed the water-heater regulation, including the Silicon Valley Business Alliance, the National Association of Residential Property Managers, and the Business and Housing Network. Fossil-fuel corporations also fought the rule. A political action committee funded by Chevron, PBF Energy Western Region, Phillips 66, and Marathon Petroleum spent about $60,000 toward the mayoral reelection of an air district board member who opposed the zero-emission standard, El Cerrito Mayor Gabe Quinto. (Quinto was not reelected.)

“Landlords do not have an endless well of money,” said a concerned property owner from Pacifica at last week’s air district board meeting. ​“How are we expected to pay for these upgrades while keeping rents low?”

Opposition groups and affordability concerns have delayed similar rules in Southern California from being adopted, although that air district has implemented a pioneering clean-heat rule for light-industrial and commercial heaters.

In the Bay Area, city leaders from across the region spoke out in support of the water-heater measure at the meeting, including those from Berkeley, Oakland, Palo Alto, and San Jose. Joining them were high schoolers, physicians, and representatives of environmental groups, public health nonprofits, and the state’s air regulator, the California Air Resources Board.

“I’ve had asthma my entire life,” said one proponent, a recent college grad. ​“The cost of some of my emergency room visits have been over $50,000 before insurance. I even had to withdraw from a semester in college because I developed bronchitis. … I implore you to reject the continued use of gas appliances in homes so other Bay Areans don’t have to deal with the physical, emotional, and financial impacts I’ve dealt with.”

After a motion to delay further action on the zero-emissions rule and one to hold a vote to repeal it entirely both failed, 15 of the 17 board members present voted in support of the amended rule, with one abstaining.

Next month, the board will convene to discuss the space-heating rule.

“In 2023, the board made a commitment to Bay Area residents: We would stop letting the appliances in our homes be one of the largest sources of NO_x pollution in our region,” Joelle Gallagher, Napa County supervisor and air district board member, said at the meeting. ​“That pollution doesn’t stay in the garage or the utility closet. It forms fine particulate matter that settles across every county, every neighborhood, and every child’s lungs.”