New data from developers shows banning natural gas in homes would increase housing costs
The Washington State Building Code Council (SBCC) is considering banning natural gas for residential construction. The proposal “would require new residential buildings to be built to be fully electric.” Board members are relying in part on an analysis conducted for CCSC by the Rocky Mountain Institute (RMI) and the New Buildings Institute.
RMI was kind enough to share their updated cost analysis of the proposal. This transparency is very welcome and, in my experience, typical of how RMI operates – they defend their position but are transparent about their analysis and arguments.
This analysis, however, has changed significantly from what was sent to CCSC members. The updated RMI figures themselves show that requiring residential construction to be all-electric would drive up costs for homeowners.
Also, RMI’s assumptions about energy costs are outdated. Using updated cost estimates shows that over the next decade, as electricity rates increase, natural gas costs will decline, contrary to the outdated projections cited by the original projections.
The main rationale for the proposed requirement is the claim that banning natural gas would “improve air quality and reduce greenhouse gas emissions”. The assumptions behind this claim are very outdated and updated information indicates that adopting the code would do nothing to reduce CO2 emissions.
In sum, these changes and inaccuracies show that the policy would increase homeownership costs while doing nothing to reduce statewide CO2 emissions.
The combination of these changes and the drastic change in the data indicates that CCSC should take a step back and reconsider the proposal.
Four elements of analysis deserve to be underlined.
New estimates show building costs for electrification driving up costs
The Rocky Mountain Institute has updated the life cycle costs (LCC) of the proposal and the previously claimed savings have turned into increased costs. In the filing provided to the SBCC, the proposal claims that there is “no impact on housing affordability, as it will actually save builders money.” The new data shows the opposite.
For construction in Seattle, the new data shows construction costs are $6,763.84 for a home with a natural gas furnace and air conditioning, and $3,402.84 without air conditioning. For an all-electric home, the construction cost is $6,847, adding between $3,400 and $83 to construction costs. The analysis for Spokane is similar.
The remaining lifecycle savings are now entirely dependent on utility cost reductions. These estimates, however, are outdated and updated information turns these purported savings into costs.
Updated utility cost projections turn savings into costs
Proponents of the regulation claim that “the World Bank’s long-term forecast points to an increase of more than 80% in gas prices over the next decade”. The Life Cycle Calculator tool provided by the OFM uses cost estimates from Federal Life Cycle Costing Manual. It indicates that by 2029, natural gas prices will increase by 13% and electricity costs will only increase by 2%.
The most recent data in this manual, however, have very different projections. He estimates that electricity costs will only increase by one percent, but natural gas costs will actually decrease by 7 percent.
In addition, over the long term, the new figures assume that electricity costs will increase, while the old projection assumed that electricity costs would decrease. The new projection for natural gas, long term, is that costs would increase by 14% in 2051, which is well below the old estimate of a 41% increase.
Using the new numbers significantly reduces potential savings. Using the old numbers, the electrification alternative saves $1,922 over the 50-year analysis period. Using the new numbers, the electrification alternative costs $303 After than using gas.
Using updated RMI building data and new energy cost projections from the federal government shows that the requirement to build all-electric would increase costs for both construction and utilities.
Erroneous estimates of CO2 emissions
Despite these increased costs, developers can still argue that regulations are necessary to reduce statewide CO2 emissions, thereby reducing potential damage from climate change. Again, the estimates used by the RMI are inaccurate.
The reference scenario used in the report indicates that residential CO2 emissions in 2020 amount to 11.4 million metric tons (MMT) of CO2. This estimate is used to calculate the potential reduction in CO2 emissions due to the new rule.
According to the Washington State Department of Ecology, the actual amount included in its 2018 emissions report (the most recent available) is 4.8 MMT of CO2. Of the state’s 98.5 million tons of CO2 emissions, only 6% comes from residential sources and 4.9% of the state’s total comes from residential natural gas.
The estimate included in the proposal is that electrification would reduce CO2 emissions by around 6 MMT in 2050. This seems unlikely since the current amount of natural gas related emissions is less than a quarter of the total projected savings .
By increasing the potential emission reductions, the proposal overstates the potential reductions.
Proposed restrictions would add nothing to total CO2 reductions
Even these exaggerated reductions are inaccurate. The report describes the assumptions regarding total CO2 emissions in the baseline scenario in relation to the natural gas ban and full electrification. These estimates come from the Washington State Energy Strategy Decarbonization Report, released in December 2020.
Since then, the state has adopted a strict CO2 cap that requires the state’s CO2 emissions to be halved by 2030 and to be 95% below 1990 levels by 2050. The assumed levels in the base case are now illegal and the proposed building requirements do not change these goals, they only dictate how they are to be achieved.
Put simply, this new rule does nothing to reduce CO2 emissions beyond what is already legally required. If these new requirements are not adopted, it will make no difference to Washington’s total emissions.
Arguably, requiring buildings to be electrified would facilitate the required transition, but the announced CO2 reductions disappear because the baseline scenario is outdated. In RMI’s revised assessment, the CO2 reduction represents between $7,000 and $11,500 of the claimed lifetime savings. Under current law, these savings are effectively zero.
The proposal to require all-electric residential construction was based on two demands which are both outdated. First, it would reduce the cost of construction and home ownership. Updated data from the RMI and the Federal Government show this to be incorrect. Second, it is argued that these restrictions are necessary to reduce statewide CO2 emissions. This is based on the 2020 political environment. Since then, Washington has adopted a CO2 cap, making baseline emissions assumptions inaccurate and illegal. In light of these significant changes, CCC members should table this proposal, if only to better understand the new data.