California Eliminates Subsidies for New Natural Gas Connections to Advance Building Decarbonization

The California Public Utilities Commission on Sept. 15 announced the removal of subsidies for new natural gas connections, a first-in-the-nation move to accelerate the decarbonization of the state’s buildings. This decision, which eliminates the subsidies effective on July 1, 2023, is expected to lower utility bills, saving consumers about $164 million per year by accelerating the electrification of homes and commercial buildings.

The development of new natural gas infrastructure is no longer a wise use of subsidy with California seeking to phase out the use of natural gas in the building sector to decarbonize it, according to the press release.

A quarter of California’s greenhouse gas emissions are generated by the building industry and natural gas usage in buildings contributes to about 10 percent of statewide emissions. To offset the costs of broadening natural gas pipelines to new residential or commercial buildings, builders are currently entitled to receive subsidies funded by natural gas consumers.

The subsidies were originally introduced at a time when natural gas was being encouraged as a cleaner alternative to coal and oil, and electricity was not as clean as it is now. However, natural gas extension subsidies will be extended to exceptional projects that meet the commission’s criteria. The program will only be available for projects that reduce greenhouse gases, are in line with the state’s climate goals, and lack feasible substitutes for the use of natural gas, such as electrification.

Earthjustice commended the decision, saying that besides saving California ratepayers money, all-electric homes also help the environment by preventing harmful expansion of gas distribution systems.

In April 2022, the commission extended incentives for electric appliances as part of its efforts to combat climate change and promote building decarbonization. In conformity with previous decisions, the agency accepted the budgets, stimulus levels, and another prerequisite for the Heat Pump Water Heater program as part of the Self-Generation Incentive Program.

The decision is part of a proceeding initiated by the commission in January 2019 to consider policy frameworks that support the decarbonization of buildings. The first phase of the proceeding established two pilot programs, the Building Initiative for Low Emissions Development Program which provides incentives to new residential housing projects that are all-electric and have no hookup to the gas distribution grid and the Technology and Equipment for Clean Heating Initiative, a market transformation program providing incentives to advance the adoption of low-emission space and water hearing technologies.

In the second phase, the commission adopted guidelines for layering incentives when multiple programs fund the same equipment. For example, a new Wildfire and Natural Disaster Resiliency Rebuild program was established to assist victims of wildfires and natural disasters with rebuilding all-electric properties.