Electrifying Alameda

Attention, Alameda homeowners, apartment‑building owners, and renters:

The City of Alameda wants you, sooner rather than later, to get rid of your appliances and heating equipment powered by natural gas and replace them with devices powered by electricity.

If you do, the City promises, you’ll reduce greenhouse gas emissions, which will help Alameda meet its goals of cutting GHG emissions by 50 percent below 2005 levels by 2030, and achieving “carbon neutrality” by the same year.

And if you won’t do so voluntarily?

Well, that’s To Be Determined.  First, you’ll get the carrot – and then later, maybe, the stick.

On September 12, Danielle Mieler, the City’s Sustainability and Resilience Manager, presented the Planning Board with an “Equitable Building Decarbonization Plan” that teed up, but did not resolve, the issue of how and when to get Alamedans to “electrify” their homes.  Today, the Merry‑Go‑Round will look at the directions in which the City might go.

First, a bit of background.

According to the Decarbonization Plan, 70 percent of GHG emissions generated in Alameda come from transportation, 27 percent from natural gas use in buildings, and 3 percent from other sources such as waste, water, and wastewater.  Reducing GHG emissions from buildings to zero, the Plan declares, is “an essential strategy [to] reach the City’s carbon neutrality goals. . . .”

For most residential buildings, space heating, water heating, cooking and clothes drying are the main sources of natural gas use.  “Electrification” – or, if you prefer the fancier term, “decarbonization” – would consist of replacing a gas‑burning furnace with an electric heat pump HVAC system; replacing a gas‑burning water heater with an electric heat pump water heater; replacing a gas‑powered stove with an electric one; and replacing a gas‑powered clothes dryer with an electric heat pump dryer.  In addition, it may also be necessary to upgrade the existing electric panel to provide enough juice for all the new devices.

Now, there may be a number of Alamedans who would take some or all of these actions voluntarily simply because they’re ecologically minded and eager to play a part, however small, in combating the causes of climate change.  Alas, we suspect that the majority of local residents will ask:  What’s in it for me?

There are two standard answers.

The first is that, over the long run, electrifying a home will reduce utility bills.  By how much is virtually impossible to estimate with any degree of precision.  Ms. Mieler told us that the City had applied for a grant for a pilot project that would have enabled it to collect “real‑life” data about electrification costs and savings in low‑ and moderate‑income apartments.  Unfortunately, the City didn’t get the grant.  But staff’s “back‑of‑ the‑envelope” calculation of potential savings on utility bills, she said, ranged from about $300 to $800 per year per household and from about $200 to $600 per year for households enrolled in Alameda’s energy assistance program (who receive a 25 percent discount on their electricity bills).  The expected savings for any given residence depends on the number of people in the household, the size of the home, and the use of air conditioning.

The second answer is that the homeowner or apartment building owner won’t have to pay the entire cost of electrification; Uncle Joe and Cousin Gavin will pick up part of the tab.

During her presentation to the Planning Board, Ms. Mieler repeatedly emphasized the wave of recently enacted federal and state financial incentives intended to encourage electrification.  After the meeting, she was kind enough to provide, or point us to, information about the major programs.

For single‑family homes:

• Beginning in 2023, the federal High‑Efficiency Electric Home Rebate Act (enacted as part of what the president – or his political advisers – chose to call the “Inflation Reduction Act,” even though its impact on inflation is “statistically indistinguishable from zero”) will provide a total of up to $14,000 in upfront discounts to low‑ and middle‑income families for the purchase and installation of heat pump HVAC systems, heat pump water heaters, electric stoves, and heat pump clothes dryers, as well as for an upgrade to an existing electric panel. The amount of the rebate varies with income level and device.  For example, the program pays 100 percent of the cost for low‑income families and 50 percent for middle‑income families (up to a maximum of $8,000) to buy and install a heat pump HVAC system.

• In addition, for those who do not qualify for a rebate, the HEEHRA will provide a
  30 percent tax credit, capped at $2,000 per year, for a heat pump HVAC system or heat pump water heater.  It also gives a 30 percent tax credit, capped at $600, for an electric panel upgrade done in conjunction with a heat‑pump project.

• When the state TECH Clean California program began in December 2021, it offered single‑family homeowners a $3,000 rebate for converting from a gas furnace to a heat pump HVAC system and a $3,100 rebate for converting from a gas water heater to a heat pump water heater. In addition, it offered a $2,800 rebate for upgrading an electric panel.  (The rebate, if any, provided by local “partners” would be deducted from these amounts.)  According to Ms. Mieler, the TECH program was “oversubscribed,” and these incentives (as well as those for multi‑family buildings discussed below) were suspended.  The most recent state budget includes $145 million for the TECH program over the next two years, she told us, and “we are hopeful this new budget will allow them to continue offering the rebates.”

For apartment buildings:

• The rebates provided by the federal HEEHRA program are available to owners of multi‑family buildings in which 50 percent of the tenants are low‑ to moderate‑income;

• When it began, the state TECH program offered rebates to apartment‑building owners of $2,000 per unit for heat pump HVAC systems serving individual apartments and $1,000 per apartment for heat pump HVAC systems serving multiple apartments. It also offered rebates of $1,400 to $2,100 per system (depending on capacity) for unitary heat pump water heaters and $1,200 to $1,800 (depending on capacity) per apartment for central heat pump water heaters.  And it provided a  $1,400 rebate for an electric panel upgrade made necessary by the newly installed equipment.

• The state’s Self‑Generation Incentive Program currently offers rebates to low‑income households, including renters, for installing “energy storage technology.” According to Ms. Mieler, the program will be expanded to include heat pump water heaters in late 2022 or early 2023.

In addition to these governmental sources, AMP offers rebates to its customers of up to $1,500 for installation of a central heat pump or a heat pump water heater and up to $100 for an electric clothes dryer.  It also offers a rebate of up to $2,500 for an electric panel upgrade (when accompanied by replacement of at least one gas‑powered device with an electric one).

Despite all of these incentives, there still may be Alameda homeowners or apartment building owners who are reluctant to electrify their residential property voluntarily.  The major reason is that the upfront costs of electrification are, well, enormous – by one estimate, it would cost $900 million to retrofit every residential building Alameda – and the federal, state and local subsidies, generous as they are, may not be enough to cover them.

We haven’t seen any analysis that takes account of the latest federal and state initiatives in attempting to quantify the difference between the cost of a full electric retrofit and the governmental funding available to pay for it.  But the Building Electrification Institute recently performed a study for the City of Berkeley that computed this difference for residential buildings in that city.  It found that the average gap per housing unit was $25,868.34.  The gap was higher for low‑income units ($27,837) than for market‑rate units ($23,898).  And it was highest for single‑family homes, ranging from $35,000 to $40,000 per home.

This gap surely is largely enough to deter at least some homeowners and apartment building owners in Alameda from electrifying their buildings voluntarily.  So what does the City do then?

One alternative would be simply to encourage as much voluntary action as possible – and then live with the result.  If, say, 50 percent of residential buildings electrify, in whole or in part, the City could declare victory in the hope that, as time passes, more homeowners and apartment building owners will see the light and come on board.  Indeed, one element of the Decarbonization Plan presented to the Planning Board consists of “education and outreach” to persuade the public of the benefits of electrification.

The problem with this approach is that, in the meantime, some residential buildings would continue to use natural gas and emit greenhouse gases.  Reducing GHG emissions from this source to zero no longer would be possible, and the stated “carbon neutrality” goal would be jeopardized.

In that event, the obvious alternative is to move beyond simply encouraging electrification to mandating it.  If the carrot fails, maybe it’s time for the stick.

The Climate Action and Resiliency Plan adopted in 2019 laid the foundation for instituting such a regime.  To achieve the goal of carbon neutrality, the CARP stated, the City would have to “shift its efforts” from “incentives to mandates.”  Voluntary actions by residential building owners would not be enough.  Rather, the City “would have to mandate the large majority of retrofits . . . to get to zero net GHG emissions.”

The CARP recommended two specific legislative steps.  Council should adopt an ordinance requiring “fuel switching” from natural gas‑powered appliances and heating to electric‑powered appliances and heating whenever an existing residential building was being “substantially expanded.”  It also should pass an ordinance requiring all new residential construction to be 100 percent electric‑powered with no gas hookups.

The current Council followed through on the latter recommendation in May 2021 by adopting a so‑called “reach code” – i.e., a local energy code that “reached” beyond state minimum standards.  The new code requires all newly constructed residential and non‑residential buildings in Alameda to be built “all‑electric.”  No natural gas or propane infrastructure can be installed.  And, with a few exceptions, electricity will be the “sole source of energy” for all space heating, water heating, cooking appliances, and clothes drying appliances.

Which left the matter of what requirements to impose on existing residential buildings.

According to Ms. Mieler, during the last two years, the City has requested students at the Goldman School of Public Policy at the University of California – Berkeley to take on projects for Alameda as their spring project.  In May 2021, the result was a paper entitled, “Electrifying Existing Residential Buildings in Alameda”; in May 2022, it was a paper entitled, “Funding and Financing the Electrification of Low‑ and Moderate‑Income Residential Buildings in the City of Alameda.”

In the May 2021 paper, the Goldman students recommended that the City adopt electrification requirements that would be triggered whenever a residential building was remodeled or sold.

When a residential building was remodeled pursuant to a permit whose value exceeded a certain threshold , they proposed, the City should require the owner to perform an “efficiency or electrification retrofit.”  (This would not be a complete makeover; the owner could choose from a list of potential actions such as installing a heat pump HVAC system.)  When the building was sold, the City should require the owner either to upgrade the electric panel or to take one or more of the listed “efficiency or electrification” actions.  “[I]t is highly likely,” the students wrote, that “Alameda could achieve its 2030 goals if the city were to require either a conversion from a gas furnace or water heater to a heat pump or heat pump water heater at the point of sale.”

The Decarbonization Plan presented to the Planning Board didn’t go nearly as far as the Goldman students recommended.  Indeed, it took only a baby step in that direction.  In the “immediate” term (i.e., 2022‑2023), the Plan stated, the City should “[d]evelop ordinances requiring certain electrification and energy efficiency measures when renovating or upgrading appliances for already cost‑effective electrification measures, with certain exceptions.”

One is left with the impression that, when it comes to mandating electrification for residential buildings, staff prefers that, at least for now, the City speak softly and carry a not‑so‑big‑stick.  And Ms. Mieler said nothing during her presentation to the Planning Board to counteract this impression; indeed, she amplified it.  The “way that we conceptualize” electrification requirements for existing residential buildings, she told the Board, is “really to try to address some low-hanging fruit, to try to address items where it’s cost effective today, given incentives that are available today, to make changes and where owners are already maybe doing work in the building.”  Thus, the ordinance to be proposed by staff would require only “replacing certain gas appliances with electric ones in existing buildings when they’re undergoing a remodel or an addition.”

Even this low‑key approach led to push back from the Planning Board, particularly Board members Alan Teague and Hanson Hom.  Mr. Teague moved that, instead of committing the City to “develop” ordinances requiring electrification (however limited in scope), the Plan should state that staff should “explore” such ordinances and “coordinate with” the community “regarding the impacts of electrification.”  His motion passed unanimously.

So now the larger question of how and when the City should require owners to electrify existing residential buildings will be placed in the hands of City Council.

Allow us to raise two issues for consideration, one philosophical, the other practical.

Philosophically, we tend to be pro‑choice, by which we mean that the government ordinarily should not interfere with a citizen’s ability to make her own decisions.  Instead, we subscribe to the approach Professors Sunstein and Thaler called “libertarian paternalism” in their seminal 2003 University of Chicago working paper:  rather than mandating that a citizen take an action deemed socially beneficial (and punishing her if she fails to do so), the government should devise means to make it easier for the citizen to reach the right result on her own.  (The two professors later wrote a book aptly entitled “Nudge” that elaborated on this concept.)

We realize, of course, that this strategy is antithetical to the way our local “progressives” prefer to make policy:  They know best, and when they issue a decree, they expect the rest of us not to question it but simply to obey it.  Anyone who doesn’t is either a moron or a MAGA Republican.  Fortunately, we count only one of our current Council members as squarely in this camp, and he will be gone after Election Day.

We don’t pretend to know all of the means the City could employ to make compliance with an electrification requirement more palatable.  Even something as simple as reducing permit fees for an electrification project or discounting transfer taxes upon the sale of an electrified building might make a mandate easier to accept.  Ms. Mieler, we’ll bet, could come up with a comprehensive menu.

From a practical standpoint, the difficulty arises because, if the City enacts a regime of requirements, someone other than the government is going to have to pay for at least part of it.  And that person, of course, is the residential building owner.

According to the Goldman papers, there are 15,088 single‑family homes in Alameda.  Sure, some of those homeowners may be able to pick up the tab not covered by federal and state rebates for meeting a City‑imposed electrification mandate.  After all, according to Redfin, the median home sales price in Alameda is $1.25 million.  If the owner of a million‑dollar home decides to remodel, a bank very well may be willing to lend her the $35‑40,000 it will take to make up the difference between the upfront costs of a complete electric retrofit and the available government funding.  And if she’s decides to sell, increasing the asking price by $35‑40,000 to cover the gap probably won’t drive away potential buyers.

But not all Alameda homeowners own $1.25 million homes.  (By definition, half of the homes in the city sell for less than that.)  For low‑ and middle‑income homeowners, shelling out $35‑40,000 for electrification if they remodel or when they sell may be a stretch.

Then we come to the apartment building owners.  According to the Goldman papers, there are 2,382 multi‑family buildings in Alameda with a total of 14,697 housing units.  And the ability of these owners to bear the expense of complying with a City‑imposed electrification mandate, even if they get financial aid from the federal or state government, is problematic.

At its September 12 meeting, the Planning Board heard from one of them, a woman named Karen Miller who owns a converted Victorian with six units.  Ms. Miller had done the math, and she calculated that it would cost $166,000 to replace the furnace, the water heater, and all of the stoves in her building with electric equivalents.  (The figure included the cost of upgrading the electric service.)  The work would take a month, and, in the meantime, two of the units would be uninhabitable.  “For me, there’s not enough money that anybody’s gonna give me” that would cover these costs, Ms. Miller concluded.  “I think it’s an admirable thing we need to address climate change.  I ‘m all for that, but I just don’t see how this can work.”

We don’t know the extent to which the new federal and state programs would lessen the financial burden a City‑imposed mandate would force a residential building owner like Ms. Miller to shoulder.  But we suspect a significant “gap” remains.  And the possible adverse consequences to apartment building owners – and to their tenants – cannot be gainsaid.

On the one hand, the owner may decide she cannot afford the costs of meeting the electrification requirements and, as a result, she’ll take the building off the rental market under the Ellis Act.  In such a case, tenants will be displaced and the housing supply will decrease.

On the other hand, the owner may decide the only way she can afford the costs of meeting the requirements is to raise rents.  (Another public speaker at the September 12 meeting, long‑time tenant advocate William Smith, told the Board this was virtually certain.  “Renters are used to being shafted, is the best way to put it,” he said.  “They are extraordinarily skeptical that this [i.e., electrification] can be done without passing costs onto them.”)  If the apartment building is not subject to the City’s rent control ordinance – i.e., it was built after 1995 – a hefty rent increase would be entirely legal.  And even if the building is subject to the ordinance, the owner is entitled to pass through the cost of “capital improvement” projects – and an electric retrofit would seem to qualify.  In either case, tenants may find themselves no longer be able to pay the rent.

The Decarbonization Plan itself takes note of possible adverse consequences such as these, and Ms. Mieler made clear at the Planning Board that she was well aware of them, too.  The response from the politicians is harder to predict.  We know of at least one candidate running for Council who likely would endorse a process in which the City imposes an electrification mandate and sticks building owners with all of the costs (and tenants with none of them).  For other Council members, the political issue may boil down to which interest group she is most afraid of offending:  the environmentalists or the tenant advocates.

Ms. Mieler vowed to the Planning Board that staff would take a “balanced” approach.  “We absolutely want to support the landlords in making those changes [to electrify buildings],” she said, “while also protecting the tenants from ensuring that they are not facing undue rent increases.”  We’ll have to wait and see how well she’s able to keep that vow.

Sources:

Climate Action and Resiliency Plan: 2019-09-03 Ex. 1 to staff report – CARP

All-electric ordinance: 2021-05-18 staff report re ordinance requiring electric appliances

Equitable Building Decarbonization Plan: 2022-09-12 Ex. 1 to staff report to P.B. – Equitable Building Decarbonization Plan

Goldman School papers: Electrifying-exsting-residential-buildings-in-alameda_final (2021); Funding-and-financing-building-electrification (2022)