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Cities across the state are adopting building codes that heavily incentivize homeowners to make the switch.

A quiet revolution in California’s building codes could turn many of the state’s summer-only air conditioners into all-season heat pumps.
Over the past few months, 12 California cities have adopted rules that strongly incentivize homeowners who are installing central air conditioning or replacing broken AC systems to get energy-efficient heat pumps that provide both heating and cooling. Households with separate natural gas or propane furnaces will be allowed to retain and use them, but the rules require that the heat pump becomes the primary heating system, with the furnace providing backup heat only on especially cold days, reducing fossil fuel use.
These “AC2HP” rules, as proponents call them, were included in a routine update of California building codes in 2024. Rather than make it mandatory, regulators put the heat pump rule in a package of “stretch codes” that cities could adopt as they saw fit. Moreno Valley, a city in Riverside County, east of Los Angeles, was the first to pass an ordinance adopting the AC2HP code back in August. A steady stream of cities have followed, with Los Gatos and Portola Valley joining the party just last week. Dylan Plummer, a campaign advisor for Sierra Club's Building Electrification Campaign, expects more will follow in the months to come — “conversations are moving” in Los Angeles and Sacramento, as well, he told me.
“This is a consumer protection and climate policy in one,” he said. As California gets hotter, more households in the state are getting air conditioners for the first time. “Every time a household installs a one-way AC unit, it’s a missed opportunity to install a heat pump and seamlessly equip homes with zero-emission heating.”
This policy domino effect is not unlike what happened in California after the city of Berkeley passed an ordinance in 2019 that would have prohibited new buildings from installing natural gas. The Sierra Club and other environmental groups helped lead more than 70 cities to follow in Berkeley’s footsteps. Ultimately, a federal court overturned Berkeley’s ordinance, finding that it violated a law giving the federal government authority over appliance energy usage. Many of the other cities have since suspended their gas bans.
Since then, however, California has adopted state-wide energy codes that strongly encourage new buildings to be all-electric anyway. In 2023, more than 70% of requests for service lines from developers to Pacific Gas & Electric, the biggest utility in the state, were for new all-electric buildings. The AC2HP codes tackle the other half of the equation — decarbonizing existing buildings.
A coalition of environmental groups including the Sierra Club, Earthjustice, and the Building Decarbonization Coalition are working to seed AC2HP rules throughout the state, although it may not be easy as cost-of-living concerns grow more politically charged.
Even in some of the cities that have adopted the code, members of the public worried about the expense. In Moreno Valley, for instance, a comparatively low-income community, six out of the seven locals who spoke on the measure at a meeting in August urged elected officials to reject it, and not just because of cost — some were also skeptical of the technology.
In Glendale, a suburb of Los Angeles which has more socioeconomic diversity, the measure saw significant public support in early city council meetings. Just before the final vote, however, the four members of the public who showed up to comment urged the council to reject it. In addition to cost concerns, they questioned why the city would rush to do something like this when the state didn’t make it mandatory, arguing that the council should have held a full public hearing on the change.
In Menlo Park, on the other hand, which is a wealthy Silicon Valley suburb, all five speakers were in support of the measure, although each of them was affiliated with an environmental group.
Heat pumps are more expensive than air conditioners by a couple of thousands of dollars, depending on the model. With state and local incentives, the upfront cost can often be comparable. When you take into account the fact that you’re moving from using two appliances for heating and cooling to one, the equipment tends to be cheaper in the long run.
The impacts of heat pumps on energy bills are more complicated. Heat pumps are almost always cheaper to operate in the winter than furnaces that use propane or electric resistance. Compared to natural gas heating, though, it mostly depends on the relative cost of gas versus electricity. Low-income customers in California have access to lower electricity rates that make heat pumps more likely to pencil out. The state also recently implemented a new electricity rate scheme that will see utilities charge customers higher fixed fees and lower rates per kilowatt-hour of electricity used, which may also help heat pump economics.
Matthew Vespa, an senior attorney at Earthjustice described the AC2HP policy as a way to help customers “hedge against gas rates going up,” noting that gas prices are likely to rise as the U.S. exports more of the fuel as liquified natural gas, and also as gas companies lose customers. “It’s really a small incremental cost to getting an AC replaced with a lot of potential benefits.”
The AC2HP idea dates back to a 2021 Twitter thread by Nate Adams, a heat pump installer who goes by the handle “Nate the House Whisperer.” Adams proposed that the federal government should pay manufacturers to stop producing air conditioners and only produce heat pumps. Central heat pumps are exactly the same as air conditioners, except they provide heating in addition to cooling thanks to “a few valves or ~$100-300 in parts,” Adam said at the time.
The problem is, most homeowners and installers are either unfamiliar with the technology or skeptical of it. While heat pumps have been around for decades and are widespread in other parts of the world, especially in Asia, they have been slower to take off in the United States. One reason is the common misconception that they don’t work as well as furnaces for heating. Part of the issue is also that furnaces themselves are less expensive, so heat pumps are a tougher sell in the moment when someone’s furnace has broken down. Adams’ policy pitch would have given people no choice but to start installing heat pumps — even if they didn’t use them for heating — getting a key decarbonization technology into homes faster than any rebate or consumer incentive could, and getting the market better acquainted with the tech.
The idea gained traction quickly. An energy efficiency research and advocacy organization called CLASP published a series of reports looking at the potential cost and benefits, and a manufacturer-focused heat pump tax credit even made its way into a bill proposal from Senator Amy Klobuchar in the runup to the 2022 Inflation Reduction Act. While rules that target California homeowners obviously won’t have the nation-wide effect that Adams’ would have, they still have the potential to send a strong market signal, considering California is the fifth largest economy in the world.
The AC2HP codes, which start going into effect next year, will help smooth the road to another set of building electrification rules that will apply in some parts of the state beginning in 2029. At that point, households in the Bay Area will be subject to new air quality standards that require all newly installed heating equipment to be zero-emissions — in other words, if a family’s furnace breaks down, they’ll have to replace it with a heat pump. State regulators are developing similar standards that would apply statewide starting in 2035. The AC2HP rule ensures that if that same family’s air conditioner breaks between now and then, they won’t end up with a new air conditioner, which would eventually become redundant.
The rule is just one of a bunch of new tools cities are using to decarbonize existing buildings. San Francisco, for example, adopted an even stricter building code in September that requires full, whole-home electrification when a building is undergoing a major renovation that includes upgrades to its mechanical systems. Many cities are also adopting an “electrical readiness” code that requires building owners to upgrade their electrical panels and add wiring for electric vehicle charging and induction stoves when they make additions or alterations to an existing building.
To be clear, homeowners in cities with AC2HP laws will not be forced to buy heat pumps. The code permits the installation of an air conditioner, but requires that it be supplemented with efficiency upgrades such as insulating air ducts and attics — which may ultimately be more costly than the heat pump route.
“I don’t think most people understand that these units exist, and they’re kind of plug and play with the AC,” said Vespa.
Editor’s note: This story has been updated to reflect that the building code change initially received support in Glendale.
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The FREEDOM Act aims to protect energy developments from changing political winds.
A specter is haunting permitting reform talks — the specter of regulatory uncertainty. That seemingly anodyne two-word term has become Beltway shorthand for President Donald Trump’s unrelenting campaign to rescind federal permits for offshore wind projects. The repeated failure of the administration’s anti-wind policies to hold up in court aside, the precedent the president is setting has spooked oil and gas executives, who warn that a future Democratic government could try to yank back fossil fuel projects’ permits.
A new bipartisan bill set to be introduced in the House Tuesday morning seeks to curb the executive branch’s power to claw back previously-granted permits, protecting energy projects of all kinds from whiplash every time the political winds change.
Dubbed the FREEDOM Act, the legislation — a copy of which Heatmap obtained exclusively — is the latest attempt by Congress to speed up construction of major energy and mining projects as the United States’ electricity demand rapidly eclipses new supply and Chinese export controls send the price of key critical minerals skyrocketing.
Two California Democrats, Representatives Josh Harder and Adam Gray, joined three Republicans, Representatives Mike Lawler of New York, Don Bacon of Nebraska, and Chuck Edwards of North Carolina, to sponsor the bill.
While green groups have criticized past proposals to reform federal permitting as a way to further entrench fossil fuels by allowing oil and gas to qualify for the new shortcuts, Harder pitched the bill as relief to ratepayers who “are facing soaring energy prices because we’ve made it too hard to build new energy projects.”
“The FREEDOM Act delivers the smart, pro-growth certainty that critical energy projects desperately need by cutting delays, fast-tracking approvals, and holding federal agencies accountable,” he told me in a statement. “This is a common sense solution that will mean more energy projects being brought online in the short term and lower energy costs for our families for the long run.”
The most significant clause in the 77-page proposal lands on page 59. The legislation prohibits federal agencies and officials from issuing “any order or directive terminating the construction or operation of a fully permitted project, revoke any permit or authorization for a fully permitted project, or take any other action to halt, suspend, delay, or terminate an authorized activity carried out to support a fully permitted project.”
There are, of course, exceptions. Permits could still be pulled if a project poses “a clear, immediate, and substantiated harm for which the federal order, directive, or action is required to prevent, mitigate, or repair.” But there must be “no other viable alternative.”
Such a law on the books would not have prevented the Trump administration from de-designating millions of acres of federal waters to offshore wind development, to pick just one example. But the legislation would explicitly bar Trump’s various attempts to halt individual projects with stop work orders. Even the sweeping order the Department of the Interior issued in December that tried to stop work on all offshore wind turbines currently under construction on the grounds of national security would have needed to prove that the administration exhausted all other avenues first before taking such a step.
Had the administration attempted something similar anyway, the legislation has a mechanism to compensate companies for the costs racked up by delays. The so-called De-Risking Compensation Fund, which the bill would establish at the Treasury Department, would kick in if the government revoked a permit, canceled a project, failed to meet deadlines set out in the law for timely responses to applications, or ran out the clock on a project such that it’s rendered commercially unviable.
The maximum payout is equal to the company’s capital contribution, with a $5 million minimum threshold, according to a fact-sheet summarizing the bill for other lawmakers who might consider joining as co-sponsors. “Claims cannot be denied based on project permits or energy technology type,” the document reads. A company that would have benefited from a payout, for example, would be TC Energy, the developer behind the Keystone XL oil pipeline the Biden administration canceled shortly after taking office.
Like other permitting reform legislation, the FREEDOM Act sets new rules to keep applications moving through the federal bureaucracy. Specifically, it gives courts the right to decide whether agencies that miss deadlines should have to pay for companies to hire qualified contractors to complete review work.
The FREEDOM Act also learned an important lesson from the SPEED Act, another bipartisan bill to overhaul federal permitting that passed the House in December but has since become mired in the Senate. The SPEED Act lost Democratic support — ultimately passing the House with just 11 Democratic votes — after far-right Republicans and opponents of offshore wind leveraged a special carveout to continue allowing the administration to commence its attacks on seaborne turbine projects.
The amendment was a poison pill. In the Senate, a trio of key Democrats pushing for permitting reform, Senate Energy and Natural Resources ranking member Martin Heinrich, Environment and Public Works ranking member Sheldon Whitehouse, and Hawaii senator Brian Schatz, previously told Heatmap’s Jael Holzman that their support hinged on curbing Trump’s offshore wind blitz.
Those Senate Democrats “have made it clear that they expect protections against permitting abuses as part of this deal — the FREEDOM Act looks to provide that protection,” Thomas Hochman, the director of energy and infrastructure policy at the Foundation for American Innovation, told me. A go-to policy expert on clearing permitting blockages for energy projects, Hochman and his center-right think tank have been in talks with the lawmakers who drafted the bill.
A handful of clean-energy trade groups I contacted did not get back to me before publication time. But American Clean Power, one of the industry’s dominant associations, withdrew its support for the SPEED Act after Republicans won their carveout. The FREEDOM Act would solve for that objection.
The proponents of the FREEDOM Act aim for the bill to restart the debate and potentially merge with parts of the previous legislation.
“The FREEDOM Act has all the critical elements you’d hope to see in a permitting certainty bill,” Hochman said. “It’s tech-neutral, it covers both fully permitted projects and projects still in the pipeline, and it provides for monetary compensation to help cover losses for developers who have been subject to permitting abuses.”
Maybe utilities’ “natural monopoly” isn’t so natural after all.
Debates over electricity policy usually have a common starting point: the “natural monopoly” of the transmission system, wherein the poles and wires that connect power plants to homes and businesses have exclusive franchises in a certain territory and charge regulated rates to access them.
The thinking is that without a monopoly franchise, no one would make the necessary capital expenditures to build and maintain the power lines and grid infrastructure necessary to connect the whole system, especially if they thought someone would build a new transmission line nearby. So while a government body oversees investment and prices, the utility itself is not subject to market-based competition.
But what if someone really did want to build their own wires?
“There are at least two of us who do not think that electricity is a natural monopoly,” Glen Lyons, the founder of Advocates for Consumer Regulated Electricity, told me.
The other one is Travis Fisher, an energy scholar at the Cato Institute, who corrected his friend and colleague.
“Between me, and Joseph Schumpeter, and Wayne Cruz, and Glen Lyons, there’s at least four of us. Only three of us are alive,” Fisher said, referencing the Austrian economist Schumpeter, who died in 1950, and the libertarian scholar Cruz, who was a critic of the restructuring of the electricity market in the 1990s.
Fisher and Lyons, however, are the team behind a proposal put out on Tuesday by the libertarian Cato Institute calling for “consumer-regulated electricity.” Instead of a transmission system with a monopoly franchise that independent generators can connect to and sell power to utilities in a process regulated by a combination of a public utility commission and regional transmission organization or independent system operators, CRE systems would be physically islanded electricity systems that customers would privately and voluntarily sign up for.
Crucially, CRE would not be regulated under existing federal law, and would have no connection to the existing grid, allowing for novel price structures and even physical set-ups, like running on different frequencies or even direct current, Fisher said.
They would also, Fisher and Lyons argue, help solve the dilemma haunting electricity policymakers: how to bring new load on the grid quickly without saddling existing ratepayers with the cost of paying for utility upgrades.
“If enabled, CRE utilities would generate, transmit, and sell electricity directly to customers under voluntary contracts, without interconnecting to the existing regulated grid or seeking permission from economic regulators at the state or federal level,” the Cato proposal reads.
This idea has a natural audience among political conservatives, as it’s essentially a bet that more entrepreneurship and less regulation will solve some of our biggest energy system problems. On the other hand, utilities tend to be a powerful force in conservative politics at both the state and federal levels, which is one reason why these kinds of ideas are still marginal.
But less marginal than they have been.
Consumer-regulated electricity is more than just another think tank white paper. It has also won the approval of the influential American Legislative Exchange Council, better known as ALEC, a conservative group that writes model legislation for state legislatures to adopt. Fisher proposed version of the consumer-regulated utilities plan to the network in December of last year, and ALEC approved it in January.
A few days after the group finalized the model policy to allow CRE at the state level, Arkansas Senator Tom Cotton proposed his own version in the form of the DATA Act, which would “amend the Federal Power Act to exempt consumer-regulated electric utilities from Federal regulation.”
While the CRE proposal is a big conceptual departure from about a century of electricity regulation, the actual reform is modest. Fisher and Lyons propose a structure would apply solely to “sophisticated customers … who voluntarily contract for service and can manage their own risks,” i.e. big industrial users like data centers, not your home.
While this sounds like behind the meter generation, whereby large electricity users such as, say, xAI in Memphis, simply set up their own electricity plants, CRE goes further. The idea is to capture the self-regulation benefits of building your own power within a structure that still allows for the economies of scale of a grid. Or in the words of Cato’s proposal, CRE “would enable third-party utilities to serve many customers, resulting in lower costs, higher reliability, and a smaller environmental footprint compared to self-supply options.”
Fisher and Lyons argue that CRE would also have an advantage over so-called co-location, where data centers are built adjacent to generation and share interconnection with the grid, which still requires interacting with public utility commissions and utilities. The pair have also suggested that the Department of Energy and the Federal Energy Regulatory Commission use its existing rulemaking process on data center interconnection to encourage states to pass the necessary laws to allow islanded utility systems.
While allowing totally private utility systems may be a radical — and certainly a libertarian — departure from the utility regulation system as it exists today, proposals are popping up on both the left and the right to try to reduce utility influence over the electricity system.
Tom Steyer, the hedge fund billionaire and climate investor who is running for governor of California, has said that he would “break up the utility monopolies to lower electric bills by 25%.” In a January press conference, Steyer clarified that he “wants to force utility companies to choose cheaper ways of wildfire-proofing their infrastructure and give customers other options for buying power, including making it easier to build neighborhood-level solar projects or allowing more communities to operate their own local grids,” according to CalMatters. California already has some degree of retail choice, although a more expansive version of a retail competition model infamously collapsed during the 2001 rolling blackouts.
To Fisher, while his and Lyons’ proposal is in some ways radical, it is also not a particularly big risk. If there’s truly no demand for private electricity networks, none will be built and nothing will change, even if there’s regulatory reform to allow for it.“I’m not surprised to see it get traction,” Fisher said of the plan, “just because there’s no downside, and the upside could be absolutely nothing — or it could be a breakthrough.”
On offshore wind wins, China’s ‘strong energy nation,’ and Japan’s deep-sea mining
Current conditions: Yet another snow storm is set to powder parts of the Ohio Valley and the Mid-Atlantic • Cyclone Fytia is deluging Madagascar, causing flooding that left at least three dead and 30,000 displaced in a country still reeling from the recent overthrow of its government • Scotland and England are bracing for a gusty 33-hour blizzard, during which temperatures are forecast to drop below freezing.
He’s fashioned the military’s Defense Logistics Agency into a tool to fund mineral refineries. He’s gone on a shopping spree that made Biden administration officials “jealous,” taking strategic equity stakes in more than half a dozen mining companies. Now President Donald Trump is preparing to launch a strategic stockpile for critical minerals in what Bloomberg billed as “a bid to insulate manufacturers from supply shocks as the U.S. works to slash its reliance on Chinese rare earths and other metals.” Dubbed Project Vault, the venture will be seeded with a $10 billion loan from the Export-Import Bank of the U.S. and another $1.67 billion in private capital. More than a dozen companies have committed to work on the stockpile, including General Motors, Stellantis, Boeing, Google, and GE Vernova.
The shale industry, meanwhile, showed it’s matured enough to go through some consolidation. Oklahoma City-based gas giant Devon Energy is merging with Houston-headquartered Coterra Energy in an all-stock deal that CNBC said would create “a large-cap producer with a top position in the Permian Basin. The deal would establish a combined company with an enterprise value of $58 billion, marking the largest merger in the sector since Diamondback bought Endeavor Energy Resources for $26 billion in 2024. The deal comes as low prices from the global oil glut squeeze U.S. shale drillers — and as the possibility of more oil from Venezuela threatens the sector with fresh competition.
Offshore wind is now five-for-five in its legal brawls with Trump. With Orsted’s latest victory in the Sunrise Wind case on Monday, I’ll let Heatmap’s Jael Holzman serve as the ring announcer spelling out the stakes of the legal victory: “If the government were to somehow prevail in one or more of these cases, it would potentially allow agencies to shut down any construction project underway using even the vaguest of national security claims. But as I have previously explained, that behavior is often a textbook violation of federal administrative procedure law.”
Germany is set to quadruple its installed solar capacity to 425 gigawatts by 2045, according to a forecast from a trade group representing utilities and grid operators. The projections, Renewables Now reported, mean the country needs to expand its transmission system. Installed onshore wind capacity should triple to around 175 gigawatts by that same year. Battery storage is on track to rise about 68 gigawatts, from roughly 2 gigawatts today. Demand is also set to grow. Data centers, which make up just 2 gigawatts of demand on the grid today, are forecast to balloon to nearly 37 gigawatts in the next 19 years.
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In October, the Chinese Communist Party published the framework of its next Five-Year Plan, the 15th such industrial strategy. The National People’s Congress is set to formally approve the proposal next month. But on Monday, the energy analyst John Kemp called the latest five-word phrase, articulated in the form of “formal input” from the party’s Central Committee, “the most succinct statement of China’s energy policy.” Those words: “Building a strong energy nation.” The suggested edits from the committee described “accelerating the construction of a strong energy nation” as “extremely important and timely” and called its “main shortcomings” the ongoing reliance on imported oil and gas.
Unlike in the U.S., where the Trump administration is working to halt construction of renewables, the officials in Beijing boast that China’s “installed capacity of wind and solar has ranked first in the world for many consecutive years.” Like the U.S., the Central Committee pitched the plan as “an urgent requirement” for “gaining the initiative in great power competition.”
Japan is mounting a new push to implement a decade-old plan to extract rare earths from the ocean floor. A state-owned research vessel just completed a test mission to retrieve an initial sample of mineral-rich mud from a location 20,000 feet below the surface, the South China Morning Post reported. The government of Sanae Takaichi wants to start processing metal-bearing mud from the seabed for tests within a year. “It’s about economic security,” Shoichi Ishii, program director for Japan’s National Platform for Innovative Ocean Developments, told Bloomberg. “The country needs to secure a supply chain of rare earths. However expensive they may be, the industry needs them.”
With global negotiations over a licensing framework for legalizing deep sea mining in international waters has stalled, the U.S. just finalized a rule to speed up American permitting for the nascent sector, clearing the way for Washington to fulfill Trump’s pledge to go it alone if the United Nations’ International Seabed Authority didn’t act first.
A week after signing an historic trade agreement with the European Union, India has inked another deal with the U.S. That means the world’s two largest consumer markets are now wide open to Indian industry, which relies heavily on coal. New Delhi isn’t just going to scrap all those coal-fired factories and forges. But the government’s latest budget earmarks about $2.4 billion over five years to speed up deployment of carbon capture equipment across heavy industry, Carbon Herald reported. The plan focuses on steel, cement, power, refining, and chemicals.