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CALIFORNIA’S BUILDING DECARBONIZATION OPPORTUNITY
Executive Summary
Transcendent Energy for the Building Decarbonization CoalitionALEJANDRA MEJIA CUNNINGHAM • MICHELLE VIGEN RALSTON • KATIE WU
ACKNOWLEDGEMENTS
This report was prepared for the
Building Decarbonization Coalition
(www.buildingdecarb.org). The
authors wish to thank the members
of the Coalition for their valuable
review of the draft report.
Building Decarbonization Coalition 3
California is committed to substantial greenhouse gas (GHG)
emission reductions by the middle of this century. AB 32 put the
state on the path to reduce emissions to 1990 levels by 2020, a
target which was later increased to emissions 40% below 1990
levels by 2030. SB 100 mandates that the state’s electricity de-
mand be served by carbon-free resources by 2045. Finally, Gov-
ernor Jerry Brown’s executive order pledges that the state will
achieve economy-wide carbon neutrality that same year. This
means that by 2045, the world’s fifth-largest economy will no
longer be associated with any GHG emissions. Meeting these
ambitious goals will create a robust, resilient economy that is
not dependent on fossil fuels, and will set an example for the
rest of our nation, and for the world.
The economy-wide carbon goals require that California decar-
bonize much of its building energy use. In 2016, buildings were
responsible for one-quarter of California’s GHG emissions.1 A
key strategy for accomplishing much of this necessary decar-
bonization at the lowest cost is beneficial building electrifica-
tion. This involves using clean electricity for many uses that
currently depend on fossil fuels. For example, converting space
and water heating to run on clean electricity by 2050 could
reduce building sector emissions by up to 27 million metric tons
of carbon dioxide equivalents (MMt of CO2E), depending on a
variety of factors, including continued technology innovation
and equipment performance.2 Other near-zero-emission tech-
nologies and fuels, such as renewable gas, may also become
viable and play a role in decarbonization in the coming decades.
Senate Bill 1477 tasked the California Public Utilities Commis-
sion (CPUC) with kick-starting the state’s initial building decar-
bonization efforts.3 The Building Decarbonization Coalition is
publishing this set of three white papers to help the CPUC bet-
ter understand the opportunities and challenges involved with
building decarbonization at the scale and speed necessary to
meet the state’s climate goals. The first paper discusses costs
and benefits of electrification, and how to structure a regula-
tory framework that supports the most effective investments in
building decarbonization. The second paper explores how to
design appropriate and fair energy rates that reward—not pun-
ish—efficient, grid-friendly, and resilient building electrification.
The third paper describes selected best practices to enable the
market transformation towards near-zero-emissions technolo-
gies at the pace and scale needed to achieve California’s emis-
sions goals.
CALIFORNIA’S BUILDING DECARBONIZATION OPPORTUNITY: KNOWING WHERE WE ARE AND DELIVERING WHAT WE NEED
Within the limits of technology available today, building electri-
fication is a key component of California’s least-cost pathway
to meeting its long-term climate commitments.4 California has
been reducing the carbon footprint of its electricity since 2006.
By 2016, 45% of electricity used in California came from ze-
ro-emission resources.5 Recent technological advances have led
to electric space and water heating technology that is many
times more efficient and effective than any other comparable
option. Combined, the high efficiency of electric equipment and
low GHG profile of California’s electricity make building electri-
fication an important least-cost strategy for meeting California’s
climate goals.6 Recent modeling performed for the California
Energy Commission found that a high-electrification decarbon-
ization strategy can be several billion dollars less expensive for
California than the next available carbon abatement strategy.7
Yet, significant barriers remain, including technology accessi-
bility, workforce readiness, retrofit costs, and regulatory tools
that are insufficient for valuing the benefits of building decar-
bonization.
A New Regulatory Framework for Building Decarbonization
The urgency of the climate goals and the magnitude of the
barriers to be overcome demand innovative and aggressive
approaches to market development. These approaches should
build and improve upon past successes with other technologies,
such as efficient lighting and distributed solar. However, Cali-
fornia also needs policies, strategies, and tactics that will get
results even faster than many of its past efforts. The California
Public Utility Commission’s (CPUC) regulatory framework will
set much of the state’s rules for this work. That framework can
either limit or expand the reach of building decarbonization.
California’s Building Decarbonization Opportunity
E X E C U T I V E S U M M A R Y
4 Building Decarbonization Coalition
Given the need for effective new approaches, the first paper
proposes a sample set of guiding principles that could help the
CPUC set the tone for building decarbonization in California:
focus on GHG reductions, flexibility to adapt to changing mar-
ket realities, rules that support customer-centric interventions,
and affordability so all customers can access clean energy. The
paper also discusses next steps that will ensure the guiding
principles are reflected throughout regulatory action and im-
plementation. The resulting framework will support a strategic
approach focused on delivering the least-cost GHG emissions
California needs and is nimble enough to support the contin-
uous improvement that will be necessary to meet the state’s
climate goals.
RATE DESIGN FOR BUILDING ELECTRIFICATION
Energy rates determine the operating costs of customers’ equip-
ment and appliances. The CPUC has authority over several as-
pects of energy rate design that can influence the customers’
cost of operating efficient electric equipment. By adjusting key
rate design levers, the CPUC can send optimal price signals to
help customers purchase and operate new electrification equip-
ment in ways that reduce costs for all Californians. The rate
design paper discusses the levers that are key for building elec-
trification and sets a short- and long-term vision for how rates
must evolve to support the state’s economy-wide decarboniza-
tion goals. Key rate design levers that will need to be considered
in the near-term are:
• Baseline allowances
• Optional TOU rates with larger peak to off-peak price
differentials
• Revisiting high usage charges for residential customers,
and non-coincident demand charges for other custom-
ers types
STRATEGIES AND APPROACHES FOR BUILDING DECARBONIZATION
To date, there exists an abundance of experience with accelerat-
ing the adoption of new building equipment and systems. The
question is how to deploy and improve upon these approaches
to effectively and quickly maximize decarbonization, and how
to best target each building sub-sector (i.e. single family new
constructions vs. existing multifamily buildings or public sector
properties).
As California embarks on this journey, markets must be properly
developed and supported. A wide range of market develop-
ment (or transformation) activities will bring technologies to the
forefront, increase familiarity, and lower costs and other adop-
tion barriers. Engagement with equipment manufacturers and
distributors will be key at this stage. This is also the appropriate
time to jumpstart necessary workforce development and train-
ing, and consumer education. A second phase could harness
any progress in market development, emerging workforce, and
interested customer base by engaging with building manage-
ment professionals and providing demand-lifting incentive pro-
grams to customers, financing, and local government support.
The third paper summarizes approaches and best practices to
support market development, and activate customers that Cali-
fornia can further develop, tailor, and re-orient to help meet the
aggressive and achievable goal of greenhouse gas emission re-
ductions in its built environment. These initial best practices are
mostly focused on interventions within the scope of the CPUC,
with the purpose of informing initial SB 1477 implementation.
A follow-up publication later this year will build on these find-
ings and make specific recommendations tailored for California.
These forthcoming recommendations will also consider the role
of other entities in ensuring successful decarbonization of build-
ings across the state.
NEXT STEPS
The implementation of SB 1477 offers the CPUC an opportu-
nity to pilot and learn from the new approaches necessitated
by California’s building electrification needs. The initial imple-
mentation conversations should focus on rate design, market
development, workforce readiness, and reaching underserved
customers, all with an eye towards broad scale and accelerated
market engagement. This initial set of issues satisfies legislative
requirements and addresses some of the most urgent barriers
identified throughout these three papers. Findings from this ini-
tial roll-out should inform future investments: failures should
be used as learning opportunities, not hinder forward prog-
ress, and successful strategies should be expanded. As strategic
building decarbonization progresses, technology and installa-
tion costs will fall and the equipment will become increasingly
accessible. The CPUC and others will need to prepare for this
opportunity by developing retrofit programs, financing, and
other enabling tactics.
Building Decarbonization Coalition 5
Endnotes1. California Air Resources Board, 2018, California Greenhouse Gas Emissions Inventory - 2018 Edition. This figure includes
electricity use. Figures cited elsewhere in these papers focus solely on emissions from fuels burnt directly in buildings.
2. Energy and Environmental Economics (E3), Deep Decarbonization in a High Renewables Future, Prepared for the California Energy Commission, June 2018, Appendix A.
3. SB 1477 (Stern) also requires collaboration with the California Energy Commission (CEC). However, these papers focus on the role of the CPUC. Forthcoming Building Decarbonization Coalition work will consider the role of the CEC as well as several other entities in the state.
4. Ibid, Figure 27.
5. California Energy Commission, California Energy Almanac, http://www.energy.ca.gov/almanac/electricity_data/total_system_power.html.
6. Current heat pump equipment efficiencies make up for the electric energy lost in transmission and distribution. Therefore, in California, heat pump space and water heating equipment emit fewer GHG emissions than any other available technology. See A Path Forward for the Three Prong Test: Recommended Updates to the CPUC’s Test for Fuel Substitution, Transcendent Energy, filed by the Natural Resources Defense Council in R.13-11-005, July 27, 2018.
7. E3, Figure 27.