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Requiring New Technologies Is Not Always the Best Choice
Getting the public to adopt a new technology is never a clean or straightforward process. Bringing technology to market is expensive, and carries significant risk. Contractors might be unwilling to change or adapt their business models, and consumers may be unaware that a particular product even exists, much less what its benefits are. Manufacturers frequently spend millions to develop and market an innovative product, only to find it languish in warehouses.
When a specific technology fits a policy goal, there is a temptation to support it by mandating its use through code. California has adopted legislation that requires an aggressive reduction of greenhouse gasses. The only way we can even come close to meeting these goals is to convince lots of people to replace fossil fuel furnaces and water heaters in their homes with efficient appliances such as heat pumps that can make use of renewable, carbon-free electricity. Many people think the best way to electrify our building stock is to change building codes to require all-electric appliances.
But, while using codes to support or encourage new technology adoption in new construction often makes sense, codes are not always as useful for existing buildings. For one thing, enforcement is a challenge. If a project doesn’t include a building permit, there is no way to verify that the technology is in place. Beyond enforcement and permit issues is a simple fact that Americans expect to have the freedom to choose what to do.
When it comes to electrification, the California Energy Commission (CEC), would prefer to encourage market adoption of electrification with incentives (carrots) rather than force it through code (sticks). I think the CEC is correct in this approach. If the CEC mandated everything that manufacturers or special interests wanted, residential construction costs would skyrocket.
However, this does create a dilemma for both manufacturers and the CEC. If the CEC mandates electrification through code, it could increase construction costs. If we rely on the market and consumer demand, manufacturers might not be willing to assume the risk required to bring new approaches to the market.
There is a middle ground, though, that might be the key to getting the public to adopt new technologies. Last year I attended the Institute for Heating and Air Conditioning Industries (IHACI) tradeshow in Los Angles. I wanted to see what new technologies were available to contractors and get a sense of if manufacturers were supporting the adoption of heat pumps. As I wandered about the trade show floor, I was a bit dismayed to see the usual display of fossil fuel options, namely gas furnaces. Most manufacturers did have at least one heat pump to demonstrate. Unfortunately, it usually was their high-end product with all the bells and whistles, the most expensive option. Again, this was not incredibly encouraging, as it was not what I had hoped to see.
One thing I did learn, however, is that in response to Southern California’s serious air quality problem, in 2019, The South Coast Air Quality Management District (AQMD) imposed stricter guidelines for nitrous oxide (NOx) emissions from gas furnaces and boilers to reduce smog and the associated health issues.
I was unaware of these regulations before attending this event, but if you are a contractor in Southern California, this is not news to you. Nitrous oxide sometimes referred to as laughing gas due to its medical applications, is a greenhouse gas 300 times more potent than carbon dioxide. NOx is a byproduct created by the burning of fossil fuels. It is a serious concern as it damages the ozone layer and is a significant contributor to global warming and smog.
To support this transition, AQMD developed a “clean furnace” rebate program with a $500 consumer rebate. (Low NOx water heaters have been around for quite a while; for over a decade, all residential gas water heaters in California have been subject to low NOx standards.)
Manufacturers have responded to the demand created by these new regulations by offering ultra-low NOx furnaces for their contractors in Southern California. The problem is that these furnaces are nearly double the wholesale cost of a standard furnace. To make things worse, inherent design requirements make these devices finicky and prone to failure.
As a former Home Performance contractor, I can confidently say that callbacks are the most significant risk to profit. Having to go back to a job to work on newly installed equipment is very expensive and counter-productive. The fear of callbacks is why it is so difficult to get contractors to adopt new technologies.
Some of these issues may be due to how manufacturers deal with market risk. When a manufacturer sells a new product, they can't afford to make sure it is 100 percent ready for the market. It is a common practice in the HVAC world to release new products with only 85 to 90 percent certainty that they will be reliable. It might seem crazy, but it's actually cheaper to deal with warranty claims on 10 to 15 percent of installs than to test every configuration before the product launches. In effect, this means early adopters are helping manufacturers field-test new products. My dad used to tell me not to buy the first model year of a new car for the same reason. While I don't think this is as much a concern with vehicles today, furnaces are different. Perhaps this is some of the reason for the reliability concerns with the new ultra-low NOx furnaces.
The result is that the ultra-low NOx furnace requirements in Southern California have inadvertently spurred the market for heat pumps. Heat pumps work off electricity vs. the combustion (burning) of fossil fuels. NOx is a byproduct of combustion. If you get rid of combustion, you eliminate NOx emissions. And unlike ultra-low NOx furnaces, heat pump technology is well tested and reliable. Your refrigerator is a heat pump. When was the last time you were concerned about its reliability? Heat pumps are a simple solution for low NOx standards. Don't take the risk associated with ultra-low NOx furnaces and convince your clients to install heat pumps instead.
Let's revisit the CEC and their choice between carrots and sticks. I agree that we should not look to the enforcement agencies to mandate the adoption of specific new technologies. What happens if the technology they prescribe is not 100 percent developed and has tons of issues? Contractors and homeowners will pay the price. Instead, a better strategy is to increase the regulations relating to the existing technology, such as the ultra-low NOx requirements for gas furnaces. If people choose to use the "dirty" technology over the "clean" option, there should be costs associated with this decision. We are all responsible for the air we breathe. If a consumer chooses to support products that negatively impact air quality, or if contractors refuse to adopt new proven and clean solutions, there should be costs associated with making that decision. The difference is that the sticks are imposed when you support outdated and dirtier options.
I think there is a lot to be learned from the ultra-low NOx furnace requirements in Southern California. We should reward those making the right choice and add cost and complexity to those who refuse to embrace the future.
We can't meet our state's climate goals without contractor buy-in. Perhaps regulating older technologies more strictly is a better solution than mandating new technology. What do you think?