Neighborhood-scale Building Decarbonization

A framework for decarbonizing the built environment at scale

By Kristin George Bagdanov, Mgr. Policy Research & Knowledge Sharing

I.    Introduction

Many organizations and policymakers are waking up to the need for a systemic approach to building decarbonization. Because gas utilities are natural monopolies (it doesn’t make sense for each utility to build competing pipelines on every street), they require regular evaluation by regulatory bodies to ensure that the return on their investment is fair and that their assets are “used and useful.” The question on everyone’s mind is: how can the expansion of greenhouse-gas producing infrastructure be considered a sound or ethical investment when we have federal, state, and local commitments to reduce these emissions? How to regulate, evaluate, and ultimately decommission these toxic assets is a defining challenge of building decarbonization today.

Profitable Pipes
The worst-kept secret of gas utilities is that their profits primarily stem from infrastructure, not gas. They are perhaps better called pipe companies. Unlike “pass through” expenses like fuel and maintenance, which the utility cannot mark-up for a profit, infrastructure yields a significant return for the company.¹ Gas utilities must continually expand or replace their pipes to grow their profits, and they have been doing just that: “from 2010 to 2019, total infrastructure spending by natural gas utility companies has risen 300%” and “investment in local distribution pipelines (main and service lines that connect customers to their natural gas supply) has more than quadrupled from $4.8 billion to $21.6 billion.”² Meanwhile, this network of pipes produces harmful methane emissions in the form of fugitive emissions from old leaky pipes and through its end-uses: gas stoves, furnaces, water heaters, and other gas-powered appliances. And yet, every new or repaired gas pipe in the ground increases gas utilities’ potential profits and cements 50-80 more years of methane emissions (while the effects of those emissions continue well past the life of the pipes). To stop this cycle of contradictory reinvestment, we need to make gas pipes less profitable.

Decarbonizing the Future
Building decarbonization offers an alternative to the unsustainable trajectory of gas infrastructure and emissions growth. It imagines a future where, instead of replacing leaky gas pipes with new gas pipes, those leaky pipes are replaced with pipes that carry liquid (in most cases, water) for geothermal loops. Or a future where we remove the pipes altogether and focus on delivering electricity that powers air-source heat pumps to cool and heat buildings. We at BDC have been imagining how, instead of transitioning from gas to electric one appliance, or even one house, at a time, we could transition whole neighborhoods together into the decarbonized future. This strategic, neighborhood-scale transition is a concept that has been developing at the BDC and other parts of the decarb movement for the past three years through policy advocacy, whitepapers, and working groups. What follows is a history of how the BDC’s approach to this idea developed and evolved to become our ideal pathway to the decarbonized future.

II.    Neighborhood-scale Building Decarbonization: The Future of the Clean Energy Transition

What is Neighborhood-scale Building Decarbonization?

Neighborhood-scale building decarbonization offers a portable, scaleable, and accelerated approach to electrification that harmonizes the current appliance-by-appliance approach to building decarbonization. It is not merely a technological solution but a set of coordinated practices, policies, and technologies that prioritizes communities with leak-prone pipe,³ environmental health burdens, disproportionate energy costs in relation to income, and higher gas demand.⁴ By transitioning these communities off of gas first, we avoid a regressive cost shift and begin to alleviate health burdens caused and aggravated by methane pollution.

Building Upon the Momentum of Appliance-by-Appliance Upgrades

Neighborhood-scale building decarbonization (hereon simply called neighborhood-scale decarbonization) accelerates an appliance-by-appliance approach to electrification. The current approach to electrification frequently relies upon early adopters or newly informed consumers deciding to swap out gas-powered appliances for electric ones, preemptively or upon burnout, due to a desire for increased efficiency, improved air quality, or for environmental concerns. As community-wide electrification grows in popularity, more people have begun to critique this consumer-facing, appliance-by-appliance approach as a “scattershot” or “disorderly” approach that must be replaced with a systemic, community-scale approach. While this characterization is not entirely inaccurate, it fails to credit this appliance-based approach with creating many of the conditions that have enabled us to build the electrification market, pass policies, and alter regulations that will allow for a systemic approach. These critiques also underestimate the continued need for appliance-based electrification, which will undergird this new wave of neighborhood-scale decarbonization. Everyone in the decarbonization movement wants systemic change. However, as in the case of gas moratoria and electric building codes, where a “scattershot” movement of local governments has created upward pressure on states to pass more ambitious building codes, disorder can have power and purpose, too.

Sequencing Neighborhood-scale Decarbonization

The timing, order, and location of neighborhood-scale decarbonization are all critical to ensuring that this process does not simply intensify existing energy burdens in Environmental and Social Justice, or ESJ, communities. The California Public Utilities Commission (CPUC) defines ESJ communities as “communities [that] have been subjected to disproportionate impacts from one or more environmental hazards, socioeconomic burdens, or both.”⁵ However it is also important to include within this definition the disproportionate share of hazards and burdens experienced by BIPOC communities due to environmental racism. Communities that have absorbed the costs of ever-increasing energy consumption, such as pollutants, chemicals, and other industrial byproducts, without also sharing in the benefits of growth, must be prioritized in the transition to fossil-fuel-free communities. The defining challenge facing the decarbonization movement, then, is to repair this social and ecological harm while transforming how energy is distributed. Determining the most equitable and effective sequencing for neighborhood-scale decarbonization will help remediate these harms.

Averting Cost Shifts to Environmental and Social Justice Communities

Decarbonizing ESJ communities first prevents the cost shift that can occur when a significant portion of customers withdraws from a system or service, resulting in the system’s fixed costs to be distributed amongst fewer people, which in this case may result in higher energy bills. This cost shift often functions as a regressive tax on lower-income households. As Severin Borenstein, Professor and Faculty Director of the Energy Institute at Haas Business School writes, when “benefits are concentrated and the costs are diffuse” it creates “a classic political economy recipe for poor policy outcomes.”⁶  This externalization, wherein profits are centralized while risks are socialized, unevenly affects ESJ communities. Averting a regressive cost shift is a key factor in promoting an equitably sequenced neighborhood-scale approach to decarbonization.

A regressive cost shift, however, is not inevitable, nor is it intrinsic to the clean energy transition. Policies, regulations, and societal norms together enable or avert cost shifts. It is within our collective power to prevent this uneven transfer of wealth and health. The future we want to build through neighborhood-scale decarbonization foregrounds policies that are supported by broad, diverse coalitions to address rather than reinforce historical inequities. Neighborhood-scale decarbonization flips the script of the status quo by prioritizing the communities that have been excluded from clean energy transitions in the past.

Neighborhood-scale as Community Resilience

It is important to note that a neighborhood-scale approach to addressing environmental and health burdens grows out of a long history of community resilience. The community resilience model, though increasingly popular in the discourse of climate change, has existed as long as communities have, from mutual aid to neighborhood-based disaster preparedness.⁷ Resilience is both proactive and reactive: establishing networks in advance of crisis and deploying resources in response to crisis. However amidst the ongoing crisis of climate change and its uneven effects, community resiliency has become a matter of life and death, as we saw in the case of the Great Texas Freeze of 2021. By situating neighborhood-scale decarbonization within this broader history of community resilience, we want to show that it is indeed deserving of emergency-level responsiveness, whether in preventing harmful air pollution, earthquake-prone networks of combustible fuel, or the natural disasters that are intensified by greenhouse gas emissions. Our goal for developing a framework of neighborhood-scale decarbonization is to offer a number of approaches that can be sized, scaled, and developed according to a region’s unique energy landscape while also remaining portable enough to synchronize a clean energy transition across the U.S. In doing so, we will be proactively and reactively addressing a community’s ability to be resilient.

III.    Developing the Neighborhood-scale Framework

BDC has been developing a neighborhood-scale approach for the past three years through white papers, studies, policies, and community-level engagement. These many iterations and explorations have honed this theory of change and bolstered its credibility as one of the most promising and viable approaches for scaling up equitable decarbonization. Below is a literature review of the key arguments and outcomes that together have led to our neighborhood-scale decarbonization framework.

    a.    The Flipside

                  Geographically targeted, whole-house electrification

In 2021, the Building Decarbonization Coalition and Common Spark Consulting released a white paper titled The Flipside Report: Electrification Strategies for an Equitable Gas Transition. This paper argues that, in addition to planning a strategic phaseout of the gas system, we need to focus on a strategic phase-in of electrification. We used the term “geographically targeted electrification” to indicate an approach that prioritizes investments in ESJ communities and systematizes uncoordinated approaches to electrification. The paper offers guidance on how to transition a “section or entire neighborhood” off the gas system in California in order to reduce “the number of gas distribution pipelines that must be maintained throughout the transition.”⁸

This early foray into neighborhood-scale decarbonization helped us understand the roadblocks for accelerating building decarbonization in a state that has a relatively “friendly” political landscape for decarbonization as well as several advanced climate commitments. Barriers such as the “obligation to serve,” in which energy utilities are required to provide fuel-specific service to customers in their service area, remain a challenge in California and across the U.S. In addition, determining the appropriate depreciation schedules for pipeline infrastructure and how that will affect customer rates in the near and long term, remains a challenge. Finally, even access to gas planning information was found to be a barrier, as regulatory proceedings can be inaccessible to community advocates even as these regulations have a significant impact on local communities.

This report also established why it is necessary to create a phased, prioritized approach for transitioning communities off the gas system. This targeted approach to gas system transition draws on the lessons and arguments resulting from decades of advocacy by ESJ communities, who have demonstrated time and again how clean energy investments in the form of subsidies and rebates best serve moderate-to-high income households. The report thus offers three prioritized tiers for gas system pruning: Tier 1: Low-Income, Disadvantaged Communities (DAC), Environmental and Social Justice (ESJ) Communities; Tier 2: Urgent Safety and Need-to-Repair Threats; Tier 3: Viable and Cost-Effective to Trim. We can see similar categories espoused in the CPUC’s 2022 “Staff Proposal on Gas Distribution Infrastructure Decommissioning Framework in Support of Climate Goals.”

The Flipside Report, in focusing on California’s potential to trim and transform its gas system, provided BDC with clear goal posts for neighborhood-scale decarbonization while also revealing the significant roadblocks that needed to be cleared before we could make significant progress. The two years following this report were spent addressing these challenges and adapting to the rapidly changing building decarbonization landscape.

   b.    Thermal Utilities

Delivering heat, not gas

In 2022, a broad coalition in New York successfully advocated for legislation that transformed how gas utilities can operate. The groundbreaking Utility Thermal Energy Network and Jobs Act (S9422[Parker]/A10493[Joyner]) enables utilities to legally operate as “thermal utilities,” meaning that gas utilities are not obligated to serve a specific type of fuel (i.e. methane gas) but rather to deliver a specific outcome: energy for heating and cooling. Decoupling heat and gas opens up a pathway for clean electrification through thermal energy networks and other fossil-fuel-free alternatives. The bill is significant not only for this innovative approach to transitioning New York’s energy system away from gas, but for how it was supported by a diverse range of stakeholders that are not frequently aligned on issues related to building decarbonization. These groups include: environmental organizations, environmental justice advocates, organized labor, consumer advocates, and utilities. It also provides the second piece to the solution framework established in The Flipside Report: an opportunity for gas utilities and their workers to be at the forefront of the clean energy transition rather than viewing decarbonization as an existential threat to their livelihoods.

   c.    The Future of Gas Regulation

A groundswell of proceedings highlights the tension between climate targets and regulatory standards

In December 2022, BDC published “The Future of Gas: A Summary of Regulatory Proceedings on the Methane Gas System” in its DecarbNation blog series. This nationwide analysis examined the ongoing gas system transition proceedings in nine states and Washington D.C. These regulatory processes, typically initiated by enabling legislation, are central to determining the “future of gas” and include the evaluation of: decommissioning gas infrastructure and replacing it with targeted electrification; adjusting rates to reflect the shortened life of assets; recalculating subsidies that currently support the expansion of the gas system; integrating gas and electric planning processes; and the social, economic, and environmental impacts of this process on affected workers and communities.

This study revealed the ways in which the current regulatory framework for gas infrastructure is out of sync with prevailing legislation. It also showed how the mandate of regulatory bodies themselves–which is in essence to keep private companies in check, balance costs and risks, and serve the public good–was shifting in light of the many risks associated with climate change. In the past two decades, we have seen the rise of laws and executive actions dictating greenhouse gas emission reduction goals across the nation (currently, 25 states and D.C. have a GHG reduction target on the books). However these goals can be in tension with, and in some cases directly contradict, the actions of regulators who oversee the primary sources of those emissions: gas and electric utilities.⁸ In other words, approving new gas infrastructure as “used and useful” for the next 50 years when a state also has a near-term zero-emission target reveals legislative and regulatory bodies to be working at cross-purposes. The friction between these two demands a new approach to regulating fossil fuel infrastructure. Understanding these systemic problems as well as the breadth of action across the U.S. further demonstrates the need for an accelerated, neighborhood-scale plan for decarbonization.

   d.    Thermal Energy Networks

A key technology for neighborhood-scale electrification

In 2022, BDC began facilitating a national coalition of state and regional advocates to support research, engage stakeholders, and develop policies to promote the adoption of Thermal Energy Networks (TENs) in nine target states. TENs are neighborhood-scale, networked ground-source heat pump and waste heat recovery systems that can provide space heating and air conditioning for all the buildings in an area. Typically consisting of a series of boreholes and a closed thermal loop built in the gas company’s existing right-of-way, thermal networks could be financed in the same way as gas infrastructure—and like gas infrastructure, the up-front capital costs can be depreciated over 50 years to keep the cost to building owners and occupants low. TENs currently in the planning stages also have modular designs, which would allow the gas company to strategically replace sections of gas main with renewable thermal energy over time.

TENs are a technological solution that can transition whole neighborhoods off of the gas system. Not only do they offer a pathway toward using renewable electricity to heat and cool homes, they offer constant energy (non-intermittent) and are highly energy efficient, thus decreasing the electric load and flattening peak demand for electricity. Electric energy efficiency (weatherization, efficient appliances, etc) combined with thermal energy networks enable us to lower the overall amount of renewable electricity that will be needed for the hottest and coldest days, which will help make the grid less expensive and more resilient. Finally, TENs are also a social solution: they offer a pathway for gas utilities and workers into clean energy careers while providing ESJ communities with cooling and relief from methane leaks, poor air quality, and volatile gas bills. TENs, then, are a key approach to neighborhood-scale decarbonization.

   e.    The Future of Gas: New York

A state-specific plan to overcome key barriers to achieve an equitable, phased, and managed transition off of the gas system

The Future of Gas in NYS is BDC’s state-specific analysis of what’s required to enact an equitable, managed, and phased transition away from gas and toward clean energy in New York State. The report analyzes four potential future scenarios for the gas system in New York. It concludes that the best scenario in terms of equity, emissions reductions, and cost is a phased and managed transition away from the gas system that is led by the Public Service Commission (PSC) and includes a broad multi-stakeholder group.

The process by which this ideal scenario would proceed includes: halting the growth of the gas system, avoiding reinvestment, and planning for neighborhood-scale transitions over the long term. While the exact staging of the phaseout of gas and the phase-in of electrification must be studied in greater detail, this approach reinforces BDC’s initial findings in The Flipside Report and evolves it further by including a distinct neighborhood-scale transition plan. This report delineates the remaining regulatory and policy barriers that must be solved for this transition to succeed, including: the obligation to serve, the 100-foot-rule, outdated depreciation formulas, net salvage values, and the need for local energy asset planning. While situated within New York’s particular policy and regulatory landscape, this report revealed the many challenges and opportunities that are representative of what other states will face when planning for neighborhood-scale decarbonization.

IV.   Putting it all together: A Framework for Neighborhood-scale Building Decarbonization

From these studies, bills, and coalitions come the foundational elements of neighborhood-scale building decarbonization:

-Scale: A community-by-community approach cost-effectively transforms fossil fuel infrastructure into clean energy infrastructure and is an evolution of the appliance-by-appliance or house-by-house approach to building decarbonization.

-Sequence: A phased transition allows the flexibility of pausing and restarting if unexpected challenges arise. 

-Management: Leadership from a state’s PUC/ PSC with input and direction from a broad multi-stakeholder group will help align priorities and overcome barriers.

-Technology: Electrification via thermal energy networks combined with air and ground-source heat pump technology are ideal for a scaled approach. 

-Equity: Prioritizing ESJ communities averts regressive cost shifting. 

-Policy: Changing how gas utilities are regulated and aligning regulations with climate policies and emissions-reductions targets is essential.

-Power: Broad coalitions that include labor, environmental justice groups, utilities and other stakeholders will help determine the best application of neighborhood-scale decarbonization for each community.

In our forthcoming whitepaper on neighborhood-scale building decarbonization, we will draw these pieces together to further explore the technological, social, and political solutions to the remaining barriers to neighborhood-scale decarbonization. We look forward to sharing our findings with you and decarbonizing the built environment, neighborhood by neighborhood.

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Thank you for reading our fourth issue of DecarbNation. You can also check out issue three, on policies related to electrifying kitchens, and issue two, on gas system proceedings, and sign-up for our newsletter to receive an alert when the next issue drops. Please send any questions or comments to Kristin George Bagdanov, Mgr. of Policy Research and Knowledge Sharing at kristin@buildingdecarb.org.

 

Notes

1. As the Sightline Institute explains, “utilities do not earn profits on the products they sell—gas, water, and power are provided “at cost” to consumers—but rather from the investment in the assets (the pipes, substations, transmission lines, etc.) that are used to provide the service. In short, the more infrastructure that a utility builds, the higher the profits it can generate.” Laura Feinstein and Eric de Place, “Playing Monopoly; or, How Utilities Make Money,” Sightline Institute (blog), May 18, 2020, https://www.sightline.org/2020/05/18/playing-monopoly-or-how-utilities-make-money/
2. Ryan C. Kelley, “Infrastructure Spending Drives Earnings Growth,” Hennessy Funds (blog), March 2021, https://www.hennessyfunds.com/insights/sector-highlight-naturalgas-infrastructure
3. Leak Prone Pipe (LPP) consists of unprotected steel pipe, cast iron pipe and some vintages of plastic pipe that can become brittle. To determine the amount of LPP remaining for each utility, the Commission relies on annual data supplied by utilities to the Federal Pipeline and Hazardous Materials Safety Administration (PHMSA).”  Walsh, Bloomberg, and Building Decarbonization Coalition, “The Future of Gas in NYS,” 14. 
4. In the California Public Utility Commission’s (CPUC) 2022 “Staff Proposal on Gas Distribution Infrastructure Decommissioning Framework in Support of Climate Goals,” they establish the following criteria for determining which communities should be prioritized in the transition off of the gas system: “higher pipeline risk; higher existing environmental health burden, including as reflected in the CalEnviroScreen scores, which underlie Disadvantaged Community designation; higher gas infrastructure cost savings; lower energy and community affordability, as reflected in measures like rent burden; and higher gas demand.” CPUC Staff, “Staff Proposal on Gas Distribution Infrastructure Decommissioning Framework in Support of Climate Goals” (CPUC, December 21, 2022): 3, https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M500/K158/500158371.PDF
5. “Environmental & Social Justice Action Plan, Version 2.0.” California Public Utilities Commission, April 7, 2022, pg. 96. https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/news-and-outreach/documents/news-office/key-issues/esj/esj-action-plan-v2jw.pdf.
6. Borenstein, Severin. “Can Net Metering Reform Fix the Rooftop Solar Cost Shift?” Energy Institute Blog (blog), January 25, 2021. https://energyathaas.wordpress.com/2021/01/25/can-net-metering-reform-fix-the-rooftop-solar-cost-shift/
7. For example, the Neighborhood Emergency Response Team in San Francisco was created following the devastating 1989 earthquake.  
8. Meghan Harwood et al., “The Flipside Report: A White Paper on Targeted Geographic Electrification in California’s Gas Transition,” Whitepaper (Building Decarbonization Coalition and Common Spark Consulting, July 2021), https://www.buildingdecarb.org/uploads/3/0/7/3/30734489/the_flipside_report_-_targeted_electrification_for_gas_transition.pdf, 6.
9. As Gundlach and Stein write in a 2020 article on utility regulation, many GhG reduction laws and executive orders “fail to excavate the foundations of existing, countervailing laws that are likely to impede to some degree the realization of the new legislation’s basic objective” (pg. 211).