‘Huge amount of money’ in climate law could spawn gas bans

By David Iaconangelo | 09/07/2022 07:19 AM EDT

Billions of dollars in federal funds from the Inflation Reduction Act are set to flow to residents and building owners, creating new headwinds for gas boilers and water heaters that compete with electric-powered technologies.

Homes under construction are seen in Novato, Calif., earlier this year.

Homes under construction are seen in Novato, Calif., earlier this year. Justin Sullivan/Getty Images

The climate and energy law signed by President Joe Biden last month may reshape a national tug of war over gas bans and electrification, with the outcome influencing emissions and fossil fuel development for decades.

Billions of dollars in new federal funds from the Inflation Reduction Act are set to flow to building owners and residents who swap out gas boilers, stoves and water heaters for electric-powered technologies. The dollars come on top of city-level policies in at least seven states banning fossil fuels in new buildings, including dozens of municipalities in California that followed the city of Berkeley in enacting the nation’s first gas ban in 2019. New York City, Seattle and much of the state of Washington followed with similar measures.

Additional bans could emerge in new jurisdictions partly because of the new federal law, some electrification advocates said.


The climate law signed by Biden in August “totally transforms all of those conversations [over banning fossil fuels] and makes all of this so, so much easier,” said Ben Furnas, a former sustainability chief for New York City, where lawmakers passed a law last year prohibiting new buildings from using fossil fuel heat, starting in 2023 (Energywire, Dec. 15, 2021).

Yet gas advocates are vowing to fight electrification mandates, and they may get help from state officials, existing statutes and a lawsuit in California. Twenty states also have passed laws that preempt cities from restricting buildings’ access to fossil fuels, meaning the Inflation Reduction Act’s voluntary electrification programs won’t lead to New York City-style bans.

“Over the past three years, we have seen the energy policy debate veer away from reducing greenhouse gas emissions to an anti-fossil fuel and anti-infrastructure push,” said George Lowe, vice president of governmental affairs and public policy for the American Gas Association, in a written statement.

Limiting fossil fuel access is a “mistake” that would “negatively impact customers and keep us from achieving our shared goals” for decarbonization, Lowe added. “Over the next several years, we will continue to see these debates play out in state capitols across the country,” he predicted.

The climate law provides tax credits for installing heat pumps, rebates for whole-home retrofits, and extra financing for local and state programs that promote electrification of buildings. Under the plan, U.S. manufacturers of heat pumps could also see the Department of Energy step up as a buyer, drawing from $500 million in new Defense Production Act funds (Energywire, June 7).

In some cases, funds from the law could pay for higher-performing gas products, but billions are allocated explicitly for abandoning fossil fuels.

One such program, known as the High-Efficiency Electric Home Rebate Program (HEEH), sets aside $4.5 billion in rebates for homeowners who switch out fossil fuel appliances for electric heat pumps, water heaters and induction stoves. Up to $8,000 can be provided per household for electric heat pumps, which can cost in the vicinity of $20,000.

“Every ambitious city councilperson or mayor of small or medium cities could see it as a real feather in their cap to push for this stuff, and they’ll know the feds have got their back,” added Furnas, who is now executive director of the 2030 Project, a climate initiative at Cornell University.

However, a factor working against the law is that states led by Republican critics may have significant influence over funds funneled through the Department of Energy.  

According to the law’s text, state energy offices must submit detailed implementation plans — including ways to verify a person’s income — to DOE in order for the state to receive the billion-dollar rebates for electric heat pumps and induction stoves.

In some states, the role of natural gas in homes and commercial buildings also has been legally enshrined in ways that appear to conflict with the pro-electrification goals of the Inflation Reduction Act.

Twelve states have laws that prohibit electric utilities from taking part in “fuel-switching” programs — in other words, energy efficiency programs that encourage customers to switch from gas to electricity, according to a July report from the American Council for an Energy-Efficient Economy (ACEEE).

Utilities have often played a crucial role in guiding building-energy programs — including in left-leaning states that already give out funds for electrification — although it isn’t certain whether that will be true for incentives from the law. The text of the law does not specify whether utilities will take part in administering the funds, and some electrification proponents speculated that the companies’ involvement could depend on the discretion of DOE and states.

The extent to which low-income residents will be able to take advantage of electrification incentives remains unclear, as well, according to some observers.

“I think it’s unlikely that the rebates and tax credits will substantially directly benefit environmental justice communities, chiefly because they are going to be used most by homeowners, not renters,” wrote Sylvia Chi, senior strategist at the Just Solutions Collective, in an email.

Still, a spokesperson from DOE said there was “no question” that the Inflation Reduction Act would reduce energy costs and follow through on the Biden administration’s promises to benefit disadvantaged areas.

In the past, the department has run successful rebate programs that help both homeowners and renters save money on energy bills, including in conjunction with state officials, the spokesperson said.

Other supporters of building electrification say the Inflation Reduction Act’s funds could inaugurate a type of national transition to electric heat that mimics the auto sector’s turn toward electric vehicles.

“Is it everything we need to decarbonize everything in America? Absolutely not. But it’ll ensure that every single state in America will have a building electrification rebate program. That means we’re building this market not just in climate-concerned states but in all 50 states of the country,” said Panama Bartholomy, executive director of the Building Decarbonization Coalition.

A ‘politicized conversation’

The Inflation Reduction Act’s passage coincides with an upswell of anti-fossil fuel activism among city and state policymakers.

Days before Biden signed the measure, Massachusetts’ Republican governor, Charlie Baker, signed a different climate law that will allow up to 10 cities and towns to ban gas in new construction, while providing data to the state showing the policy’s influence on energy bills and building emissions (Energywire, Aug. 12).

Legislators in other states are contemplating even more comprehensive bans for new buildings. A potential statewide ban in New York has the backing of the Democratic governor and cleared the state Senate earlier this year, although it failed to come to a vote in the lower chamber (Energywire, June 15). 

Furnas, New York City’s former sustainability chief, said he thinks the Inflation Reduction Act will convince state legislators in New York and elsewhere to enact the bans.

“Now that this wind is at the back of states, I think folks that were on the fence about considering this should really feel the confidence to move forward,” he said.

A few municipalities are also setting targets for a far more ambitious goal: decarbonizing all of their buildings, not just new ones.

San Diego’s city council, for instance, voted in August to eliminate 90 percent of natural gas use in buildings by 2035. The college town of Ithaca, in upstate New York, also wants to remove fossil fuels from every building by 2030.

Luis Aguirre-Torres, Ithaca’s director of sustainability, pointed to the Inflation Reduction Act’s $27 billion Greenhouse Gas Reduction Fund as an important enabler of his town’s ambitions. The fund’s grants are designed to help finance state and local programs for low- and zero-emission technologies, with $8 billion reserved for disadvantaged communities.

Financing from that fund could allow Ithaca to attract private capital for their own electrification programs, he said.

“It basically is the spark that enables circulation of capital. … We’re raising money, but we were having a hard time visualizing how to make it all the way to the end goal. With this, suddenly, we can see that it opened the door,” Aguirre-Torres said.

“I think it’s historic. It’s a huge amount of money.”

The new city- and state-level campaigns to prohibit fossil fuels have even begun to bleed into the federal level. Twenty-six environmental groups filed a petition in late August to EPA, asking it to phase out the sale of new fossil fuel furnaces and water heaters by 2030 (Energywire, Aug. 25).

Still, the anti-fossil fuel campaigns are occurring simultaneously with a push to preserve natural gas’s share of the heating market.

Natural gas advocates are aiming to expand the number of states that preempt local bans. Within the past year, preemption laws have cleared Republican-led legislatures in North Carolina and Pennsylvania, although they were later vetoed by Democratic governors (Energywire, July 13).

Lowe, of the American Gas Association, promised that his group and its members would “continue to defend our infrastructure and our ability to deliver energy to nearly 187 million Americans — a number that grows every minute.”

“Ultimately, neither incentives nor policy mandates can overcome today’s technical challenges associated with elimination of natural gas,” said Lowe in his statement. “Instead, we will continue to educate policymakers on the need and benefit of two decarbonized energy systems that allow residential, commercial and industrial customers to best utilize both our electrical grid and pipeline infrastructure.”

Real estate interests and other groups, like restaurant owners and building unions, also have opposed gas bans. The National Association of Home Builders, which has opposed model building codes that encourage electrification, declined comment for this story.

The first-ever gas ban in the United States, in the California city of Berkeley, also is currently under appeal in federal court, following a District Court ruling in a lawsuit by the California Restaurant Association. If the CRA were to win its case, legal analysts have said, it could undermine fossil fuel restrictions across the country, because the group’s challenge is on federal law grounds (Energywire, July 8, 2021).

Some advocates of building electrification are framing the climate law’s programs not as a stepladder to gas bans, but as a way to boost market forces for electric technologies.

“They’re not going to be passed everywhere,” said Ari Matusiak, CEO of Rewiring America, in reference to city gas bans. “That becomes a politicized conversation at the state and local level.”

By contrast, the Inflation Reduction Act’s programs are focused on “catalyzing the whole market transformation that needs to take place,” he said.

Helping homeowners and commercial landlords buy electric heat pumps or water heaters, according to Matusiak and other advocates, should create lots of new demand for those products, giving manufacturers a reason to scale up supply. That, in turn, should make the products cheaper, even for property owners who don’t claim a government rebate, they said.

“I suppose there are probably some people who are ideological about their furnace. I don’t think that’s a traditional position. Most people are looking for reliable heating and cooling and have it be affordable,” Matusiak said.

But he acknowledged that if the law does help bring down the upfront costs of electric equipment, it will “be easier for states and locals to take whatever strategy they see fit” to undertake, including bans. “It becomes an easier conversation to have,” Matusiak added.

Environmental justice

The climate law’s effect on equity with building electrification may depend partly on how states and DOE administer it.

Low-income households could technically get all of the costs of home electrification covered by the law’s rebates, although they can’t claim more than $14,000 per home. That $14,000 includes the $8,000 rebate for heat pumps, and extends to electric water heaters, induction stoves and better insulation, though it might still fall well short of the total price tag. Moderate-income residents could claim rebates for half the cost of their home electrification.

But income verification has often been a tricky detail to sort out. In New Jersey, for instance, solar trade groups have tussled with state regulators over what they saw as onerous verification requirements, such as using multiple years’ tax returns to prove income, that were scaring away participants in a nation-leading community solar program (Energywire, Oct. 27, 2021).

Chi, of the Just Solutions Collective, said that at least two of the law’s sources of funding — $837 million for efficiency and resiliency in affordable housing and $17 million for low-emissions electricity in disadvantaged areas — could support electrification in communities that face environmental justice issues. The first of those programs is also targeted at buildings that participate in federal affordable housing programs.

Yet many of the law’s rebates and tax credits could prove out of reach for low-income people, said Chi. Four in 10 Americans have no tax liability, meaning tax credits are not a claimable benefit for them, she said, citing figures from the nonpartisan Tax Policy Center.

Around 60 percent of low-income U.S. households are also renters, according to DOE figures, she added. Those households would not be able to directly claim the electrification rebates. And landlords are often uninterested in taking part in upgrades, since renters usually pay the energy bills, Chi argued.

The climate law’s electrification rebates and credits could be stacked together with state-level incentives, said Zachary Strauss, an analyst on Atlas Public Policy’s buildings team. For some low-income people, electric heat pumps “may pay for themselves,” he said.

Some states are also beefing up their building-electrification programs. On Aug. 11, New York’s utility regulators approved $518 million in incentives for heat pumps in Consolidated Edison’s service territory.

California’s Democratic governor, Gavin Newsom, has proposed spending $962 million on similar fuel-switch programs. Regulators on the California Air Resources Board have proposed phasing out gas-powered space and water heaters across the state, in what would be a first-in-the-nation move (Climatewire, March 14).

There are also signs that manufacturers of building heat equipment may follow that lead. Several major manufacturers of both gas and electric appliances — including Daikin, Carrier and Trane — signed on to an Aug. 18 letter filed in support of California’s plans to phase out gas heat.

That marks a significant shift on the part of original equipment manufacturers, or OEMs, said Bartholomy of the Building Decarbonization Coalition.

“It’s the first time we’ve ever had OEMs sign on to a letter to phase out gas appliances,” he said. “This is a blueprint for what the transition needs to look like.”