Rincon Consultants, Inc.
66 Franklin Street, Suite 300
Oakland, California 94607
510-834-4455
w w w . r i n c o n c o n s u l t a n t s . c o m
June 16, 2025
Andrea Chow, Sustainability Analyst
City of San Mateo
330 West 20th Avenue
San Mateo, California 94403
Via email: [email protected]
Subject: Electrify San Mateo: Existing Building Electrification Policy Pathways Analysis In the City of San Mateo (City), the residential and commercial built environment make up 38 percent of greenhouse gas (GHG) emissions. To achieve emissions reduction targets consistent with state goals and the City’s Climate Action Plan, the City must decarbonize its residential and commercial buildings. This is strengthened by the 2022 City Council priority to “Establish policies to decarbonize existing buildings and infrastructure and eliminate methane gas use by 2030.” The decarbonization or electrification of buildings refers to the transition from gas equipment to carbon-free electric equipment for space and water heating, clothes drying, cooking and more. Decarbonization can also focus on increasing energy efficiency and the use of renewable energy. In San Mateo, Peninsula Clean Energy (PCE) provides electricity that is 50% renewable and virtually 100% carbon free and is committed to delivering 100% renewable and carbon free electricity by 2025. The City has already passed a New Construction Reach Code aimed at decarbonizing new buildings, however, electrifying existing buildings offers the largest opportunity and most cost-effective strategy for GHG emission reductions.
In May 2023, the City, with the help of Rincon Consultants Inc. (Rincon), began developing the Building for the Future: City of San Mateo Sustainable Buildings Strategy project as a part of the larger Electrify San Mateo initiative. The goal of this project is to develop a long-term strategy document to electrify San Mateo’s existing building stock, including policies and actions for both residential and nonresidential buildings. This report provides Rincon’s final policy findings which are based on the cumulative technical analysis and community feedback completed to date.
Project Timeline and Overview
The City of San Mateo and Rincon began the initial research for this project in the Summer of 2023. The initial analysis included building segmentation analysis and an electrification cost study. Rincon also conducted research on the current best practices and a wide range of feasible policy options being deployed by other cities around the country. The project timeline is shown below in Error! Reference source not found..
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Electrify San Mateo: Policy Pathways Analysis
2 Figure 1 Project Timeline to Date
Community Outreach (Phase I)
During the first phase of community outreach, the City aimed to understand the goals and concerns of the community as they relate to San Mateo’s buildings and decarbonization. Through the initial round of engagement, the City identified affordability, health and safety, resilience, and climate as the primary goals of the community. The largest concerns related to building electrification were the potential for higher costs, increased energy bills, and a difficult installation process. Based on this feedback and direction from City Council, the initial policy scan list was narrowed down to five potential policy directions.
Policy Pathways
The results from the Phase 1 of outreach helped narrow the initial policy scan into a list of five policy pathways, which were presented to City Council in January of 2024. These policies were chosen based on the GHG reductions potential as well as cost-effectiveness. The five policy pathways include
1. Continue adopted reach codes and focus on outreach and incentives (Business as Usual)
2. Explore and adopt new reach codes to encourage and require electrification
3. Require electric equipment upon replacement ahead of the Bay Area Air District’s (BAAD) 1 Zero NOx requirements
4. Establish Building Performance Standards for commercial buildings
5. Adopt an electric-first policy for City facilities
1 The Bay Area Air Quality Management District (BAAQMD) changed their name to the Bay Area Air District (BAAD) in 2025.
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Electrify San Mateo: Policy Pathways Analysis
3 City Council provided feedback which included direction for City staff to continue exploring the feasibility, cost, and community support for each of the five options.
Community Outreach (Phase II)
In the second phase of community outreach (see Engagement Summary Memo for detailed results), the City aimed to get specific feedback about the five policy pathways. Phase II outreach events included both in-person and virtual workshops, presentations to the Senior Advisory Commission, Sustainability and Infrastructure Commission, and Community Relations Commission, as well as a second online feedback survey. Feedback received from Phase II of outreach is incorporated into an analysis of each policy pathway in the following sections.
Addressing Community Concerns
Throughout the community engagement process, there have been polarized responses to building electrification. While most constituents care about addressing the Climate Crisis and agree that the City should pursue existing building electrification in some form, many residents also expressed concerns. The primary concerns identified during Phase I and Phase II engagement included:
Upfront costs of electric equipment
On-bill or operational costs of electric equipment
Installation and electrical infrastructure challenges
Grid reliability and resilience
Lack of education surrounding electrification (addressed in Policy Option 1) Each of the pathways balance the City’s climate goals and the roughly half of respondents who strongly support building electrification with the concerns voiced during the engagement process in different ways.
Each primary community concern is addressed below and further covered in the policy summaries.
Upfront Costs of Electrical Equipment
For many building owners, making the switch from natural gas to electric appliances results in higher upfront costs without additional incentives or rebates. While rebates can cover up to 100% of these costs, rebates are not always available. However, not installing electric equipment when it is most cost effective can have significant cost impacts in the future. Therefore, the City has identified flexible policies that allow building owners to choose electrification or other cost-effective strategies. Each policy below provides additional details of the upfront costs and savings.
On-Bill or Operational Costs
Ongoing operational costs (how much our monthly energy bills are) were another concern regarding building electrification. However, recent studies by Peninsula Clean Energy show that the cost savings from building electrification are increasing as natural gas rate increases outpace electricity rates. Average savings (when using electric rates like e-elec) were $29 per household per month after electrifying both water and space heaters. These savings are demonstrated in Error! Reference source not found..
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Electrify San Mateo: Policy Pathways Analysis
4 Figure 1 Average Monthly Bill Savings from Electrification Installation and Electrical Infrastructure Challenges
While most electric appliance upgrades are relatively simple, some buildings present difficult edge cases.
Some buildings may not have sufficient space or electrical infrastructure to easily upgrade. Upgrading electric panels and service lines can take months to complete. While all-building owners are encouraged to make a plan for electrification over time, many of the policies avoid these challenges by providing flexible paths to compliance or focusing on specific appliances which do not have these challenges. For example, the flex-path retrofit policy provides many options including insulation and other cost-effective efficiency upgrades at the time of major renovation. The AC to heat pump policy avoids these challenges because the heat pump upgrade uses the same electrical circuit as an AC, eliminating the need for upgrades. Grid Reliability and Resilience
Grid Reliability and Resilience
Grid reliability and resilience concerns arose due to the perception that increased electrical use would put strain on the grid and that electricity was less reliable than gas. However, it has been nearly 20 years since
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Electrify San Mateo: Policy Pathways Analysis
5 California had a power outage due to lack of electricity.2 Furthermore, the utilities, the CPUC, and the CEC, are all planning for increased electricity usage over time. The CEC now assumes a 27% increase in peak demand by 2035 due to electrification of buildings and vehicles and is expanding the grid to meet that demand. Furthermore, neither gas water heaters nor most furnaces work without electricity, meaning gas appliances are no more resilient to power outages than their electric upgrades. Therefore, the policies identified below focus on these appliances.
Policy Findings Summary
To analyze the feasibility and benefits of each policy pathway, Rincon provided a description of each pathway, pro’s and con’s, precedent legislation in other cities and the state, GHG reductions potential, community feedback, cost-effectiveness, and equity considerations. Based on the detailed analysis in the Policy Analysis section, the following summary highlights the major takeaways of the five policy pathways.
1. Business as usual: The City could continue with adopting reach codes for new construction and expand outreach, education, and incentives. In the past, the City adopted local building code amendments to require more sustainable new construction than the State code. To continue to surpass State code, the City could consider other new construction reach codes including an energy performance or Zero NOx reach code. This approach has a limited impact because new construction accounts for a fraction of San Mateo’s development. However, this approach is already in place, cost saving up front and over time, and received community support based on our engagement efforts. There are no policy-related additional costs to building owners unless they voluntarily decide to electrify. A Zero NOx new construction approach would save an estimated 1,770 MT CO2e per year by 2030 while a performance approach would save 20 MT CO2e per year by 2030.
2. Reach codes for renovations: This approach would include the evaluation of additional reach codes to encourage and/or require electrification during renovations or at time of replacement for select appliances (air conditioners). New reach codes would vary depending on the updated State codes.
One example of a reach code during renovations is requiring the installation of a two-way heat pump when an air conditioner (AC) is installed. A Two-way AC time of replacement reach code could help residents save money by installing a single heat pump, rather than an AC and furnace, ahead of upcoming Bay Area Air District (BAAD) regulation which essentially mandates electric furnaces starting in 2029. The incremental cost of installing a heat pump instead of a traditional AC is the same (from $1,000 savings to $1,000 cost) and is covered by a $1,500 PCE rebate. Installing a heat pump today is alignment with future Air District regulations and thus could also save a building owner money when their furnace needs replacement. Reach codes during renovations also help encourage electrification at an opportune time when a property owner is already considering home improvements. Another policy example is a Flex Path reach code which would require additional energy efficiency or electrification actions at time of renovation or replacement of certain appliances. The upfront costs of electrification improvements can vary depending on the project and unique circumstances of your home. These policies target the most cost-effective time to electrify and provide a variety of pathways for compliance. Cost-effectiveness studies must be completed to validate any adopted reach codes.
Past studies have shown utility savings over time make electric equipment upgrades cost-effective compared to gas equipment replacements. Additionally, the Flex Path reach code allows residents to 2 https://www.baaqmd.gov/~/media/files/community-health/building-appliance-implementation/grid-impacts-final- pdf.pdf?rev=14a3ea4d46704d19a48cf03e3984c90e&sc_lang=en City of San Mateo
Electrify San Mateo: Policy Pathways Analysis
6 find the most cost-effective retrofit for their unique situation. Two-Way AC reach code would reduce emissions by 2,200 MT CO2e per year by 2030, while the Flex Path reach code would reduce emissions by approximately 730 MT CO2e per year by 2030.
3. Require electric equipment upon replacement ahead of BAAD Zero NOx requirements: BAAD adopted zero nitrogen oxides (NOx) standards that will prohibit the sale and installation of gas water heaters starting in 2027 and gas furnaces in 2029 in the nine-county Bay Area. A local ordinance ahead of these milestones would require the replacement of gas appliances with zero NOx versions when they fail or are voluntarily upgraded. This policy would have the most significant impact on greenhouse gas reductions with the ability to reduce emissions an average of 9,700 MT CO 2e per year by 2030.
However, this policy could incur large installation costs for residents in some cases which was the number one concern documented during both phases of community engagement. Due to the polarized community feedback, with some constituents being unsupportive of mandates that increase costs, it may be difficult to garner public buy in for a Zero NOx Equipment Requirement policy. This policy prioritizes GHG emissions reductions but does not address the community’s major concerns over costs and difficult installations.
4. Building Performance Standards for commercial buildings: This pathway would establish a new set of policy standards for commercial buildings aimed at increasing energy efficiency, and eventually, electrifying commercial buildings as a phased approach. This is a well-established policy mechanism that has been adopted by many local governments across the country and builds off of AB 802 benchmarking requirements mandated by the state for buildings larger than 50,000 SF. This approach can be customizable and lead to incremental reductions in energy use but not necessarily electrification. The flexibility of this policy and phased approach allows for building owners to plan for appliance replacement and decarbonize buildings in the most efficient way for each unique situation.
Commercial building space makes up over 39 million square feet within the City and is a significant contributor to GHG emissions. However, due to the phased approach, this policy would likely not lead to significant GHG reductions before 2030. However, it could have significant reductions before 2045 as the thresholds are calculated and implemented. The development and operation of such a local program would necessitate significant staff time, so choosing a threshold that maximizes square footage covered while minimizing the number of building owners affected is crucial. Although this policy received majority community support, equity for renters is also a significant concern and guardrails would need to be set in place to avoid exacerbating the housing crisis especially for multifamily properties.
5. Electric first policy for City facilities: This policy establishes a mechanism for local government renovations to go electric first. The policy ensures financial and feasibility data is being collected for municipal facilities that will allow the City to compare costs to electrify versus replacing with gas equipment. This policy has a limited reach as it only applies to municipal buildings and GHG reductions potential would depend on the rate of equipment failure and availability of replacements. However, it demonstrates City leadership on hard-to-electrify existing buildings that mirror the commercial sector. Several other cities have adopted similar municipal electrification policies. Residents were largely in favor of this policy as it would not incur any costs to the community. The City’s municipal buildings are estimated to generate approximately 586 MT CO 2e per year of natural gas emissions, this policy was estimated to be able to reduce this by 25% by 2030 for an estimated savings of 146 MT CO2e.
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Electrify San Mateo: Policy Pathways Analysis
7 Policy Analysis
Policy Option 1: Continue adopted reach codes and focus on outreach and incentives (Business as Usual)
Description
Policy Option 1 continues to implement the City’s adopted reach codes and identifies opportunities to incentivize the electrification process using education, outreach, and connecting the community to rebates and technical support. The City’s adopted reach code requires energy compliance margins for new buildings will be effective through December 31, 2025, the end of the code cycle. As part of this policy option, the City would investigate options around continuing the new building electrification reach code through either an updated performance standard which complies with the 2025 building code, or a zero NOx standard for new buildings.
This option would also use staff time to conduct additional engagement and connect homeowners to incentives and technical information regarding building electrification. It would also promote existing programming and incentives run by partners (e.g. PCE) to assist in a voluntary shift towards electrification while preparing the community to electrify space and water heating end uses in advance of upcoming BAAD (previously BAAQMD) Zero NOx requirements. For example, this option could include an education campaign to encourage homeowners to prewire for water heaters and furnaces, so they are ready to make the switch once their appliance burns out. Another example incentive would be waiving permit costs for electric equipment upgrades.
Policy Pros
Policy already in place/ has received community support No policy-related additional costs to building owners unless they voluntarily opt-in Allows community to prepare for upcoming BAAD requirements through City-led outreach and education
Allows community to prepare for upcoming requirements through electric-readiness requirements Policy Cons
Limited impact and reach: The adopted reach codes do not affect the existing building stock Relies on engagement to reach community members which can be difficult Outreach and education programs on their own are extremely variable in their effectiveness.
Investment of staff time and city resources into outreach may not achieve substantial shifts in behavior that will be required to decarbonize buildings, even with major outreach campaigns. Education and outreach campaigns can be very time/resource intensive with minimal programmatic results and unlikely to result in widespread behavior changes above baseline Greenhouse Gas Reductions Potential
New construction reach codes have varying GHG reduction potential. For example, a new construction zero NOx requirement could save up to 1,770 MT CO2e per year by 2030 if all new buildings were built City of San Mateo
Electrify San Mateo: Policy Pathways Analysis
8 without natural gas. An energy performance reach code for new construction would lead to approximately 20 MT CO2e GHG reductions due to the stringency of the 2025 building code, however, precise reductions potential is unknown because the flexible nature of the pathway does not always guarantee electrification.
As mentioned above, education and outreach and sharing incentives with residents is an important tool for the successful implementation of electrification policy but are not substantial enough to gauge GHG emissions on their own. It is difficult to predict what impact these voluntary programs would have on overall electrification rates, however, they are expected to be lower than the policy requirements identified in the other policy pathways.
Community Feedback
Across engagement events, this approach received broad community support. In the community survey, responses were 50% of respondents supporting this policy option, 11% neutral, and 38% do not support.
At the in-person community event, many community members expressed that the City has not done enough in terms of electrification policy beyond new construction and that a “business as usual” approach is not sufficient to meet the City’s climate goals. Those opposed to this approach are opposed to any local building electrification policy and recommend reliance on regional and state regulations. The Senior Advisory Commission, Sustainability and Infrastructure Commission, and Community Relations Commission were supportive of this policy pathway.
Cost Effectiveness and Equity Considerations
This policy approach would continue to incentivize all-electric new construction and direct the City to expand outreach efforts with the community to increase voluntary existing building electrification. New Construction reach codes have been shown to save money. Research from the New Buildings Institute (NBI) highlights that all-electric homes save between $7,500 and $8,200 in construction costs compared to mixed-fuel homes. 3 These cost savings are primarily due to avoiding installing fees for natural gas infrastructure like gas meters and pipelines. These homes also save money over time especially when paired with heat pumps and solar. Outreach, education, and sharing incentives incur no cost to community members and can help connect people to resources that will lessen costs for electrification. The City will need to provide adequate staff time to support building electrification engagement and other programs like peer-to-peer home tours for this approach to be effective. These engagement activities, when paired with other strategies listed below, can help the community feel more comfortable and informed on the benefits of electrification.
Policy Findings
The adoption of reach codes while expanding education, outreach, and incentives to promote building electrification have been critical pathways for the City of San Mateo to support decarbonization to date.
This approach is supportive of the other policy options because expanding education and engagement can potentially increase the number of cost-effective voluntary projects and expand community understanding of new technologies and regulations (like the upcoming Air District’s Zero NOx rules). The community expressed the need education campaigns like helping to facilitate peer-to-peer home tours 3 NBI. 2022. New Study on Electrification Costs Shows Benefits to Building Owners and Society. https://newbuildings.org/new-study-on- electrification-costs-shows-benefits-to-building-owners-and-society/ City of San Mateo
Electrify San Mateo: Policy Pathways Analysis
9 and partnering with larger County initiatives like PCE’s helpdesk to ensure residents are receiving the guidance they need on their electrification journey. While this policy offers several benefits, it is important to acknowledge that this approach alone will not be sufficient to meet the City's climate goals. .
Policy Option 2: Reach Codes for Renovations
Description
Option 2 would include the evaluation of additional reach codes to encourage and/or require electrification. Reach codes are typically evaluated on a three-year cycle in alignment with the new Building Code. New reach codes options would vary depending on the updated Energy Code and Green Building Code. The City’s adopted reach codes apply to residential remodels. The City could consider a variety of reach codes that apply to different building types and/or equipment. The City focused on two priority existing building reach codes include a Two-Way Air Conditioning (AC) reach code or a Flexible Path reach code. These policies could be adopted individually or both adopted to complement each other.
Other reach codes which were not covered with the community but may be important in the future are time of sale requirements similar to the policy adopted by the City of Berkeley.4 Policy Option 2a: Two-Way Air Conditioning Reach Code
The Two-Way AC reach code would require all new air conditioning units to provide both heating and cooling through the installation of a two-way heat pump. A two-way heat pump is a versatile HVAC system that can both heat and cool a building by reversing the flow of refrigerant within the system. In heating mode, it extracts heat from an external source, such as outdoor air or the ground, and transfers it indoors.
In cooling mode, it reverses the process, removing heat from inside the building and releasing it outside.
This dual functionality eliminates the need for separate heating and cooling systems which can save building owners money in the long term. Two-way heat pumps run completely off electricity and heat and cool spaces with high efficiency, making them a great way to reduce emissions coming from homes.
Policy Option 2b: Flex Path Reach Code
Under the flex path policies, the City could adopt one or more policies that require additional energy efficiency or electrification actions at time of renovation or replacement of certain appliances. One example would be an energy efficiency checklist in which renovation projects over $75,000 must include two cost effective energy efficient improvements in their project. The flex path policies do not ban gas and provide flexible pathways for building owners to meet the decarbonization requirements.
Policy Pros:
The City has experience exploring, adopting and implementing reach codes Two-Way AC is a cost-efficient and simple solution
Flex path offers variety of compliance pathways to reduce emissions and building owners could find the most cost-efficient pathways for their homes
4 https://berkeleyca.gov/sites/default/files/documents/2025-04-15-Amendments-to-the-BESO.pdf City of San Mateo
Electrify San Mateo: Policy Pathways Analysis
10 Policy Cons:
Community and builder resistance to new regulations.
Further analysis needed, dependent on reach code adopted.
Other Cities and Legislative Drivers
In May 2023, the Bay Area Air Quality Management District, now the Bay Area Air District (BAAD) adopted zero nitrogen oxides (NOx) standards that will prohibit the sale of gas water heaters starting in 2027 and gas furnaces in 2029 in the nine-county Bay Area. These standards are the most ambitious in the country and outpace the state’s goal of banning the sale of new gas furnaces and water heaters throughout the state starting in 2030. These policy efforts drive California closer to the ambitious climate goal of carbon neutrality by 2045. Reach codes during renovations present an opportunity to ensure that the City’s residential building stock is prepared for this upcoming mandate.
Two-Way AC policies are relatively new, so no jurisdiction has yet to officially adopt this reach code, but many are expected to in the 2025 building cycle. The “Flex Path” reach code style is more common with several jurisdictions who have adopted this policy listed below:
City of San Rafael (Adopted 2024): San Rafael has adopted a "Flex Path" for single family remodels over 500 square feet. This policy requires homeowners to choose from a menu of energy-saving measures, such as insulation upgrades, HVAC improvements, or solar installations, to meet a target score based on their home's vintage. The program is designed to encourage energy efficiency and electrification while allowing homeowners to select measures that best suit their needs and budget. City of San Luis Obispo (Adopted 2024): Starting January 1, 2025, single family major additions or alterations must install a set of energy efficiency measures to achieve a target score from a weighted menu of measures. Projects that include a new electrical panel and service upgrade to 200A shall include electric readiness components.
Town of Corte Madera (Adopted 2024): Single family additions or alterations greater than 750 square feet of floor area shall install a set of measures to achieve a target score from a weighted menu of measures; which varies based on building vintage. Projects that include a laundry room or kitchen remodel, or an electrical service panel upgrade, must also install electric readiness measures.
Greenhouse Gas Reductions Potential
The Two-Way AC reach code would reduce emissions by 2,200 MT CO 2e per year by 2030. Two-way heat pumps tend to be two to four times more efficient than both one-way air conditioners and traditional heating sources, leading to large potential GHG reductions.5 While the Flex Path reach code would reduce emissions by approximately 730 MT CO2e per year by 2030. The Flex Path reductions are lower since they only capture remodels over a certain size which occur at a lower rate than other appliance replacements.
Community Feedback
Across community engagement events, constituents were supportive of this policy approach. Community members recognized the importance of electrifying during planned renovation projects. In the community 5 Canary Media. A new bill could speed up American electrification by 20 years. https://www.canarymedia.com/articles/heat-pumps/a-new-bill- could-speed-up-american-electrification-by-20-years
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11 survey, responses were mixed with 49% respondents supporting this policy option, 6% neutral and 45% do not support. Multiple constituents expressed a desire for an exception for edge cases that are financially or spatially infeasible. Those opposed are concerned about upfront costs or are generally opposed to all local building electrification policy. The Sustainability and Infrastructure Commission and Community Relations Commission were supportive of this policy pathway.
Cost Effectiveness and Equity Considerations
Although the Two-Way AC policy would mandate installation of a two-way heat pump at time of replacement, this retrofit is highly cost-effective as it can both cool and heat a space, effectively replacing both a central air conditioner and furnace within a home. This reduces the need for separate furnace replacements. Implementing a Two-Way AC policy is particularly advantageous given the upcoming BAAD Zero NOx requirements.
If a constituent's air conditioner breaks before 2029 and is replaced with a gas HVAC system, they will need to purchase an electric furnace when their furnace eventually breaks after the 2029 BAAD Zero NOx implementation date. Conversely, adopting a Two-Way AC policy in preparation for these requirements would ensure that all air conditioner replacements in the next few years have two-way heating and cooling capabilities and comply with BAAD’s ruling. This would prevent homeowners from installing outdated gas appliances for heating and cooling, which could be replaced by a single heat pump.
Additionally, the difference between a central AC and a two-way heat pump is essentially zero (from a $1,000 savings to a $1,000 cost) especially after the applied $1,500 rebate from Peninsula Clean Energy.
Peninsula Clean Energy (PCE) also offers on-bill financing through the Zero Percent Loan program6 to cover the up-front costs of installing a heat pump, which leads to utility bill savings over time due to appliance efficiency. This financing model can be particularly advantageous for low-income tenants who might not have access to traditional financing options. It removes the need for credit checks and upfront payments, making energy efficiency upgrades more accessible. Additionally, on-bill financing can be an effective way for tenants and landlords to manage payment responsibilities for energy efficiency upgrades. Tenants could enjoy the benefits of lower utility costs, without being tied to a load if they move (because the payment is tied to the meter rather than a person) and the landlord can improve their building without needing to pay an upfront cost.7
A Flex Path reach code is also cost-effective by providing a range of retrofits and upgrades that building owners can choose from, allowing them to pick the most cost-effective and efficient options. Based on a conducted cost analysis conducted by the Local Codes and Standards team, each check list item would need to be demonstrated to have cost savings over the lifespan of the upgrade. Error! Reference source not found. shows some of the cost-effective strategies for the City of San Mateo based on the 2022 Title 24 Building Code. Heat pumps provide the most cost-effective solutions, often paying back in 6-7 years.
Furthermore, many homeowners may receive additional savings through incentives provided by PCE, the State (Tech rebates) or the Inflation Reduction Act.
6 Peninsula Clean Energy. 2025. 0% financing & rebates. Available: https://www.peninsulacleanenergy.com/residential/financing/ 7 United States Department of Energy. Issue Brief: Low-income Energy Efficiency Financing through On-Bill Tariff Programs. Available: IB L-I EE Financing through On-Bill Tariffs_Final_0.pdf
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Electrify San Mateo: Policy Pathways Analysis
12 Figure 1 Cost Effective Existing Building Upgrades (Cost Effectiveness Explorer) Both the Two-Way AC and Flex Path policies emphasize cost-efficient solutions for both the short and long term, ensuring that the City maintains equitable and sustainable practices.
Policy Findings
Both a Two-Way AC policy and Flex Path policy promote cost-efficient and equitable solutions for building decarbonization. Implementing these policies would help the City achieve meaningful greenhouse gas reductions, get closer to climate goals, prepare the community for future regulations, and support residents in making energy-efficient upgrades. Both of these policies fit with the community feedback received by pursuing climate action and decarbonization policies but being sensitive to cost impacts, the need for flexibility, and reliability/resilience.
Policy Option 3: Require electric equipment upon replacement ahead of BAAD’s Zero NOx requirements
Description
BAAD will require zero NOx (currently the only options for Zero NOx appliances are all-electric) appliances for water heating by 2027 and space heating by 2029. This policy bans the sale of qualifying NOx -emitting appliances in the Bay Area, requiring all-electric appliances when covered gas appliances are replaced.
Option 3 has the greatest potential to achieve GHG reductions and the goals outlined in the City’s CAP by moving faster than the 2027 and 2029 timelines outlined by BAAD. However, it could also result in higher upfront costs especially for space heating. Under this policy the City would adopt and implement a local version of the BAAD zero N0x threshold ahead of the current schedule to require all new space and water heating to have zero NOx emissions, and therefore, zero GHG emissions.
This ‘time of replacement’ ordinance would require the replacement of gas water heaters and space heaters with zero NO x versions when they fail or are voluntarily upgraded. This approach maximizes the lifespan of the existing gas appliances and reduces the cost of compliance as the increased cost would only be the difference between a gas appliance and the upgraded electric appliance. Focusing on time-of- replacement is the most cost-effective approach for the building owner. Furthermore, since these
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Electrify San Mateo: Policy Pathways Analysis
13 appliances may function for dozens of years, it also is the timeliest option to replace gas appliances with electric-run appliances instead of locking in emissions from natural-gas appliances which could potentially continue to operate past the City’s target for carbon neutrality.
Policy Pros:
Community and workforce prepared for 2027 and 2029 BAAD requirements On-bill savings for homes that go all-electric
Largest GHG emissions reduction potential
Policy Cons:
Higher upfront costs for residents for home electrification Uncertainty of incentives
Some homes may face electrical upgrades (panels or service lines) that increase costs and lengthen timelines for replacement
Other Cities and Legislative Drivers
The BAAD requirements will be implemented in 2027 and 2029 and getting ahead of the ruling offers an opportunity to have the highest GHG impact. Currently, there are no jurisdictions who have adopted this policy for existing buildings.
Greenhouse Gas Reductions Potential
A zero NOx equipment requirement policy would have the most significant impact on greenhouse gas reductions with the ability to reduce emissions an average of 9,700 MT CO 2e per year by 2030 assuming a zero NOx policy was put in place for water heating and space heating in 2026 for residential/small commercial appliances and 2028 for larger commercial appliances.
Community Feedback
Feedback on this policy was largely unfavorable. In the community survey, 44% of respondents supported this policy option, 5% neutral, and 48% do not support. Those opposed were concerned about getting ahead of the Air District’s schedule and challenges with compliance and enforcement. Those who support this approach emphasize that this approach has the greatest GHG reduction potential. The Community Relations Commission was supportive of this policy pathway.
Cost Effectiveness and Equity Considerations
Based on the initial cost study conducted for this project, a zero NO x policy median-cost scenario could increase water heating incremental costs by $3,200 and space heating incremental costs by $11,778 before rebates. However, between state, local, and federal incentives high income households could see an overall cost savings for water heaters and incremental costs of $5,878 dollars for space heating. When also considering the avoided cost of an AC unit (once it breaks down) from installing a two-way heat pump that acts as a furnace and an AC unit, then the incremental costs in a median-cost scenario for space heating would be $4,278 before rebates and incur cost savings with rebates. Similar conclusions were City of San Mateo
Electrify San Mateo: Policy Pathways Analysis
14 found in another cost study done for BAAD.8 However, many of the incentives originally modeled for this analysis have changed or have uncertain futures, especially at the federal level.
Similarly to Policy Option 2, residents could utilize on-bill financing from PCE to cover up-front costs of electric water heater or space heating appliances, utilizing a zero percent interest loan and repaying that installation cost over time via their utility bill. Error! Bookmark not defined. The PCE program fosters equitable installation of electric equipment and allows renters to enjoy the same energy savings as homeowners. However, the availability of rebates and incentives is volatile which could impact the cost- effectiveness of an electric-appliance mandate.
Policy Findings
A Zero NO x Equipment Requirements policy would achieve the highest greenhouse gas emissions reduction , mandating electric heat pump water heaters and furnaces ahead of the BAAD requirement.
This policy offers a significant opportunity to reduce GHG emissions and capture appliance replacements over the next four years before BAAD’s mandate is fully implemented. Implementing this policy could potentially save residents money depending on the availability of rebates on water and space heating appliances. However, there are cases in which this policy could result in increased upfront costs for homeowners, which was the biggest concern identified in Phase II of engagement. The changing rebate landscape also makes it difficult to understand how costs will change over time. Due to the polarized community feedback, with some constituents being unsupportive of mandates, it may be difficult to garner public buy in for a Zero NOx Equipment Requirement policy.
Policy Option 4: Commercial Building Performance Standards Description
Option 4 introduces new policy standards for commercial buildings (Building Performance Standards) aimed at increasing energy efficiency, and eventually, decarbonizing commercial buildings as a phased efficiency-focused approach. In comparison to relatively homogonous residential buildings, commercial buildings can be highly variable in their systems and needs. Commercial building heating and cooling systems are also frequently oversized, meaning replacing existing gas equipment in a like for like manner with electric equipment is not economical. Process loads also vary significantly across commercial building types. For these reasons, decarbonizing commercial buildings necessitates a flexible approach where building managers can first make strides towards understanding their buildings and cost-effective opportunities before committing to a specific approach. Typically, a BPS Program is implemented in phases where buildings first report energy use for several years (benchmarking), then perform a retro- commissioning process to identify opportunities before finally reducing emissions below an established threshold (performance standard).
Phase I: Benchmarking (Years 1-2): This initial phase establishes a building’s energy performance baseline by comparing its energy use intensity (EUI) to similar buildings. Covered Buildings (buildings and properties with buildings totaling the specified size threshold or larger) report their annual energy usage in Energy Star Portfolio Manager. The data collected in the benchmarking phase improves 8 BAAD. 2024. Installation Costs for Zero-NOx Space and Water Heating Appliances. Available:
https://www.baaqmd.gov/~/media/files/community-health/building-appliance-implementation/task1_electrificationcosts- pdf.pdf?rev=3cb66a09f3094f94b35fa7fc90cfd4ec&sc_lang=en City of San Mateo
Electrify San Mateo: Policy Pathways Analysis
15 building manager and City understanding of building energy usage and will inform GHG-emissions performance standards. Benchmarking also identifies underperforming facilities and prioritizes improvements, with studies showing benchmarked buildings achieve average annual energy savings of 2.4 percent.9
Phase II: Retro-commissioning (Years 3-4): Retro-commissioning is a process through which a building’s energy consuming systems are analyzed for efficiency and proper operation. The retro- commissioning process serves two primary purposes. The first is to uncover inefficient operations, increase energy efficiency, and save building owners money. The second is to identify cost-effective opportunities to reduce building GHG emissions through electrification and energy efficiency. Phase III: Performance Standard (Year 4+): Jurisdictions set phased energy or emissions targets for GHG reductions over time on a square feet basis. The targets are based on data collected from the benchmarking phase and can be met through a variety of retrofits, such as upgrades, electrification, or renewable energy adoption. The most cost-efficient retrofits for each building were identified in the retro-commissioning phase. Standards often allow flexible compliance paths, such as achieving specific EUI thresholds or offsetting emissions via clean energy investments.
Policy Pros:
BPS approach addresses a high degree of variability in commercial building types by focusing on performance-based requirements
Phased approach allows for structured guidance for facility managers, uncovering cost savings over time
Focuses on worst performing buildings first
Reduces pressure on harder to electrify equipment types (e.g. gas stoves) through phased approach, longer runway for electric equipment to become widely available and cost-effective on-market Robust programming examples from Cities who have already implemented Tiers off of existing State energy disclosure laws (AB 802) Policy Cons:
Necessitates new staff time and staff members to implement and track BPS Does not guarantee all-electric end usage in short term until phased retro commissioning phase, potentially missing some appliances that could be electrified Limited building stock reach, best suited to large commercial buildings (for example buildings >25,000 sq ft)
Possibility to have equity implications from increased rents in multifamily if tenant protections are not integrated into the policy
Other Cities and Legislative Drivers
Commercial Building Performance Standards are already mandated by California’s statewide building energy benchmarking and public disclosure law (AB 802), which require owners of commercial and 9 National Association of State Energy Officials. 2025. Benchmarking and Building Performance Standards. Available:
https://www.naseo.org/issues/buildings/benchmarking
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Electrify San Mateo: Policy Pathways Analysis
16 multifamily buildings 50,000 square feet or larger to annually benchmark and report their whole-building energy usage to the California Energy Commission. A City BPS could implement the same threshold as the state or have a more stringent threshold including buildings with a smaller square footage. Compared to other policy approaches listed here, building performance standards are a well- established policy mechanism that has been adopted by many local governments including the City of San Jose, City of San Francisco, and City of Brisbane. City of Brisbane Building Efficiency Program passed in 2019, requires annual energy and water benchmarking and reporting, and compliance with Beyond requirements to show that they are high performing, or improving performance for commercial buildings 10,000 SF and larger.10
City of San Jose’s Energy and Water Building Performance Ordinance passed in 2018 and requires commercial and multifamily buildings above 20,000 square feet to annually benchmark and report their energy and water usage. Beginning in 2023, building have been required to meet energy and water efficiency standards on a rolling five-year basis.11 Greenhouse Gas Reductions Potential
Commercial building space makes up over 39 million square feet within the City with 44 percent and 30 percent coming from space and water heating respectively. The building performance standard would likely not result in significant GHG emissions reductions before 2030 due to the phased in nature of the program. However, 83,660 MT CO 2e were generated by commercial buildings in 2019 These emissions could be reduced by 2045 depending on the final thresholds adopted by the City.12 Community Feedback
Across engagement events, community members were supportive of a BPS policy. In the community survey, approximately 58% of respondents were supportive of a BPS policy, 12% neutral, and 29% do not support. The Senior Advisory Commission, Sustainability and Infrastructure Commission, and Community Relations Commission were supportive of this policy pathway.
During our direct outreach to building owners and developers, respondents understood the importance of a BPS policy and made suggestions of how to set thresholds to be most efficient and minimize unnecessary costs like setting individual reductions targets measured against a buildings own emissions rather than a City average and including a vintage threshold to exclude new buildings which are already more efficient. Building owners also shared that limited physical space for electric equipment upgrades and complicated tenant lease structures would be challenges to implementation that building owners would need guidance navigating.
Cost Effectiveness and Equity Considerations
The cost of decarbonizing buildings under a Building Performance Standard (BPS) policy varies significantly based on factors such as building age, equipment types, and energy end uses. This variability necessitates 10 https://www.brisbaneca.org/bbep
11 https://www.sanjoseca.gov/your-government/departments-offices/environmental-services/climate-smart-san-jos/energy-and-water- building-performance-ordinance
12 City of San Mateo Climate Action Plan (Page 41) https://www.cityofsanmateo.org/DocumentCenter/View/93755/Climate-Action-Plan-2024- Update?bidId=
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17 a flexible, performance-based approach, allowing owners to prioritize cost-effective solutions tailored to their assets. The BPS framework’s phased implementation mitigates financial burdens:
Benchmarking identifies inefficiencies (e.g., leaks, malfunctioning systems) and establishes a baseline for improvement. Benchmarking reporting costs approximately $3,000 annually. Retro-commissioning pinpoints low-cost operational optimizations (e.g., HVAC adjustments, controls recalibration), which typically yield 16% energy savings at an average cost of $0.30/sq. ft., often with payback periods under two years.
Performance standards are deferred for 4+ years post-benchmarking, enabling strategic capital planning for equipment replacements and system upgrades.
Electrification of commercial building electric retrofits will likely have to be paired with a suite of demand management, energy efficiency, or renewable energy projects in order to make building electrification economical for building owners. Specific cost-effective system upgrades include heat pump rooftop package units, which are the most promising electrification solution for commercial building electrification, offering a replicable model for a 1:1 equipment swap-out. 13 Analysis from PCE found that for these easy to electrify units (packaged/split units with both heating and cooling) the marginal costs to upgrade to an all-electric packaged or split heat pump system were found to be negligible as shown in 3.
Figure 1 PCE 2035 Decarbonization Plan Rooftop Package Unit Marginal Cost Analysis Equity is addressed by allowing building-specific compliance pathways and avoiding prescriptive mandates that could disproportionately burden older or under-resourced properties. There are additional equity implications when considering multifamily housing which could exacerbate disparities and lead to rent increases if not properly designed. Key considerations for equitable BPS implementation include anti- 13 Rocky Mountain Institute. 2022. Medium-Size Commercial Retrofits. Available: https://rmi.org/insight/economics-of-electrifying-buildings- medium-size-commercial-retrofits/
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Electrify San Mateo: Policy Pathways Analysis
18 displacement measures for buildings that receive any City subsidy, incentive, or funding. Equity implications and design measures for multifamily are still being investigated. Due to the phased in nature of this program, those considerations can be addressed over time, but before thresholds for reductions are finalized (year 4+).
Policy Findings
A BPS policy builds on state legislation and addresses a large source of emissions reductions. There is overall community support and flexible and cost-efficient implementation. However, a BPS policy obligates a significant amount of staff time. Therefore, for efficient implementation, the City could set a threshold that would maximize the captured square footage while minimizing the number of impacted building owners. A threshold that initially only applies to buildings greater than 50,000 square feet (which are already mandated to report benchmarking data under AB 802) would ensure the City’s building stock is complying with state law and allow the City to understand the benchmarking process without a significant staff burden.
Policy Option 5: Municipal Electric First Policy
Description
This policy establishes a mechanism for local government renovations to go ‘electric first’. This means that new appliance purchases, renovations, and replacements should prioritize using all-electric equipment.
This policy would also allow for technical and cost infeasibility on a project-level when an all-electric alternative is either not available or deemed infeasible due to cost. The main purpose of the policy is to position the City as the leader in decarbonization within the community as well as prepare City facilities for upcoming requirements. The City would also learn best practices through this approach which it can share with the community and electrified city facilities would serve as demonstration buildings to highlight the comfort, health, and safety benefits of going all-electric.
Policy Pros:
Demonstrates City leadership in building electrification Availability of significant local government incentives to electrify through Peninsula Clean Energy’s Gov BE and Willdan GK12 program
Existing resources available through County of San Mateo including staff report, model code language, and case studies
Prepares City for future requirements while incentives are available Lower operating costs
Policy Cons:
Limited reach as policy only covers municipal buildings Other Cities and Legislative Drivers
Some other jurisdictions who have implemented this policy include:
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Electrify San Mateo: Policy Pathways Analysis
19 City of Mountain View: Municipal Green Building Policy (2020): requires analysis of opportunities for electrification upon major upgrade of City-owned buildings, and develops a minimum of LEED Gold for new construction.14
City of San Diego: Zero Emissions Municipal Buildings and Operations Policy (2022): any time a natural gas burning system is being replaced, requires the new equipment to be electric.15 Greenhouse Gas Reductions Potential
In 2005 municipal natural gas use was 86,096 therms which equates to approximately 586 MT CO 2e annually after accounting for natural gas leakage. If fully implemented, the electric first policy would aim to reduce these emissions over time as equipment needed replacement. The total reductions by 2030 and 2045 would depend on the availability of all-electric replacements and the rate of equipment failure.
Community Feedback
Across community engagement events, there was broad support for this policy option. In the community survey, approximately 60% of respondents were supportive of this policy option, 15% neutral, and 24% do not support. Multiple constituents and building owners expressed a desire for the City to better understand the permitting process and technical implications, which would be achieved if the City led first by example. The Senior Advisory Commission, Sustainability and Infrastructure Commission, and Community Relations Commission were supportive of this policy pathway.
Cost Effectiveness and Equity Considerations
This policy enables the City to conduct a comprehensive feasibility assessment to evaluate the cost differentials between electrification and gas equipment replacement for municipal facilities. By incorporating exemptions for projects demonstrating technical or financial infeasibility, the policy ensures a targeted approach to identifying the most cost-effective energy upgrades, consistent with methodologies applied to commercial buildings. Implementation costs will vary based on building-specific factors, including system age, infrastructure readiness, and operational requirements.
As these facilities are City-owned, the municipality retains full decision-making authority over capital expenditures, eliminating potential equity concerns that might arise in privately owned housing or commercial properties. Furthermore, since many City owned facilities are used by the public such as libraries or park properties, creating healthier and more comfortable spaces while lowering operational costs provide an equity benefit to the community. This approach ensures alignment with both fiscal responsibility and the City’s broader decarbonization objectives.
Policy Findings
The adoption of a Municipal Electric First Policy establishes a process to systematically evaluate electrification opportunities during renovations and new projects for City-owned facilities. This policy aligns with the City’s climate goals while providing data-driven insights into cost and feasibility, enabling informed decision-making for future building decarbonization efforts. Furthermore, the municipal electrification first policy saw general support throughout the community engagement process. 14 https://www.mountainview.gov/home/showpublisheddocument/790/637940944813700000 15 https://www.sandiego.gov/sites/default/files/zero_emissions_municipal_buildings_operations_policy.pdf