Explainer: How Do Owners and Policymakers Electrify Buildings? (Part One)

The average American spends nearly 90% of their time in buildings. These ubiquitous structures—homes, offices, schools, stores—are rapidly emerging as a question mark on U.S. greenhouse gas (GHG) reduction aspirations. With promising strides being made in the electricity and transportation sectors, greater attention is being paid to the area long regarded as one of the trickiest to decarbonize through electrification. The brightening spotlight on the buildings sector is revealing several structural barriers that can sometimes stand in the way of a multi-faceted set of opportunities.

Much of this recent building electrification attention has thus far been afforded to new buildings. However, experts have pegged new buildings for just 2% of the nation’s total building stock in a given year. With heretofore limited political prioritization, the electrification of existing buildings is one of the more untapped areas of the decarbonization toolkit. This article lays out some of the most bedeviling barriers and promising solutions for electrifying the nation’s stock of residential and commercial buildings.

Why Focus on Existing Buildings?

In the U.S., buildings contribute to climate change in the form of direct and indirect greenhouse gas emissions. “Direct emissions” are those which originate from the building, while “indirect emissions” also includes GHGs belched from the power plants that provide electricity to buildings for various uses. In the U.S., the buildings sector contributes 13% of direct GHG emissions, with the majority of these emissions coming from residential buildings—specifically, space and water heating. While 13% may not seem like much, this figure exceeds 25% in many Mid-Atlantic and Northeast states, and hovers around 20% across much of the Midwest. When including indirect emissions from the electricity sector, buildings represent 31% of GHG emissions nationwide, more than any other single sector. Once more Americans charge electric vehicles at home every night, this proportion would be expected to rise even further.

Although strides in energy efficiency have been beneficial, the same federal baseline study concluded that U.S. buildings sector emissions increased 9% between 2007 and 2019 (largely due to rises in population and housing stock), while emissions from the electricity sector dropped 33%. As it stands today, the only scalable option for decarbonizing the buildings sector is to electrify both new and existing buildings. The sectoral strategy relies on connecting homes and office buildings, including all of their associated services (such as heating), to a clean electricity grid.

As the climate stakes heighten and a greater body of research reveals the health risks of burning fuel in homes, the battle for the future of buildings is bubbling up around the country. Much of the headline-grabbing action has taken the form of local ordinances to outlaw the use of gas in future buildings, to which at least 19 states have responded by enacting gas ban bans.

States, cities, and regulatory bodies are beginning to grapple with ways to incentivize (or, in some cases, prevent) the electrification of the sector, but most of the focus has thus far largely been limited to new buildings, due to the more manageable costs of going electric. But given the lengthy lifetimes of homes and offices, decarbonization of the sector hinges on a massive overhaul of the existing building stock. Sean Denniston, Senior Project Manager at the New Buildings Institute, argues that “existing buildings is where we need to solve this…if we really want electrification to make an impact on the greenhouse gas emissions of our building stock, we have to put most of our attention on existing buildings.”

Challenges of Electrifying Existing Buildings

Beyond the benefits of reducing emissions, electrifying existing buildings can offer benefits like improved health, greater comfort and control, potential cost savings, and more. As Adam Zurofsky, Senior Advisor at Rewiring America, argues, “this is not ‘eat your vegetables.’ This is a tremendous opportunity for us to invest in our economy, in our resilience, and our reliability.” But to realize these benefits in residential and commercial buildings, several common overarching barriers must be overcome: heterogeneity, an underdeveloped market, and high up-front costs.

Despite the uniformity some might associate with McMansions, big-box stores or the cold facades of office buildings, the reality is that no two buildings are the same. Zurofsky ticks off a list of potential differences: age, materials, configurations for heating and energy use, weather conditions, local regulatory regimes, as well as the building ownership type, and the owner’s political leanings and economic profile. “There’s an endless variety,” he says, which precludes the use of one-size-fits-all policies. One of the most consequential factors from an emissions standpoint is the heating fuel used in a given area. This varies by region, from New England’s reliance on heating oil, to a greater proportion of inefficient electric resistance heating in the South, to natural gas being the dominant source most everywhere else.

Due to the number of unique situations that may fit a given building, Denniston sees the optimal policy approach as an appliance-based one. Under such a policy, rather than a blanket requirement that all homes electrify their space heating, homeowners would be allowed flexibility based on different existing appliances and systems which could have vastly varying degrees of complexity and upgrade costs. Denniston points to the City of Denver’s pioneering new set of ordinances for commercial and multifamily residential buildings, which mandate a phased approach with differing appliance replacement timelines based on each type of project. According to Denniston, who worked with Denver in crafting its policy, “the reality of existing buildings is highly variable…when it comes to making retrofits in buildings, it’s hard to do blanket policies. They really need to be targeted policies."

Underdeveloped Markets

The process of electrifying existing buildings has tended to not only bespoke and decentralized, but of an ad hoc nature. Certain market dynamics, workforce challenges, and technical complexity can be major impediments to one-off electrification projects.

Although buildings themselves last decades, appliances tend to break on a much shorter timescale, presenting an opportunity to install an electric heat pump, for example, or upgrade the home’s electrical panel and fully electrify. Unfortunately, repairing broken appliances often necessitates a quick decision – Adam Zurofsky estimates that “somewhere upwards of 70% to 80% of the decisions around space heating in residences is done under duress.” In cases like this, the customer is likely to prioritize a quick restoral of heating and the local contractor tends to recommend the simplest option they are most familiar with, which is usually heating powered by fossil fuels. The potential cost- and emissions-savings of going electric is often never even considered, in which case roughly 15 more years of building emissions become locked in.

Zurosfky sees a customer simply entertaining the idea of going electric as a crucial checkpoint in the process, but it can get even more complicated from there. Once a customer is considering going electric, they’ll need to consult a contractor who is sufficiently comfortable and well-versed enough in installing electric appliances. And if the project involves multiple electric appliances, or if the building’s electrical panel needs to be upgraded to accommodate the increased voltage (which, according to recent research, describes nearly 50 million households), the customer may have to coordinate with multiple contractors. In some places, especially disadvantaged communities that have long been underinvested in, it may be challenging to find a contractor with electrification expertise.

According to Jeff Schub, Executive Director of the Coalition for Green Capital, widespread electrification retrofits require an “astonishing growth in the workforce” trained for these projects, representing a potentially significant engine for job creation. Moreover, he sees an enormous business creation need, whether through one-stop-shop firms that execute each phase of the retrofit, or with groups that coordinate specialists to see a project through.

Beyond job training programs, Denniston of the New Buildings Institute spotlights the importance of involving practitioners like equipment installers and repairmen. In many cases, an electrification retrofit is significantly more complex than a like-for-like replacement, making it riskier and more time-consuming to perform, which can result in reduced profits for the contractors. Programs to improve the deal for building tradespeople could go a long way in proliferating electrification projects.

As it happens, one such program is currently stuck in federal policy purgatory. Rewiring America worked with New Mexico Senator Martin Heinrich on federal legislation that would incentivize contractors to perform home electrification projects and bring costs down for homeowners. While these provisions would go a long way towards developing market maturity, their fate (and those of other policies to advance building electrification) is currently tied to the uncertain future of the Build Back Better framework.

But cities and states aren’t waiting around for federal support, as is clear in Ithaca, New York. With Director of Sustainability Luis Aguirre-Torres running point, Ithaca is pursuing a goal of retrofitting all of the city’s buildings as part of a plan to become carbon-free by 2030. The city took a major step forward when Aguirre-Torres (a recent alumnus of our Financing and Deploying Clean Energy certificate program) helped to secure more than $100 million from private investors to support a pilot program for electrifying more than 25% of the city’s residential and commercial buildings. The Ithaca strategy leverages a set of collaborators to accelerate market transformation on a more local scale. This team includes climate tech company BlocPower, local contractors and engineering firms, and is expected to draw on resources from the NY State Energy Research Authority (NYSERDA) and the U.S. Department of Energy.

Adam Zurofsky argues, “it’s not just about bringing in dollars, but it’s about animating local communities, providing them the technical support, workforce training, and getting buy-in.” Ithaca is striving to demonstrate a proof-of-concept for other ambitious local governments to tackle some of the major barriers to electrification in a rapid and inclusive manner.

High Up-front Costs

Although presenting a home- or building-owner with the option of electrifying is a necessary step in the process, they might balk at the costs. Electrified space and water heating would result in decreased annual energy costs for 85% of households in the U.S. (according to Rewiring America), but high up-front prices and protracted payback periods can be a deterrence.

States, local governments, and utilities around the country offer appliance incentives aimed at addressing this hurdle. Green banks and Community Development Financial Institutions (CDFIs) can also assist in facilitating some of the upfront capital. In addition to appliance incentives, states can direct regulatory entities to prioritize electrification by updating Energy Efficiency Resource Standards (EERS) to allow and encourage fuel-switching, or by mandating the creation of beneficial electrification plans from electric utilities, as Colorado recently did.

The upfront price gap between high-efficiency electric and fossil fuel-powered appliances is expected to narrow due to declines in electric appliance prices. States and cities can also consider ways to improve the cost calculus even further by adding friction to the status quo of swapping in like-for-like fossil appliances. For instance, Sean Denniston points out that requiring gas pipes to be tested when installing a new gas-powered appliance could not only be beneficial from a health, cost, and efficiency standpoint, but could ultimately influence a customer’s choice.

Jessica Shipley, Senior Associate at the Regulatory Assistance Project (RAP), notes that cost incentives embedded in the regulation of the gas system skews the economics away from electric replacements. Shipley makes the point that state regulatory bodies could reconsider whether current rate structures of gas and electric rates align with their climate goals. She notes that “we can start to ensure that it’s a level playing field, that we’re not unintentionally subsidizing the use of gas over electric if that’s not the goal we have."

Seattle is taking a locally salient approach to improving cost-competitiveness by levying a tax on heating oil used in residential boilers and using the proceeds to fully fund 1,000 low-income building electrification retrofits.

Despite some of the overlapping major barriers to electrifying residential and commercial buildings, each sector carries unique risks or obstacles that warrant special consideration in order to unlock the cost, health, and emissions reduction benefits of electrification.

Keep an eye out for part two of this article, which examines how several states and cities are utilizing creative solutions to overcome many of these impediments and decarbonize their buildings.