Can Building Codes Ban Natural Gas After 9th Circuit Court Declines Rehearing?

The 9^th Circuit Court of Appeals’ refusal to rehear a pivotal gas appliance regulation decision has thrown a wrench into local efforts to reduce fossil fuel use.

Last spring, in California Restaurant Association v. City of Berkeley, a three-judge panel of the 9^th Circuit found a local ordinance prohibiting the use of natural gas appliances in new construction violated the Energy Policy and Conservation Act (EPCA). The City of Berkeley, with support from over a dozen states, municipalities, non-profits, and the Federal government, asked the full 9^th Circuit to review the case, arguing that preempting its Prohibition of Natural Gas Infrastructure in New Buildings ordinance causes “multiple and far-reaching harms.” Denial of the “en banc” hearing request prompted a dissent from 11 judges (the 9^th Circuit has 29 active judges who may vote on en banc requests) and an amended panel opinion with two concurrences, all published on January 2, 2024. The amended opinion makes clear that EPCA’s preemption is narrow: State and local building codes that ban natural gas piping within new buildings where gas is otherwise available are preempted; is not preempted.

EPCA was enacted after the 1970s oil crisis put a national focus on energy conservation. Subsequent amendments demonstrated that Congress wanted to minimize EPCA’s economic impact on consumers and manufacturers. “[A] growing patchwork of differing State regulations” complicated the manufacturers’ “design, production and marketing plans.” (Senate Report 100-6, 1987 U.S.C.C.A.N. 52). Since EPCA’s passage, the development of Federal energy efficiency standards has been a joint effort between appliance manufacturers and environmental organizations. Environmental advocates embrace these standards as a nationwide path toward reducing carbon pollution, and manufacturers say that standards set by the Department of Energy preserve consumer choices.

EPCA provides that when an energy conservation standard becomes effective for a “covered product,” “no State regulation concerning the energy efficiency, energy use, or water use of such covered product shall be effective concerning such product” unless various requirements are met. 42 U.S.C. § 6297(c). A new construction building code regulation may regulate energy efficiency or energy use in limited circumstances, which are not applicable in the Berkeley case. 42 U.S.C. § 6297(f).

The panel and the dissenting judges interpret the text of EPCA in very different ways. The panel paid attention to its “plain language” and structure, while the dissent relied on technical meanings and legislative history to avoid a finding of preemption.

The panels’ decision found that “a regulation on ‘energy use’ fairly encompasses an ordinance” such as Berkeley’s “that effectively eliminates the ‘use’ of an energy source.” The panel cited the waiver provision in 42 U.S.C. § 6297(d)—which stops the federal government from waiving preemption if the “State regulation will significantly burden manufacturing, marketing, distribution, sale or servicing of the covered product on a national basis”—as showing the extensive scope of the preemption clause. Such a clause “would make little sense if the scope of EPCA’s preemption ends with the design or manufacture of the product.” Judge Baker’s concurrence added that by seeking to ban the piping an owner might install to connect gas service to a covered product, the Berkeley Ordinance “cuts to the heart of what Congress sought to prevent.”

The dissent provides a blueprint for other courts that might see this decision as a “clear misinterpretation of an inapplicable statute.” It argues that while EPCA guarantees uniform appliance efficiency standards, it “does not create a consumer right to use any covered appliance.” While EPCA preempts building codes requiring hyper-efficient appliances, the Berkeley Ordinance merely directs consumers to one set of products (electric appliances) over another (gas appliances). It would give manufacturers no reason to change their gas product designs. The dissent states that “energy use” is a term of art akin to a performance standard, a typical metric in environmental regulation for evaluating how well a technology meets a target, such as greenhouse gas (GHG) emissions. Because Berkeley’s Ordinance did not attempt to change the EPCA-mandated “energy use” of a “covered product,” the dissent posits that banning that product altogether did not run against EPCA.

Key to understanding EPCA’s preemptive scope is the concept that EPCA preempts only regulations affecting “covered products” and preemption is triggered when a Federal “energy conservation standard” is established. EPCA names 19 categories of products – generally, significant household appliances like refrigerators, furnaces, television sets, and kitchen ranges and ovens. The Energy Secretary may classify additional products to carry out EPCA’s purposes and if the products’ per-household use exceeds certain threshold amounts of energy per year. For example, DOE made portable electric spas a covered product in 2022, but that rule excludes spas heated with propane or natural gas. See 87 Fed.Reg. 54123. So, unless the Federal government later classifies gas-powered spas as “covered products” and until preemption is triggered by Federal enactment of an energy performance standard, a State or local regulation concerning gas-powered spas is not preempted by EPCA.

Is it ironic that developing nationwide efficiency standards triggers preemption and thus prevents building codes that would ban GHG-emitting appliances? Or does preserving Federal supremacy of energy efficiency standards ensure that all Americans have access to the same appliances and that industry does not have to deal with a “patchwork of differing State regulations?”

In the short term, local governments in the 9^th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam, and the Northern Mariana Islands) will have to avoid enforcing laws like Berkeley’s that prevent the use of covered products by banning gas piping at a property where the customer otherwise has access to natural gas. The other eleven circuits could have a different interpretation of EPCA preemption. The 2^nd Circuit will soon have a shot at it; in October 2023, a coalition of gas companies, trade associations, and labor unions accused New York State of violating EPCA by banning gas appliances and infrastructure in new buildings beginning December 31, 2025.

Another Circuit’s decision could turn on whether it invokes the “presumption against preemption,” a doctrine that says local governments may exercise police powers unless Congress manifests clearly that Federal law controls. In his concurrence, Judge says Supreme Court and 9^th Circuit precedent suggest the presumption does not apply—even in areas of traditional state concern or statutory ambiguity—when the Federal law contains an express preemption clause, as EPCA does. Sharing his concern that this area of preemption law “is troubling and confused,” Judge O’Scannlain requests clarity and further guidance from the Supreme Court.

One regulation in the cross-hairs is Massachusetts’ new “demonstration program” allowing nine municipalities to enact bylaws prohibiting fossil fuel use in new construction and major renovation. The panel decision said, “EPCA would no doubt preempt an ordinance that directly prohibits the use of covered natural gas appliances in new buildings,” a local government may not “indirectly” prohibit a covered product’s use by banning the required infrastructure. A concurrence suggests that locals might reduce natural gas consumption in other ways, such as through carbon taxes or declining to extend gas utility service. Tax rebates, discounted building permits, and density bonuses for fossil fuel-free construction are some incentive strategies municipalities can employ to discourage fossil fuel use while complying with the 9^th Circuit’s interpretation of EPCA. While we know of no cases brought in the 1^st Circuit, Massachusetts’ amicus brief in the Berkeley case called this a “question of exceptional importance” and the Commonwealth will be eager to defend its climate laws on the broader stage.