Decarbonization and Electrification

9 min read

Efforts in Affordable Housing Still in Early Stages

Affordable housing communities across the nation have much to gain from decarbonization and electrification, yet unfamiliarity with new technologies, the high cost of retrofitting buildings, and complicated access to funding sources and incentives have slowed the conversion.

These issues are among the key findings in a newly released report from the American Council for an Energy-Efficient Economy (ACEEE). The report, titled “Building Decarbonization Solutions for the Affordable Housing Sector,” details both the benefits of decarbonization for affordable housing communities and the barriers to adoption.

The report also stresses that because affordable housing is such a significant share of the nation’s residential housing, decarbonization of this housing sector could yield substantial declines in greenhouse gas emissions, perhaps 268 million metric tons a year by some estimates.

Decarbonization also creates equity for affordable housing residents by reducing their energy burden, defined as the percentage of their household income spent on home energy bills. Disadvantaged communities tend to have higher energy burdens.

“Reducing energy use and costs in affordable multifamily housing not only helps reduce emissions, but also alleviates energy burdens for renters and creates opportunities for owners and property managers to use the savings for upgrades or maintenance work needed to preserve affordable housing,” the report states.

Heather Clark, manager for REALIZE, RMI’s (a nonprofit focusing on innovations for energy efficiency) retrofit accelerator for the East Coast, says decarbonizing affordable housing communities brings both economic and health benefits to residents.

“The benefits to low-income residents from doing these decarbonization measures is pretty substantial,” says Clark. “Not only are you decarbonizing housing and becoming less reliant on fossil fuels, you are also making them more economically stable…In addition to that, as we decarbonize buildings, it also improves indoor air quality.”

Decarbonization Explained

Decarbonizing a building involves making it more energy efficient while also electrifying its energy source as much as possible, making it less reliant on fossil fuels. According to the ACEEE report, “improving energy efficiency and electrifying housing are intertwined strategies for decarbonization.” Both strategies reduce use of carbon-based fossil fuel energy, such as gas or oil. According to recent studies, in the U.S. today, electricity accounts for about 45 percent of onsite residential energy, while the remainder comes from fuels, such as natural gas, propone, oil and wood.

Many local utilities, as well as the Department of Housing and Urban Development and Department of Energy, offer rebates and incentives to improve energy efficiency in existing buildings through weatherization, insulation and other measures. Incentives also exist to electrify buildings, but the cost of electrification can be expensive, especially in older buildings that require a large amount of retrofitting. High up-front costs can deter affordable housing owners from adopting these technologies in older buildings. Owners also might have less of an incentive if residents pay their own utilities and will therefore be the ones capturing most savings.

Electrification technologies include: heat pumps that both heat and cool by transferring energy from one place to another using a vapor compression refrigerant cycle, induction stoves and heat pump water heaters.

The ACEEE report stresses that electrification results in greater decarbonization only when the energy grid from where the electricity is produced derives a large share of its power from clean sources, such as solar, hydro or wind. In the Chicago area, for example, the electric grid gets its power from coal, a high carbon energy source. Electrification there would yield lower reductions in greenhouse gas emissions.

Barriers to Affordable Housing Decarbonization Retrofits

Electrification of existing affordable housing buildings can pose significant challenges, according to the report. The age and condition of the building must be taken into consideration, as must the building envelope. A well-sealed and well-insulated building envelope is critical to ensuring that any new technologies will work properly. Since electricity rates are generally higher than gas, switching to electricity in a poorly insulated building could actually raise rates.

Existing buildings also might not have enough electrical capacity to support a full decarbonization effort. Electrical upgrades to the building may be required to support the new appliances, the cost of which can vary for multifamily buildings from $13,500 to $122,000, according to the ACEEE report.

There may also be physical limitations in existing buildings as well. Heat pumps, in some cases, can be too physically large for the units they replace, especially heat pump water heaters. Heat pumps for space heating and cooling are less problematic in terms of size since they are located outside. Buildings without centrally ducted HVAC systems also are problematic for decarbonizing multifamily units. In larger buildings, separate outdoor heat exchangers may be required for every zone in a multi-split system.

Because of the limitations of some existing buildings, the up-front costs of electrification retrofits can be high. Estimates for a single-family retrofit range from $10,675 to $50,000. This includes costs for appliances and upgrades in the building envelope and systems. An overall estimate for the cost for multifamily unit retrofit was not provided.

The cost of some of the equipment also is high. The cost of an induction cooktop can range from $1,000 to $3,500, rising as high as $6,000. A ducted heat pump can cost between $7,500 to nearly $11,000. Some analysts expect these costs to decline in coming years.

Costs Savings in New Construction vs. Costs to Sticking with the Status Quo

Decarbonization can result in cost savings for new construction of affordable housing, as well as savings in residents’ and property owners’ energy bills. According to the 2021 climate initiative from HUD, energy and water costs in HUD-assisted properties account for about 14 percent of the agency’s total budget. A move to cleaner energy can cut those costs, although estimates vary. According to one 2021 estimate that used energy prices at the time of the report issuance, 78 percent of residential single-family and multifamily customers could achieve savings by converting their water heaters to heat pumps.

Electrification can yield cost savings in new construction if adopted early in the planning stages. Building all-electric can save developers project time and avoided gas infrastructure costs. Multifamily developers in California save an average of $3,300 per unit, or more than $20,000 on an eight-unit property through electrification.

The ACEEE report also stresses that there may be some financial risk to households that do not electrify, because they run the risk of higher fossil fuel rates due to infrastructure that may become stranded in the long term. Research shows that if the residential natural gas customer base decreases, it will increase costs dramatically for remaining customers.

Lack of Incentives and Awareness

Affordable housing building owners have little financial incentive to invest in energy efficiency or electrification if renters pay their own utility bills. In this scenario, the owner could pay for the upgrades, but not see any financial benefit in lower energy bills. In unsubsidized housing units, owners who complete retrofits could theoretically pass the cost onto the renter in higher rents.

In subsidized housing communities where renters receive utility allowances that are subtracted from their rents, owners could actually be penalized for switching to efficient electric technologies. If state and local housing authorities lack awareness about the efficiency inherent in recent advances in electric space and water heating technologies, they could raise the utility allowance due to increased electrical appliances. That would lower the amount of rent an owner could charge.

A lack of awareness about the benefits of electrification technology, such as heat pumps by contractors and customers also is a barrier to adoption. Contractors tend to install technologies they have relied upon for years. Similarly, the general public is attached to gas stove cooking and has not shown a large interest in moving to induction technology.

The Incentives

According to the ACEEE report, the Federal Low Income Housing Tax Credit holds the most promise for incentivizing the decarbonization of affordable housing. Through the LIHTC, some state Housing Financing Agencies (HFAs) have been able to incentivize green practices through their Qualified Allocation Plan (QAP) requirements and preferences. Some of these include: energy and water audits modeling, performance-based requirements or incentives, water conservation requirements, coordination with utility energy efficiency programs, energy and water benchmarking, project-specific utility allowances and renewable energy incentives. These incentives should be embedded in all QAP requirements, according to the report.

Other programs that can help fund or incentivize decarbonization, according to the report, include: the Department of Energy’s Weatherization Assistance Program, Community Development Block Grants, Energy Performance Contracting and the HOME Investment Partnership Program. The report also encourages HUD to develop a comprehensive benchmarking initiative that could assist energy management of HUD buildings.

The report also details local and state utility programs that are designed to incentivize and, in some cases, help to fund decarbonization. City and municipal building codes also could further these efforts by adopting building performance standards that set limits on energy or greenhouse gas emissions intensity. Some cities, such as St. Louis; New York; Reno, NV; Boulder, CO; and the District of Columbia have adopted these standards.

Ravi Malhotra, founder and president of the International Center for Appropriate and Sustainable Technology or ICAST, says he believes the building standards and code requirements for energy efficiencies are the most effective tool in getting developers to decarbonize.

“Why are the ones who are doing it, doing it? It is being driven by policy requirements,” says Malhotra.

Heather Clark agrees that the policy requirements are critical to the effort and believes that states and the federal government need more.

“We are not seeing as much as we need to,” she says of the policy requirements. “It does not match the scale of the climate crisis.”

But Clark says she believes there is more decarbonization going on in the affordable housing realm than in the market-rate building industry. She believes altruism is the reason.

“I think that the people that tend to care about providing high-quality housing for low-income communities also tend to care about the climate,” says Clark.

Pamela Martineau is a freelance writer based in Portland, ME. She writes primarily about housing, local government, technology and education.