HomeMy WebLinkAboutItem 7a - Climate Action - Existing Energy Retrofit Policy Update and Future Options Study Session Item 7a
Department: Administration
Cost Center: 1005
For Agenda of: 7/15/2025
Placement: Study Session
Estimated Time: 60
FROM: Greg Hermann, Deputy City Manager
Prepared By: Chris Read, Sustainability Manager
Gray Gautereaux, Green Buildings Analyst
SUBJECT: CLIMATE ACTION - EXISTING BUILDING ENERGY RETROFIT POLICY
UPDATE AND FUTURE OPTIONS STUDY SESSION
RECOMMENDATION
Receive and file a presentation on building energy retro fit policy progress and future
options and provide strategic direction on next steps.
REPORT-IN-BRIEF
The City’s Climate Action Plan includes the Council adopted goal of reducing emissions
from existing buildings by 50% by 2030. The City has made progress supporting voluntary
retrofits; however, these retrofits are not sufficient to achieve Council’s goals. Anticipating
this fact, the 2023-25 Major City Goal work plan directed staff to: “Conduct a study
session, and pending Council direction, develop an equitable framework for cost effective
building electrification retrofit policies, with an initial focus on additions and alterations, as
called for by CAP Green Buildings Task 2.1.E.” Staff conducted a study session in 2023
and at that time, committed to making progress where feasible on policies related to
additions and alterations, building performance standards (BPS), and time of sale
disclosure options. Staff also committed to returning to Council with updates and to seek
strategic direction on next steps.
This Council Agenda Report provides progress since 2023 for each of the policy op tions.
Based on the progress and lessons learned to date, staff recommends six strategic next
steps that would continue an approach to energy retrofit policy that is measured, practical,
and puts the City in position to scale as resources become available :
Additions and Alterations
Strategic Next Step #1: Re-adopt the Energy Efficient Renovations
Requirements for single-family homes concurrent with the 2025 California
Building Code in Fall of 2025 with the definition for “work area” revised for
clarity. This would keep the existing policy framework in place.
Strategic Next Step #2: Pending the release of cost-effectiveness studies
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by the California Statewide Energy Codes and Standards Team for multi -
family and non-residential building types, further evaluate the viability of a
policy that would apply to these building sectors, and if feasible, return with
that policy to Council for consideration in 2026.
Building Performance Standards
Strategic Next Step #3: Continue to monitor funding sources for
implementation of a BPS program while also using existing staff resources
to complete foundational tasks such as refining and finalizing the database
of potentially covered buildings, evaluating non -residential cost-
effectiveness studies to identify cost-effective retrofit measures, conducting
extensive outreach with building owners and stakeholders, and connecting
building owners with voluntary retrofit programs. Return with a BPS
progress update to Council by early 2027.
Strategic Next Step #4: Continue to monitor and provide feedback to the
statewide BPS program development process.
Strategic Next Step #5: Continue to advocate to Central Coast Community
Energy (3CE), 3C-REN, state agencies, and other relevant organizations
for expanded non-residential retrofit rebates and incentives.
Time of Sale
Strategic Next Step #6: Participate in a voluntary Home Energy Score pilot
and report to Council in early 2027 on the outcomes of the first year of the
pilot to inform further action. Staff would facilitate the identification and
referral of inspectors for the Home Energy Score training hosted and funded
by BayREN and would work with realtors to understand how to best deploy
the voluntary energy disclosure system.
This Council Agenda Report provides the context for these recommendations and for the
various alternatives Council could provide as strategic direction. Staff will use this
direction to inform next steps for each policy. Any direction requiring Council action (e.g.,
adoption of an ordinance or resolution) would be followed by additional staff work to
develop the policy, which would then be brought back to Council for consideration at a
future meeting.
POLICY CONTEXT
Land Use Element of the General Plan:
o Policy 9.4 (Climate Action Plan) - The City shall maintain and implement its
Climate Action Plan to reduce community and municipal GHG emissions
consistent with State laws and objectives.
o Policy 9.7 (Sustainable Design) - The City shall promote and, where
appropriate, require sustainable building practices that consume less
energy, water and other resources, facilitate natural ventilation, use daylight
effectively, and are healthy, safe, comfortable, and durable.
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Conservation and Open Space Element of the General Plan:
o Policy 2.2.1 (Atmospheric Change) - City actions shall seek to minimize
undesirable climate changes and deterioration of the atmosphere’s
protective functions that result from the release of carbon dioxide and other
substances.
o Goal 4.2 (Sustainable energy use) - Increase use of sustainable energy
sources such as solar, wind and thermal energy, and reduce reliance on
non-sustainable energy sources to the extent possible with available
technology and resources.
Climate Adaptation and Safety Element of the General Plan:
o Policy HE-4.3 (Green and Healthy Buildings) - The City shall support fuel
switching retrofits (from fossil fuel to high-efficiency electric appliances),
energy efficiency retrofits, and distributed energy resources as low-carbon
solutions to create safe, cool, and healthy buildings and consider programs
and projects that support these retrofits as critical to maintaining community
safety and to supporting disaster preparedness.
Resolution 11159 (2020 Series) adopted the Climate Action Plan for Community
Recovery with the goal of community carbon neutrality by 2035 and a sub-goal of
50 percent reduction in emissions from existing buildings by 2030.
Resolution No. 11381 (2022 Series) reaffirmed these goals and created a work
program for fiscal years 2023-27, including Green Buildings Action 2.1.E, which
directs staff to, “Develop an equitable framework for requiring electrification
retrofits and develop cost effective building electrification policies for additions and
alterations.”
2023-25 Financial Plan Climate Action Major City Goal action 4.1.i directs staff to
conduct a study session, and pending Council direction, develop an equitable
framework for cost-effective building electrification retrofit policies, with an initial
focus on additions and alterations, as called for by CAP Green Buildings Task
2.1.E. Staff conducted the study session on December 4, 2023 and received
strategic direction to return with updates and next steps as staff learned more
about the effectiveness and feasibility of available options. The item is included, in
part, in the 2025-27 Financial Plan as Open Space, Climate Action, and Resilience
Major City Goal action 1.a.
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DISCUSSION
Background
Context
On August 19, 2020, Council approved the City’s Climate Action Plan for Community
Recovery (CAP), and adopted Resolution 11159 (2020 Series), which includes the goal
of carbon neutrality by 2035 and building sector goals of (1) zero emissions from new
buildings and (2) a 50 percent reduction in emissions from existing buildings by 2030.1
This Study Session focuses on emissions from energy use in existing buildings.
Emissions reductions from existing buildings come from reducing fossil fuel use by adding
solar and battery storage, replacing old appliances with high-efficiency heat pump hot-
water heaters and HVAC systems, and making building envelope improvements like
installing new windows and adding insulation. As the City’s electricity approaches 100%
renewable by 2030 through Central Coast Community Energy (3CE), achieving the City’s
existing buildings emissions reduction goals primarily means reducing natural gas
consumption.2
The reduction of emissions from existing buildings occurs through a balance of market-
based programs and actions to support voluntary energy retrofits, and policy that requires
energy retrofits in certain circumstances. On December 6, 2022, Council adopted the
2023-27 Climate Action Work Plan, and the building sector goals from the 2020 Climate
Action Plan were reaffirmed. In addition to a suite of solutions to support voluntary
retrofits, the updated Climate Action Plan includes work task “Green Buildings 4.1.A”,
which directs staff to “Develop an equitable framework for requiring electrification retrofits
and develop cost-effective building electrification policies for additions and alterations.”
In support of this task, staff conducted a Study Session with Council on December 4,
2023, to identify the policy options available to the City and to receive strategic direction
on next steps.3 As described in the report, staff conducted extensive research on the topic
and identified key findings:
1 Emissions reduction policies related to energy use in new buildings are covered under a separate work
stream and are not discussed in this Council Agenda Report. The September 19, 2013 Council Agenda
Report (https://opengov.slocity.org/WebLink/DocView.aspx?id=181457&dbid=0&repo=CityClerk ) provides
the most recent summary of City policy as it relates to energy use in new buildings.
2 The California Energy Code (California Code of Regulations, Title 24, Part 6, §150.1) governs whole-
home energy efficiency and explicitly covers water heating and HVAC systems. In contrast, cooking
appliances and clothes dryers are regulated under separate appliance efficiency standards in Title 20.
Because local amendments to the Energy Code can only address systems covered under Title 24, cooking
and clothes drying appliances fall outside the scope of this policy discussion.
3https://pub-slocity.escribemeetings.com/Meeting.aspx?Id=021a6480-65bf-43b2-9a9e-
f88573168880&Agenda=Agenda&lang=English&Item=25&Tab=attachments
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1. Available incentives and rebates are likely not sufficient to achieve adopted City
goals.
2. The City’s building stock and its occupants are diverse and require diverse energy
retrofit solutions.
3. The large majority of natural gas consumed in existing buildings comes from water
heating and space heating.
4. There are a limited number of times when building owners make substantial
improvements to their buildings and a City po licy is likely necessary for each of
those events in order for the City to achieve its goals.
Related to key finding number four, the 2023 Study Session included three potential
policies for Council’s consideration including: 1) requirements for energy efficiency
improvements concurrent with major additions and alterations; 2) requirements for energy
disclosure or improvements at time of sale; and 3) the developme nt of energy efficiency
requirements for large buildings typically referred to as a Building Performance Standard
(BPS). At the 2023 Study Session, Council provided strategic direction to pursue a
pragmatic policy framework that starts small, that covers each building sector, and that
takes action on what is feasible. Staff followed this strategic direction by making progress
on these three potential policies. Progress to date on each policy, including potential next
steps, is provided later in this report.
Greenhouse Gas Emissions Reduction Progress
As the California grid continues its progress towards a carbon neutral electricity supply,
the primary driver of greenhouse gas emissions in existing buildings is natural gas
consumption. Figure 1 and Figure 2 provide an overview of community gas consumption
trends using the best currently available data.4,5
Figure 1 presents communitywide natural gas consumption from 2012 to 2024. The solid
blue line indicates gas consumption in therms, the dashed blue line represents the linear
trend, and the dashed green line indicates a 50% reduction in gas use from 2016 levels.
While there are peaks and valleys resulting from warmer and cooler years, as well as
known data inconsistency issues, the overall trend illustrates progress , with a 10%
reduction over that time period despite growth in all building sectors . Despite this
progress, Figure 1 also illustrates that the City is not on track to achieve its 50% reduction
by 2030 goal with existing policies.
4 Staff are currently collecting data to support the comprehensive greenhouse gas inventory update that
will accompany the 2027 CAP update. This study session is occurring at the front end of the 2027 Climate
Action Plan update and as such, will influence how the existing buildings sector of the plan update is
developed.
5 https://energydatarequest.socalgas.com/
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Figure 1. Natural Gas Consumed in Zip Codes 93401 and 93405 (2012-2024)
Figure 2 narrows in on the data, presenting gas consumption in residential only buildings
from 2020 to 2024. The solid blue line indicates gas consumption in therms, the dashed
green line indicates what a 50% reduction in gas use from 2016 levels and the orange
dot represents projected gas use absent local policies related to low and zero emission
new buildings. While there is a peak in 2023 due to a cold spell in January of that year,
the overall trend shows a decline in natural gas use of 4% over four years, even as 2,400
new residential units were added in that same time. Despite this progress, Figure 2 also
illustrates that the City is not on track to achieve its 50% reduction by 2030 goal with
existing policies.
Figure 2. Natural Gas Consumed in Residential Buildings in Zip Codes 93401 and
93405 (2020-2024)
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
50,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024Therms
Total Gas Use 2030 Target Linear (Total Gas Use)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
2020 2021 2022 2023 2024Therms
Residential Gas Use 2030 Target Gas Use Without New Buildings Policy
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The City’s building permit data helps explain the incremental reduction. Since 2021, about
62% of new buildings permitted in the City are all-electric, and most of the remaining
buildings use gas for only one major appliance. Appliance replacement permit data trends
also support the shift; since 2021, 57% of permitted water heaters and 23% of permitted
HVAC systems were electric heat pumps.
Policy Options – Progress Review and Potential Next Steps
As described above, Staff presented three policy options to achieve e nergy efficiency
retrofits at the December 5, 2023 Study Session. This section of the report provides
details about each option, including a description of the progress achieved to date and
potential steps.
Policy Option #1: Major Additions and Alterations
Policy Description
A major additions and alterations energy retrofit policy applies when a property owner
undertakes a significant building project such as adding new conditioned space or
substantially modifying existing conditioned space. When triggered, the policy requires
applicants to include specific energy efficiency upgrade s in the existing building (above
and beyond what is required in the added or altered part of the building) as part of the
permitted scope of work. The policy is activated by the application for a building permit
for a renovation or addition project that exceeds a defined threshold of construction
activity (e.g., total square footage added and/or altered). Applicants choose from a menu
of eligible efficiency measures (e.g., heat pump water heater, insulation upgrades, on-
site solar, etc.), each assigned a point value. A minimum point total must be met to receive
permit approval. Some policies also have requirements for projects to provide electrical
conduit, wiring, and outlets for future electric appliances. Compliance is verified through
plan review and field inspection.
The policy is codified as a local amendment to the California Energy Code and is typically
designed to align with existing permitting workflows to minimize administrative burden
and optimize compliance. It can be adapted to apply to single -family, multi-family, and
non-residential building types. Since the policy is codified as a local amendment to the
California Energy Code, state law requires it to be cost effective and to reduce energy
use relative to no action. Statewide cost -effectiveness studies are prepared by the
California Public Utilities Commission funded Statewide Energy Codes and Standards
program. Currently, there is a study available for single-family residential renovations;
studies for multi-family and non-residential renovations are expected to be published in
late 2025.6
6 The single-family residential renovations cost-effectiveness study used as the technical basis for the
currently adopted existing buildings reach code is available at
https://slocity.escribemeetings.com/eSCRIBE%20Supporting%20Documents/7db60691-5531-487e-ae2d-
8748e7eb6110/B%20-%20Single%20Family%20Residential%20Cost%20Effectiveness.pdf .
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While major additions and alterations are a relatively rare project type (for example, in
San Luis Obispo, there are typically only around 10-15 large projects each year), by
targeting construction projects already undergoing upgrades, the policy ensures that
those projects are aligned with a community’s adopted energy and climate goals.
2023 Study Session Direction and Work Completed to Date
In 2023, Council provided strategic direction to develop a major additions and alterations
policy. Following an extensive community outreach and policy development process, staff
introduced a draft ordinance on May 21, 2024 that requires additions and/or alterations
over 500 square feet in single-family homes to select measures from a menu of options,
and in some instances to pre-wire for future electrical water heater or HVAC systems.7
The 500 square foot threshold includes newly conditioned space (additions) and/or the
work area of an alteration. Ordinance No 1736 (2024 Series) was adopted on June 4,
2024, and took effect January 1, 2025, as a local amendment to the 2022 California
Energy Code. Staff collaborated with Tri-County Regional Energy Network (3C-REN) to
create project intake forms, develop compliance materials, and train Building Division
staff.8,9
Since implementation began on January 1, 2025, 20 applications for major single-family
additions/alterations have been submitted, one of which has been issued. The applicable
project complied with the requirements through the installation of an electric heat pump
HVAC system. Across most projects, including for smaller non -covered projects,
applicants are using heat pump HVAC systems to comply with energy code requirements
and have indicated in that these systems were not negatively impactful to their projects.
Based on historical permit data, staff expect there to be approximately 10 issued permits
covered by the policy by the end of the year.
As is typical of new policies, initial implementation has provided numerous learnings,
including that the current definition of “W ork Area” has led to unexpected challenges. As
currently defined, “Work Area” means, “that portion or portions of a building consisting of
all reconfigured spaces as indicated on the construction documents. Work area excludes
other portions of the building where incidental work entailed by the intended work must
be performed and portions of the building where work not initially intended by the owner
is specifically required by this code.” The term “reconfigured spaces” is not further defined
and requires interpretation in a way that has led to fewer covered projects and requires
more review time than previously expected. Staff has developed an initial draft
“Reconfigured Spaces” definition: “A reconfiguration is a structural change to any wall. In
7 The Council Agenda Report packet for the item is available at: https://pub-
slocity.escribemeetings.com/filestream.ashx?DocumentId=13577 .
8 The official policy guidance handout with linked intake form is available at:
https://www.slocity.org/home/showpublisheddocument/36772/638670859666900000
9 Ordinance No. 1736 (2024 Series) is codified in City of San Luis Obispo Municipal Code section
15.04.065.
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a room with one wall reconfiguration, the reconfigured space is the area of that wall
assembly. In a room with two or more wall reconfigurations, the reconfigured space is the
entire square footage of the room.” Staff recommends working closely with Building
Section staff and stakeholders to refine this definition. Should Council provide strategic
direction to do so, staff would return with this updated definition (and potential
alternatives) and the updated policy concurrent with the 2025 Building Code adoption in
Fall of 2025.
On June 30, 2025, the California Legislature passed AB/SB 130 with the stated intent of
increasing housing production in the state.10 While the law mostly focuses on CEQA
reforms, it also includes a provision that pauses the residential components of the
California Building Code’s 2028 update and prevents local governments from making
amendments to the California Energy Code for residential buildings until 2031. The City
opposed this component of the law via its legislative action platform throughout the
legislative process, stating that the freeze on energy code amendments will likely not
increase housing production, but could have the potential to reduce innovation, increase
operational costs, and prevent communities from achieving their climate action goals. A
late breaking amendment to the law prior to adoption includes a provision that allows for
cities to make amendments so long as “the changes or modifications are necessary to
implement a local code amendment that is adopted to align with a general plan approved
on or before June 10, 2025, and that permits mixed -fuel residential construction
consistent with federal law while also incentivizing all-electric construction as part of an
adopted greenhouse gas emissions reduction strategy.” Staff’s initial assessment is that
the recommendations provided in this report are consistent with the new law; staff will
continue to evaluate the exemption further following this Study Session.
Recommended Next Steps
The current Energy Efficient Renovations Requirements live as local amendments to the
2022 California Energy Code, which will be replaced entire ly by the 2025 California
Energy Code on January 1, 2026. The City will be required to include these local
amendments as part of the update should it wish to continue implementing the policy.
Based on the feedback received to date staff recommends the following next steps:
Strategic Next Step #1: Re-adopt the Energy Efficient Renovations Requirements
for single-family homes concurrent with the 2025 California Building Code in Fall
of 2025 with the definition for “work area” revised for clarity. This would keep the
existing policy framework in place.
Strategic Next Step #2: Pending release of the cost effectiveness studies by the
California Statewide Energy Codes and Standards Team for multi-family and non-
residential building types, further evaluate the viability of a policy that would apply
to these building sectors, and if feasible, return with that policy to Council for
consideration in 2026.
10 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB130
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Council has a wide range of alternatives to these next steps including providing strategic
direction to:
1. Identify more aggressive cost-effective compliance thresholds to apply the policy
to more projects. This would involve potentially lowering applicability thresholds
below 500 square feet, adding an alternative project valuation threshold, or
counting new attached ADU square footage towards the compliance threshold.
Staff has identified cost-effective pathways for these threshold changes. Should
Council provide direction to pursue this alternative, staff would conduct additional
stakeholder outreach and update the draft ordinance accordingly ahead of the
anticipated Fall adoption of the 2025 California Building Code. This alternative
could be completed with existing staff time and resources.
2. Identify additional compliance measures, including requirements that projects add
electrical circuits and outlets beyond the current policy, such as electric vehicle
charger outlets, cooking outlets, and laundry drying outlets. Since electric-
readiness does not impact energy use, it does not have the same regulatory
requirements for cost-effectiveness. Should Council provide direction to pursue
this alternative, staff would conduct additional stakeholder outreach and update
the draft ordinance accordingly ahead of the anticipated Fall adoption of the 2025
California Building Code. This alternative could be completed with existing staff
time and resources.
3. Do not further evaluate multi-family and non-residential additions and alterations
policies.
4. Do not include Energy Efficient Renovation Requirements in the 2025 Buildin g
Code. This option would effectively end the City’s energy efficiency requirements
for additions and alterations.
Policy Option #2 – Building Performance Standards (BPS)
Policy Description:
A BPS program sets minimum energy or emissions targets for existing large buildings,
requiring compliance over time. Unlike retrofit-triggered policies, BPS programs apply
continuously, ensuring large buildings improve performance as part of standard
maintenance cycles.
The policy establishes performance metrics (e.g., energy use intensity or GHG
emissions,) and compliance deadlines, often phased by building type or size. Building
owners are required to track, report, and improve building performance through
operational changes, equipment upgrades (e.g., heat pump HVAC systems, insulation,
etc.), or verified energy supply changes. Many BPS programs offer alternative compliance
options or exemptions for hardship or technical limitations.
BPS programs are typically supported by benchmarking (i.e., data reporting)
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requirements and scale over time, beginning with the largest or most energy -intensive
buildings. A BPS program is typically resource intensive; large cities have full teams
dedicated to program implementation and smaller communities typically have one to two
staff members dedicated to the program along with technical consultants. Though
resource-intensive to implement, a BPS program is one of the most direct and scalable
tools for reducing greenhouse emissions from the built environment.
2023 Study Session Direction and Work Completed to Date
In 2023, Council provided strategic direction to pursue funding to evaluate, and if feasible,
begin developing a local BPS. Staff worked with the City of Santa Barbara on a joint
application for a Department of Energy grant. The grant application was a significant
undertaking and required the City to complete a number of tasks including developing an
initial building stock analysis, identifying square footage building applicability thresholds,
developing a scope of work and cost estimate for data -hosting services and technical
consultants, developing a staffing plan for ongoing implementation, developing a funding
strategy to make the program self sufficient over time, and estimating initial cost
effectiveness of certain measures. Additionally, the grant application required staff to work
with regional stakeholders like 3C-REN and community-based organizations to better
understand local capacity to support large building retrofits via incentives, rebates,
technical assistance, and building owner outreach.
Unfortunately, the cities’ approximately $7 million grant proposal was not awarded, and
the grant program has since been eliminated. However, the application guided staff’s
completion of an initial phase of work and as a result, staff has a much clearer
understanding of BPS and the logistics involved in implementing such a program.
Separately, under the direction from state legislation, the California Energy Commission
is currently developing a report with recommendations back to the legislature for the
development of a Statewide Building Performance Standard.11 San Luis Obispo and
Santa Barbara provided joint comments on the report’s docket to inform how such a
standard could be best aligned with local goals.12
Conditions are changing that may lead to more voluntary retrofits of large buildings.
Earlier this year, 3C-REN launched its first non-residential energy retrofit incentive
program and staff are currently engaging with Central Coast Community Energy (3CE)
staff to advocate for a non-residential incentive program.13 Additionally, when staff
interviewed HVAC technicians, it was shared that while non -residential building owners
typically replace mechanical systems with “like for like” replacements, several recent
11 More information is available at: https://www.energy.ca.gov/data-reports/reports/california-building-
energy-performance-strategy-report
12 The docket is available here: https://efiling.energy.ca.gov/Lists/DocketLog.aspx?docketnumber=24-
BPS-01 and the joint comments are available here:
https://efiling.energy.ca.gov/GetDocument.aspx?tn=261103&DocumentContentId=97470.
13 More information is available at: https://www.3c-ren.org/commercial/
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projects have decided to retrofit to go all-electric.
Recommended Next Steps
BPS programs have a long lead time for set up and implementation. Regardless of
whether grant resources materialize to allow the City to move to the implementation
phase of a BPS program, or whether the City’s long-term large building retrofit strategy is
instead focused on supporting voluntary retrofits in large buildings, the subsequent steps
are the same and are described in Strategic Next Step #3, below. Based on the work
completed to date, staff recommend the following next steps:
Strategic Next Step #3: Continue to monitor funding sources for implementation of
a BPS program while also using existing staff resources to complete foundational
tasks such as refining and finalizing the database of potentially covered buildings,
evaluating non-residential cost-effectiveness studies to identify cost-effective
retrofit measures, conducting extensive outreach with building owners and
stakeholders, and connecting building owners with voluntary retrofit programs.
Return with a BPS progress update to Council by early 2027 .
Strategic Next Step #4: Continue to monitor and provide feedback to the Statewide
BPS program development process.
Strategic Next Step #5: Continue to advocate to Central Coast Community Energy
(3CE), 3CREN, state agencies, and other relevant organizations for expanded
non-residential retrofit rebates and incentives.
Council could consider alternatives to these next steps, including providing strategic
direction to:
1. Work on BPS tasks beyond the foundational technical tasks described in Strategic
Next Step #3, above. This additional work could include developing draft
standards, guidance documents, and implementing ordinances , beginning to
collect building energy data from covered buildings, and identifying the staffing
resources to begin enforcing the performance standards. Depending on the
strategic direction provided by Council, this alternative could require reallocating
substantial staff time from current Climate Action Major City Goal tasks and
financial resources from current projects and programs.
2. Do not complete additional BPS technical work.
Policy Option #3 – Time of Sale
Policy Description
Time of Sale energy policies require disclosure of a building’s energy performance and/or
specific energy efficiency upgrades when a property is transferred from one owner to
another. These policies leverage real estate transactions, moments when buildings
change hands and financial resources are often available, to drive improvements in the
existing building stock.
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When triggered by a recorded sale, the policy may require the seller or buyer to complete
a set of energy-related actions before or shortly after closing. These can include
disclosing home energy information or installing basic efficiency measures (e.g., attic
insulation, duct sealing, replacing fossil fuel appliances). Some policies allow for
compliance via prescriptive checklists, performance testing, or deferred compliance with
escrow or transfer agreements.
Time of Sale policies align upgrades with natural investment points (staff estimates that
approximately 400 residential units are sold in the City per year). They are often structured
for single-family homes, but can be extended to multifamily or commercial properties.
Effective implementation requires coordination with real estate professionals, permitting
staff, and local utilities or rebate programs. Because Time of Sale requirements operate
outside the permit stream, they can complement other retrofit policies without adding load
to the permitting process and address buildings that may not otherwise be captured by
major remodels or performance standards.
2023 Study Session Direction and Work Completed to Date
In 2023, after hearing concerns from some community groups, Council identified a Time
of Sale policy as a lower priority, but still provided direction to staff to evaluate the concept
further. Feedback from real estate stakeholders indicated concern about Time of Sale
retrofit requirements complicating real estate transactions and adding additional costs to
the transaction. Given that feedback, staff pivoted to evaluating the potential for a
voluntary disclosure program.
In early 2024, staff learned that the California Public Utilities Commission had approved
a statewide pilot to expand the previously Bay Area –focused, voluntary Home Energy
Score program. The Home Energy Score program provides a score for a home based on
its energy use, provides a report explaining the score and recommending upgrades, hosts
the digital infrastructure necessary to generate the report, provides trainings for
inspectors to use the program, and subsidizes the cost to conduct the evaluation. 14 Staff
began discussions with BayREN, the program’s statewide implementer, to explore
including San Luis Obispo as an early pilot community in the statewide expansion.
BayREN has spent the past 18 months navigating state and utility contracting
requirements to administer the statewide program and has confirmed San Luis Obispo’s
ability to participate as a pilot city. BayREN expects to be able to begin local training in
Fall 2025, with voluntary energy disclosure tools and reports available by early 2026. Staff
spoke with realtors and inspectors (as described in the Public Engagement section,
below), and identified that the BayREN model would likely be feasible in San Luis Obispo.
Recommended Next Steps
Based on work completed to date, staff recommend the following next step:
Strategic Next Step #6: Participate in a voluntary Home Energy Score pilot and
14 Information about the Bay-Area program is available at https://www.bayren.org/home-energy-score-hes
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report to Council in early 2027 on the outcomes of the first year of the pilot to inform
further action. Staff would facilitate the identification and referral of inspectors for
the Home Energy Score training hosted and funded by BayREN and would work
with realtors to understand how to best deploy the voluntary energy disclosure
system.
There are several alternatives Council could consider when providing strategic direction,
including:
1. Require that the Home Energy Score disclosure be provided during a real estate
transaction, either at time of listing or at time of sale. This alternative could require
reallocating staff time from current Climate Action Major City Goal tasks.
2. Require that energy renovations happen during a real estate transaction at time of
sale. This alternative would require reallocating staff time from current Climate
Action Major City Goal tasks and financial resources from existing projects and
programs.
3. Do not pursue the voluntary Home Energy Score pilot.
Summary of Staff’s Recommendations
Given the previous strategic direction to pursue a pragmatic policy framework that starts
small, that covers each building sector, and that acts on what is feasible and given what
staff has learned over the last two years, staff recommends the following ac tions for
existing building energy retrofit policy:
Additions and Alterations
Strategic Next Step #1: Re-adopt the Energy Efficient Renovations Requirements
for single-family homes concurrent with the 2025 California Building Code in Fall
of 2025 with the definition for “work area” revised for clarity. This would keep the
existing policy framework in place.
Strategic Next Step #2: Pending release of the cost effectiveness studies by the
California Statewide Energy Codes and Standards Team for multi-family and non-
residential building types, further evaluate the viability of a policy that would apply
to these building sectors, and if feasible, return with that policy to Council for
consideration in 2026.
Building Performance Standards
Strategic Next Step #3: Continue to monitor funding sources for implementation of
a BPS program while also using existing staff resources to complete foundational
tasks such as refining and finalizing the database of potentially covered buildings,
evaluating non-residential cost-effectiveness studies to identify cost-effective
retrofit measures, conducting extensive outreach with building owners and
stakeholders, and connecting building owners with voluntary retrofit programs.
Return with a BPS progress update to Council by early 2027.
Strategic Next Step #4: Continue to monitor and provide feedback to the statewide
BPS program development process.
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Strategic Next Step #5: Continue to advocate to Central Coast Community Energy
(3CE), 3CREN, state agencies, and other relevant organizations for expanded
non-residential retrofit rebates and incentives.
Time of Sale
Strategic Next Step #6: Participate in a voluntary Home Energy Score pilot and
report to Council in early 2027 on the outcomes of the first year of the pilot to inform
further action. Staff would facilitate the identification and referral of inspectors for
the Home Energy Score training hosted and funded by BayREN and would work
with realtors to understand how to best deploy the voluntary energy disclosure
system.
Previous Council or Advisory Body Action
August 2020 – Council adopted Resolution 11159 (2020 Series) which approved
the Climate Action Plan for Community Recovery with the goal of community
carbon neutrality by 2035 and a sub-goal of 50 percent reduction in emissions from
existing buildings by 2030.
December 2022 – Council adopted Resolution No. 11381 (2022 Series) reaffirming
these goals and created a work program for fiscal years 2023-27, including Green
Buildings Action 2.1.E, which directs staff to, “Develop an equitable framework for
requiring electrification retrofits and develop cost effective building electrification
policies for additions and alterations.”
June 2023 – Council adopted the 2023-25 Financial Plan Climate Action Major City
Goal 4.1.i, which directs staff to conduct a study session, and pending Council
direction, develop an equitable framework for cost effective building electrification
December 2023 – Staff conducted a Study session with City Council and received
direction to pursue various policy approaches as described in this report.
June 2024 – Council adopted Ordinance No. 1736 (2024 Series) creating the
“Energy Efficient Renovations Policy for Major Residential Additions and
Alterations”, which requires certain large renovation projects to include energy
efficiency improvements. The policy went into effect on January 1, 2025.
Public Engagement
Staff have conducted the following public engagement efforts to support the information
presented in this this Council Agenda Report:
Chamber of Commerce – Staff presented to the Legislative Action Committee on
October 12, 2023, to provide background ahead of the 2023 Study Session. Staff
presented again to the Legislative Action Committee on June 12, 2025 , to describe
and receive feedback on the potential policy options described in this Council
Agenda Report.
San Luis Coastal Association of Realtors (Local Government Relations, Green
Team, and Education Sub-Committees) – In June of 2025, staff met separately
with sub-committees of the San Luis Coastal Association of Realtors to discuss
practical considerations associated with a voluntary time of sale program. Should
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Council direct staff to continue researching a time of sale policy, staff would work
closely with this group as a key stakeholder.
SLO Climate Coalition – Staff presented to the Climate Coalition Leadership Team
in June 2025 to describe and receive feedback on the potential policy options
described in this Council Agenda Report.
Program administrator and technical expert interviews – In 2023, 2024, and Spring
of 2025, staff met for remote meetings with staff from a number of cities, programs
administrators, and national research entities including the City of Chula Vista, City
of Berkeley, County of Marin, City of San Francisco, 3C-REN, 3CE, BayREN,
Department of Energy, California Statewide Codes and Standards Team, and the
Lawrence Berkeley National Laboratory. Should Council provide strategic direction
to move forward with one or more policy approach that requires additional Council
approval, staff would conduct substantial collaborative outreach to ensure the
proposal it brings back to Council is well vetted.
Individual interviews – In May and June of 2025, staff met with several architects,
realtors, and home inspectors to discuss the various policy options most relevant
to them. The recommendations throughout are informed, in part, by these
conversations.
Public Information Session – Staff held and presented at a Public Information
Session on May 28, 2025 at Ludwick Community Center. Attendees learned about
Green Building and Climate Action Plan progress updates and were able to ask
questions and provide feedback on the three policy options covered in this report.
Green and Healthy Homes Roundtable – Staff hosted eight meetings with the
roundtable (six in 2022 and two in 2023), which consists of public health staff,
community members, affordable housing providers, an affordable housing tenant,
building design professionals, environmental and racial justice organizations,
regional agency staff, and an HVAC contractor, among others. The group met to
identify the challenges of building retrofits, develop solutions to those challenges,
and provide initial feedback on how a wide range of policy options mi ght work in
San Luis Obispo.
CONCURRENCE
The Community Development Department concurs with the contents of this report.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended
action to receive and file a presentation on building energy retrofit policy progress and
future options and provide strategic direction on next steps, because this action do es not
constitute a “Project” under CEQA Guidelines Sec. 15378. The City Council’s action does
not include adoption or approval of a policy and does not include approval of any action
that would have any physical effect on the environment. Should strategic direction be
provided that would lead to the initiation of a Project, that Project would be evaluated for
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CEQA compliance. It is expected that any future policy considered by the City Council
would be in alignment with the strategic direction as outlined in this report, and would be
exempt from CEQA pursuant to CEQA Guidelines Sec. 15308 (Actions by Regulatory
Agencies for Protection of the Environment) because the proposed policy would institute
regulatory requirements to assure the maintenance, restoration, enhancement, or
protection of the environment..
FISCAL IMPACT
Budgeted: Yes Budget Year: 2025-26
Funding Identified: No
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $0 $0 $0 $0
State
Federal
Fees
Other:
Total $0 $0 $0 $0
Staff’s six recommended strategic next steps could be completed using existing staff time
and resources, including no-cost technical support from Central Coast Community Energy
and 3C-REN. In each policy section, above, alternatives to staff’s recommended strategic
next steps that could require additional staff time and/or resources are noted as such.
Implementation costs that extend beyond the 2025 -27 Financial Plan will be developed
and presented for Council’s consideration at future check -ins. Staff will continue to
monitor for external funding sources to support the long-term development and
implementation of the policies described in this report.
As approved by Council at the July 2024 User and Regulatory Fee Public Hearing and
later codified in the 2025-27 Financial Plan as Fiscal Policy 2.i.1, a series of sustainability
and climate action related permit types (e.g., electric car charging systems, insulation,
doors and windows, electric service upgrades, solar photovoltaic systems, and heat
pumps) are set at 50% cost recovery to incentivize increased energy efficiency retrofits.
Additional uptake of these permits would have Gen eral Fund cost impacts associated
with them.
ALTERNATIVES
Each policy area above presents several alternatives for Council’s consideration. These
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alternatives are provided below for summary reference:
Additions and Alterations Alternatives:
1. Identify more aggressive cost-effective compliance thresholds to apply the policy
to more projects. This would involve potentially lowering applicability thresholds
below 500 square feet, adding an alternative project valuation threshold, or
counting new attached ADU square footage towards the compliance threshold.
Staff has identified cost-effective pathways for these threshold changes. Should
Council provide direction to pursue this alternative, staff would conduct additional
stakeholder outreach and update the draft ordinance accordingly ahead of the
anticipated Fall adoption of the 2025 California Buildin g Code. This alternative
could be completed with existing staff time and resources.
2. Identify additional compliance measures, including requirements that projects add
electrical circuits and outlets beyond the current policy, such as electric vehicle
charger outlets, cooking outlets, and laundry drying outlets. Since electric -
readiness does not impact energy use, it does not have the same regulatory
requirements for cost-effectiveness. Should Council provide direction to pursue
this alternative, staff would conduct additional stakeholder outreach and update
the draft ordinance accordingly ahead of the anticipated Fall adoption of the 2025
California Building Code. This alternative could be completed with existing staff
time and resources.
3. Do not further evaluate multi-family and non-residential additions and alterations
policies.
4. Do not include Energy Efficient Renovation Requirements in the 2025 Building
Code. This option would effectively end the City’s energy efficiency requirements
for additions and alterations.
Building Performance Standards Alternatives
1. Work on BPS tasks beyond the foundational technical tasks described in Strategic
Next Step #3, above. This additional work could include developing draft
standards, guidance documents, and implementing ordinances, beginning to
collect building energy data from covered buildings, and identifying the staffing
resources to begin enforcing the performance standards. Depending on the
strategic direction provided by Council, this alternative could require reallocating
substantial staff time from current Climate Action Major City Goal tasks and
financial resources from current projects and programs.
2. Do not complete additional BPS technical work.
Time of Sale Alternatives
1. Require that the Home Energy Score disclosure be provided during a real estate
transaction, either at time of listing or at time of sale. This alternative could require
reallocating staff time from current Climate Action Major City Goal tasks.
2. Require that energy renovations happen during a real estate transaction at time of
sale. This alternative would require reallocating staff time from current Climate
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Action Major City Goal tasks and financial resources from existing projects and
programs.
3. Do not pursue the voluntary Home Energy Score pilot.
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City Council Study Session –July 15, 2025
1
Receive and file a presentation on building energy
retrofit policy progress and future options and provide
strategic direction on next steps.
2
3 3
•Communitywide carbon neutrality
by 2035.
•50 percent reduction in emissions
from existing buildings by 2030.
•Focus on reducing natural gas
use through energy efficiency.
4
1.Available incentives and rebates are likely not sufficient to achieve
adopted City goals.
2.The City’s building stock and its occupants are diverse and require
diverse energy retrofit solutions.
3.The large majority of natural gas consumed in existing buildings
comes from water heating and space heating.
4.There are a limited number of times when building owners make
substantial improvements to their buildings, and a City policy is likely
necessary for each of those events in order for the City to achieve its
goals.
5 5
Policy Areas
1.Requirements for energy efficiency
improvements concurrent with major
additions and alterations.
2.The development of energy
efficiency requirements for large
buildings typically referred to as a
Building Performance Standard
(BPS).
3.Requirements for energy disclosure
or improvements at time of sale.
6
Policy Framework
1.Start small.
2.Covers each building sector.
3.Take action on what is feasible.
Natural Gas Consumed in Zip Codes 93401 and 93405
Source: SoCal Gas
All Sectors, 2012-2024 Residential, 2020-2024
7
•Community Outreach
•Communitywide information session
•Green and Healthy Homes Roundtable
•Community Organizations
•Chamber of Commerce
•San Luis Coastal Association of Realtors
•San Luis Obispo Climate Coalition
•Technical Experts and Program
Administrators
•Other cities and counties
•Regional incentive and rebate providers
•Department of Energy and National
Research Laboratories
•Heat pump installers
•Home inspectors
•Design professionals
8 8
9
10
•Applies when a property owner undertakes a significant building
project such as adding new conditioned space or substantially
modifying existing conditioned space.
•Can apply to single-family, multi-family, and nonresidential
buildings.
•Requires applicants to include specific energy efficiency
upgrades in the existing building.
•Some policies also have requirements for projects to provide
electrical conduit, wiring, and outlets for future electric
appliances.
•Compliance is verified through plan review and field inspection.
•The policy is codified as a local amendment to the California
Energy Code – must be cost effective and reduce energy use.
11
•In 2023, Council provided strategic
direction to develop a major additions and
alterations policy, which was adopted on
May 21, 2024.
•Applies to additions and/or alterations over
500 square feet in single-family.
•One permit issued, ~10 anticipated by end
of year.
•Compliance occurred via installation of an
electric heat pump HVAC system.
12
•“Work Area” definition has led to more work and fewer
projects than expected.
•Definition: that portion or portions of a building
consisting of all reconfigured spaces as indicated on
the construction documents […]”
•Staff recommends also defining “reconfigured spaces.”
13
•On June 30, 2025, the California Legislature passed
AB/SB 130 with the stated intent of increasing
housing production in the state.
•Primarily focused on CEQA reform but includes a
provision that would disallow local energy code
amendments.
•Initial assessment is that the recommendations
provided in this report are consistent with the new law.
14
•Strategic Next Step #1: Re-adopt the Energy Efficient Renovations
Requirements for single-family homes concurrent with the 2025 California
Building Code in Fall of 2025 with the definition for “work area” revised for
clarity. This would keep the existing policy framework in place.
•Strategic Next Step #2: Pending release of the cost effectiveness studies
by the California Statewide Energy Codes and Standards Team for multi-
family and non-residential building types, further evaluate the viability of a
policy that would apply to these building sectors, and if feasible, return with
that policy to Council for consideration in 2026.
15
1.Identify more aggressive cost-effective compliance thresholds to apply the
policy to more projects.
2.Identify additional compliance measures, including requirements that
projects add electrical circuits and outlets beyond the current policy, such as
electric vehicle charger outlets, cooking outlets, and laundry drying outlets.
3.Do not further evaluate multi-family and non-residential additions and
alterations policies.
4.Do not include Energy Efficient Renovation Requirements in the 2025
Building Code.
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17
•Sets minimum energy or emissions targets for existing
large buildings, requiring compliance over time.
•Building owners are required to track, report, and improve
building performance through operational changes,
equipment upgrades (e.g., heat pump HVAC systems,
insulation, etc.), and/or verified energy supply changes.
•Typically resource intensive; large cities have full teams
dedicated to program implementation and smaller
communities typically have one to two dedicated staff
members along with technical consultants.
•Though resource-intensive to implement, a BPS program is
one of the most direct and scalable tools for reducing
greenhouse emissions from the built environment.
18
•City conducted initial work developing as part of a
Department of Energy grant application including a
technical work and working with regional stakeholders
like 3C-REN and community-based organizations to
better understand local capacity to support large
building retrofits via incentives, rebates, technical
assistance, and building owner outreach.
•San Luis Obispo and Santa Barbara provided joint
comments to the California Energy Commission with
recommendations for how a statewide BPS could be
best aligned with local goals.
19
•Strategic Next Step #3: Continue to monitor funding sources for
implementation of a BPS program while also using existing staff resources
to complete foundational tasks such as refining and finalizing the database
of potentially covered buildings, evaluating non-residential cost-
effectiveness studies to identify cost-effective retrofit measures, conducting
extensive outreach with building owners and stakeholders, and connecting
building owners with voluntary retrofit programs. Return with a BPS
progress update to Council by early 2027.
•Strategic Next Step #4: Continue to monitor and provide feedback to the
Statewide BPS program development process.
•Strategic Next Step #5: Continue to advocate to Central Coast Community
Energy (3CE), 3CREN, state agencies, and other relevant organizations for
expanded non-residential retrofit rebates and incentives.
20
1.Work on BPS tasks beyond the foundational technical tasks described
in Strategic Next Step #3, above.
2.Do not complete additional BPS technical work.
21
22
•Supports or requires disclosure of a building’s
energy performance and/or specific energy
efficiency upgrades when a property is transferred
from one owner to another.
•Aligns upgrades with when investment in
properties commonly occur.
•Effective implementation requires coordination with
real estate professionals, permitting staff, and local
utilities or rebate programs.
•Because Time of Sale requirements operate
outside the permit stream, they can complement
other retrofit policies.
23
•Given initial Council and stakeholder feedback, staff pivoted to
evaluating the potential for a voluntary disclosure program.
•In early 2024, staff learned that the California Public Utilities
Commission had approved a statewide pilot to expand the
previously Bay Area–focused, voluntary Home Energy Score
program.
•The Home Energy Score program provides a score for a home
based on its energy use, provides a report explaining the score and
recommending upgrades, hosts the digital infrastructure necessary
to generate the report, provides trainings for inspectors to use the
program, and subsidizes the cost to conduct the evaluation.
•City is in position to be a pilot community for the statewide
program.
24
•Strategic Next Step #6: Participate in a voluntary Home Energy Score pilot
and report to Council in early 2027 on the outcomes of the first year of the pilot
to inform further action. Staff would facilitate the identification and referral of
inspectors for the Home Energy Score training hosted and funded by BayREN
and would work with realtors to understand how to best deploy the voluntary
energy disclosure system.
25
1.Require that the Home Energy Score disclosure be provided during a real estate
transaction, either at time of listing or at time of sale.
2.Require that energy renovations happen during a real estate transaction at time
of sale.
3.Do not pursue the voluntary Home Energy Score pilot.
26
27 27
Step Completion Date
Energy Efficient Renovations – Update Existing Policy Now - October 2025
Energy Efficient Renovations – Include Additional Building Types Summer 2026
Building Performance Standards – Complete Foundational Work Fall 2026
Home Energy Score Pilot – System Set-up and Training Fall 2025
Home Energy Score Pilot – Program Launch Early 2026
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Does Council provide strategic direction to:
1.Re-adopt the Energy Efficient Renovations Requirements for single-family homes?
2.Evaluate and return with an additions and alteration policy for multi-family and nonresidential
buildings?
3.Undertake initial BPS work with available staff time?
4.Continue to monitor and provide feedback on the state BPS program?
5.Continue to advocate for non-residential retrofit rebates and incentives?
6.Participate in a voluntary Home Energy Score pilot?
If not, what alternatives would Council like staff to consider for:
1.Additions and alterations policies?
2.Large building retrofit policies?
3.Time of Sale policies?
Are there other policies or programs that Council would like to staff to further explore?
29