This guest blog post from Daniel Carpenter-Gold at IMT’s partner, the Public Health Law Center, analyzes a recent lawsuit challenging Colorado’s and Denver’s Building Performance Standards. BPS are a powerful policy for reducing energy waste, saving on energy costs, creating local jobs, and improving the performance of large buildings. Daniel explains why BPS are relatively safe from lawsuits like this one. This post was originally published by the Public Health Law Center as ‘The Tortured Arguments Department: Corporate Landlords’ Flimsy Challenge to Colorado Green-Building Policies.’
In April, a trade group sued Denver and Colorado, challenging green-buildings policies at the city and state level called “building performance standards” (BPS). The challengers in the case—Colorado Apartment Association v. Ryan—argue that the federal Energy Policy and Conservation Act prevents the city and state from enforcing their BPSs. Their theory draws on the California Restaurant Association v. Berkeley case, which struck down a City of Berkeley ordinance limiting gas infrastructure in new buildings. But Colorado Apartment Association is a much weaker case, for reasons that I’ll get into in this post.
The Denver and Colorado building performance standards
BPSs are policies that limit buildings’ energy consumption or greenhouse-gas emissions (or both). Unlike energy codes, which generally apply to buildings or alterations that are still being designed to reduce predicted energy use, BPSs cap the actual energy use of buildings that already exist (including those built after the BPS takes effect). They are becoming increasingly popular across the country as a means for state and local governments to reduce energy bills and fight climate change in their jurisdictions while giving building owners substantial flexibility in achieving those goals.
Denver and Colorado have both passed BPSs with similar provisions: they require some categories of large buildings to reduce their energy use or greenhouse-gas emissions by a specified amount over a period of years, with the goal of achieving certain energy or emissions reductions over all buildings covered by the BPSs. Each covered building is assigned specific reduction targets based on its use; a hospital, for example, will have a different target than an apartment building. In addition, both BPSs have a number of alternative “compliance pathways” for covered buildings which offer even more flexibility, such as the Colorado BPS’s option to count rooftop solar against a building’s target, or the Denver BPS’s use of relaxed targets for buildings that use electricity for at least 80% of their energy use.
The Energy Policy and Conservation Act
This latest lawsuit comes from several trade groups that are challenging both the Denver and Colorado BPSs, alleging that they’re preempted by a federal law called the Energy Policy and Conservation Act, or EPCA. EPCA creates federal efficiency standards for certain “EPCA-covered” appliances, things like washing machines, water heaters, or stoves. The federal law also preempts—that is, overrides—state and local efficiency standards for appliances; specifically, regulations “concerning the energy efficiency[ or] energy use…of [an EPCA-]covered product” (although there are a number of exceptions).
Recently, other trade groups have tried to use EPCA’s somewhat broad preemption language to shut down state and local regulations that encourage building electrification. They were successful in the case of California Restaurant Association v. City of Berkeley (which I’ll call “CRA v. Berkeley” for short). In CRA v. Berkeley, a panel of the Ninth Circuit Court of Appeals found that an ordinance prohibiting gas infrastructure in certain new buildings “concern[ed] the…energy use” of the EPCA-covered appliances in those buildings and was therefore preempted.
It is worth noting that the interpretation of EPCA in CRA v. Berkeley is drastically different from the way that EPCA has been read previously. Many objected to the panel’s opinion, including eleven Ninth Circuit judges, who “urge[d] any future court that interprets the Energy Policy and Conservation Act not to repeat the panel opinion’s mistakes,” and the federal government itself, which argued that the first version of the panel opinion “destabilize[d] the long-settled understanding [of EPCA] shared by the Department [of Energy], the States, municipalities, and the courts.” Because of this, and because courts outside the Ninth Circuit are not obligated to follow Ninth Circuit precedent, there’s reason to think that future court cases, potentially including Colorado Apartment Association, will reject the CRA v. Berkeley reading.
The Colorado Apartment Association V. Ryan legal theory
Nevertheless, the Colorado complaint attempts to expand the EPCA argument made in CRA v. Berkeley to apply to BPSs. To judge from what we have so far—their argument will become clearer as litigation progresses—this doesn’t work very well. Their logic proceeds in essentially three stages:
First, the plaintiffs argue that the BPSs are themselves “energy conservation standards” because they “prescribe[]…a maximum quantity of energy use,” which is part of EPCA’s definition for the term. “Energy conservation standards” is the term EPCA uses for federal appliance-efficiency regulations and is an umbrella term for the type of state and local regulations EPCA preempts. So, if the BPSs were in fact “energy conservation standards,” plaintiffs would have an argument that they should be preempted.
The problem is that the plaintiffs omitted a key part of the definition, which specifies that an “energy conservation standard…prescribes…a maximum quantity of energy use for a covered product” (emphasis mine). In other words, in order to be an “energy conservation standard” under EPCA, a regulation has to apply to a specific EPCA-covered product. The BPSs aren’t standards for EPCA-covered appliances, they’re standards for entire buildings, and therefore they don’t meet the definition of “energy conservation standards.”
Second, the plaintiffs argue that “EPCA requires…maintaining neutrality on energy sources,” and therefore the BPSs cannot incentivize electrification. This is just incorrect: EPCA doesn’t say anything about neutrality between energy sources because it cares about using energy efficiently, not protecting certain types of energy. EPCA restricts state and local regulations “concerning the energy efficiency [or] energy use…of a covered product,” but this doesn’t require complete fuel-neutrality—particularly not for a regulation that doesn’t actually address any “products.”
And of course there are all sorts of state and local regulations that don’t “maintain[] neutrality” between different types of energy: State utility regulators set different rates and require different practices for gas utilities than for electricity utilities. Fire codes place different restrictions on appliances depending on the type of fuel they use. Many local governments offer different terms for the right to use public property to their gas utilities than to their electric utilities. All of these make it easier and cheaper to use one type of energy over or another, but it would be absurd to say that EPCA—a law that regulates appliance efficiency—invalidates them.
Third—and this is a little more complicated—the plaintiffs argue that the BPSs “de facto prohibit the use of natural gas appliances…by setting the energy conservation standards so stringent so as to…[require] electric Covered Products that exceed federal DOE standards.” In other words, the trade groups see electrification as the only way to reduce their energy use to the extent that the BPSs require.
This is partially a claim about facts, not the law, and plaintiffs are not required to substantiate all their assertions about facts at this stage in the litigation. Still, it is noteworthy that none of the ten signed statements from developers and owners cited by the plaintiffs actually say that the BPSs will require them to use appliances that are more efficient than EPCA standards, and only one gives any indication that the BPSs will require electrifying EPCA-covered appliances. And even that statement is quite vague and speculative, addressing only the developer’s estimates for future construction. The paucity of specific examples is particularly striking when compared to the plaintiffs’ assertion that “the vast majority” of buildings covered by the BPSs will need to install new appliances that are both electric and more efficient than federal standards require.
In any case, the BPSs’ alternative-compliance options are more than adequate for the issue the plaintiffs raise. For example, the Denver BPS allows owners to offset purchased renewable energy (like offsite solar or wind) against their buildings’ energy use. Similarly, the Colorado BPS allows buildings that have no other cost-effective options to purchase “renewable energy credits” that offset the buildings’ greenhouse-gas emissions. There are a slew of other options in the BPSs that ultimately ensure that no buildings will be forced into unreasonable efficiency or electrification measures.
How this all relates to CRA V. Berkeley
To sum up: The BPSs aren’t appliance-efficiency standards, EPCA doesn’t care if they show a preference for one type of energy over another, and they don’t prohibit the use of any EPCA-covered appliances. So why do the plaintiffs think that EPCA would preempt the Denver and Colorado BPSs?
It appears to come down to a misreading of the CRA v. Berkeley case. According to the plaintiffs, CRA v. Berkeley establishes that “requiring Covered Building owners to choose more efficient Covered Products, with a built-in bias towards electric over fossil fuel utilizing Covered Products,” is a “regulat[ion of] the energy use (natural gas use) of” those products, which is therefore preempted by EPCA.
This is wrong for several reasons. First, CRA v. Berkeley did not address appliance efficiency; the Ninth Circuit panel concerned itself solely with interpreting the term “energy use,” which it explicitly found to be different from “energy efficiency.” Second, as addressed above, EPCA preemption doesn’t turn on whether a regulation is “bias[ed]” toward one type of energy or another. CRA v. Berkeley did strike down an ordinance that prevented the use of gas in some buildings—but it did so because it would have kept EPCA-covered appliances from being used, not because of “bias” against gas.
Finally, the Ninth Circuit panel that wrote the CRA v. Berkeley opinion was very careful to limit its impact to the specific type of regulation that it was reviewing—which is very different from a BPS. Specifically, the opinion applies to regulations that “prohibit[] natural gas piping in new construction buildings” (emphasis mine). I’ve written in more detail about these limitations, but it’s worth rehashing two points here briefly.
- “Prohibit”: CRA v. Berkeley assumes (arguably incorrectly) that EPCA does not allow state or local governments to completely prohibit the use of an EPCA-covered appliance. From there, the Ninth Circuit panel determined that prohibiting a fuel that an EPCA-covered appliance uses is tantamount to prohibiting the appliance itself, and is therefore also preempted. But the Denver and Colorado BPSs don’t prohibit appliances or fuels. At most, building owners may be put in a position where their most cost-effective option is to upgrade some of their appliances, but as the Ninth Circuit itself has said, “Congress cannot preempt market costs.”
- “New construction”: In determining which regulations could be preempted by EPCA, the CRA v. Berkeley panel leaned heavily on one of the exceptions to the preemption provision, which protects certain types of “building code[s] for new construction.” The judges reasoned that, if EPCA’s preemption language has an exception for new-construction building codes, it must mean that that those codes can be preempted by EPCA in the first place. (Limiting EPCA preemption to specific types of regulation was important to avoid invalidating a much larger set of regulations.) The BPSs in Colorado Apartment Association v. Ryan clearly aren’t “building code[s] for new construction”—they don’t apply at the permitting stage of construction, like building codes do, and they don’t tell anyone how to build anything—so they fall outside of the scope of even CRA v. Berkeley’s interpretation of EPCA preemption.
This means that EPCA arguments in this case go beyond CRA v. Berkeley. As already noted, Colorado’s federal courts are not required to adopt the CRA v. Berkeley interpretation, and there are good reasons—laid out in the dissent to the decision not to review the CRA v. Berkeley panel decision—for them not to do so. They would need to go even further, beyond the already radical Ninth Circuit decision, to get to the point where the claims in Colorado Apartment Association v. Ryan would work.
What’s next
Colorado Apartment Association v. Ryan is still in the very early stages of litigation. In the coming weeks or months, I’d expect Denver and Colorado to move to dismiss the complaint; the subsequent briefing will clarify the legal issues in the case and may resolve it entirely. There are some factual questions—like whether the BPSs actually prevent the use of any gas appliances—which could theoretically make the case drag out longer, but to judge from the complaint alone these are unlikely to pan out for the plaintiffs. In the meantime, the main takeaway from this case is: if this is the best argument the industry can muster, state and local governments with BPSs can sleep soundly.
