The case for upfront incentives to electrify everything in US homes

Here’s a tip for electrifying every home in America as quickly as possible: Make sure that neither upfront costs nor electrical service constraints get in the way of a homeowner choosing an electric appliance to replace the fossil-fueled one that just broke down.

Otherwise, you’ll have to wait a few decades for another chance for that household to make the electric-powered choice.

That’s the hard reality faced by proponents of electrifying U.S. homes to combat climate change, and it calls for a massive federal infrastructure investment plan to take it into account, according to a new report from nonprofit groups Rewiring America and the Center for American Progress.

The solution? Offer upfront incentives that make electric appliances — specifically, heat pump space heaters and water heaters and induction cooktops and ranges — as cheap as their fossil-fueled alternatives. And don’t forget to offer incentives for the electrical panels and breaker boxes that so often need to be upgraded to serve those new electrical loads, since that’s another major roadblock to adoption.

“To electrify every household by 2050, we’d need to be [converting] 336,000 households a month,” Rewiring America CEO Ari Matusiak said in an interview. ​“We’re doing a few hundred households a month.”

Boosting that rate is ​“obviously a huge task,” he said. But it’s also a key part of almost every energy-modeling scenario that shows the country decarbonizing fast enough to play a part in keeping global warming below 1.5 degrees Celsius over the coming century, the target set by the U.N. Intergovernmental Panel on Climate Change to avert the most catastrophic harms of climate change.

Asking people to tear out and replace working appliances is neither realistic nor cost effective, he said. ​“The way to make it happen is to have these machines be the default choice every time a water heater stops working, a furnace stops working, a cooktop stops working.”

But that won’t happen without an incentive structure to support the entire chain of upgrades required, at the moment that replacement needs to be made, he said. Otherwise, when, say, a water heater stops working, ​“the plumber says, ​‘you can have an electric heat pump water heater — if you upgrade [your] breaker box first,’ and that takes another call,” he said. Faced with the urgency of getting hot showers back as quickly as possible, ​“you’re going to take the gas water heater that’s in the back of the pickup truck every time.”

This commonsense view of how people make the switch to electric appliances is backed up by data, Matusiak said. One example is this 2017 report from the Northwest Energy Efficiency Alliance on the adoption of heat pumps, which are more energy efficient, and thus less costly to run over their lifetime, than gas furnaces or electric resistance heating.

But while these advantages led to about 40 percent of new homes in the group’s study installing heat pumps, replacement rates for existing homes were stuck in the 3.5 percent range — a rate that fell to 2 percent for emergency replacements.

Incentivizing the whole-home electrification strategy

Rewiring America — the nonprofit founded by Alex Laskey, the former CEO of OPower and cleantech investor, and Saul Griffith, the technology entrepreneur, federal R&D project manager and MacArthur ​“genius grant” recipient — has been championing the ​“electrify everything” pathway to decarbonizing buildings since its launch last year. Its research and policy proposals have won the support of the Biden administration and key Senate Democrats pushing the administration’s clean energy infrastructure plans in Congress.

Beyond cutting carbon emissions by switching building energy loads to increasingly clean-powered electricity, a major investment in electrification could boost installation jobs that can’t be outsourced, as well as jobs in manufacturing the appliances that could offer U.S. companies a competitive edge in what’s set to become a booming global market, Matusiak said.

A recent report from Rewiring America and the Coalition for Green Capital, a group supporting the creation of a $100 billion national green bank, found that leveraging that federal lending power for building electrification over the next decade could create more than 750,000 direct and indirect jobs, while saving average households up to $750 per year.

Thursday’s report takes the nonprofit’s policies further with its proposal for federal point-of-sale incentives: up to $1,500 for heat pump space heaters and $750 for heat pump water heaters and induction ranges and cooktops, as well as $1,000 for the breaker box upgrades needed to support those new electrical loads. It also proposes rebates to cover 50 percent of the installation costs of these devices, to incentivize installers and contractors to offer them as options.

Those incentives would go up for low- and moderate-income households to cover 100 percent of the costs of equipment and installation. That’s to ensure that the benefits of the incentives are shared equitably with higher-income households. ​“Advancing policies that have equity at their center, as we work to address the climate crisis, is critical for us,” Matusiak said.

But these incentives would also more effectively target the disproportionate share of low- and moderate-income households that rely on the most expensive and polluting sources of heating, he noted. Of the roughly 120 million U.S. households, about 65 million use space and water heaters powered by oil, propane and inefficient electric resistance units. Of those 65 million, more than 36 million are low- and moderate-income households that pay a significantly higher proportion of their income on energy costs.

Equipping these 65 million homes with modern electric appliances could save a collective $27 billion in energy bills, according to the report’s analysis. For the 36 million low- and moderate-income households, the savings would equate to $15 billion per year.

At the same time, the report proposes extra incentives of $1,500 for homes adding rooftop solar as part of an electrification replacement, which helps bundle on-site clean energy generation with appliances to use that power. Another $1,500 rebate for whole-home conversion could help incentivize bundling multiple appliances and pay the costs of capping the natural gas line to a home, while another $1,000 bonus could cover the extra costs of heat pumps optimized for homes in cold climates.

All told, the incentive structure is aimed at creating a ​“one-stop shopping” experience for equipment that largely remains out of sight, out of mind for most homeowners, he said. ​“These are not consumer goods where there’s a ton of advertising around them, and they become an object of desire.”

At the same time, the work that goes into electrifying appliances could prepare households to take the plunge into more high-profile purchases like rooftop solar panels or electric vehicles, he noted. ​“If you upgrade your breaker box, it makes the conversation at the kitchen table about buying an EV a lot easier than before you upgraded your breaker box.”

The case for all-electric homes as an infrastructure investment

The report’s analysis finds that the optimal pace of replacement would cost $26.5 billion per year over the next 10 years to replace 83 million appliances in about 50 million households. That effort would spur the creation of 1.1 million direct and indirect jobs, including about 200,000 installation jobs and another 100,000 manufacturing jobs. It would also reduce carbon dioxide emissions by roughly 425 million metric tons by 2050, or nearly one-third of the total CO2 emissions from the U.S. power sector as of 2020.

Whether or not households will go electric at such a rapid rate will depend on many factors, including how well the incentives are marketed and made available through public and private-sector channels. Lower rates of adoption would reduce the carbon-reduction benefits, as this chart of low-, medium- and high-adoption scenarios indicates.

Boosting uptake of all-electric replacement appliances should also drive down their costs, as manufacturers invest in building them to meet a growing market and contractors train and hire employees to install them, he said. The report proposes reducing upfront incentives over time to account for these falling costs.

“We don’t need to incentivize the market — we need to catalyze the market,” he said. ​“The moment these machines become the most convenient and affordable machines, they will be chosen, because they are more efficient in their operating costs than the machines they’re replacing.”

Matusiak emphasized that it’s important to combine upfront electrification incentives with other energy-efficiency efforts, such as weatherizing homes and setting more stringent efficiency standards for buildings and appliances. State and local government efforts to revamp building codes to incentivize all-electric construction, or even ban new natural gas connections, will play a valuable decarbonization role as well.

But most of the homes that will be around in 2050 have already been built, and whether or not their occupants choose to electrify them comes down to individual choices made in economic self-interest. In that light, upfront incentives are ​“a way to tackle the climate crisis by helping American families save money every month,” Matusiak said. ​“It’s not some moonshot technology play. It’s not some kind of retreat or sacrifice message. It’s not asking people to change their lifestyles.”

It’s too early to say if and how this proposal might be taken up by Democrats in Congress to meet the goals of the Biden administration’s $2.3 trillion infrastructure plan, he said. ​“In terms of whether legislation is introduced, or when it is introduced, we will wait and see.”

Still, he said, ​“We think there’s going to be space for this in the final infrastructure package because it’s common sense. We should be thinking about every home as U.S. infrastructure.”

(Article image courtesy of Tom Thain)