Legal Bulletins

On June 4, 2024, Governor Moore issued an Executive Order to implement Maryland’s Climate Pollution Reduction Plan. Regular readers will recall our bulletin on that order.  Many of the provisions explicitly called for the phasing out of natural gas, propane and oil heating equipment. Two provisions, in particular, call for regulations or legislation to eventually forbid the purchase of fossil fueled heating equipment and the imposition of fees and surcharges on gas, propane and heating oil sales in order to fund alternatives. Those two provisions require the Maryland Department of the Environment (MDE) to:

“Propose a zero-emission heating equipment standard regulation that will phase-in zero-emissions standards for heating equipment…[and]… Propose a clean heat standard to expand Maryland’s Renewable Portfolio Standard to the thermal heat system, mobilizing investment in clean heat solutions for homes and businesses…”

MDE has not yet issued these regulations, but we can foresee the general outline of the proposals by examining similar regulations proposed in Montgomery County and a few other states. MDE is also being advised by the Regulatory Assistance Project (RAP), an independent, non-government agency that advocates for Clean Heat Standards (CHS). RAP made a presentation to the Maryland Commission on Climate Change in February of 2023, followed by a 91-page paper in November of 2023. The paper, “Meeting the Thermal Challenge: A Clean Heat Standard for Maryland” was “prepared for the Maryland Department of the Environment” and provides a preview of the Clean Heat Standard that MDE will likely issue sometime this year.

The “zero-emission heating equipment standard” likely to be proposed is simple in theory but will likely be challenged in court on federal preemption grounds. The concept is to set a CO2 air emission limit for heating equipment. By setting the emission limit to zero, the requirement would effectively ban the sale of fossil fueled heating equipment since natural gas, propane, and heating oil cannot achieve zero emissions.

Litigation is likely to follow because the federal government regulates the energy efficiency standards of appliances through the Energy Policy and Conservation Act (EPCA). The EPCA provides that, once a federal energy efficiency standard is established, “no State regulation concerning the energy efficiency, energy use, or water use of such covered product shall be effective…”  42 U.S.C. §6297(c). The Ninth Circuit, in CRA v. City of Berkeley, 89 F.4th 1094 (9th Cir. 2024) concluded that a building code provision forbidding piping for natural gas would run afoul of that preemption language. The same argument would apply to any provision that directly regulated the efficiency of heating equipment itself.

The zero-emission standard would apply to sales and the installation of new heating equipment but would not explicitly require the removal of existing equipment. That is what the second proposal – the Clean Heat Standard – appears to be designed to accomplish. Basically, a clean heat standard would require fossil fuel providers to fund efforts to reduce the purchase of their products.

As conceived, a clean heat credit would be created whenever the supplier, or a third party, implemented any of a number of actions to lower greenhouse gas emissions. Examples include weatherization and building improvements, conversions of buildings to electric heat pumps, the use of certain biofuels or renewable hydrogen or solar heating systems. A supplier of natural gas, propane, or heating oil would have to acquire a certain number of these credits by either funding the work or acquiring the credit from the third party that performed the work.  So, for example, a natural gas utility could reimburse contractors for replacing gas heating systems with electric heat pumps.

The difficulty, of course, is that the costs of acquiring the credits would be passed on by the fossil fuel companies to customers. In theory, the customers, as a group, would benefit from the creation of the credits through reduced energy use. In practice, the members of the public benefiting from the credits may not be the same members who pay the increased costs. That is especially true since the program is designed to divert a large percentage of the credits to support economically disadvantaged communities. The customers who continue to heat their homes with gas, propane, or heating oil will see their bills increase from the program.

An additional concern with both the zero-emission heating equipment and clean heat standards is that they are merely parts of a larger climate change program. The other parts of the program are also expected to increase the cost of fossil fuels. For example, the Building Energy Performance Standards will force owners of large buildings to retrofit existing buildings by replacing natural gas, propane and heating oil systems with cold weather heat pumps. The estimated capital costs – likely to be passed on to tenants – is measured in billions of dollars.  In addition, many of the proposals to raise additional funds for greenhouse gas reductions call for a carbon tax or similar fee on fossil fuel sales.

Each of these programs will raise the cost for customers with fossil fuel heating systems. In combination, the cumulative impact on the cost of natural gas, propane, and heating oil is likely to be huge. If the programs are effective in driving away customers of natural gas or similar fuels, then we can also expect an additional inflationary impact as the distribution costs are borne by fewer customers.

At the same time, there is reason to expect significant increases in the cost of electricity in Maryland. As readers of our bulletins know, the state needs to spend massive amounts of money upgrading distribution and transmission lines to accommodate the move to electric vehicles and all-electric heating systems while simultaneously changing from fossil fuel power plants to widely distributed solar farms and offshore wind. For example, PJM, the regional grid operator has determined that Maryland’s last remaining coal powered plant cannot close until an $800 million transmission line is built to import even more power from the Pennsylvania state line.

Maryland’s climate plan assumes that Maryland consumers, as a group, will benefit since it assumes that the decreased use of energy will offset the enormous costs of the transition. Whether that prediction holds true, only time can tell. The one certainty is that the transition will be expensive and difficult. Navigating the changes in state laws and programs will require residents of the state to carefully monitor developments and anticipate the impacts.

In addition to these impacts, recent auction results in the regional capacity market appear to guarantee a significant increase in electricity rates starting during the summer of 2025. A number of factors contribute to that increase but the accelerated phasing out of fossil fueled generation without a balancing increase in battery-supplemented renewable energy appears to be a big part of the equation. Some consultants are predicting as much as a 50% increase in the cost of electricity by June 2025. It is not clear that forcing consumers to switch from natural gas and other fossil fuels to electricity in the midst of this price spike will be politically viable.

Max Cooke
410-576-4141 • mcooke@gfrlaw.com

Michael Powell
410-576-4175 • mpowell@gfrlaw.com