Climate XChange’s Dashboard Digest is a deep dive on each of the policies that we track in the State Climate Policy Dashboard and an exploration of how these policies can interact with one another to form a robust policy landscape. The series is intended to serve as a resource to state policy actors who are seeking to increase their understanding of climate policies, learn from experts in each policy area, and view examples of states that have passed model policies.
State legislators across the country have targeted energy efficiency and electrification policies in the buildings sector as a top priority, introducing more than 1,000 policies this year alone, according to FiscalNote. But why is this boom happening now, and how can states use buildings policies to support their climate goals?
Buildings account for 34 percent of the country’s greenhouse gas emissions when including the electricity they use. With the long lifespan of our homes and businesses, passing policies that decarbonize and reduce energy use in this sector is all the more urgent.
As we construct new buildings, we’ll continue to use existing ones, so it’s important that state policies address energy use from both of them. New buildings need to be designed to support climate goals, and states can pull older buildings along with them. There are a variety of tools that states can use to do this affordably.
Energy efficiency policies can immediately reduce utility bills and indoor air pollution in existing households, while addressing building energy use in new construction will have benefits that build over time. With new federal funding opportunities and record high energy prices, state governments are seeing a chance to tackle this issue immediately.
In this article for our Dashboard Digest article series, we will explore what’s causing this rapid expansion of energy efficiency and building electrification policies, and how states can leverage these policies to achieve their climate goals.
Why is There a Buildings Policy Boom?
Buildings Feel Relevant
Some climate policies visibly affect our lives more than others. For example, most people interact with cars, buses, or buildings regularly, and it’s easier to see a direct connection from policy changes to daily life than with policies targeting agriculture or energy.
But while the buildings and transportation sectors can both feel relevant to the general public, buildings have a distinctly different longevity. Yes, transportation systems can last over a decade, but the average personal vehicle is on the road for just over 12 years, before being replaced by one that’s most likely more fuel efficient.
Buildings, on the other hand, don’t have the same turnover. Homes and businesses that are built now are expected to be used for decades. When states pass policies that affect how buildings use energy, or fail to increase their efficiency, there’s a much longer effect. This comes into play with one newer policy area that’s gaining momentum: gas bans. While none have been passed at the state level, a few cities have realized that it doesn’t make sense to tie newly constructed buildings to fossil fuels when they’ve made commitments to decarbonize within a few decades.
Energy Costs are Sky High
Last year the U.S. saw its highest historical retail energy prices, which largely reflects an increase in the wholesale price of natural gas. Fossil fuel energy prices can fluctuate as a result of increased demand, geopolitical events, supply shortages, and economic inflation, whereas renewables can help provide greater control of our energy supply and stabilize prices. In fact, they’ve also become much more competitive in recent years.
This winter, the Energy Information Administration predicted that household energy costs would rise more for homes heated by fossil fuels than for those that are electrified. This disproportionately affects low-income households and renters who are more likely to utilize fossil fuel heating and experience higher energy burdens.
The Building Sector Uses a lot of Energy
In 2021, commercial and residential buildings accounted for 39 percent of the total energy consumption in the U.S., and 75 percent of all electricity use. This mostly comes from the electricity that powers buildings and the fuel that’s used to heat them, with buildings in the northeast and midwest using more energy because of their colder winter months.
Decarbonizing the buildings sector represents a significant opportunity for reducing emissions. In 2020, commercial and residential buildings accounted for 34 percent of total greenhouse gas emissions in the U.S. when you include the electricity they use. Interestingly, total emissions from the building sector are falling because of an increasingly cleaner power grid, but direct building sector emissions, from things like heating water, cooking, and using other appliances are rising, underscoring the need for swift electrification. At the same time, as buildings are electrified, the need for more efficient buildings increases to prevent further strain on the grid.
New Federal Funding Opportunities
Electrifying or retrofitting buildings can be expensive, but new federal funding measures reveal opportunities for states to take on this major task. This helps lower financial barriers to implementing energy efficiency programs.
The federal government recently allocated more than $25 billion towards buildings programs that reduce greenhouse gas emissions through the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. Most of this money funds programs and tax credits that incentivize individuals to make energy efficiency upgrades to their homes. The funding comes from the federal government, but state governments will play a crucial role in how the programs are implemented.
Another program established in the Inflation Reduction Act is the Greenhouse Gas Reduction Fund which can help states set up green banks: quasi-governmental financing institutions designed to increase investment in projects that reduce emissions, including energy efficiency.
Looking for resources on how to access IRA funding? Here’s a few places to start:
- Climate Program Portal – A full Dashboard tracking climate-related funding in the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA)
- Unlocking the IRA: Six Key Opportunities for State Policymakers
- State Funding Readiness Project – A pro bono assistance program to support state/local policymakers seeking IRA and IIJA funding
How Can States Support Energy Efficiency?
New Construction vs Existing Buildings
It’s vital to ensure that new buildings support our climate goals, while addressing the fact that old buildings need to be upgraded to do the same. Building electrification and energy efficiency policies can either target new construction or updates to buildings that already exist.
More than half of owner-occupied homes were built before 1980, lacking energy efficiency mechanisms that we have today. If we continue to use these older buildings, they’ll need to be retrofitted with modern technologies to increase efficiency and reduce energy costs. For example, Wisconsin provides financial incentives to certain building owners to fund retro-commissioning efforts. States can also implement a newer policy called building performance standards, which set energy efficiency requirements for existing buildings with outdated standards or none at all. This policy is gaining traction, but so far just three states (Maryland, Colorado, and Washington) have been able to pass them.
Strong energy efficiency policies are vital to renters and others who may not own their homes. These buildings may be old, and landlords often lack strong incentives to pay for improvements when the tenants would reap the energy savings.
Since new buildings will be around for a while, states can pass policies that embrace a cleaner energy economy, or fail to take action and lock in additional reliance on fossil fuels. Residential and commercial energy codes can standardize construction requirements for new buildings, and local governments can adopt more stringent requirements.
Leveraging Other Funding
It doesn’t make sense to pass costs onto families that may already be struggling to afford energy bills, so in order to decarbonize the building sector, governments can leverage both federal and state funding, as well as incentivize utility investment.
States can use federal funding or their own revenue to establish financing programs for building owners like PACE loans. These loans are tied to the property instead of the owner, which can incentivize owners to make updates while being able to transfer the liability in the future.
Conversely, states can revoke funding to projects that fail to achieve energy efficiency goals. For example, last year the California Public Utilities Commission decided to eliminate subsidies offered to developers that connect new properties to the state’s gas infrastructure system.
Investor-owned utilities can also be brought onboard to help with energy goals, if they’re incentivized to do so. This requires reforming of the traditional utility business model, which ties revenue to energy sales. Decoupling these can incentivize utilities to help ratepayers reduce their energy demand. State regulators can implement new revenue opportunities for utilities through performance incentive mechanisms (PIMs) that reward utilities for meeting predetermined regulatory outcomes, including energy efficiency improvements. According to the American Council for an Energy-Efficient Economy, all states that have a PIM for energy efficiency have seen energy reductions since it was implemented.
What We're Covering Next
In this section of the Dashboard Digest series, we will cover how states can support decarbonization of the buildings sector. Our articles in the coming weeks will dive into how each policy works, why it’s important, and key actions that states can take.
The policies we’ll be covering are:
- Energy Efficiency Resource Standards
- Residential and Commercial Energy Codes
- Stretch Energy Codes
- Weatherization Funding, Retro-Commissioning Programs, and Energy Audits
- Energy Efficiency Financing Programs
- Appliance and Equipment Standards
- Building Performance Standards