United States: Natural Gas Restrictions In The U.S.: Examining The State Of Play, Policy Objectives, Legal Developments, And Antitrust Implications

Introduction

In recent years, local governments have imposed restrictions or outright bans on the use of natural gas in residential and some commercial buildings, mostly affecting new construction and grandfathering existing buildings.¹ Dozens of local governments in seven states, in addition to the District of Columbia, have imposed or passed ordinances for natural gas restrictions, with the majority in California. New York recently became the first state to pass legislation imposing statewide  natural gas restrictions affecting New York local governments.² The driving forces behind natural gas restrictions are to assist local governments in achieving their environmental policy goals to reduce greenhouse gas (GHG) emissions and to improve citizens' health. Many of the natural gas restrictions require new buildings to be “all-electric” or ban natural gas use by appliances such as furnaces, water heaters, or stoves, and thus, as a practical matter, require the purchase of electric appliances.³ Policies on natural gas restrictions tend to be consistent with other environmental objectives that are expected to dramatically reduce greenhouse gas (GHG) emissions—e.g., statewide “net-zero” goals by certain dates—and envision an all-electric world (electrification) driven by renewable technologies.⁴

Half of the states, however, have moved in the opposite direction, preempting  the passage of local government ordinances that prohibit or restrict natural gas use.⁵ The preemptions are driven by legislatures' desire to let consumers choose their energy purchases and to minimize market disruptions and interference among competing energy technologies. Cost implications are also a reason given for the preemptions because, as we discuss below, utility bills could increase when switching to electric appliances.

The courts are beginning to weigh in on the legality of local ordinances that restrict natural gas use. One of the country's first such local ordinances was in Berkeley, California, in 2019, which banned natural gas connections in new buildings beginning January 1, 2020.⁶ In April 2023, in California Restaurant Ass'n v. City of Berkeley, a three-judge panel of the Ninth Circuit U.S. Court of Appeals overturned the U.S. District Court for the Northern District of California's decision that upheld the Berkeley ordinance. The panel found that Berkeley's ordinance was preempted by the Energy Policy and Conservation Act (EPCA) because the U.S. government has jurisdiction for regulating energy use for many common building appliances such as furnaces, air conditioners, and water heaters.⁷ In May 2023, the City of Berkeley filed a petition demanding rehearing en banc, which has yet to be granted or denied.⁸ The Ninth Circuit's preemption decision is already impacting local ordinances in those states and territories within its jurisdiction. Additionally, on October 12, 2023, a group of businesses, trade associations, and labor unions filed a federal lawsuit challenging the legality of New York's statewide natural gas restrictions on similar grounds as the Ninth Circuit, asserting that such laws are preempted by EPCA and that it is the federal government's sole jurisdiction to set national energy policy.⁹

In this article, we examine policy objectives, costs, and legal perspectives of local and state governments' natural gas restrictions. In section I, we describe the “state of play” of natural gas restrictions; present information on the number of jurisdictions that have implemented natural gas restrictions; and describe the characteristics of, and the main policy goals envisioned by, the restrictions. We also present information on the number of state preemptions of local governments and the stated policy reasons behind them. In section II, we evaluate the likely benefits and costs of natural gas restrictions, including the expected environmental and health benefits from restricting natural gas in buildings and the likely costs of such policies for consumers. In section III, we discuss California Restaurant Ass'n  and its impact on local governments' natural gas restrictions. We also discuss the possible relevance of the state-action immunity doctrine, which, under certain conditions, exempts states and localities from liability under federal antitrust laws.

I. Natural Gas Restrictions

A. State of Play and Characteristics

In 2019, the City of Berkeley, California, became the first city in the U.S. to ban natural gas connections in new buildings beginning January 1, 2020. Shortly thereafter, several other jurisdictions within California followed suit.¹⁰ As of January 2023, the number of jurisdictions with natural gas restrictions in California alone was estimated to exceed 70.¹¹ Today, jurisdictions within seven states (California, Colorado, Maryland, Massachusetts, New York, Vermont, and Washington) and the District of Columbia have enacted restrictions on natural gas use in new construction, and that number is likely to continue to grow.¹² These states and the District of Columbia accounted for approximately 27.2% and 25.3%, respectively, of residential and commercial natural gas deliveries in the U.S. in 2022.¹³

Currently, only New York has a statewide natural gas restriction. In May 2023, New York became the first state in the U.S. to restrict natural gas and other fossil fuels in most new buildings.¹⁴ The provision, which is effective for buildings not more than seven stories high in 2026 and for taller buildings in 2029, was approved as part of the state's budget.¹⁵ This restriction also provides exceptions for large commercial and industrial buildings, as well as buildings used as manufacturing facilities, hospitals, laundromats, and restaurants and for certain other uses.¹⁶

A divergence in public policy on natural gas restrictions among the states has emerged, however, as 25 states have passed laws that prohibit  local governments from restricting natural gas use.¹⁷ These states account for more than one-third of U.S. natural gas deliveries in the residential and commercial sectors.¹⁸

The details of natural gas restrictions vary by local governments, reflecting differences in community priorities. They may be enacted as ordinances, building codes, or other means. The restrictions are rarely one-dimensional, such that they typically do not ban natural gas use in all buildings within the geographic area. Rather, natural gas restrictions typically require new  buildings to be “all-electric” or ban natural gas use by certain appliances, such as furnaces, water heaters, or stoves, and often provide exemptions for certain building types (e.g., residential or commercial), sizes, or other attributes. Commercial restaurant exemptions are common in many municipalities because many restaurants rely heavily on natural gas stoves.

The following examples are some of the types of restrictions found in local ordinances:

• Effective January 1, 2022, Santa Barbara, California, required all new buildings to be all-electric. An exemption was offered for restaurants, clean rooms, laboratories, and projects where electrification is not possible.¹⁹
• Montgomery County, Maryland, banned natural gas as a source of heat in new buildings effective the end of 2026. The ban exempts certain buildings, such as restaurants and manufacturing facilities, and phases out gas by the end of 2027 for public housing, schools, and residences more than four stories high.²⁰
• In May 2022, Washington D.C.'s Construction Codes Coordinating Board voted to require all new residential and commercial construction of “covered buildings” to be all electric by 2026, with covered buildings referring to those where the city's environmental regulations apply.²¹

There are other energy policies that local governments have imposed that lower natural gas usage in buildings but do not consist of the types of restrictions discussed above. These policies include New York City's code on carbon dioxide emissions;²² the state of California's code on the use of highly efficient electric heat pumps as a baseline technology;²³ and the city of San Anselmo, California's requirement of higher energy efficiency for mixed-fuel projects.²⁴ These other types of energy policies may play a more prominent role in the future given the Ninth Circuit's recent decision in California Restaurant Ass'n, as discussed further below.

B. Public Policy Goals

The main policy goals of natural gas restrictions are to reduce GHG emissions and health hazards associated with the indoor use of natural gas appliances. Cities within California have adopted climate action plans and/or natural gas policies to reduce GHG emissions. For example, the City of Berkeley found that its natural gas ban ordinance was “reasonably necessary” because of “climatic, geologic and topographical conditions,” including Berkeley's vulnerability to sea-level rise, drought, wildfires, fire seasons, and firestorms (which, the city noted, are affected by increases in worldwide average temperatures due to releases of GHGs), as well as “health and safety concerns . . . associated with poor indoor and outdoor air quality exacerbated by the combustion of natural gas.”²⁵ Berkeley's location along the Hayward fault also puts it at risk for earthquakes, which could damage natural gas infrastructure and cause fires. In addition, the city noted that “[s]ubstitute electric heating and cooling infrastructure in new buildings fueled by less greenhouse gas intensive electricity is linked to significantly lower greenhouse gas emissions.”²⁶

Even in small towns like Crested Butte, Colorado, where a natural gas restriction was made effective in January 2023, local officials have shown strong support for these types of policies motivated by environmental concerns. A member of the town council argued, “It is bold to talk about the cost to the environment and use that as part of a decision…. It's an investment in the future. Going forward people will see this as the way to cleaner living.”²⁷

Statewide climate action plans acknowledge the role that local governments can play in achieving statewide energy goals. For example, California's 2017 Climate Change Scoping Plan to reduce its GHG emissions 40% from 1990 levels by 2030 states that “Regional, Tribal, and local governments and agencies are critical leaders in reducing emissions through actions that reduce demand for electricity, transportation fuels, and natural gas, and improved natural and working lands management.”²⁸  Statewide plans tend to include policies that aim to limit global warming by focusing on GHG emissions from buildings (known as “building decarbonization”). For example, the California Energy Commission (CEC) states that homes and commercial buildings “produce a quarter of the state's greenhouse gas (GHG) emissions, making homes and businesses a major factor in climate change. Reducing these emissions is a key part of California's climate strategy.”²⁹ Currently, California's Assembly Bill 3232 directs the CEC to “assess the potential to . . . reduce” GHG emissions from the “residential and commercial building stock by at least 40 percent below 1990 levels by January 1, 2030.”³⁰

New York's statewide natural gas restriction is an integral tool used for its overall climate agenda. New York State's budget states that its natural gas restriction is “to support the goal of zero on-site greenhouse gas emissions and help achieve the state's clean energy and climate agenda,” including GHG reductions set forth in the state's Climate Leadership and Community Protection Act.³¹

For those states that have preempted local governments' natural gas restrictions, the main policy justifications are encouraging consumer choice and the costs of the restrictions. For example, in Texas, the passage of Senate Bill 1017 “prohibits political subdivisions from adopting or enforcing ordinances, orders, regulations or similar measures to limit access to specific fuel sources or prohibit the sale of engines based on their fuel source.”³² After signing the bill, Governor Greg Abbott of Texas stated, “No city or county should be able to deny Texans the ability to put gas in their cars, power their lawnmowers, or use natural gas in their homes.”³³ Upon filing, the bill's sponsor, state senator Brian Birdwell, shared, “California-style restrictions on engines or fuel sources that limit consumers and business owners from being able to access the energy sources, they need have no place in Texas.”³⁴

Furthermore, the potential impact on costs is a consideration as well in statewide preemptions. Arizona enacted House Bill 2686 in 2020—the first adopted preemption ban in the U.S. Republican State representative and speaker Rusty Bowers sponsored the bill and articulated during a hearing in early February 2020 that, “[i]n a way, there is a discrimination, both between the purchase base—the population purchasing base—as well as on the services available to certain citizens or all citizens.”³⁵ His argument for the bill focused on the logistical challenges of having “piecemeal” utility services and the resulting increase in the cost of infrastructure falling on fewer consumers.

II. Analysis of Natural Gas Restrictions

A. Benefits

Impact on Emissions

Natural gas restrictions aim to reduce GHGs and other pollutants emitted by appliances that burn natural gas in buildings. Natural gas is comprised mainly of methane (CH₄), a strong GHG; and combustion of natural gas directly releases carbon dioxide (CO₂) into the atmosphere, as well as harmful pollutants indoors, including nitrogen dioxide (NO₂), a gas that has been found to cause or exacerbate respiratory problems.³⁶

In the U.S., carbon dioxide is the largest source of GHG emissions, accounting for approximately 79.4% of total gross GHG emissions in 2021, with the vast majority (92.2%) of CO₂ emissions coming from fossil fuel combustion.³⁷ The U.S. Environmental Protection Agency (EPA) estimates that natural gas accounted for nearly 34.9% of total U.S. energy-related CO₂ emissions from fossil fuel combustion.³⁸

Methane is the next largest source of GHG emissions in the U.S., representing 11.5% of total gross GHG emissions in 2021.³⁹ While smaller in terms of overall contribution to GHG emissions, methane is more than 28 times as potent as CO₂ at trapping heat in the atmosphere over a 100-year period.⁴⁰ Methane is emitted directly into the air by natural gas appliances when not in use—a source reportedly not captured by EPA's GHG emissions inventory—or when fossil fuel combustion is incomplete.⁴¹ Leaks from natural gas wells, storage tanks, and pipelines also release methane into the atmosphere. More specifically, natural gas systems accounted for 24.9% of all U.S. methane emissions in 2021 (2.9% of total gross GHG emissions), while abandoned oil and gas wells and stationary combustion accounted for 2.3% of methane emissions.⁴²

By limiting the amount of natural gas used in buildings, natural gas restrictions are expected to reduce GHGs, as GHG emissions from buildings are substantial. According to the EPA, residential and commercial buildings accounted for approximately 30.3% of U.S. GHG emissions in 2021.⁴³ Almost half (12.7%) of these emissions were attributed to direct combustion of natural gas and petroleum for uses such as heating and cooking.⁴⁴ The remaining 17.6% represents the allocation of indirect GHG emissions associated with electricity generation.⁴⁵ Most of residential and commercial buildings' GHG emissions are CO₂, and, according to the EPA's estimates, emissions of methane from the residential and commercial sectors represented just 2% of total U.S. GHG emissions in 2021.⁴⁶ Nevertheless, the impact of natural gas restrictions on methane emissions in buildings may not be trivial. For example, a recent study found that the annual methane emissions impact of gas stoves in U.S. homes is comparable to the annual carbon dioxide emissions of 500,000 automobiles, with more than three-quarters of methane emissions generated from stoves when not in use.⁴⁷ Additional studies have also found that post-gas meter residential methane emissions from natural gas appliances, including stoves and water heaters, are an important and understudied source of methane emissions.⁴⁸

A key consideration in evaluating the impact that natural gas restrictions will likely have on GHG emissions is the type of energy that is substituted for natural gas, which in most cases will be electricity. Importantly, for natural gas restrictions to have a net  reduction impact on GHG emissions, the substitution of electric appliances for natural gas appliances needs to rely on non-fossil  fuels to generate electricity; otherwise, one type of fossil fuel would be substituted for another with the net impact indeterminate—and potentially even increasing GHG emissions in some cases.

Currently, and for the foreseeable future, a minority of electricity is generated with renewable sources. Specifically, in 2022, 21.3% of electricity generated in the U.S. came from renewable, clean energy consisting of wind (10.3%), hydropower (6.0%), solar (3.4%), biomass (1.2%), and geothermal (0.4%).⁴⁹ Most electricity (60.4%) in the U.S. is generated using fossil fuels, with natural gas and coal accounting for 39.9% and 19.7%, respectively. Nuclear power accounts for 18.2%.⁵⁰

This means that the electric appliances substituted for natural gas appliances will typically be powered using fossil fuels with similar or even greater GHG emissions impacts, as in the case of coal-based generation, which produces more than 200 pounds of CO₂ per million British thermal units (MMBtu), compared to 117 pounds of CO₂ per MMBtu for electricity generated by natural gas.⁵¹ While the share of renewable electricity is expected to grow considerably, growth in renewables and reductions in coal-based generation will likely show much variability. For example, GHG emissions increased in 2021 coming out of the pandemic, largely due to an increase in CO₂ emissions from coal combustion in the electric power sector. In 2021, CO₂ emissions from coal consumption increased 14.6% from 2020 levels, primarily within the electric power sector, while CO₂ emissions from natural gas use increased 0.5%, with no increase in natural gas consumption observed in the electric power sector.⁵² All this means that the immediate and near-term net  impact of natural gas restrictions on GHG emissions is uncertain. Furthermore, when one considers that the U.S. can export natural gas through pipelines and liquefied natural gas, the net impact that natural gas restrictions in the U.S. will have on global  emissions is even more uncertain.

Impact on Health

With respect to health benefits, these are more certain as natural gas restrictions improve indoor air quality in buildings by reducing nitrous oxide (NO₂) and methane emissions, and substitution of electric appliances does not result in concomitant releases of dangerous emissions in a building. As noted above, studies have found links between gas stoves in the home and adverse health outcomes. For example, one study found that long-term exposure to NO₂, similar to that from a gas stove, results in an increase of at least 20% in the odds of developing a respiratory illness in children.⁵³ Another study found that gas stoves increase the risk of asthma in children,⁵⁴ and a 2022 study reported that 12.7% of all U.S. childhood asthma cases are attributable to gas stove use.⁵⁵ A previously cited study found nitrogen oxides emissions in the home to be related to the amount of natural gas burned, and highlighted the importance of using range hoods and proper ventilation.⁵⁶ The California Air Resources Board noted that “[u]sing your stove ventilation hood reduces all emissions from cooking by on average 66%.”⁵⁷

B. Costs and Competition

As a practical matter, natural gas restrictions require households to use electric appliances—e.g., furnaces, water heaters, stoves, washing machines—rather than natural gas appliances in new construction, raising two direct cost effects for consumers: (1) the cost of the appliance and (2) the cost of operating the appliance, in the form of monthly electricity and natural gas expenditures.

With respect to the former, with the exception of electric heat pumps, which have large up-front costs but lower operating costs and which homeowners may not need to purchase in order to comply with natural gas restrictions, the cost differential between electric and natural gas appliances is not pertinent because the market for appliances is competitive and consumers have a wide range of options at different price and quality combinations.

The primary cost impact of natural gas restrictions is the impact on the typical utility bill for operating electric versus natural gas appliances, especially for home heating. While the costs of electricity and natural gas can vary frequently and significantly depending on a myriad of issues—e.g., the costs of fuel, the fuel mix of generation plants, geography, weather, average household size, efficiency, and consumption—currently, residential energy expenditures during the winter months are forecasted to be significantly lower for homes primarily using natural gas for heating compared to homes primarily using electricity for heating (see table 1).

image1

As table 1 shows, according to the U.S. Energy Information Administration's (EIA's) Winter Fuels Outlook 2023–2024, on a national basis, energy expenditures for homes heated with natural gas are forecasted to be approximately 43% cheaper compared to energy expenditures for homes heated with electricity; and in the South and Midwest such expenditures are projected to be more than 50% cheaper. Table 1 is not an apples-to-apples comparison because the expenditure figures for “Homes Heated with Electricity” include electricity expenditures on lighting and other electric appliances. Nevertheless, typical electricity expenditures on appliances and lighting do not account for the difference in energy expenditure; and other sources examining typical home heating costs using natural gas and electricity corroborate the conclusions in table 1, especially comparing electric baseboard heat costs to natural gas furnace and boiler costs.⁵⁸

Another cost consideration of natural gas restrictions is the effect on competition, as such restrictions distort competition between natural gas and electricity. Natural gas and electricity are, and have been since their inception over a century ago, strong competitors in the market for connections to homes and buildings and in the market for appliances. For example, according to EIA estimates, in recent years in the U.S., consumption of natural gas and electricity has been roughly equal in the residential end-use sector, with each accounting for about 43% of total energy end-use consumption in 2022, or 5.168 quadrillion British thermal units (quads) and 5.193 quads, respectively.⁵⁹ EIA estimates that the market for heating is closely split between natural gas and electricity, with 46% of U.S. homes primarily heated with natural gas and 41% primarily heated with electricity.⁶⁰

Table 2 provides EIA data on the shares of household appliances' energy consumption by fuel type and shows the significant level of competition between electricity and natural gas in household appliances.

image2

Natural gas restrictions lessen competition between electricity and natural gas in the markets for connections to buildings and for appliances. From an antitrust perspective, natural gas restrictions eliminate a competing product in a relevant geographic market. The market for connections to buildings is local given that buildings are physically located and connections in one geographic area cannot be substituted for connections in other areas. This means that the competitive effects of restricting natural gas connections in a city can be noteworthy, as natural gas and electricity are practically duopolies in these local markets. The market for appliances, on the other hand, tends to be national, with natural gas restrictions typically applying to new construction and a relatively small number of local governments having implemented them, such that the near-term competitive effects are likely modest, but may grow as restrictions increase across more communities.

A final cost consideration of natural gas restrictions is the impact they may have on delivery costs and regulated rates. Natural gas and electricity distribution networks exhibit very high fixed costs and large economies of scale, which lead to lower (higher) unit costs and lower (higher) customer rates as sales volumes increase (decrease). Natural gas restrictions result in lower natural gas sales and increased electricity sales, which, ceteris paribus,  lead to higher natural gas distribution rates and lower electricity distribution rates, further distorting competition between electricity and natural gas.

VII. Legal Considerations

A. California Restaurant Ass'n v. City of Berkeley

A recent decision in the Ninth Circuit provides insight into some of the legal challenges local jurisdictions may face when implementing natural gas restrictions. In California Restaurant Ass'n v. City of Berkeley,⁶¹ the California Restaurant Association (CRA) alleged that Berkeley's 2019 ordinance (a building code) banning “natural gas infrastructure” (i.e., fuel gas piping) in new buildings was preempted by federal law—specifically, EPCA.

EPCA established a federal program consisting of testing procedures, labeling rules, and energy conservation standards for certain consumer products that use energy or water (covered products), including furnaces, water heaters, stoves, and clothes dryers.⁶² The litigation concerned EPCA's preemption provision (§ 6297(c)), which states that once the federal standard is effective, no state (or other political subdivision) regulation “concerning the energy efficiency, energy use, or water use of such ‘covered products' shall be effective.”⁶³ The preemption rule exempts state or local regulation “in a building code for new construction” provided it complies with seven conditions that mainly seek to ensure that the code does not require energy efficiency in excess of the applicable EPCA standard and allows builders flexibility to “select[] items whose combined energy efficiencies meet the objective.”⁶⁴ States or localities may also apply for a waiver of federal preemption under EPCA § 6297(d).

CRA argued that the city's ordinance “concern[s] the energy efficiency and energy use of appliances covered by the EPCA” and that, by “cutting off the gas pipeline,” the ordinance, which the CRA claimed was preempted by EPCA, “effectively prohibits the use of natural gas appliances.”⁶⁵ The city claimed that the ordinance was not preempted by EPCA or California state laws.⁶⁶ The District Court for the Northern District of California dismissed the case in July 2021, concluding that EPCA must be “interpreted in a limited manner,” and that, because Berkeley's ordinance did not address “energy efficiency” standards or “facially regulate or mandate any particular energy use of a covered product,” it was not preempted by EPCA.⁶⁷

On appeal to the Ninth Circuit, CRA argued that “EPCA preemption extends to regulations that effectively ban covered products from using available energy sources.”⁶⁸ Berkeley argued that the EPCA preemption applies to regulations that impose standards on the design and manufacture of covered products and not to regulations that affect distribution and availability of energy sources.⁶⁹ The federal government argued that EPCA preempts only “energy conservation standards” for the covered products.⁷⁰ A three-judge panel for the Ninth Circuit rejected Berkeley's and the federal government's arguments and reversed in April 2023, concluding EPCA preempted Berkeley's ordinance and remanding the matter back to the district court.⁷¹ Writing the majority opinion, Judge Patrick Bumatay stated:

The panel found that EPCA's preemption provision applied to building codes that “regulate natural gas use  by covered products,”⁷³ and the City of Berkeley's ordinance “mov[ed] up one step in the energy chain”⁷⁴ by “preventing such appliances from using  natural gas.”⁷⁵ The opinion noted “EPCA does not permit States and localities to dodge preemption by hiding ‘energy use' regulations in building codes”⁷⁶ and that, through EPCA, Congress “ensured that States and localities could not prevent consumers from using covered products in their homes, kitchens, and businesses.”⁷⁷

Concurring, Judge Diarmuid O'Scannlain noted that he reached the conclusion that EPCA preempts the ordinance because, under Ninth Circuit precedent, he was “bound to hold the presumption against preemption does not  apply to [EPCA's] express-preemption provision.”⁷⁸ He further noted that “the issue presents a challenging question” that has created a circuit split.⁷⁹ Thus, the implications of this decision outside the Ninth Circuit are uncertain. In May 2023, the City of Berkeley filed a petition demanding rehearing en banc, which has yet to be granted or denied.⁸⁰

Within the Ninth Circuit, the decision has led some local governments to restructure or repeal their natural gas bans. For instance, in May 2023, the Washington State Building Code Council delayed implementation of its building code, which mandated electric heat pumps, as a result of a legal challenge filed by gas utilities, home builders, and other stakeholders leveraging the Ninth Circuit decision.⁸¹ The state subsequently began the process of revising its code to provide builders with options that may satisfy the EPCA exemption requirements.⁸² In July 2023, the City of Eugene, Oregon, repealed its natural gas ban as a result of the Ninth Circuit's decision.⁸³ Similarly, in June 2023, the City of Santa Barbara suspended enforcement of its natural gas restriction ordinance until further notice.⁸⁴ These are just some examples—there may be more.

Outside the Ninth Circuit, New York State's ban is being challenged in the U.S. District Court for the Northern District of New York, where plaintiffs (builders' unions and propane gas associations) allege the ban is preempted by EPCA.⁸⁵

B. The State-Action Immunity Doctrine

Natural gas restrictions produce anticompetitive effects and are similar in an antitrust sense to a “merger to monopoly” because they eliminate a competitor in the market for connecting new buildings to energy infrastructure. While the Sherman and Clayton Antitrust Acts are meant to prevent such conduct, the “state-action immunity doctrine,” also known as the Parker  immunity doctrine or simply the Parker  doctrine, generally exempts states from liability under federal antitrust laws.⁸⁶ In Parker v. Brown, the U.S. Supreme Court held in 1943 that the Sherman Act “gives no hint that it was intended to restrain state action or official action directed by a state.”⁸⁷ Local governments, however, do not necessarily fall under the “state-action immunity doctrine” established in Parker; and, thus, local governments' natural gas restrictions may run afoul of antitrust laws.

Subsequent Supreme Court decisions have addressed the conditions under which state-action immunity applies to state agencies or subdivisions. The Supreme Court stated in FTC v. Phoebe Putney Health System, Inc.  that, to obtain state-action immunity, a political subdivision's actions must be “pursuant to a ‘clearly articulated and affirmatively expressed' state policy to displace competition.”⁸⁸ This has become known as the “clear articulation requirement.”⁸⁹ Additionally, the Court has held that the state-action immunity doctrine applies when the anticompetitive conduct is a “logical[]” and “foreseeable result” of the state's legislation,⁹⁰ and the state's legislation need not “explicitly permit[] the displacement of competition” to satisfy the clear articulation requirement.⁹¹

Diverse Power v. City of LaGrange  is an example of a matter in which the courts found that state-action immunity did not apply to a city ordinance that tied the water-utility service to natural gas service.⁹² Specifically, in 2019, the U.S. Court of Appeals for the Eleventh Circuit held that LaGrange, Georgia, violated federal antitrust laws by requiring new homes or businesses to install at least one natural gas appliance in order to receive water utility service from the city.⁹³

Thus, because implementation of natural gas restrictions likely constrains competition in some readily identifiable product and geographic market, local governments may be susceptible to litigation. While policies implemented at the state level are exempt from antitrust scrutiny under the Parker  doctrine, those implemented by local governments are only exempt if the conduct is “clearly within the legislative intent.”⁹⁴

V. Conclusion

In summary, as local governments pursue policies to reduce GHG emissions and protect citizens' health, some have instituted natural gas restrictions. Many states, however, have preempted their local governments from implementing such restrictions on the grounds that consumers should ultimately decide for themselves what type of energy they wish to use and governments should consider the potential cost implications of the restrictions. The Ninth Circuit's recent decision striking down the City of Berkeley's natural gas restrictions is affecting local governments under the Ninth Circuit's jurisdiction and has provided local governments with some guidance on the types of energy policies that may accomplish environmental policy objectives consistent with federal law. A federal lawsuit challenging the legality of New York's state-wide natural gas restriction is working its way through the courts and may result in a split among district courts that ultimately may require the Supreme Court to weigh in on the matter. The antitrust implications of natural gas restrictions and state-action immunity implications have not yet arisen. Given all these considerations, there are likely to be many developments at the local, state, and federal level on this topic for years to come.

Footnotes

1. In this article, we refer to prohibitions against the use of natural gas infrastructure, all-electric/electrification mandates, or outright bans as natural gas restrictions. The term natural gas bans  could suggest all existing natural gas infrastructure in existing buildings is prohibited and removed when, in fact, natural gas bans typically grandfather use of existing infrastructure.

2. Rachel Ramirez & Ella Nilsen, New York Becomes the First State to Ban Natural Gas Stoves and Furnaces in Most New Buildings, CNN (May 3, 2023), https://www.cnn.com/2023/05/03/us/new-york-natural-gas-ban-climate/index.html.

3. As discussed below, in many regions of the country, the market for energy connections to buildings is a duopoly with competition primarily occurring between natural gas and electric technologies.

4. “Net zero” is a broad concept generally referring to a steady state where GHG emissions going into the atmosphere are balanced by removal out of the atmosphere. This article is limited to analyzing existing policies that restrict natural gas use and has not considered the competitive effects of long-run climate action plans/policies like net zero that specify electrification or emissions targets, or that require companies to disclose their GHG emissions.

5. Tom DiChristopher, Half of U.S. States Are on Pace to Prohibit Local Gas Bans, S&P Glob. Mkt. Intel. (June 21, 2023), https://www.spglobal.com/marketintelligence/en/news-insights/ latest-news-headlines/half-of-us-states-are-on-pace-to-prohibit-local-gas-bans-76245300; John Livingston & Benjamin Smith, North Carolina's House Bill 130: Energy Choice / Solar Decommissioning Requirement—Now in Effect, JD Supra (July 3, 2023), https://www.jdsupra.com/legalnews/north-carolina-s-house-bill-130-energy-2325752.

6. Ordinance No. 7,672-N.S., City of Berkeley, Cal. 3 (2019) (banning “Natural Gas Infrastructure . . . in Newly Constructed Buildings” and defining Natural Gas Infrastructure as “fuel gas piping, other than service pipe, in or in connection with a building, structure, or within the property lines of premises, extending from the point of delivery at the gas meter as specified in the California Mechanical Code and Plumbing Code”). We refer herein to such fuel gas piping in or in connection with a building, structure, or property line as connections.

7. Cal. Rest. Ass'n v. City of Berkeley, 65 F.4th 1045, 1048 (9th Cir. 2023); see also 42 U.S.C. §6292.

8. Defendant-Appellee City of Berkeley's Petition for Rehearing En Banc, Cal. Rest. Ass'n v. City of Berkeley, No. 21-16278 (N.D. Cal. 2023).

9. Complaint for Declaratory & Injunctive Relief, Mulhern Gas Co., Inc., et al. v. Rodriguez, et al., No. 1:23-cv-01267, at 2 (N.D.N.Y. 2023).

10. Bruce Niles & Jonathan A. Lasser, Should Cities Phase Out Gas Appliances and Require New Buildings to Be All Electric?, Wall St. J. (Nov. 19, 2019), https://www.wsj.com/articles/should-cities-phase-out-gas-appliances-and-require- new-buildings-to-be-all-electric-11574190534.

11. Tom DiChristopher, Gas Ban Monitor: All-Electric Building Mandates Catch on in SoCal, Colorado, S&P Glob. Mkt. Intel. (Jan. 23, 2023), https://www.spglobal.com/market intelligence/en/news-insights/latest-news-headlines/gas-ban- monitor-all-electric-building-mandates-catch-on-in-socal-colorado-73936338.

12. DiChristopher, supra note 5 (“adopted” natural gas restrictions). Updates for Maryland, Massachusetts, New York, and Oregon are discussed herein.

13. Share of Total U.S. Natural Gas Residential Deliveries, U.S. Energy Info. Admin. (Sept. 29, 2023), http://www.eia.gov/dnav/ ng/ng_cons_pns_a_epg0_vrp_pct_a.htm; Share of Total U.S. Natural Gas Residential Deliveries, U.S. Energy Info. Admin. (Oct. 31, 2023), http://www.eia.gov/dnav/ng/ng_cons_pns_a_ epg0_vf5_pct_a.htm.

14. Ramirez & Nilsen, supra note 2.

15. Id.

16. S. A4006C, N.Y. State 134, pt. RR, § 3 (Feb. 1, 2023), https://legislation.nysenate.gov/pdf/bills/2023/A3006C.

17. DiChristopher, supra note 5; Livingston & Smith, supra note 5 (“passed” legislation prohibiting such restrictions).

18. Share of Total U.S. Natural Gas Residential Deliveries (Sept. 29, 2023), supra note 13; Share of Total U.S. Natural Gas  Oct. 31, 2023), supra  note 13.

19. Ordinance SBMC § 22. 110.040, City of Santa Barbara (July 27, 2021), https://p7n920.a2cdn1.secureserver.net/wp-content/ uploads/2021/07/Natural-Gas-Infrastructure-Prohibition- Ordinance-1.pdf; see also Climate Actions, City of Santa Barbara Sustainability & Resilience, https://sustainability.santabarbaraca. gov/climate-actions (last visited Nov. 27, 2023).

20. David Iaconangelo, East Coast's First Countywide Gas Ban Passed in Md., E&E News: Energywire (Nov. 30, 2022), https://www.eenews.net/articles/east-coasts-first-countywide-gas-ban-passed-in-md. The ordinance is pending signature by the county executive.

21. Clean Energy DC Building Code Amendment Act of 2022, D.C. Law 24-177 (May 2022);  see also  Van Hilderbrand Jr., Marian Hwang, Russell Randle, The District Takes Significant Steps Toward Reducing Greenhouse Gas Emissions, JD Supra (Sept. 15, 2022), https://www.jdsupra.com/legalnews/ the-district-takes-significant-steps-2601767. The mayor has to issue the final regulations by December 31, 2026.

22. Local Law No. 154, New York City (Dec. 15, 2021), https://www.nyc.gov/assets/buildings/local_laws/ll154of2021.pdf.

23. Press Release, Nat. Res. Def. Council, California Passes Nation's First Building Code That Establishes Pollution-Free Electric Heat Pumps as Baseline Technology; Leads Transition off of Fossil Fuels in New Homes (Aug. 11, 2021), https://www.nrdc.org/press-releases/california-passes-nations-first-building-code-establishes-pollution-free-electric.

24. Sander Kushen, California's Cities Lead the Way on Pollution-Free Home and Buildings, Sierra Club (Feb. 14, 2023), https://www.sierraclub.org/articles/2021/07/californias-cities-lead-way-pollution-free-homes-and-buildings.

25. Ordinance No. 7,672-N.S., supra  note 6, at 2.

26. Id.

27. Mark Reaman, CB Council All In on Electrification Starting in January 2023, Crested Butte News (Aug. 3, 2022), https://crestedbuttenews.com/2022/08/cb-council-all-in-on- electrification-starting-in-january-2023.

28. Cal. Air Res. Bd., California's 2017 Climate Change Scoping Plan 19 (Nov. 2017), https://ww2.arb.ca.gov/sites/default/files/ classic/cc/scopingplan/scoping_plan_2017.pdf.

29. Cal. Energy Comm'n, Assembly Bill 3232 and the California Building Decarbonization Assessment 1 (Aug. 2021), https://www. energy.ca.gov/sites/default/files/2021-08/AB3232_Building_Decarbonization_Assessment_Factsheet_ADA.pdf.

30. Id. (quoting Assembly Bill 3232 (Friedman, Chapter 373, Statutes of 2018)).

31. S. A4006C, supra  note 16, at 134, pt. RR, § 3.

32. Bethany Blankley, Abbot Signs Bill Blocking Local Bans on Gas-Powered Engines, Stoves, Ctr. Square (May 19, 2023), https://www.thecentersquare.com/texas/article_521aa20e-f666- 11ed-a534-4b79724a6149.html#:~:text=(The%20Center%20Square)%20%E2%80%93%20Texas,protect%20energy%20 choice%20in%20Texas.

33. Id.

34. Id.

35. Tom DiChristopher, Ariz. Governor Signs Nation's 1st Prohibition on Building Gas Bans, S&P Glob. Mkt. Intel. (Feb. 24, 2020), https://www.spglobal.com/marketintelligence/en/ news-insights/latest-news-headlines/ariz-governor-signs-nations-1st-prohibition-on-building-gas-bans-57249737.

36. See, e.g., Tanya Lewis, The Health Risks of Gas Stoves Explained, Sci. Am. (Jan. 19, 2023), https://www.scientific american.com/article/the-health-risks-of-gas-stoves-explained/#:~:text=Studies%20have%20also%20found%20that,cause%20 or%20exacerbate%20respiratory%20problems; Air Res. Bd., Cal. Env't Prot. Agency, Supplement to Indoor Air Quality Guideline No. 2: Combustion Pollutants in Your Home (May 1994).

37. Estimates are weighted by global warming potential. U.S. Env't Prot. Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2021, at ES-7, fig.ES-3, ES-9 (Apr. 2023) [hereinafter EPA U.S. GHG Inventory 2023], https://www.epa. gov/system/files/documents/2023-04/US-GHG-Inventory-2023-Main-Text.pdf.

38. Id.  at fig.ES-5.

39. Id.  at fig.ES-3, ES-8.

40. U.S. Env't Prot. Agency, Overview of Greenhouse Gases (updated Oct. 10, 2023), https://www.epa.gov/ghgemissions/ overview-greenhouse-gases#N2O-references. Methane is removed more quickly from the atmosphere than carbon dioxide—methane disappears after about a decade, while carbon dioxide lasts for centuries.

41. See, e.g., Eric D. Lebel et al., Methane and NOx Emissions from Natural Gas Stoves, Cooktops, and Ovens in Residential Homes, 56 Env't Sci. Tech. 2529, 2536 (2022).

42. EPA U.S. GHG Inventory 2023, supra  note 37, at tbl.2-2.

43. Id.  at tbl.2-12.

44. Id.

45. Id.

46. Id.  at ES-11.

47. Lebel et al., supra  note 41, at 2536–37. This study used a 20-year timescale for the lifetime of methane.

48. Eric D. Lebel et al., Quantifying Methane Emissions from Natural Gas Water Heaters, 54 Env't Sci. Tech. 5737, 5737, 5744 (2020).

49. Frequently Asked Questions, U.S. Energy Info. Admin., https://www.eia.gov/tools/faqs/faq.php?id=427&t=3 (last visited Nov. 27, 2023).

50. Id.

51. Natural Gas Explained: Natural Gas and the Environment, U.S. Energy Info. Admin. (Nov. 7, 2022), https://www.eia.gov/energyexplained/natural-gas/natural-gas-and-the-environment.php

52. EPA U.S. GHG Inventory 2023, supra  note 37, at ES-4.

53. Vic Hasselblad, David M. Eddy & Dennis J. Kotchmar, Synthesis of Environmental Evidence: Nitrogen Dioxide Epidemiology Studies, 42 J. Air & Waste Mgmt. Ass'n 662, 669 (1992), https://www.tandfonline.com/doi/abs/10.1080/10473289.1992. 10467018.

54. Weiwei Lin, Bert Brunekreef & Ulrike Gehring, Meta Analysis of the Effects of Indoor Nitrogen Dioxide and Gas Cooking on Asthma and Wheeze in Children, 42 Int'l J. Epidemiology 1724 (2013), https://doi.org/10.1093/ije/dyt150.

55. Talor Gruenwald et al., Population Attributable Fraction of Gas Stoves and Childhood Asthma in the United States, 20 Int'l J. Env't Rsch. & Pub. Health 2 (2023), https://www.mdpi. com/1660-4601/20/1/75.

56. Lebel et al., supra  note 41.

57. Residential Appliance Comparison, Cal Air Res. Bd. (2023) (“Show Only Indoors”), https://ww2.arb.ca.gov/our-work/ programs/technology-clearinghouse/technology-clearinghouse- tools/residential-appliance-comparison.

58. Am. Gas Ass'n, Comparison of Home Appliance Energy Use, Operating Costs, and Carbon Dioxide Emissions: 2022 Update 12 (Mar. 1, 2023), https://www.aga.org/wp-content/uploads/2023/03/Appliance-Cost-and-Emissions-Comparison-2022.pdf.

59. U.S. Energy Info. Admin., September 2023 Monthly Energy Review, at tbl.2.2 (Sept. 26, 2023), https://www.eia.gov/totalenergy/data/monthly.

60. U.S. Energy Info. Admin., Winter Fuels Outlook 2023– 2024 (Oct. 16, 2023), https://www.eia.gov/outlooks/steo/ report/perspectives/2023/10-winterfuels/2023_winter_fuels.pdf.

61. Cal. Rest. Ass'n v. City of Berkeley, 65 F.4th 1045 (9th Cir. 2023).

62. 42 U.S.C. ¶¶ 6291–95; see also History and Impacts: Appliances & Equipment Standards, Energy.gov (Nov. 17, 2023), https://www.energy.gov/eere/buildings/history-and- impacts#:~:text=At%20the%20national%20level%2C%20 the,energy%20targets%20for%20consumer%20products.

63. 42 U.S.C. ¶ 6297(c); see also  Amy Turner, Ninth Circuit Holds Berkeley's Gas Ban Preempted by U.S. Energy Policy & Conservation Act, Climate L. Blog (Apr. 18, 2023), https://blogs.law.columbia.edu/climatechange/2023/04/18/ninth-circuit- holds-berkeleys-gas-ban-preempted-by-u-s-energy-policy- conservation-act.

64. 42 U.S.C. ¶¶ 6297(b)(3), (f)(3)(A).

65. Cal. Rest. Ass'n v. City of Berkeley, 547 F. Supp. 3d 878, 883 (N.D. Cal. 2021).

66. Id.  at 886.

67. Id.  at 891–92.

68. Cal. Rest. Ass'n v. City of Berkeley, 65 F.4th 1045, 1050 (9th Cir. 2023).

69. Id.

70. Id.

71. Id. at 1056.

72. Id.  at 1048 (emphasis added).

73. Id.  (emphasis in original). EPCA defined energy use  as “the quantity of energy directly consumed by a consumer product at point of use.” Id. at 1050 (citing 42 U.S.C. § 6291(4)US).

74. Id.  at 1056.

75. Id.  at 1048 (emphasis in original).

76. Id.  at 1052.

77. Id.

78. Id.  at 1056 (emphasis in original) (discussing the Ninth Circuit's broad reading in R.J. Reynolds Tobacco Co. v. County of Los Angeles, 29 F.4th 542, 553 n.6 (9th Cir. 2022), and the Supreme Court's finding in Puerto Rico v. Franklin California Tax-Free Trust, 579 U.S. 115, 125 (2016), that “because the statute contains an express pre-emption clause, we do not invoke any presumption against preemption”). 

79. Id.  at 1056-57.

80. Defendant-Appellee City of Berkeley's Petition for Rehearing En Banc, Cal. Rest. Ass'n v. City of Berkeley, No. 21-16278 (N.D. Cal. 2023).

81. Tom DiChristopher, Wash. Agency Revamps Building Electrification Mandate to Avoid Legal Peril, S&P CAP. IQ (Sept. 13, 2023), https://www.spglobal.com/marketintelligence/en/ news-insights/latest-news-headlines/nation-s-1st-statewide-gas- restrictions-hang-in-balance-of-wash-code-dispute-76465157;  Washington Delays Building Code Updates in Light of Ninth Circuit Decision, JD Supra (May 30, 2023), https://www.jdsupra. com/legalnews/breaking-news-washington-delays-2570107.

82.DiChristopher, supra  note 81.

83. Nathan Wilk, Eugene Removes an Ordinance Restricting Some Natural Gas Hookups from the Upcoming Fall Ballot, Or. Pub Broad. (July 11, 2023), https://www.opb.org/article/2023/ 07/11/eugene-repeal-natural-gas-restrictions-low-rise-buildings- ballot.

84. Climate Actions, supra  note 19.

85. Press Release, Mario R. Mattera, N.Y. State Sen., Senator Mattera Rallies Coalition to Support Lawsuit Challenging New York's Gas Ban (Oct. 18, 2023), https://www.nysenate.gov/ newsroom/press-releases/2023/mario-r-mattera/senator- mattera-rallies-coalition-support-lawsuit#:~:text=The%20case%2C%20Mulhern%20Gas%20Co.%20v.%20Rodriguez%20in,the%20federal%20Energy%20Policy%20and%20Conservation%20 Act%20%28EPCA%29.

86. Parker v. Brown, 317 U.S. 341 (1943).

87. Id.

88. FTC v. Phoebe Putney Health Sys., Inc., 568 U.S. 216, 226, 133 S. Ct. 1003, 1011 (2013) (quoting Cmty. Commc'ns Co. v. Boulder, 455 U.S. 40, 52, 102 S. Ct. 835, 841 (1982)).

89. See, e.g., Diverse Power v. City of LaGrange, No. 18-11014, at 7 (11th Cir. 2019).

90. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 42, 105 S. Ct. 1713, 1718 (1985).

91. City of Columbia v. Omni Outdoor Advert., Inc., 499 U.S. 365, 372, 111 S. Ct. 1344, 1350 (1991).

92. Diverse Power, No. 18-11014.

93. Id.  at 2.

94. State Action Antitrust Immunity, Legal Info. Inst., https://www.law.cornell.edu/wex/state_action_antitrust_immunity (last visited Nov. 28, 2023).

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