The following is a contributed article by Mike Henchen and Sherri Billimoria, principal and senior associate, respectively, at the Rocky Mountain Institute.
Most states with ambitious climate goals are falling short when it comes to one of the toughest-to-decarbonize sectors: buildings. State utility regulators will play a key role in altering that trajectory and prioritizing the transition to zero emissions, all-electric buildings.
Massachusetts Attorney General Maura Healey made headlines recently when she asked regulators to reexamine the future of the state's gas utilities in order to achieve net-zero greenhouse gas emissions by 2050. Building on similar action in New York and California, this trend reflects a critical challenge facing policymakers across the country: how "to protect ratepayers and ensure a safe, reliable, and fair transition away from reliance on natural gas and other fossil fuels."
To slash direct building emissions, states will need to rapidly replace appliances that burn gas and other fossil fuels with clean, efficient electric alternatives, in tandem with improving efficiency. These changes don't have to wait for a fully renewable electric grid: In nearly all US households, replacing a gas furnace with an air source heat pump will result in carbon savings.
Because utility regulators directly oversee the businesses and infrastructure that deliver gas (whose use must decline) and those that deliver electricity (whose use stands to increase), they should revisit a wide swath of programs and rules that are poorly suited to manage a dramatic shift from gas to electricity.
Many building retrofits today are influenced by utility efficiency programs that limit opportunities for fuel switching. Electric rate designs intended to conserve energy dissuade customers from adding electric equipment. And standard approaches to new gas infrastructure, such as socializing costs and spreading them over decades, are no longer consistent with the need to quickly eliminate fossil fuel consumption.
Achieving building decarbonization goals will require state regulators and other agencies to remove policies that prevent rapid, affordable electrification, such as restrictions on fuel switching and incentives to install gas appliances. They will also need to establish programs and policies that accelerate progress, like updating efficiency standards and establishing incentives to transform the market for new products like heat pumps.
There are real risks if regulators do not take strong action today. If electrification isn't prioritized as a solution, states will fail to meet their climate goals. Absent a clear plan for transitioning gas infrastructure and business models, declining gas demand could contribute to a utility death spiral that exacerbates inequities in energy affordability.
Regulators can take action today to address the challenge of the gas system in light of the decarbonization imperative, following the example of the proceedings in Massachusetts, New York, and California. Here are four ways for states to initiate needed regulatory reform:
Set clear direction for aligning the utility system with the climate imperative
In order to design regulation and policy that enables decarbonization and electrification at scale, public utility commissions and other agencies need clear authority to incorporate climate change into decision-making and ensure regulations actively support climate goals. Even as major climate policies are enacted across the country, building emissions have not significantly fallen, and gas delivery systems continue to expand.
In states where PUC authority is unclear, legislatures should explicitly provide the authority and direction for regulators to incorporate climate change into their decision-making. Regulators must establish an overarching vision for cutting emissions, reconcile that vision with the prospect of continued widespread gas use, and take steps to drive major utility transformation.
Grow the market for new clean energy solutions in buildings
While heat pump technology is well established and can meet building comfort needs without emissions, market development will be crucial in order to deploy these products at scale and continue to drive down costs. Regulators can support this market transformation by designing new incentives and customer-facing programs.
Effective programs will use energy efficiency and demand response programs to reduce costs for customers while also ensuring new electric loads provide grid services. On-bill financing can help make heat pumps and other efficiency solutions more affordable for all customers.
Stop expanding the gas distribution system
Investment in the gas distribution system has been growing dramatically in recent years, through expansion, pipe replacement, and system upgrades — a trend that is clearly at odds with the need to decarbonize the entire economy. These costs can be amortized over many decades, meaning many investments made today are likely to become stranded assets.
Local leaders across the country are acknowledging the need to stop these investments, and several cities have taken an important first step by passing ordinances to require or prefer all-electric new construction. State policy should follow these cities and stop the expansion of the gas system based on the expectation of continued carbon emissions for decades to come.
Create a plan to wind down gas systems equitably and affordably
To achieve necessary emissions reductions in the timeframe required, regulators must think about how to wind down the gas system in a managed transition. An unmanaged, chaotic transition could result in spiking gas rates, driving more customers from the gas system, with remaining customers having to bear the full cost of maintaining the distribution system.
To avoid such a death spiral, as gas use declines, it will be economically beneficial to decommission sections of the natural gas system. Managing such a transition requires clear vision and leadership from state government, including regulators, and is crucial to avoid costly, inequitable outcomes.
States are already taking encouraging steps to spur electrification, whether through a target to install 100,000 heat pumps in Maine, or forward-looking proceedings in Massachusetts and New York. Public utility commissions, state energy offices, and other government offices across the country have an opportunity to proactively support a transition to efficient all-electric buildings and a smaller gas distribution system.
Moving toward this future will require clear leadership, meaningful stakeholder engagement, and commitment.