Panama Bartholomy on Policy & Market Incentives Needed to Drive Building Decarbonization

Panama Bartholomy

Gas from buildings produces twice as much smog pollution as all the cars and power plants combined in California. Panama Bartholomy, Founder and Executive Director of Building Decarbonization Coalition, outlines what market and government incentives are needed to facilitate, scale, and speed the decarbonization of buildings. Bartholomy also touches upon the Coalition's work nationwide, as well as COP 27, state and local building codes, and the “niche” for green hydrogen

Panama, VX News is delighted to catch up with you once again. My first question: how did you cook Thanksgiving dinner? Was it on a gas stove?

Well, we celebrated with a triple pandemic of RSV, flu, and COVID in our household, so we had a wonderful, isolated Thanksgiving.

But no, we have a beautiful Verona induction stove that we use to prepare all of our great Thanksgiving fixings. It was great because when you're locked inside and dealing with upper respiratory issues, you want to make sure that your cooking source is not exacerbating those problems like gas does; particularly in California when it's looking like we add really high levels of benzene to our gas now compared to other states.

For context, you began your public policy career with the California Energy Commission. Elaborate on the arc of your career.

I started off inside government because I saw the potential to have a larger impact—being able to work on policies that influence every building, rather than as an architect working on individual buildings. After about 20 years of working in this space, I really came to recognize that so much of the work that needs to be done is around bringing stakeholders together to be able to have hard, frank conversations about shared challenges and then to develop inclusive strategies.

I moved out of government into this nonprofit space in order to convene an odd set of voices, so that we can build the political coalitions necessary to bring about the changes at the speed and scale that are needed. I firmly believe that the most effective policies and strategies are the ones that are identified and adopted by the widest range of stakeholders—and they're also the most politically resilient ones as well.

You created and now lead the Building Decarbonization Coalition; elaborate on its mission and work.

The coalition focuses on the need to eliminate pollution from our building stock. In California, we've done a great job around power plants and cars. We haven't done a great job about reducing pollution from buildings: burning gas in buildings is producing twice as much smog pollution as all of our cars and power plants combined. It's particularly bad in areas like the five jurisdictions in California that are some of the top 10 worst air quality basins in the country. We need to get a handle on buildings if we're going to meet our Clean Air goals.

We started the coalition because we saw a bunch of these individual sectors—utilities, manufacturers of heating equipment, design, and construction—all working around this issue, but not communicating with each other, or if they were, it was quite often oppositional communication. We wanted to create a forum where we can bring people together, have uncomfortable conversations, get people to stretch and compromise a little bit to be able to get at least 80% agreement on the problems, and then the solutions that we want to work on together to overcome them.

The coalition seeks to be that convening force to help people deliver that vision. But at times we have to be a catalyzing force. There are solutions we can all agree on, but no one entity is well suited to be able to implement themselves. We raise our hand and say, “Okay, we'll kick this off.”

We work both on policy and on market solutions. They have to be one in the same. The policymakers cannot move forward with the types of policies we need without believing that the market is going to be able to deliver. The market is not going to make the changes that we need without policymakers setting the vision for this transition. It's an awkward dance, but we try to move forward both of those sets of players at the same time.

As a longtime, valued veteran of the VerdeXchange  Conference, which positions itself at the intersection of  policy and the market, share the opportunities, successes, and challenges the Coalition today faces in working to meet its goals?

We want to focus on the pollution from the entire nation's building stock. There are definitely areas that are farther along on policy and areas farther along on the market. The funny thing is, there's not always an overlap. You have places like the states of Washington, California, New York, and Massachusetts that are far ahead on policy, but they are not the ones that are implementing the most heat pumps for water heating or space heating. North Carolina, South Carolina, and Maine are getting up to 40% market share of heat pumps for their heating sources for very different reasons. There’s very cheap energy in the southeast, and very expensive fuel oil up in the Northeast.

You are starting to see a coalescing around the types of policies that are going to be necessary for us to meet the challenge of the speed and scale we want. They want policymakers to offer a definitive date upon which you would no longer be able to buy gas appliances within a jurisdiction or a state.

For example, California and New York have both now officially said as of 2030 you will not be allowed to buy a gas water heater or a gas furnace for the replacement moving forward. Together they are about 23% of gas demand in the United States, just about 22% of appliance sales in this area. This sets a clean line for the manufacturers, distributors, and installers to know what is coming, so they can then figure out what policy and market changes are necessary in order to be able to create the market that could actually support a policy that doesn't collapse under its own weight of workforce shortages, product shortages, or inefficient supply chains. We’ve got seven years to change California’s 95% gas market share for water heating and space heating. That's a big transition in a short amount of time, unlike anything we've seen so far.

I'd say some of the other challenges involves exploring some of the issues around electrification such as grid readiness or the perception of grid readiness, particularly in areas like California where we've been having issues keeping the lights on in the past. While those events are actually very small amounts of time in the grand scheme of things, it’s definitely very present in people's minds as they think about wholesale reliance upon electricity.  We not only need to make sure that we're building a stable and robust grid, but we also need to make sure that we're being very transparent and educating people about the realities of the grid.

A lot of people talk about the workforce and workforce issues. Usually, it's anecdotal, somebody says, “You know, I called five different installers before I could finally find somebody that would put in a heat pump water heater, and even they tried to talk me out of it. Therefore, we have a workforce issue.” Quite often you have people forgetting that we live in a capitalist society, and that actually there is a perfect equilibrium of supply and demand of services that the market has brought about exactly the amount of HVAC and water heating contractors that we need in order to meet demand.

Nothing that we are doing right now, through the Inflation Reduction Act (IRA) or state programs, is leading to a change in that demand. Therefore, we don't need an increased supply of workers or contractors. Yes, we're investing $9 billion out of the IRA into buildings over 50 states; and yes, we're investing about a billion dollars in California—that's not going to change the rate of turnover of appliances to the degree that we need a wholesale set of workforce. We do want to work with the existing workforce, to be able to help make it profitable for them to do what we consider the right thing, to change their business practices and the technologies that they actually put in place. But that's not a workforce training issue, as much as it is about us creating a market that people actually want to be a part of. Quite often environmental groups and policymakers forget  that these people are running businesses, and they can't lose money. They need to make money off of this moving forward, and so we need to be creating a market through market incentives that help them make a profit in that switch.

The Coalition's convening work, you assert, is primary to its mission. What are you learning from those conversations? Are you still learning after seven years of investment?

Every day. I think for me, some of the most fascinating conversations are those where I don't have a much of a background. My work with the manufacturers of heating equipment is always very fascinating. My work with the utilities and what they're having to deal with are always really fascinating.

One of the interesting things that I've learned is that the market is ready. What they're looking for is just what all the rest of us are looking for in life—they’re just looking for some TLC: transparency, longevity, and consistency of policy. That's what the market needs. That's what our policymakers aren’t giving them right now.

Right now, if you look at water heating and electrical work, it’s generally low wage, low skill. This incentivizes businesses to get the work done as quickly as possible and move onto the next house. They're not incentivized to make high-quality installations that work really well for customers or the grid. Also, it’s largely unpermitted, with some communities potentially having 80% unpermitted work. It also takes a long time. If we are going wait to replace all of these appliances until they break, that's every 12 years for a water heater, every 15 years for furnaces, and every 20 years for a stove. If we're truly trying to get to carbon neutrality in the next 20 years, that doesn't work. If all these things are happening in a neighborhood at once, you're basically having to maintain a gas system for those last vestiges of gas appliances on the system all the way up to the very end—and that's our most expensive and slowest route.

The other big thing I’ve learned is the struggle of being in our current moment of climate change, where there’s great concern, but not the political will to really meet the moment. The 2020s are going to be about getting our policy framework right, aligning the supply chain in the right way, and capturing market share so that by the end of this decade, when we're seeing terrible impacts of climate change and the political will is finally there, we're going to have a market and policy framework that will allow for speed and scale. What does that actually mean?

A political will-driven building decarbonization effort, that is at the speed and scale that we need, looks like what PGE is proposing to the PUC around CSU Monterey Bay right now. CSU Monterey Bay was historically a military complex that was then handed over to the CSU system. The military built a very old gas line out to supply gas to all 350 buildings on that campus, which now needs to be replaced under current gas safety regulations. PGE analysis found that it's going to be cheaper for ratepayers if they electrify all 350 buildings, rather than replace that gas. CSU Monterey Bay loves it—it meets their climate policies. PGE has said  that they have hundreds more projects that they’ve identified across their service territory that meet that criteria of “it is going to be cheaper to not replace this line, we need to instead electrify entire neighborhoods.”

That's the vision of what at-speed and scale building decarbonization looks like. It's not appliance by appliance, it's neighborhood by neighborhood—clipping whole branches off the gas system and using well-paid workers with pensions doing high-quality installations that are going to work for customers and the grid, and utilities bringing capital markets in at scale to be able to provide resources to get this done.

This is colloquially called, at this point, zonal electrification or zonal decarbonization—meaning you're doing more at the neighborhood and zonal level, rather than at the individual appliance level. Increasingly, we're seeing how more and more we need to be working towards that future, while also here in the 2020s, doing as much as we can about getting significant market share and preparing for that future. In short.

And on your conversations with the broadly diverse environmental community, elaborate on the policy friction, if any, among the coalition’s stakeholders regarding your market-focused approach to advocacy.

We're often viewed as being a representative of the “other side”. To environmental groups, we probably skew too much to the utility and manufacturing side. To the manufacturers and the utilities, we probably skew too much to the environmental side. That’s precisely the space that we want to inhabit.

We want to push everybody out of their comfortable positions of opposition into something that other people can work together on. For the environmental groups, who rightly want certain climate policies in place that help us avoid the worst impacts of climate change, we have to constantly give them a dose of reality about where the market is at, what's actually possible, and the backlash that can happen if we try to move at unrealistic speeds for what the market can provide.

For example, we sold about 80,000 heat pump water heaters in America last year. Here in California, we replace about 400,000 a year. So, the scale of the supply chain isn't up to even what our normal turnover rate is even in one state—granted the largest state. We need to continually work with the environmental community by saying, “Yes, we need ambitious policies, but it has to actually work for the market. We have to get installers to want to make this transition. We have to give time for the manufacturers to be able to change their manufacturing lines to make this possible. We have to be able to get the design and construction community to be able to get the skills and the capacity to learn how to install centralized heat pump water heating systems and high rises.”

These sorts of things take time and you can't just snap your fingers, like shutting down a coal plant, which is what so many of the environmental community think of. They focus on large-scale efforts, and we're talking instead about some of the smallest-scale efforts. The latter, quite often, is where we see some conflict.

Let’s turn to green hydrogen. In this interview, you seem to put all your eggs in electrification. Is there a place for alternatives to electrification?

There are sectors in our economy that are going to be very hard to electrify at this point, and probably for the next decade or so. Heavy industry, aviation, and heavy freight—electrification of these sectors is difficult and could potentially have a number of unintended consequences on the grid. I think that when you look at a resource as precious as green hydrogen, those are the highest and best uses for that green hydrogen.

Using green hydrogen in low-value applications, like my shower or keeping my house to 68 degrees, is not a great use for a green hydrogen. It's really inefficient. I compare it to washing your hands with fine wine: you can do it, but it's a complete waste of a precious resource. Making green hydrogen assumes that 1) you're taking renewable electricity 2) storing it as hydrogen (going through a transformation process and losing some energy in that transfer) and 3) then you're using it on site (so you're losing some energy on that process). That doesn't make a lot of sense for something like heating water when you can just use that original electricity in a 300% efficient heat pump water heater.

Green hydrogen is also very expensive to make. We already have challenges of energy-burdened families in California that pay a disproportionate amount of their income to energy. I don't know that we want to be putting the cost of this really high-value resource on the back of those communities.

If the price to create and supply green hydrogen were to drop significantly through breakthroughs in electrolysis, would your argument still be the same?

The thing about gas utilities is that they're not just gas utilities. Across America, these gas utilities tend to be infrastructure entities with 90% of their revenue coming from laying and then maintaining pipe. One of the issues of green hydrogen is that it’s an incredibly small molecule. Therefore, it's much easier to leak than CH4 (natural gas). It’s also a much worse pollutant than carbon dioxide—we do not want this green hydrogen leaking out from the pipes into the atmosphere; not only because it's expensive, but also because it's dangerous.

Our current pipeline system isn't well suited for hydrogen. What this means is that at the same time we're trying to electrify so much of our society, we'd also be building an entirely new gas system for hydrogen. Even if we're lowering the cost of the throughput—the thing that we're putting through the pipes— we’de still be paying for the building and maintaining of this new system. That's the vast majority of our cost right now as gas ratepayers. You can lower the costs and that'll be great, but building out that entirely new system and maintaining it is going to keep our prices either at a similar or even a higher rate moving forward.

Last question re green hydrogen. There is increased attention and interest at the state and federal level on nationally funding “hydrogen hubs," with billions of dollars likely going into these hubs, both public money and exponentially more private investment. Do you see that as a positive or a negative development re the Coalition’s advocacy goals?

Absolutely positive. We need long duration storage, and I think hydrogen has a real role to play. However, we need to decide how to use the precious resource for its best use.

Pivioting to COP 27 outcomes. Were the latter proceedings relevant to your work?

There is always a buildings’ hub, but buildings took a much larger role in COP 27 than they ever have. There was a very large report, a policy framework for heat pump technology released at COP 27 that got a lot of attention and should set a lot of the conversation about what are the changes needed at the national and sub national level to really push electrification. Buildings played a much larger role in the official dialogue among delegates as well. Nothing concrete coming out, but we're encouraged that buildings are starting to have more visibility in the proceeding.

Likewise, statewide building codes?

One of the first things we need to be doing is to stop digging the hole any deeper on our dependency on fossil fuels. The easiest and most cost-effective way to start that is to stop putting new pipe in the ground. The best way to go about doing that is statewide building codes that say we need to be moving towards an all-electric construction.

Modern gas pipeline technology has a 60 to 80-year life. We're trying to get to carbon neutrality in 20 years. There's a mismatch between putting new pipe in the ground and committing to paying off that investment over time, while trying to get off that very system at the same time. Our manufacturing members, our utility members, design, and the construction community are all in agreement that the best place for that to happen is at the state level. State-level leadership in creating a consistent market across the entirety of California is the best way for us to be making this transition.

We update the building code every three years in California. Last year, the Energy Commission adopted a new code for 2022 that's going to be moving us heavily towards electric heating for water and space. In 2025 they'll be putting in place a new code again. The question is will that code be all electric? Or will it not? 

The leadership at local governments, currently 60 local governments across California and likely LA and San Diego joining them in Q1 2023, is really pressing the Energy Commission; but, also giving them the political courage in order to be able to move towards more of a statewide solution, rather than bifurcated broken up local solution.

Lastly, If the Governor Newsom were to offer you an appointment to the California Energy Commission or the California Public Utilities Commission, it appears  you would likely say no. Correct?

That is right. We need great people in public service, and I don't know if there's been a harder time to be in public service right now with everything we have to deal with. We also need people to be able to bring constituencies together so that we can bring packages and opportunities to those public servants to help them. I think that’s the most important role that I can play right now.

“Quite often, what environmental groups and policymakers forget is that these people are running businesses, and they can't lose money. They need to make money off of this moving forward, and so we need to be creating a market through market incentives that help them make a profit in that switch.”—Panama Bartholomy