We explored how running buildings on electricity can send local carbon emissions down.
But as every building is unique, every local government faces unique pressures with unique resources.
This summary introduces some promising local and state-level measures to drive capital toward building electrification.
For an overview of the major challenges for electrifying existing buildings, read part one of this series.
Many states and cities are finding that electrifying existing residential and commercial buildings can offer broad benefits, from improved occupant health to cost-savings and greenhouse gas (GHG) emissions reductions. However, the practice can be limited by structural barriers which often can only be overcome at scale through policies and incentives.
While many of these levers apply to both commercial and residential electrification, the two sub-sectors differ in a multitude of ways, each of which carries a unique set of challenges and solutions. This article lays out many overlapping and distinct policy options and considerations for retrofitting residential and commercial buildings. We’ll list some cases in brief, hoping you'll explore the ones that appear applicable to your area.
Policies and Incentives for Electrifying Existing Residential & Commercial Buildings
States and local governments have sizable policy toolkits for incentivizing or requiring the electrification of their existing building fleet. Both have considerable latitude for enforcing building sector policies, although local governments can sometimes be subject to preemption by states. States and cities set building codes, create and fund incentive programs for electric appliances, and set building performance standard (BPS) policies, among other policy instruments.
State governments can also set energy efficiency resource standards (EERS), mandating that appliance standards exceed federal minimums, and directing utility policy to promote electrification. On the other hand, local governments are able to set building retrofit requirements and dictate land-use and zoning regulations.
Generally speaking, “carrot”-type incentives approaches tend to apply more to residential buildings, while commercial buildings are usually subject to a “stick” approach, according to Adam Zurofsky, Senior Advisor at Rewiring America.
We summarize a few prevalent policy types below.
Electrification Mandates and Planning Requirements
Some states have taken a sector-based approach to building decarbonization and have implemented a suite of incentives and requirements to meet emissions reduction targets. A few of the foremost examples follow.
California’s AB 3232 directed the state’s utility regulatory body to develop a roadmap for reducing buildings sector emissions 40% by 2030.
Colorado instituted a suite of building sector laws in 2021, including one which directed the state’s utilities to develop plans for incentivizing the adoption of electric appliances. This came after the state codified GHG emissions reduction targets and issued an electrification strategy scoping report.
Denver’s city council approved an ordinance requiring that existing commercial and multi-family residential buildings follow a phased timeline to replace gas-powered appliances with electric ones.
These can take a range of forms and draw from a variety of funding sources, all with the general goal of inducing the consumer uptake of a particular electric technology by lowering costs through rebates or other types of incentives.
Maine’s electric heat pump rebates are the primary tool for Maine’s target of installing 100,000 heat pumps by 2025. The strategy calls for providing increased rebates for homes and businesses. Some of the funds are available through the Low Income Home Energy Assistance Program (LIHEAP), which offers extra funds to low-income homeowners.
The Colorado RENU Loan, which partners with local credit unions to offer long-term low-income financing for residential heat pump space and water heaters.
Efficiency Vermont, which is funded by an “energy efficiency charge” on energy bills, runs a heat pump rebate program through the state’s electric utilities.
Building Performance Standards (BPS)
These policies require building owners to meet a performance benchmark, and tend to apply to large multifamily and commercial buildings. Although more than 40 states and cities have adopted laws for building energy use benchmarking and disclosure, policymakers are increasingly taking them a step further by using the data to enforce emissions- or energy-reduction standards and advance their electrification strategy. Jessica Shipley of the Regulatory Assistance Project stresses the importance of the signal sent by BPS policies, arguing that “if you have building owners or operators who have the ability to look a little longer-term and are going to be trying to optimize their costs over a longer period of time, that certainty will be really helpful.”
New York City’s Local Law 97, which set emissions limits for large buildings that are stringent enough to eventually require that many buildings electrify in order to comply.
St. Louis has a BPS for large buildings, which, similar to New York'a, is expected to demand that many building owners put in place electrification measures.
Colorado and Washington have both put in place BPS policies to require benchmarking and reduce emissions from large commercial buildings.
Energy Efficiency Resource Standards (EERS)
Thus far adopted by 28 states, EERS policies, which have been adopted by 28 states, require utilities to achieve energy savings on a set schedule, often with incremental targets. EERS policies have lots of room for variation, and some states have begun to explicitly incorporate embed electrification goals into within them. These types of policies tend to influence the uptake of both residential and commercial electrification. On the other hand, some current EERS policies prohibit the use of efficiency incentives for fuel-switching. According to Sean Denniston of the New Buildings Institute, that bar poses a major electrification barrier in many states. A handful of states have taken steps to remove existing prohibitions and encourage efficient fuel-switching, Recognizing that high-efficiency heat pumps can be many times more efficient than gas furnaces and older electric resistance furnaces, some states have taken steps to remove existing prohibitions and encourage efficient fuel-switching.
Massachusetts’s 2022-2024 EERS uses a GHG emissions goal (which encourages efficient electrification), and New York’s is fuel-agnostic and includes a carve-out for energy savings from the installation of efficient electric heat pumps.
Minnesota last year reformed an existing EERS policy that had acted as a barrier to fuel-switching. Numerous other states still have outdated provisions in their EERS which prevent or disincentivize the move from fossil fuel appliances to electric ones.
California recently announced it will steer its Public Utility Commission’s energy efficiency programs by using a “Total System Benefit” criteria which takes into account GHG emissions reductions and other metrics that favor electrification.
While building codes are most commonly used to advance the electrification of new buildings, they can also govern the design of existing buildings that undergo major renovations. For example, Denver’s forthcoming all-electric building code is geared towards new buildings, but will also cover existing buildings that are substantially altered.
Considerations for Electrifying Residential Buildings
Low- and Moderate-Income Homeowners and Renters
Communities that have lived with poor building stock and sparse public services, such as communities of color and low-income areas, have some of the most to gain from building electrification retrofits. They also carry a unique set of risks.
Less affluent households often have outdated appliances, which can suffer from leaks and generally operate inefficiently. Not only can this result in higher energy bills, but it can have negative health consequences as well. People of color are exposed to indoor gas appliance emissions at a significantly higher rate than whites, according to a recent study.
Black and Hispanic households tend to have a higher energy burden than white households, spending an average of 33%-66% more of their income on energy bills. This disadvantage underscores the importance of accurately assessing the costs of residential gas compared to electricity. It also strengthens the case for combining weatherization programs with electrification retrofits in order to alleviate the work that a heat pump (which also functions as an air conditioner) needs to do to heat or cool a home. The U.S. Department of Energy recently made available $18 million in funding to weatherize homes and prepare them for electrification through electrical panel replacements.
Many state and local policies have carve-outs for low- and moderate-income (LMI) households, and some financing tools offer special provisions.
Under Ithaca’s building electrification pilot program, 50% of the retrofitted buildings will be LMI.
In 2022, Massachusetts announced a plan to offer incentives of up to 100% of the costs of weatherization for low-income homes, as a complement to heat pump incentives. In New Mexico, low-income residents receive a two-fold credit for home electrification under the state’s Sustainable Building Tax Credits program.
Under Illinois’ new building electrification directive, at least 25% of utility electrification must occur in LMI households.
Other states tailor programs exclusively to low-income residents. For example, Connecticut, which has one of the highest low-income energy burden rates in the nation, recently allocated $14 million for a whole-home energy retrofit program for low-income residents. Jessica Shipley, of the Regulatory Assistance Project, touts the importance of a strategy designed specifically to meet the needs of LMI customers. “With how challenging electrifying existing building is for any sector, especially for LMI customers, I think that a tailored approach is going to be the only way really to have success.” An LMI-specific program should also be mindful of reaching its intended community, says Shipley, noting that language and cultural barriers can sometimes lead to a shortfall in communicating program availability.
Sean Denniston, of the New Buildings Institute, stresses the importance of on-bill financing. This tool, which repays debts on a monthly basis attached to a customer’s utility payment, has worked powerfully for energy efficiency improvements. Denniston sees it as “undertapped” for electrification upgrades. These programs allow costs for improvements to essentially be taken out as loans and paid over the course of multiple utility bills. In addition to homeowners who may not be able to pay high upfront costs, this type of policy tends to be especially feasible for renters, who comprise a disproportionate percentage of low-income residents. One leading example of this is operating in Hawaii, which offers the Green Energy Money $aver (GEM$) on-bill financing program, which offers heat pump water heater upgrades to LMI residents, including renters.
Denniston also notes that the traditionally dominant incentive model only covers the incremental cost of an update, which “has very serious equity implications as well, because that means your incentives are only going to the people who can afford to replace the equipment to start with.” According to Denniston, focusing on covering the cost for LMI households could result not only in equity improvements, but greater emissions benefits due to older and less efficient equipment being replaced.
Relatedly, Jessica Shipley sees potential in a “bulk approach” to LMI electrification wherein the program would work with property management companies or landlords to phase in equipment replacements on a larger scale, rather than piecemeal.
The Cooktop Conundrum
The prospect of relinquishing a gas stovetop has spurred especially fiery pushback, even among more environmentally-minded homeowners. A growing body of research is revealing the health harms of gas ranges, which emit nitrogen dioxide (NO2) at potentially unsafe levels, even when the flame isn’t on. According to numerous studies, this can pose an asthma risk for children, especially if proper ventilation equipment isn’t installed and turned on.
While induction stovetops have yet to take hold, the technology, which relies on magnetic fields, affords users a greater level of precision and control according to a side-by-side study commissioned by the Sacramento Municipal Utility District (SMUD). Although the American Gas Association has been paying Instagram influencers to hype the power of the blue flame, chefs are increasingly warming up to induction cooking. Some utilities offer incentives for induction stoves (such as SMUD’s $750 rebate for gas-to-induction swaps), and the City of San Jose encourages induction cookstoves by offering a checkout program that allows residents to try them for two weeks at no cost.
Considerations for Electrifying Commercial Buildings
Limited Direct Incentives and Financing Options
While a homeowner looking to electrify might face a cavalcade of decisions, they tend to at least be afforded incentives to improve the cost calculus. On the other hand, commercial building owners often have fewer carrot-type options, to the lament of many experts. Zurofsky, for one, sees an opportunity for more incentive programs in the commercial sector, saying “my own view is that if we can make a case on the economic and energy bill savings on the commercial side, then you’ll have a market there that’s actually potentially more able to meet them” due to factors like existing access to financing and greater responsiveness to price signals.
Green banks can help to finance smaller commercial projects which might not qualify for C-PACE. One expert calls this a "classic space for green banks."
One underutilized tool available in many jurisdictions is the Commercial Property Assessed Clean Energy (C-PACE) financing structure. This pegs improvements such as heating electrification for repayment through a building's assessment. That can change over a span of decades, regardless of changes in building ownership. C-PACE can be especially suitable for buildings undergoing major electrification projects, whose owners might otherwise be scared off by long payback times. Jeff Schub, Executive Director of the Coalition for Green Capital, notes that green banks can help to finance smaller commercial projects which might not qualify for C-PACE, seeing this as “a classic space for [them] to focus on.” C-PACE and similar programs can help to alleviate landlord/tenant issues, which commonly arise when building owners aren’t particularly inclined to make capital-intensive investments that reduce energy bills, and tenants aren’t able to do so themselves.
Another potential policy lever involves the bidding process that takes place for commercial buildings that have their heating system replaced. Jessica Shipley argues that when a heating system needs to be swapped out, electric heat pumps often aren’t put forth with a bid, so a policy that would “encourage or require these options to be part of the bidding process would start to open the door and educate building owners” on the benefits of going electric. Such policies could come with rebates for commercial-scale electric appliances.
As this partial survey shows, many so-called "red" states have yet to form robust incentive programs, and may change their approach as climate disasters increase. So while each building and each government will remain unique, Shipley's idea of mixing incentive and information figures to grow more common.