Building Electrification in Maryland: Implementation of Zero-Emission Heating Equipment Standards for Low-Income Households

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This report was co-authored by the Center and Sierra Club Maryland Chapter.

Maryland has committed to an equitable approach to achieving its ambitious climate goals while minimizing harms or costs placed on historically disadvantaged communities. One of the programs critical to achieving the state’s climate and energy goals as mandated under the Climate Solutions Now Act of 2022 is zero-emission heating equipment standards (ZEHES). Equitable implementation of ZEHES requires low-income households to be able to fully benefit from clean, efficient heating under the program.

As fossil fuel-burning heating equipment nears the end of its life and needs replacement, ZEHES will require property owners to replace this equipment with non-emitting equipment (with some exceptions for large boilers and furnaces). For low-income (LI) Marylanders, this will require 14,000 space heating units and up to 22,000 water heaters to be replaced with heat pumps each year. LI households will need significant support to cover the cost of these replacements, which are significantly higher than the cost of fossil fuel equipment. This report addresses the costs and the benefits of installing heat pumps and how to successfully and equitably deliver ZEHES to LI households in Maryland.

ZEHES is projected to require replacements starting in 2029 and will require yearly replacements until all eligible building and water heating systems have been replaced. Based on the expected lifespan of legacy fossil fuel systems, water heating replacement should be achieved (in whole or substantial part) by 2039, and building heating replacement by 2059 for a ZEHES policy with the effective year of 2029. In the context of replacements for LI households, modeling projects a yearly total cost of close to $300 million, with an additional cost, depending on implementation policy, of an additional $80 million for building weatherization.

In the absence of ZEHES, building owners would still be required to pay the costs of replacing their equipment at the end of its life. As such, costs of a ZEHES program are best evaluated by the incremental cost of replacement — that is, the price difference between a heat pump system and the legacy system replaced. For LI households, the model projects this to be an annual cost of approximately $185 million.

The ZEHES program will drive substantial cost savings for Marylanders. These savings expand per household and compound over time, reaching approximately $350 million in energy cost savings per year (in 2024 dollars) by 2050 for LI households. If weatherization is included in ZEHES implementation, it would add $45 million per year in energy cost savings. The estimated health benefits from cleaner air represent an additional $145 million per year across the state to LI households. The investment in heat pumps for LI families will also reduce statewide greenhouse gas emissions by over 1 million tons per year by 2050. This is a good investment for Maryland.

The benefits from ZEHES will start with the installation of heat pumps, starting in 2029, and at the household level will increase over time as utility and gas prices increase. Although in the vast majority of cases heat pumps will represent good investments, for LI residents to get the benefits of ZEHES, it will be necessary for the state to help address the upfront costs.

Today, we can no longer count on material federal support, and the State of Maryland faces significant fiscal challenges. In planning for ZEHES implementation, it is therefore necessary to ensure funds to support LI households are available. These should be dedicated funds and will likely have to come from sources outside of the general Maryland budget. We see four sources that could provide the funds:

1. The Strategic Energy Investment Fund (SEIF) receives payments from the Regional Greenhouse Gas Initiative (RGGI) and alternative compliance payments (ACPs) from utilities that fail to procure sufficient clean energy. In fiscal 2024, the fund reached $561 million, a record. While much of the SEIF is dedicated to LI utility bill support and clean energy development, significant funds in the 2025 legislative session were diverted to the general budget and to rebates on electric bills for each Maryland resident, regardless of income. While we appreciate the challenging budget situation, the SEIF funds are essential for achieving Maryland’s energy and climate goals, and diverting those funds from the purpose of the SEIF statute is a dangerous precedent. These funds would be best invested in projects such as electrification that would lead to lower long-term costs and a healthier environment for Marylanders.
   
2. Maryland’s EmPOWER program uses ratepayer funds to support energy efficiency and greenhouse gas reduction. Currently, the program achieves its goals, but its allocation of expenditures is not equitable. Only 22 percent of residential funding goes to low-income customers. To be equitable, the LI allocation should be 40 percent. This could provide significant funding for LI electrification. By allocating these funds to LI ratepayers, EmPOWER can deliver lower electric bills through electrification without raising the EmPOWER surcharge.
   
3. A clean heat standard (CHS), currently being developed by MDE, would require gas and delivered fuel providers to buildings to invest in actions that reduce greenhouse gases from fuels burned in buildings. This would result in lower emissions and provide funding for investments in electrification. This could be a significant source of funds and drive market transformation when implemented later this decade.
   
4. Low- to zero-interest financing through green banks and other programs also could be a measurable source of funds. Issuing bonds backed by the state could also provide funding for ZEHES without impacting the general budget.

This report makes a number of policy recommendations aimed at lowering the upfront costs of ZEHES implementation for low-income families, maximizing energy cost savings, and driving community trust and engagement with state ZEHES programs. These recommendations include:

• Supporting the evaluation of novel technologies, such as low-cost window heat pumps and pathways to implement adoption of effective new technologies into existing programs.
  
• Increasing the number of skilled HVAC and water heater contractors to reduce costs through competition and increase program satisfaction.
  
• Evaluating heat pump rate design to increase savings.
  
• Running a pilot project focused on installing heat pumps first. Modelling suggests that most of the energy savings comes from installing heat pumps, with a much smaller portion from weatherization. If confirmed through a pilot project, this would be a pathway to ensure that sufficient resources are available for equitable ZEHES implementation.
  
• Building capacity for ZEHES implementation. As we approach the 2029 implementation date of ZEHES, the state needs to work to build implementation capacity. During this period, investing in heat pumps to replace electric resistance heating, electric tanked hot water heating, and delivered fuel heating will be particularly attractive to build agency capacity and drive market transformation. SEIF funds and unused EmPOWER funds can finance these efforts.
  
• Expanding community engagement and developing protections for renters will serve to greatly enhance the equity, quality, and success of ZEHES implementation in 2029.