Fossil-based natural gas may be headed for a reckoning, at least in Washington State. Not long ago, natural gas was seen by many as the key “bridge fuel” necessary to transition our society away from oil and coal. Natural gas has its upsides; most significantly, it burns more efficiently and emits fewer pollutants than coal.1 Yet burning natural gas still emits greenhouse gases (GHG), including methane, a potent climate pollutant. According to EPA, methane accounts for approximately 10% of the GHG emissions in the United States.2 That is a problem for states like Washington that have called for zero carbon emissions in the power sector by 2045 and have also enacted laws aimed at reducing GHG emissions throughout other sectors.
Enter the Healthy Homes and Buildings Act, House Bill 1084 (HB 1084).3 If enacted into law, this bill would prohibit natural gas infrastructure for space and water heating in new residential and commercial construction in the state and require the elimination of those natural gas systems when construction is undertaken on existing buildings. While local jurisdictions have passed similar laws or made similar proposals, most notably cities in California, New York, and Massachusetts, HB 1084 is the first bill to prohibit natural gas at the state level. Importantly, HB 1084 includes measures meant to help workers in the fossil fuel economy transition to cleaner energy jobs. It also includes provisions for the increased use of alternative fuels, such as renewable natural gas (RNG). This dovetails with the Washington Utilities and Transportation Commission’s (WUTC), the agency responsible for regulating natural gas utilities in the state, recently-issued policy guidance “to support and promote the expansion and adoption of RNG programs” in the state.4
Given that Governor Inslee has routinely made addressing climate change a priority of his administration—indeed, during the 2020 Democratic presidential primary, climate change was Inslee’s key issue—HB 1084 should be taken seriously. If not passed this legislative session, it will likely be proposed again in the years to come.
HB 1084 bans natural gas for space and water heating in new construction under the 2027 state energy code but could move faster and go even further.
HB 1084’s core element is its prohibition on natural gas for space and water heating in residential and commercial construction permitted under the 2027 state energy code.5 This proposed ban would apply to both new development and construction on existing buildings that receive a permit under the 2027 code. The structure of the proposed legislation suggests that these timing and scope goals could be tightened even before 2027.
For example, because HB 1084 calls for incremental changes in the 2013–2027 energy codes, the Washington State Building Code Council (Council) could decide to eliminate natural gas in space and water heating before 2027 and/or reduce natural gas used for other applications when it updates state energy codes.6 Although HB 1084 does not directly address natural gas for cooking, the bill contains language calling more broadly for “the safe and equitable transition of the natural gas system.”7 The Council could conceivably modify the energy code prior to 2027 to reduce the use of natural gas for cooking, among other uses.
There will undoubtedly be costs and stranded assets associated with this transition. Natural gas company filings before the WUTC could result in faster but more expansive transitions away from natural gas. Starting on January 1, 2022, HB 1084 would require natural gas utilities to develop and submit transition implementation plans to the WUTC for review and approval every four years.8 These plans must evaluate “strategies to achieve a reduction in [GHG] emissions from the combustion of natural gas.”9 As part of its plan, a gas utility must consider various approaches to reducing GHG emissions, including the permanent decommissioning of its gas distribution system.10 If a natural gas company identifies the retirement of a portion of its gas system in its WUTC-approved transition implementation plan, customers could be transitioned off of the utility’s natural gas system before 2027 and/or away from uses of natural gas other than space and water heating.
HB 1084 also allows local jurisdictions to adopt their own energy “reach codes” that require greater reductions in energy use and GHG emissions than those in the state energy code.11 Municipalities could further target natural gas reductions through these types of reach codes. As discussed below, such localized reductions are already beginning to play out in places like Seattle, Bellingham, and Thurston County.12
HB 1084 institutes a climate protection surcharge for natural gas customers.
The proposal also establishes a uniform climate protection surcharge that utilities would charge their natural gas customers.13 The funds collected from the surcharge would be used for various purposes, including (1) implementing programs approved in the utility’s transition implementation plan; (2) providing services and rate assistance to low-income customers; (3) paying for programs to assist workers impacted by the transition to avoid dislocation of those workers; (4) the development and distribution of lower-carbon fuels, including RNG; and (5) ensuring that the transition from natural gas does not disproportionally impact vulnerable populations or overburdened communities.14 Sales of RNG, zero-emission synthetic gas or renewable hydrogen would be exempt from the surcharge.15
HB 1084 restricts a gas utility’s ability to offer service to new customers.
HB 1084 would fundamentally change a longstanding maxim of public utility law—the obligation to serve. As of July 1, 2021, a gas company would be prohibited from offering new service to any customer located outside its current service territory.16 Customers requesting new service within the utility’s territory would have to pay the full costs of that service.17 Additionally, a gas company will no longer have an obligation to serve new customers within their territory.18
HB 1084 leaves the door open for RNG, as well as hydrogen and other lower-carbon fuels, but potentially only a crack.
Gas utility transition implementation plans must evaluate the potential to reduce “the carbon content of delivered natural gas by incorporating renewable natural gas, hydrogen or other low-carbon fuels” and evaluate the “expansion of renewable natural gas programs.”19 These provisions suggest that natural gas companies will be able to continue to service customer space and water heating needs using RNG, hydrogen, and other low-carbon fuels that replace natural gas. The funds collected from the surcharge discussed above could also be used to develop and distribute sources of RNG.20
It is not clear, however, how far the bridge for some of these alternative fuels extends. HB 1084 defines “natural gas” to include “renewable natural gas, synthetic gas, or fossil gas.”21 Because the bill focuses on phasing out “natural gas,” from a definitional perspective, this could also mean a phase-out of RNG, at least for space and water heating. Thus, it remains to be seen whether the bill envisions RNG and other alternative fuels permanently displacing natural gas or simply aiding in the transition from natural gas and then eventually being phased out themselves. The answer to this question will have a significant impact on the nascent RNG and green hydrogen industries, and we may expect to see some adjustments to address this uncertainty in the bill going forward.
HB 1084 is in line with recently enacted climate change legislation in Washington State and the State Energy Strategy.
For the last several years, Washington State has been a leader in proposing (and passing) clean energy legislation. The legislature enacted the Clean Energy Transformation Act (CETA) into law in 2019. CETA requires utilities to (1) eliminate coal-fired generation from their resource portfolio by 2025, (2) be GHG-neutral by 2030, and (3) be carbon-free by 2045.22 The legislature also enacted the Clean Buildings law requiring commercial buildings to meet certain energy efficiency performance standards (including energy use intensity targets) through implementing energy efficiency measures and/or conditional compliance plans by (1) June 1, 2026, for buildings with more than 200,000 gross square feet; (2) June 1, 2027, for buildings with more than 90,000 but less than 200,000 square feet; and (3) June 1, 2028, for buildings with more than 50,000 but less than 90,000 square feet.23 Most recently, in 2020, the legislature amended the Limiting Greenhouse Gas Emissions law, which requires GHG emission reductions in the state as follows: (1) by 2020, reduce GHG emissions to 1990 levels; (2) by 2030, reduce GHG emissions to 45% below 1990 levels; (3) by 2040, reduce GHG emissions to 70% below 1990 levels; and (4) by 2050, reduce GHG emissions to 95% below 1990 levels.24
The recently-issued State Energy Strategy also calls for eliminating natural gas from commercial buildings and residences. The Washington State Energy Strategy Advisory Committee Final Report acknowledges that “natural gas for heating and gasoline and diesel for transportation, currently warm and move much of the state,” but concludes that “meeting the [state’s clean energy goals, including the reduction of GHG emissions,] set by the legislature requires that the state largely transition away from the use of fossil fuels.”25 Among other “key actions” identified is the “[r]eplace[ment] of the direct consumption of fossil fuels, primarily natural gas, with high-efficiency electric heat pumps for space and water heating” in “Washington’s residences, offices, warehouses, shops, and other buildings.”26 HB 1084’s requirements are consistent with broader Washington State energy policy statements.
A trend moving up the west coast and beyond.
Although HB 1084 is the first state-level proposal, it is not the first natural gas ban in the United States, and it almost certainly will not be the last. The city of Berkeley, California, led the charge with a ban on natural gas infrastructure in most new construction in July 2019.27 Since then, Alameda, Morgan Hill, San Francisco, San Jose, Santa Cruz, and other California jurisdictions have adopted similar natural gas bans.28 All told, some 40 California municipalities have enacted laws or codes that require or incentivize certain types of new buildings to be all-electric.29 Local natural gas bans are also being considered in New York, Massachusetts, and Rhode Island.30
Progressive cities and counties in Washington are heading in the same direction. On February 1, 2021, the Seattle city council unanimously approved Mayor Durkan’s proposal to ban the use of natural gas for space and water heating in certain high-rise multifamily and commercial buildings.31 Like the state bill, it does not prohibit using natural gas for cooking, but it does require electrical outlets near natural gas appliances to allow such transitions to occur at a later time.32 The city of Bellingham is also considering a ban on natural gas that could apply to both new and existing buildings.33 Finally, the Thurston Regional Planning Council, consisting of Thurston County and the cities of Lacey, Olympia, and Tumwater, issued a Climate Mitigation Plan in December 2020 that recommended banning natural gas in new construction and converting natural gas to electricity in existing businesses and residences.34
Given the pace at which these proposals have been introduced, it is clear there is a paradigm shift in how natural gas will continue to be used in the state, with ripples extending up and down the west coast and possibly across the country.
1Natural gas needed to achieve net-zero emissions goals, energy leaders say by Corey Paul, SNL (Jan. 22, 2021), https://platform.mi.spglobal.com/InteractiveX/article.aspx?CDID=A-62227094-10040&KPLT=4.
2EPA, Greenhouse Gas Emissions, Overview of Greenhouse Gases, https://www.epa.gov/ghgemissions/overview-greenhouse-gases#:~:text=In%202018%2C%20methane%20(CH4,sources%20such%20as%20natural%20wetlands (last visited Jan. 27, 2021).
3A companion bill, Senate Bill 5093 (“SB 5093”), has also been proposed in the Washington state senate. The two bills have identical language and provisions. Throughout this post, references to HB 1084 apply equally to SB 5093.
4Report and Policy Statement on Investigation of Renewable Natural Gas Programmatic Design and Pipeline Safety Standards, Docket UG-190818 at ¶ 51 (WUTC, Dec. 16, 2020).
5HB 1084, Sec. 2.
6HB 1084, Sec. 2.
7HB 1084, Sec. 11(1)(a).
8HB 1084, Sec. 11(3); HB 1084, Sec. 12.
9HB 1084, Sec. 10(8); Id., Sec. 11(3).
10HB 1084, Sec. 11(4)(c).
11HB 1084, Sec. 3; Id., Sec. 4(6). For a discussion of the use of “reach codes” by local municipalities to ban natural gas throughout California, see ‘Banning’ natural gas is out; electrifying buildings is in by Tom DiChristopher, S&P Global Market Intelligence (July 8, 2020), https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/banning-natural-gas-is-out-electrifying-buildings-is-in-59285807.
12See, e.g., Washington Can’t Wait to Electrify by Jonny Kocher, Rocky Mountain Institute (Nov. 25, 2020), https://rmi.org/washington-cant-wait-to-electrify/
13HB 1084, Sec. 13.
14HB 1084, Sec. 13(2)(a)-(e).
15HB 1084, Sec. 13(2).
16HB 1084, Sec. 9(2); see also id., Sec. 8.
17HB 1084, Sec. 11(2).
18HB 1084, Sec. 8.
19HB 1084, Sec. 11(4)(d).
20HB 1084, Sec. 13(2)(d).
21HB 1084, Sec. 5(12).
22RCW 19.405.030(1)(a); RCW 19.405.040(1); RCW 19.405.050(1).
25Washington State Energy Strategy Advisory Committee Final Report 6 (Dec. 18, 2020), available at https://www.commerce.wa.gov/wp-content/uploads/2020/12/State-Energy-Strategy-Advisory-Committee-Report.pdf.
26Washington State Department of Commerce, Washington 2021 State Energy Strategy Key Actions, available at https://www.commerce.wa.gov/wp-content/uploads/2021/01/Key-Actions-2021-State-Energy-Strategy.pdf.
27‘Banning’ natural gas is out; electrifying buildings is in by Tom DiChristopher, S&P Global Market Intelligence (July 8, 2020), https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/banning-natural-gas-is-out-electrifying-buildings-is-in-59285807.
28‘Banning’ natural gas is out; electrifying buildings is in by Tom DiChristopher, S&P Global Market Intelligence (July 8, 2020), https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/banning-natural-gas-is-out-electrifying-buildings-is-in-59285807.
29Goodbye, gas heat? Proposals in Washington state seek to phase out fossil fuel heating in buildings by Tom Banse, Oregon Public Broadcasting (Jan. 26, 2021), https://www.opb.org/article/2021/01/26/goodbye-gas-heat-proposals-in-washington-state-seek-to-phase-out-fossil-fuel-heating-in-buildings/.
30Seattle mayor revives Seattle building gas ban with new legislation by Tom DiChristopher, S&P Global Market Intelligence (Jan. 13, 2021), https://platform.mi.spglobal.com/InteractiveX/article.aspx?CDID=A-62105862-11572&KPLT=4.
31Seattle City Council passes measure to end most natural gas use in commercial buildings and some apartments by Hal Bernton and David Gutman, The Seattle Times (Feb. 1, 2021), https://www.seattletimes.com/seattle-news/seattle-city-council-passes-measure-to-end-most-natural-gas-use-in-commercial-buildings-and-some-apartments/; Office of the City Clerk, Council Bill No. CB 119993, An Ordinance relating to Seattle’s construction codes; adopting the Seattle Energy Code and chapters of the Washington Administrative Code by reference and amending certain chapters of the Code; amending Section 22.101.010 of the Seattle Municipal Code; repealing Title 22, Subtitle VII of the Seattle Municipal Code; and repealing Sections 2 through 10 of Ordinance 125159 and Section 5 of Ordinance 125410, available at http://seattle.legistar.com/LegislationDetail.aspx?ID=4763161&GUID=A4B94487-56DE-4EBD-9BBA-C332F6E0EE5D (last visited Feb. 2, 2021).
32Seattle City Council passes measure to end most natural gas use in commercial buildings and some apartments by Hal Bernton and David Gutman, The Seattle Times (Feb. 1, 2021), https://www.seattletimes.com/seattle-news/seattle-city-council-passes-measure-to-end-most-natural-gas-use-in-commercial-buildings-and-some-apartments/; Seattle mayor revives Seattle building gas ban with new legislation by Tom DiChristopher, S&P Global Market Intelligence (Jan. 13, 2021), https://platform.mi.spglobal.com/InteractiveX/article.aspx?CDID=A-62105862-11572&KPLT=4.
33Washington Can’t Wait to Electrify by Jonny Kocher, Rocky Mountain Institute (Nov. 25, 2020), https://rmi.org/washington-cant-wait-to-electrify/.
34Thurston Climate Mitigation Plan, Framework for Climate Mitigation Action for Thurston County and the Cities of Lacey, Olympia, and Tumwater, Thurston Regional Planning Council at 79, 110–111 (Dec. 2020) (See discussion on Strategy B6 to convert to cleaner fuel sources.), available at https://www.trpc.org/DocumentCenter/View/8322/TCMP_Chapters?bidId=. See also Washington Can’t Wait to Electrify by Jonny Kocher, Rocky Mountain Institute (Nov. 25, 2020), https://rmi.org/washington-cant-wait-to-electrify/.