City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: September 8, 2025
Report #:2507-5020
TITLE
Adoption of an Emergency Ordinance Amending Palo Alto Municipal Code (PAMC) Chapter
16.04 to Add Local Administrative Amendments Related to Certificates of Occupancy and Definitions to the 2022 California Building Code, and an Emergency Ordinance Amending PAMC Chapter 16.17 to Adopt the 2025 California Energy Code and Local Amendments Thereto. CEQA Status – Exempt Under CEQA Guidelines Section 15061(b)(3) and 15308.
RECOMMENDATION
Staff recommends that the City Council:
1. Adopt, by a four-fifths majority, the attached emergency ordinance (Attachment E) to incorporate administrative amendments into Palo Alto Municipal Code 16.04, which implements the California Building Code, and
2. Adopt, by a four-fifths majority, the attached emergency ordinance (Attachment F) amending PAMC Chapter 16.17 to incorporate the 2025 Edition of the California Energy Code with local amendments related to energy efficiency.
EXECUTIVE SUMMARY
Staff requests Council consideration of two emergency amendments to the California Building Standards Code (CBSC) in response to new state law, ahead of the scheduled October triennial update. The first amendment addresses definitions and certificate of occupancy requirements, while the second introduces new energy reach codes for single-family homes, focusing on air conditioning unit replacement and FlexPath requirements for major remodels.
The CBSC (CCR, Title 24) is updated every three years, and local jurisdictions may adopt it as published or with more stringent amendments. The City has historically adopted stronger Energy and Green Building standards to promote sustainable, low-emissions construction.
AB 130 (2025) restricts local amendments to residential building standards after October 1, 2025, unless certain exemptions apply. The proposed administrative amendments to the City’s 2022 building code must be adopted before September 30 to remain eligible for renewal, while
early adoption of energy reach codes is recommended to strengthen climate resilience.
Additional climate-related amendments will be brought forward in October when model code language becomes available, and other amendments related to new construction will be considered in 2026 following completion of statewide cost-effectiveness studies.
BACKGROUND
Every three years, California updates its Building Standards Code, known as Title 24, to incorporate the latest technology, best practices, and policy goals for safe, efficient, and sustainable buildings. Title 24 includes requirements for building safety, energy efficiency, and green building practices. The California Green Building Standards Code (CALGreen) sets the statewide baseline for sustainable design, such as water efficiency and waste reduction, while the California Energy Code establishes minimum energy efficiency standards for insulation, heating and cooling systems, lighting, and solar. The Energy Code increasingly uses metrics such as “source energy” to account for the total fossil fuels and other resources consumed in supplying energy to a building.
State law requires that local amendments to the Energy Code be both energy-saving and cost- effective relative to the base codes. To make these findings, the City relies on cost-effectiveness studies, generally performed by the California Energy Codes and Standards Statewide Utility Program working group, which provide the technical basis to justify higher standards. Using these studies, local governments may adopt “reach codes,” ordinances that exceed the state’s minimum requirements, to meet community-specific sustainability and energy goals.
The City of Palo Alto updates its building codes every three years in alignment with the state’s code cycle and often adopts local amendments that go beyond state minimum requirements. In 2008, Palo Alto established its first Energy Reach Code, and since then has regularly expanded its local green building and energy reach codes to advance climate action priorities, including those in the Sustainability and Climate Action Plan (S/CAP). The proposed amendments for the 2026–2028 Building Standards Code Cycle continue this approach and are detailed later in this report.
Timing Considerations
In most code cycles, local amendments to the Energy Code for single-family, multi-family, and non-residential building types are adopted together and take effect on January 1 of the first year of the cycle. For the upcoming 2026–2028 cycle, however, two factors will alter the timing and sequencing of some amendments.
First, the California Legislature passed AB 130 in June 2025, limiting the ability of local jurisdictions to adopt most new local amendments to Title 24 building standards affecting residential units after October 1, 2025. To ensure these proposals can be considered by the City Council before that deadline, staff is advancing the single-family Energy Reach Code recommendations now.
Second, reach codes for all residential building types cannot yet be proposed because Energy Code amendments depend on the completion of cost-effectiveness studies. These studies, typically completed by June of the year before the code cycle, are essential for justifying standards that exceed the state minimum. This year, the studies for multi-family residential and non-residential new construction have been delayed until late 2025 or early 2026, preventing staff from developing multi-family reach code proposals in time for the AB 130 deadline.
As a result, any new reach codes for multi-family residential new construction will likely need to be adopted after October 1, 2025, using one of AB 130’s exemptions. The non-residential provisions are not subject to AB 130’s moratorium. This staged approach is intended to keep Palo Alto aligned with the state’s triennial code updates while advancing local amendments that reflect the City’s sustainability priorities and climate action goals.
Phased Implementation Strategy
To address both the timing constraints created by AB 130 and the City’s long-term sustainability objectives, staff recommends the following phased approach for adopting California Building Standards and local code amendments:
September 2025: Adopt select local amendments to the 2022 California Building Code, effective immediately, and 2025 California Energy Code, effective January 1, 2026. October 2025: Propose adoption of the remaining parts of the 2025 California Building Standards Code, including re-adoption of currently active reach code amendments, also effective January 1, 2026.
Spring 2026: Propose additional local amendments to the new construction Energy Code for all building types, with an effective date of July 1, 2026, pending completion of cost-effectiveness studies to support potential changes.
Proposed September 2025 Urgency Ordinance Amendments
This item includes adoption of two separate emergency ordinances:
1.Administrative Amendments to PAMC Chapter 16.04: These targeted changes, which clarify certificate of occupancy requirements and applicability of certain definitions, are intended to improve clarity and streamline code application. Although administrative in nature, they are subject to AB 130’s moratorium on new amendments to Title 24 provisions that apply to residential units, and must be adopted prior to October 1, 2025 to remain enforceable without restriction. Adoption as an urgency ordinance would allow them to take effect immediately and later serve as the basis for renewed local amendments under AB 130’s exemptions.
2.Local Amendments to the California Energy Reach Code for Single-Family Homes, Duplexes, and Townhomes: These proposals, supported by cost-effectiveness analysis, include:
oAir Conditioner Time-of-Replacement Requirement – Requires specified energy efficiency measures or installation of a heat pump system as the primary heating source when replacing or installing an air conditioner. Exceptions are provided for electrical panel limitations or oversized heating needs. oFlexPath for Major Remodels – Requires additions or alterations over 1,000 square feet to incorporate a flexible package of efficiency or electrification upgrades selected from an approved menu of measures, allowing for customization based on project scope and building characteristics. oTogether, these amendments are intended to reduce fossil fuel reliance, lower greenhouse gas emissions, and prepare homes for a more efficient, electric- ready future, while aligning with state requirements, advancing Palo Alto’s climate action targets, and supporting timely adoption before AB 130’s October 1, 2025 deadline. While adopting these amendments before October 1 (via an emergency ordinance) may allow the City to avoid the AB 130 moratorium, AB 130 is a new law and its interpretation is untested. City staff will be prepared to bring the energy reach code for re-adoption later on using exemptions to the moratorium if necessary.
Table 1 below provides an overview of the timeline for adoption of the proposed local reach code amendments.
Table 1. Local Code Amendment Timeline
Table 1: Local Code Amendment Timeline
Local Code AmendmentsAdoption
Date Green Building Reach Code Energy Reach Code
September
2025
None Air Conditioner Time of
Replacement
FlexPath
October
2025
Carry forward previous local Green
Building Code amendments1 (including
CALGreen Tier 1 & 2 adoption)
LEED Certification Alternative
Compliance Pathway
Embodied Carbon Threshold
EV Readiness
Carry forward previous local
Energy Code amendments, as
supported by cost effectiveness
studies
Spring 2026
None Potential additional Energy Code
amendments as supported by
newly available cost
effectiveness studies and model
1 More detail provided in Attachment A
Table 1: Local Code Amendment Timeline
Local Code AmendmentsAdoption
Date Green Building Reach Code Energy Reach Code
code language. E.g., Gas
Water Heater Time of
Replacement
ANALYSIS
Administrative Amendments to PAMC Chapter 16.04
PAMC Chapter 16.04 implements the California Building Code within the City. Staff are proposing targeted amendments to improve the code’s clarity. The proposed changes include:
Certificate of Occupancy Requirements – Clearly establishing which types of buildings or occupancies must obtain a certificate of occupancy prior to use. Definitions – Clarifying applicability of certain definitions.
These amendments refine both the administrative and technical provisions of the adopted codes that fall within the City’s local authority. Adoption prior to AB 130’s October 1, 2025 deadline is intended to keep these provisions enforceable without restriction. Staff recommends the Council adopt an ordinance codifying these changes, which staff will promptly file with the California Building Standards Commission. By adopting the ordinance as an emergency ordinance, Council intends the changes to take effect before AB 130’s October 1, 2025 deadline, allowing the City to renew these local amendments in the future.
Local Amendments to the California Energy Reach Code for Single-Family Homes, Duplexes, and Townhomes
Potential Energy Code local amendments require cost-effectiveness studies before they can be adopted. They must be more stringent than the California Energy Code, generally using the metrics established by that code (such as source energy). At this time, staff are proposing two different types of energy code amendments that are supported by the appropriate cost- effectiveness studies:
Time of replacement requirements for air conditioners that would require either energy efficiency measures or installation of heat pumps when equipment is replaced. Time of remodel requirements that would require a flexible combination energy efficiency or electrification measures known as ”FlexPath”.
AC to Heat Pump Time of Replacement Requirement
The proposed ordinance would require that projects in single-family homes, duplexes and townhomes involving replacement or alteration of an existing air conditioning system or installation of a new air conditioning system must either include a heat pump space conditioner as the primary heating system or install specific energy efficiency measures. The attached study commissioned by the California Codes and Standard Program (see Attachment B) has found that the proposed requirements are cost-effective and will result in a reduction in Long-Term System Cost (LSC)2 energy. Heat pumps are far more efficient than gas furnaces and result in fewer greenhouse gas emissions.
If a project applicant installed a heat pump (an air conditioner that is also configured to function as a space heater) they could either replace the furnace with an air handler unit or leave the furnace in place to serve as the air handler for the heat pump and as a back-up heating system. California Energy Code requirements would apply; these vary depending upon whether the duct system is replaced at the same time.
Alternatively, a project could comply by installing an air conditioner but relying on a gas furnace for space heating. Again, certain California Energy Code requirements would apply when replacing an air conditioner. In addition, this alternative would require other energy efficiency measures including attic insulation and air sealing.
Table 2 presents four different compliance paths. Note that additional requirements would apply where the air conditioner is not configured as a heat pump space conditioner.
Table 2: Summary of Requirements
System Ducts
Condition State Code Requirements Additional Local Code Requirements
Existing
Duct sealing (10% leakage)
Airflow efficiency (300 CFM/ton)
Refrigerant charge verification
None
Heat
Pump
New
Duct sealing (5% leakage)
Airflow efficiency (350 CFM/ton)
Fan efficacy (0.58 W/CFM)
Refrigerant charge verification
Attic insulation (R-49)
Air sealing
R-8 Duct insulation
None
Existing
Duct sealing (10% leakage)
Airflow efficiency (300 CFM/ton)
Refrigerant charge verification
Fan efficacy (0.45 watts/CFM)
Attic insulation (R-49)
Air sealing
AC
New Duct sealing (5% leakage) Refrigerant charge verification 2 Formerly known as Time Dependent Valuation (TDV) energy cost savings, LSC reflects the Energy Commission’s current LCC methodology, which is intended to capture the total value or cost of energy use over 30 years. This method accounts for the hourly cost of marginal generation, transmission and distribution, fuel, capacity, losses, and cap-and-trade-based CO2 emissions (California Energy Commission, 2023). This is the methodology used by the Energy Commission in evaluating cost-effectiveness for efficiency measures in the 2025 Energy Code.
Table 2: Summary of Requirements
System Ducts
Condition State Code Requirements Additional Local Code Requirements
Airflow efficiency (350 CFM/ton)
Fan efficacy (0.45 W/CFM)
Attic Insulation (R-49)
Air sealing
R-8 Duct insulation
Fan efficacy (0.35 watts/CFM)
The 2025 Single Family AC to HP Cost Effectiveness Study attached as Attachment B finds some incremental costs associated with converting to a heat pump, but these costs can be offset by utility bill savings over the lifetime of the equipment. The lifetime of a furnace and air conditioner are about the same, so it often makes economic sense to replace both if the furnace is near the end of its life. In this scenario, the cost of the furnace replacement is assumed as part of the base project cost. Alternatively, a heat pump could be configured to operate as the primary heating source using the air handler in the existing furnace and using the furnace for supplemental heating on very cold days. Table 3 below compares the incremental cost and lifecycle savings (net present value of utility bill savings less incremental cost) for each approach assuming a modest gas rate escalation.
Table 3. Economic Costs and Savings
Approach Incremental Cost Lifecycle
Savings
Heat pump with new air handler (furnace removed) $652 $556 Heat pump with existing furnace retained $1,670 $2,132 The costs may be able to be further offset by incentives offered through local utility rebate programs, depending on whether these are retained after the mandate takes effect.
In terms of greenhouse gas emissions, heat pumps can provide significant reductions. This is because heat pumps are far more efficient than gas furnaces (and electric resistance heat) and electricity in California is derived from low-carbon energy sources. Table 4 shows greenhouse gas reductions for both approaches generated using the statewide Cost Effectiveness Explorer tool.
Table 4. Greenhouse Gas Reductions
Climate
Zone Approach
GHG Reduction
(tons annually)
GHG Reductions
(%)
CZ04 Heat pump & new air handler (furnace removed) 0.84 30% CZ04 Heat pump with existing furnace retained 0.63 22%
The proposed policy offers two general exceptions. The first is for situations where the electrical panel capacity is insufficient to meet the load of a heat pump. The second is where the heat pump would need to be sized more than 12,000 Btu/hr (1 ton) over the air conditioner that would be installed. There are also exceptions to the duct sealing and airflow requirements that specify alternative methods of compliance. All applicable exceptions in the California Energy Code apply.
The statewide cost-effectiveness study for the air conditioner time of replacement requirements is included in Attachment B. Staff is recommending adoption at this time of a replacement requirement to be effective starting on January 1, 2027, allowing more time to launch and run programs to support heat pump HVAC adoption.
FlexPath
Staff proposes that single-family residential major additions and alterations3 greater than 1,000 square feet be required to include certain energy efficiency measures. Depending on the project scope, applicants of these types of projects typically already have an architect, engineer, and energy code compliance expert on their design team who can help facilitate compliance with the FlexPath energy code amendment. As proposed, qualifying single-family projects would be required to complete any combination of energy-related measures from Table 5 below totaling 12 or more points. Additional measure descriptions can be found in Attachment C.
Table 5. Measures
Building Vintage Measures
Pre-1978 1978-1991 1992-2010
Water Heating Package 1 1 1
Air Sealing 2 1 1
R-38 Attic Insulation 7 3 1
R-49 Attic Insulation 7 3 1
Duct Sealing 6 4 1
New Ducts, R-6 Insulation + Duct Sealing 10 7 2
New Ducts, R-8 Insulation + Duct Sealing 11 8 3
Windows 6 5 3
Wall Insulation 6 - -
R-19 Raised floor insulation 8 8 -
R-30 Raised floor insulation 9 9 -
Radiant Barrier Under Roof 3 2 1
Heat Pump Water Heater Replacing Gas 12 12 12
High Eff. Heat Pump Water Heater Replacing Gas 13 13 13 3 Alterations include raising the plate height, historic restoration, changes or rearrangements of the structural parts or elements, and changes or rearrangement of bearing walls and full height partitions. Normal maintenance, reroofing, painting or wall papering, floor finishes, replacement-in-kind of mechanical, plumbing and electrical systems, or replacing or adding new kitchen counter and similar furniture, plumbing fixture to the building are excluded
Table 5. Measures
Building Vintage Measures
Pre-1978 1978-1991 1992-2010
Heat Pump Water Heater Replacing Electric 4 4 4
High Eff. Heat Pump Water Heater Replacing Electric 5 5 5 Heat Pump Space Conditioning System 21 16 13
High Eff. Heat Pump Space Conditioning System 23 18 15
Dual Fuel Heat Pump Space Conditioning System 15 11 10
Heat Pump Clothes Dryer 1 1 1
Induction Cooktop 1 1 1
Solar PV 17 17 15
To accommodate the wide variability in existing buildings, staff proposes the following exemptions (the list below provides a brief overview of exemptions which are described in greater detail in Attachment F):
New Units
1. Mobile Homes, Manufactured Housing, or Factory-built Housing
2. Repairs
3. Emergency Housing
4. Technological or Economic Infeasibility
5. Energy usage of alternative proposed design better than requirement
6. Pre-Compliance
7. Covenant Restrictions
8. New Construction
9. Improvement projects limited to solar PV, EV charging, or battery storage
10. Hardship for Low-Income Owners
11. Historic Buildings
12. Hazard Mitigation (i.e. Seismic upgrades)
13. Alterations that consist solely of roof and/or window projects
14. State-exempted ADUs per SB1211
The CEC provides two different cost effectiveness metrics. “On-bill” cost effectiveness refers to the direct cost experienced by the homeowner. For something to be cost effective “on-bill”, the energy bill savings of a measure must at least pay for the cost of that measure over a 20-year period. The other approach is “Long-Term Systemwide Cost” (LSC). LSC considers the cost to install energy efficiency measures, the on-bill savings from those measures, and larger system costs that everyone pays for like energy infrastructure costs and the impacts of climate change.
For CEC approval, a local amendment to the California Energy Code must show a compliance pathway that is either “on-bill” or “LSC” cost effective. As described below, staff’s proposed policy has “on-bill” and “LSC” cost effective compliance pathways.
In support of reach code development, the California Energy Codes and Standards Statewide Utility Program, which includes the State's Investor-Owned Utilities (Pacific Gas, and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE), under the auspices of the California Public Utilities Commission) developed and published the 2025 Single Family Cost Effectiveness Report, provided as Attachment C and further supported by an updated memo provided as Attachment D. This study and the associated cost-effectiveness data are highly detailed and are included in the record to support Council’s findings and policy decisions.
Based on the study, staff recommends finding the proposed local additions and alterations amendments to the 2025 California Energy Code to be cost-effective and consume less energy than otherwise permitted by Title 24, Part 6. The target score of 12 points can be achieved cost- effectively for all building vintages through the installation of a heat pump water heater or heat pump space conditioner replacing a corresponding gas appliance. The 12-point target can also be met only through the installation of energy efficiency improvements without the need for fuel-substitution measures. For example, R-30 raised floor insulation combined with R-49 attic insulation in any pre-1991 building. Estimates of the incremental costs and lifecycle savings associated with FlexPath compliance pathways mentioned above are included in Table 6. Each unique combination of measures and building vintages will have its own associated costs and savings. Additional measure information, including incremental cost estimates, is available through a Cost-Effectiveness Explorer4 tool published by the California Energy Codes and Standards Statewide Utility Program working group.
Table 6. FlexPath Compliance Pathway Costs and Savings
Measures Incremental Cost Lifecycle
Savings
Heat pump water heater $4,332 $5,358
R-30 raised floor insulation + R-49 attic insulation $7,725 $14,403
FISCAL/RESOURCE IMPACT
Development and implementation of local amendments to the 2026-2028 State Energy and Green Building Standards Codes is planned to be absorbed within existing budgets for Planning and Development Services and Utilities. Resource needs are anticipated to include about 0.5 FTE in staff time and $248,000 in professional services costs spread across FY 2025 and FY 2026.
Resource needs are under continued evaluation and may result in an additional funding request if deemed necessary.
4 Cost Effectiveness Explorer;
https://explorer.localenergycodes.com/policies/4287/requirements?per_component_name=PolicyExistingBuilding sWithFlexiblePathRequirements&per_climate_zone_raw=4-CPAU&per_custom_combination_id=22972
STAKEHOLDER ENGAGEMENT
Staff hosted two community meetings on the Building Standards Code update. The first, a focus group with approximately 10 design professionals, was held on August 12, 2025. The second, a hybrid community meeting on August 13, 2025, drew 13 attendees. Meetings were advertised via the City website, Uplift Local newsletter, City calendar, NextDoor, Facebook, and targeted email notices to approximately 100 community members and design professionals.
Feedback covered all 2025 proposals, including Green Building Code amendments scheduled for Council review in October. Key themes included:
FlexPath: Stakeholders suggested adding/removing measures or adjusting point values.
Staff explained changes would require new cost-effectives studies and could be considered in the future.
Water Heaters: Questions focused on alignment with Bay Area Air District Zero-NOx standards (2027). Staff expects statewide model code language will incorporate exemptions. A request to allow electric resistance water heaters in ADUs was discussed; staff noted this option is inefficient and rarely complaint under state Energy Code. Water Conservation: Suggestions were made to add elective CALGreen Tier 1 and 2 measures (e.g., toilet efficiency). Staff clarified these are already permissible under “innovative concepts” and will improve applicant guidance. Other Suggestions: Additional future considerations included requiring electric stoves at replacement, regulating gas appliances under air quality authority, adopting passive house standards, adjusting EV readiness requirements, and updating electric load calculations.
Staff is reviewing these suggestions for possible inclusion in October local amendments or in future round of amendments.
ENVIRONMENTAL REVIEW
The recommended action in this report is exempt from the California Environmental Quality Act (CEQA) in accordance with CEQA Guidelines section 15308 as an action by the City for the protection of the environment, and under section 15061(b)(3) on the grounds that the proposed standards are more stringent than the State standards, there are no reasonably foreseeable adverse environmental impacts and there is no possibility that the activity in question may have a significant adverse effect on the environment.
ATTACHMENTS
Attachment A: GBC Applicability and Existing Reach Code Amendments Attachment B: 2025 Cost-Effectiveness Study: Single Family AC to Heat Pump Replacement Attachment C: 2022 Cost - Effectiveness Study: Existing Single Family Building Upgrades Attachment D: Application of the 2022 Studies to the 2025 Energy Code: Existing Single Family Building Upgrades
Attachment E: Emergency Ordinance Amending PAMC Chapter 16.04 to Adopt Administrative Amendments to the 2022 California Building Code
Attachment F: Emergency Ordinance Amending PAMC Chapter 16.17 to Adopt the 2025 California Energy Code and Local Amendments, Adding FlexPath and Air Conditioner Time-of- Replacement Requirement
APPROVED BY:
Jonathan Lait, Planning and Development Services Director