By: Robert G. McLusky and Demitri A. Johnson-Cantu
On April 17, 2023, the Ninth Circuit Court of appeals reversed and remanded the district court’s decision in California Restaurant Association v. City of Berkeley, deciding that the City of Berkeley’s prohibition on natural gas infrastructure in new buildings was preempted by Section 6297(c) of the Energy Policy and Conservation Act (EPCA).[1] The Court determined that Congress intended the scope of EPCA to reach farther than direct and facial regulations of EPCA-covered products. The decision, which poses a potential threat to similar ordinances, comes at a time when several municipalities and states across the nation have adopted zero emission building ordinances in the form of natural gas prohibitions.
Background
Berkeley adopted an ordinance in 2019 that prohibited, with a few exceptions, the installation of natural gas infrastructure, and the use of natural gas, in new buildings. The California Restaurant Association (CRA) challenged Berkeley’s regulation claiming the EPCA, which directs the U.S. Department of Energy to set energy efficiency, energy use, and water use standards for EPCA-covered appliances, preempted the ordinance. The district court dismissed the suit and limited the EPCA’s preemptive scope to ordinances that facially or directly regulate covered appliances. The district court determined that Congress did not intend EPCA to preempt laws that merely “have some downstream impact on commercial appliances.”
On appeal, the Ninth Circuit determined that, “by its plain text and structure,” the EPCA was intended to preempt regulations that relate to natural gas use by covered products and their on-site infrastructure. Accordingly, the panel held that the ordinance was preempted and invalid because it regulated natural gas use by prohibiting the infrastructure of new buildings in a way that prevented covered products from using natural gas.
In a concurrence Judge Baker noted that EPCA preemption is “unlikely to reach a host of state and local regulations that incidentally impact the quantity of natural gas consumed by a covered product….” He further explained that the EPCA is limited, and that state and local governments may still choose to tax natural gas use or adopt regulations that impact the distribution of natural gas—i.e., terminating existing gas utility service.
Relevance of CRA v. Berkeley
In 2019, the Berkeley ordinance was the first of its kind in the U.S. However, after this ordinance was adopted, municipalities across the nation began adopting similar regulations. In fact, on May 2, 2023, New York became the first state to adopt this type of regulation when the New York legislature approved a budget that contained a state-wide prohibition on gas in most new buildings. Additionally, in an interview with Law360, Matt Vespa, a senior attorney with Earthjustice, stated that twenty-five of the seventy-five California municipalities that have adopted all-electric construction requirements have copied Berkeley’s approach. Vespa noted that the other fifty used a “reach code approach,” which utilizes local building energy codes to exceed state minimum requirements for energy use in new buildings.[2] Vespa added that the Ninth Circuit recognized the reach code approach as a valid way to regulate under the EPCA.
While the Ninth Circuit’s ruling appears to be a significant burden to regulations like the Berkeley ordinance, the opinion may not be as great of a barrier to natural gas prohibition regulations across the nation as it appears to be. This is for two reasons. First, the opinion of the panel is limited to states within the jurisdiction of the Ninth Circuit. Therefore, this decision only has controlling precedential value in Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, the Northern Mariana Islands, Oregon, and Washington. If a similar case is brought outside of the Ninth Circuit, then there is the possibility that the second court would rule differently on the issue and create a split among the courts.
Second, the decision has no relevance to regulations that are excepted or excluded from EPCA preemption. The panel noted certain EPCA provisions, 42 U.S.C. § 6297(d)–(g), provide shelter from preemption. The most relevant preemption exceptions to CRA v. Berkeley apply to state and local government building codes. In Berkeley, the Court expressly stated that a local building code may be excepted from preemption if it complies with the specified exception conditions of the EPCA, 42 U.S.C. § 6297(f)(3)(A)–(G). For a local building code to meet the exception, the code must 1) permit a builder to meet an energy objective by selecting items whose combined energy efficiencies meet an overall building energy objective; 2) not specifically require any EPCA-covered appliance to exceed federal standards unless federal government waiver exception applies; 3) offer options for compliance on a one-for-one equivalent energy use or equivalent cost basis”; 4) base any baseline building designs used by the code on a building with EPCA-covered products that do not exceed federal standards (or state standards if federal government waiver exception applies); 5) set forth at least one optional combination of items that do not exceed federal standards for any EPCA-covered appliance; 6) frame any energy objective as a total consumption of energy for the building; 7) use applicable test procedures prescribed under section 6293 of EPCA to determine the energy consumption of EPCA-covered products.[3]
Some advocates for similar ordinances contend that the ruling will ultimately have little effect because the decision does not apply to “cities or states that regulate natural gas use in buildings through their building energy codes.”[4] They point to alternative methods of restricting gas use, such as offering incentives to developers to rely exclusively on electrical heating and cooking devices.
The Ninth Circuit also stated that the EPCA’s preemptive effect can be waived by the federal government if a state shows that a proposed regulation is needed to meet “unusual and compelling state or local energy interests.”[5] The panel explained that federal government waiver of this preemption is limited and does not allow the waiver for a state regulation that will “significantly burden manufacturing, marketing, distribution, sale, or servicing of the covered product on a national basis.”[6] § 6297(d)(3). However, the panel suggested preemption could not be waived for a natural gas ban similar to the Berkeley ordinance because the ban would “significantly burden the sale of covered products on a national basis.”
***Please note that this is a general overview of developments in the law and does not constitute legal advice. Nothing herein creates an attorney-client relationship between the sender and recipient.***
[1] 42 U.S.C. §§ 6291 et seq.
[2] Madeline Lyskawa, 9th Circ. Gas Ruling Not Death Knell For Electric Future, Law360 (Apr. 20, 2023, 7:34 PM) https://www.law360.com/articles/1597987/9th-circ-gas-ruling-not-death-knell-for-electric-future.
[3] 42 U.S.C. § 6297(f)(3)(A)–(G) https://www.law.cornell.edu/uscode/text/42/6297.
[4] Lyskawa supra note 1.
[5] 42 U.S.C. § 6297(d)(1)(B)–(C).
[6] 42 U.S.C. § 6297(d)(3).