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DECARBONIZING BUILDINGSIN MARYLANDBUILDINGS SUBGROUP REPORT TO THE MITIGATION WORK GROUPSEPTEMBER 21, 2020

DisclaimerIn April 2020, the Maryland Climate Change Commission’s (MCCC) Mitigation Work Group(MWG) agreed to create an ad hoc group of volunteers, both members and non-membersof the MWG, focused on developing recommendations for decarbonizing buildings inMaryland. This report summarizes topics explored by the Buildings Subgroup betweenJune and September, 2020, including content presented by subgroup participants andexpert panelists. A brief literature review to intends to fill in knowledge gaps.Recommendations included herein are generally supported by subgroup participants,however, this is not a consensus report. A number of the subgroup’s 55 regularparticipants (see Appendix A) oppose some or all of the recommendations. See thediscussion following each recommendation for a brief summary of opposition and support.A few participants also voiced concern for the overall process, raising legitimate concernthat the subgroup did not have enough time or analytical support to fully deliberate theimplications of the subgroup’s recommendations. The authors of this report agree thatmore time and analytical support would have been beneficial. Several of therecommendations included herein lack the detail that may be needed to implement therecommended changes. Readers of this report should note that this subgroup nor theMitigation Work Group nor the Commission on Climate Change have decision-makingpower over State statute, policy, or programs. If the Administration, General Assembly, orother entities pursue any of these recommendations, then separate public processeswould be initiated to fully vet these issues.Lastly, most energy cost figures included in this report are based on historical energy ratesand do not include a social cost of carbon, projected carbon pricing, or other measures ofsocietal, economic, or environmental benefits of reducing greenhouse gas emissions orother pollutants. However, the EmPOWER Maryland Energy Efficiency Act process doesinclude some of these measures in its cost-benefit analysis.2

Table of ContentsExecutive Summary . 4Introduction . 6Deep Decarbonization Pathway for Buildings . 7Efficiency . 7EmPOWER: Success Story and Market Capacity Builder . 7EmPOWER: Opportunities for Emissions Reductions and Equity Considerations . 8Electrification . 10Emissions from Space Heating Systems . 11ASHP Cost Effectiveness in Homes . 11ASHP Cost Effectiveness in Commercial Buildings . 14Caution on Commercial and Industrial Building Diversity . 16Caution on HSPF/SCOP Ratings. 16ASHP Water Heaters . 16Induction Cooking . 17Electrification Emissions Modelling . 18Electricity Grid Implications from Electrification . 18Renewable Fuels . 19Lowest Cost Pathway – Findings from Other States. 20California . 20Washington . 20Oregon. 21New Jersey . 21Recommendations . 22Goal 1: Adapt EmPOWER for Beneficial Electrification . 22Goal 2: Construct Carbon Neutral New Buildings . 25Goal 3: Develop an Energy Transition Plan. 28Goal 4: Prioritize Benefits to Underserved and Limited-Income Consumers and Households . 30Appendix A – Buildings Subgroup Participants . 31Appendix B – IECC Climate Zone Map . 333

Executive SummaryDirect fuel use in residential, commercial, and industrial (RCI) buildings accounted for 18% of Maryland’sgross greenhouse gas emissions in 2017 and is projected to become the second largest source ofemissions, behind transportation, within 10 years as emissions from electricity generation continue todecline. The State’s 2019 Greenhouse Gas Reduction Act (GGRA) Draft Plan includes few measures fordecreasing direct emissions from buildings. For Maryland to meet its target of an 80-95% reduction ingross emissions by 2050, it will need to achieve deep emissions reductions from its buildings sector.Residential and commercial buildings in Maryland produced 77% of RCI emissions in 2017 and are thefocus of this report. Almost all fossil fuel use in homes and businesses serve just three end-uses – spaceheating, water heating, and cooking. A literature review shows a common approach to decarbonizingbuildings focusing on at least two, if not all three, of the following core strategies:Efficiency – Improving the thermal performance of building shells and the efficiency of fossil fuelheaters can reduce emissions but efficiency alone would not likely reduce emissions enough toachieve GGRA targets. An 80-95% reduction in the heating energy use of the entire buildingstock would be needed to achieve a roughly 80-95% reduction in direct emissions from buildingswithout additional strategies. Efficiency is a critical component of decarbonizing buildings butmust be coupled with electrification and, to a smaller degree, renewable fuels.Electrification – Electrifying fossil fuel end-uses is a critical part of decarbonizing buildings.Electric heat pumps can be cost effective for new construction and for some building retrofits.The most efficient air source heat pumps installed in 2021 can eliminate direct emissions andreduce total emissions (including emissions from the electric grid) 63% compared with the mostefficient gas furnaces and 76% compared with the most efficient oil boilers over 15 years ofoperation. Emissions reductions are even greater with ground source heat pumps. Analysis bythe U.S. Department of Energy finds that it is currently cost effective in Maryland for 99% homeswith propane, 95% of homes with oil, and 20% of homes with natural gas space heating systemsto switch to an efficient air source heat pump at the point of replacement for the airconditioner. Heat pump water heaters and induction cooktops are proven replacements forcombustion alternatives and round out the equipment selection for most all-electric buildings.Renewable Fuels – The potential supply of renewable natural gas (RNG), power-to-gas,hydrogen, and other fossil gas alternatives (FGAs) is limited and expensive. RNG, which has thegreatest supply potential of the FGAs, could replace only 10% of Maryland’s current natural gasconsumption in buildings by 2050 and is expected to remain at least three times as expensive asfossil gas for at least the next 30 years. FGAs could be useful for decarbonizing the hardest toelectrify sources such as heavy transport, industrial processes, and combined heat and powerbut are likely too limited and expensive to be a significant factor in decarbonizing typical lowtemperature heating needs including space and water heating.Several states including Washington, Oregon, California, and New Jersey recently published results fromstudies on decarbonizing buildings and generally found that electrification-focused scenarios offer thelowest cost and lowest risk pathways for achieving those states’ emission reduction goals. A few statesfound that building electrification presents various benefits: reduced stranded assets of infrastructure,increased energy efficiency, increased financial savings, and increased flexibility to achieve emissionsgoals.4

New Jersey, with climate conditions and energy rates similar to Maryland’s, offers valuable insights intheir recent Energy Master Plan. New Jersey found that “electrification reduces annual costs by 50% in2050, compared to retaining gas use in buildings” if the state is to meet its emissions target (80% below2006 levels by 2050) and that “electrification is the most cost-effective path to achieving furtheremissions reductions” beyond the 80% reduction target. The state’s strategy for decarbonizing buildingsis summarized this way:The building sector should be largely decarbonized and electrified by 2050 with an early focus onnew construction and the electrification of oil- and propane-fueled buildings. New Jersey mustelectrify its state facilities, partner with private industry to establish electrified buildingdemonstration projects, expand and accelerate the current statewide net zero carbon homesincentive programs for both new construction and existing homes The state must also developa transition plan to a fully electrified building sector, including incentivizing appliances likeelectrified heat pumps and hot water heaters.Using the literature, including New Jersey’s Energy Master Plan, as a guide, the Buildings Subgroupdeliberated over three months and developed, with broad but varying levels of support, the followingrecommendations:Goal 1: Adapt EmPOWER for Beneficial ElectrificationRecommendation 1: Enable Fuel-Switching to let Marylanders Choose Lowest Cost and Lowest CarbonEnergy SystemsRecommendation 2: Let EmPOWER Facilitate Beneficial Electrification and Greater Energy EfficiencyRecommendation 3 [Option A]: Target 50% of Space Heater Sales to be Electric Heat Pumps by 2025Recommendation 3 [Option B]: Establish Residential Heat Pump Retrofit GoalsGoal 2: Construct Carbon Neutral New BuildingsRecommendation 4 [Option A]: Require All-Electric and Energy Efficient New Homes by 2025 and NewCommercial Buildings by 2026 with Cost ControlsRecommendation 4 [Option B]: Require All-Electric and Energy Efficient New Homes by 2025Recommendation 5: Incentivize Net-Zero Energy, Energy Efficient, All-Electric New BuildingsGoal 3: Develop an Energy Transition PlanRecommendation 6: Produce an Energy Transition Plan by the end of 2021Goal 4: Prioritize Benefits to Underserved and Limited-Income Consumers and HouseholdsRecommendation 7: Prioritize an Equitable Level of Benefits for all MarylandersRecommendation 8: Improve Interagency Coordination for Wholistic Building Retrofits5

IntroductionMaryland Department of the Environment’s (MDE’s) greenhouse gas inventories1 show that direct fueluse in residential, commercial, and industrial (RCI) buildings accounted for 18% of Maryland’s grossgreenhouse gas emissions in 2017 and was the third largest source of emissions behind transportationand electricity use. Between 2006 and 2017, direct emissions from Maryland’s buildings decreased 18%due to a halving in emissions from Maryland’s industrial sector. Modest emissions reductions inresidential buildings were counteracted by emissions increases in commercial buildings. On net, directemissions from residential and commercial buildings increased 2% during this period.The 2019 Greenhouse Gas Reduction Act (GGRA) Draft Plan2 includes few measures for decreasing directemissions from buildings. The Draft Plan currently estimates that emissions from buildings would remainflat through 2050 and become the second largest source of emissions around 2030 as electricity useemissions continue to decline. For Maryland to meet its target of an 80-95% reduction in grossemissions by 2050, it will need to achieve deep emissions reductions from its buildings sector.3 Studiesshow that decarbonizing buildings is more cost effective than mitigating or sequestering emissions fromother sectors,4 so the State should aim to achieve buildings sector reductions at least on pace withstatewide emissions reduction targets.Table 1: Direct Emissions from Buildings in Maryland (MMtCO2e)2017 Emissions(latest inventory)5.4Change, 2006-2017Residential2006 Emissions(baseline)6.0Commercial4.55.3 18%Industrial6.43.2- 50%Total16.913.9- 18%2050 Target(80-95% reduction)- 10%0.8 - 3.4As of 2017, direct emissions from buildings resulted from the combustion of natural gas (70%), heatingoil (9%), coal (5%), wood (5%), liquefied petroleum gas (LPG)/propane (4%), and various other fuels(7%).5 Coal and heating oil (also called distillate fuel) have the highest carbon intensity among thesefuels and should be replaced, when cost effective and with assistance from State programs, with cleanersources. However, because natural gas combustion causes 70% of total RCI fuel use emissions andrepresents 80% of direct emissions within the residential and commercial sectors,6 it must be a focalpoint of the State’s decarbonization plan.1MDE. Greenhouse Gas Inventories for 2006 and Change/Pages/GreenhouseGasInventory.aspx2 MDE. 2019 GGRA Draft Plan. October 2019. A)--Draft-Plan.aspx3 The 2019 GGRA Draft Plan shows that only one of four modeled policy scenarios would come close to achieving the State’sminimum emissions reduction target for 2050. The three policy scenarios that exclude deep decarbonization of the buildingsector do not reach the target.4 Global Commission on the Economy and Climate. New Climate Economy technical note: Quantifying the multiple benefitsfrom low-carbon actions in a greenhouse gas abatement cost curve framework. January 2015.5 MDE. Greenhouse Gas Inventories for 2006 and 2017.6 ibid6

Deep Decarbonization Pathway for BuildingsSeveral federal and state agencies, nongovernmental organizations, and research groups have publishedstudies and reports on measures for decarbonizing buildings. A literature review shows a commonapproach that focuses on at least two, if not all three, of the following core strategies: Efficiency,Electrification, and Renewable Fuels. This section briefly describes the potential opportunities andlimitations of each strategy and ends with conclusions that other states reached when these strategieswere evaluated synergistically.EfficiencyEnergy efficiency should be a primary goal for any emissions reduction plan, especially since itrepresents a suite of measures that typically reduce costs while reducing emissions.7 Theoretically,Maryland could reach its 2050 emissions target through efficiency alone without electrifying fossil fuelend-uses or utilizing renewable fuels; logic suggests that an 80-95% reduction in the heating energy useof the entire building stock would roughly translate to an 80-95% reduction in direct emissions frombuildings. Of course, there are cost effectiveness limitations for efficiency measures, so the lowest costdeep decarbonization pathway for buildings is likely balanced between efficiency, electrification, and,possibly, renewable fuels.EmPOWER: Success Story and Market Capacity BuilderMaryland has a proud history of running efficiency programs that provide financial benefits forratepayers and participating utility companies. EmPOWER has often been recognized as a top energyefficiency program in the country, repeatedly ranking in the top ten most energy-efficient states in thenation according to ACEEE annual scorecards.8 The EmPOWER Maryland Energy Efficiency Act (MarylandPublic Utilities § 7-211) requires Maryland’s largest electric utility companies to develop programs thatachieve an annual energy savings goal of 2% of gross energy sales through 2023 by providing customerswith energy efficient options. In enacting the EmPOWER Maryland Energy Efficiency Act in 2008, theMaryland General Assembly noted that “energy efficiency is among the least expensive ways to meetthe growing electricity demands of the State” (Id.§ 7-211(b)). EmPOWER programs are administered bythe Maryland Public Service Commission (PSC) with consultation by the Maryland Energy Administration(MEA) and Office of People’s Council (OPC).9Residential, commercial, and industrial customers can find financial incentives under EmPOWERprogram offerings.10 Programs include lighting and appliance rebates for homeowners, HomePerformance with ENERGY STAR, commercial lighting rebates, and energy efficiency services forindustrial facilities. EmPOWER programs are managed by the following utility companies: Baltimore Gasand Electric Company (BGE), Potomac Edison Company, Delmarva Power & Light, Potomac ElectricPower Company (PEPCO), Southern Maryland Electric Cooperative, and Washington Gas Light Company7Global Commission on the Economy and Climate. New Climate Economy technical note: Quantifying the multiple benefitsfrom low-carbon actions in a greenhouse gas abatement cost curve framework. January 2015.8 ACEEE. Maryland EmPOWER. 2017. d-will-save-customers9 PSC EmPOWER, ryland/10 Maryland Public Service Commission. EmPOWER Maryland Report. 2019.7

(WGL). The Department of Housing and Community Development (DHCD) oversees the two limitedincome programs. There is a Low-Income Energy Efficiency Program (LIEEP), a weatherization programin which qualifying participants receive no cost direct install, health and safety, and weatherizationmeasures. There is also a Multifamily Energy Efficiency and Housing Affordability Program (MEEHA), afinancing mechanism for the installation of qualifying energy efficiency measures in both the residentialand commercial spaces of housing developments.EmPOWER is successful at what it was mainly designed to do: reduce per capita electricity consumptionand peak demand. By 2020, EmPOWER saved a total of 10,670,600 MWh and