Bay Area regulators opt to phase out NOx emissions from furnaces, water heaters, prepare for grid impacts

The air district's decision comes amid a wider conversation across the country on the role of fossil fuel-powered equipment in buildings. In New York, for instance, a plan from Gov. Kathy Hochul, D, to ban the sale of fossil fuel-powered heating equipment in buildings is receiving backlash from some lawmakers, in part because of the cost to homeowners.

The Bay Area Air Quality Management District's new amendments are expected to improve regional air quality, and avoid up to $890 million a year in health impacts from air pollution, according to the regulators. The changes apply to new appliances in both existing buildings and new buildings, but do not cover cooking devices, like gas stoves. Natural gas furnaces and water heaters that produce NOx emissions will be phased out between 2027 through 2031 depending on the type, use and size of the appliance.

Phasing out these appliances also are likely to have implications for the electric utility sector. Consulting firm Energy and Environmental Economics, or E3, conducted an analysis for the regulators that, among other factors, looked at possible increases to electric load and other impacts to the grid as a result of the standards. The study was based on the assumption that electric heat pump devices would be used to comply with the regulations, and looked at two reference scenarios. One would be a ‘low policy’ reference, which assumes the state doesn't implement any major policy changes to support building electrification; and a ‘high policy’ scenario in which there is major policy support for building electrification by the 2030s.

The analysis indicated that relative to the "low policy" scenario, the new standards could increase electric load in the Bay area by 6.2 TWh per year by 2050, driven largely by space heating needs.

Relative to the high policy scenario, however, the new regulations would increase load earlier on — by around 1.5 TWh a year in the 2030s — but then the load impact falls to nearly zero by 2050. This is because this scenario would have seen very high levels of heat pump adoption by 2050 even without the new zero NOx standards.

The amendments were supported by multiple environmental groups, and constitute "an opportunity to set a national example for how agencies can transform the fossil fuel status quo," Leah Louis-Prescott, a manager with RMI's Carbon-Free Buildings team, said at the meeting on Wednesday.

"In every month of last year, heat pump shipments in the United States outpaced gas furnace shipments… these rules give regulatory certainty and consistency and they affirm a future with clean fuels and healthier homes," she added.

However, on the infrastructure front, "we really can't do this without a real commitment" from Pacific Gas & Electric," Tyrone Jue, chief sustainability executive for the City and County of San Francisco and a member of the air quality management district's board of directors, said at last week's meeting.

"All of the issues that we’re going to be facing, especially in an older city like San Francisco… relate to the grid capacity and the inability for PG&E to be functionally operational," he said.

Jue urged PG&E, the California Public Utilities Commission and California Energy Commission to collaborate as part of a working group that will be composed of external stakeholders, "because we’re going to need the three of you working together if we’re truly going to recognize the future we want."

PG&E is committed to a net-zero energy system by 2040, and sees electrification as a critical component to reaching this goal, utility spokesperson Melissa Subbotin said in an email. The utility is supportive of the air district's efforts to reduce NOx emissions for Bay Area residents, "and looks forward to working with the Implementation Working Group to prioritize affordable decarbonization solutions for our customers and hometowns," she added.

The Bay Area air district's regulations could also provide a precedent for the rest of California, especially as billions of dollars are invested in the state budget for decarbonizing homes and buildings, Melissa Yu, senior energy campaigns representative with Sierra Club, said in an email.

"The market is already moving dramatically toward heat pumps and this appliance standard will supercharge the momentum. In fact, every month of 2022, heat pump shipments outpaced gas furnaces in the U.S., signaling American households’ strong preference for all-electric space heating and cooling over gas," she added.