Reported / Citable
Background
The South Coast Air Quality Management District (SCAQMD) is the state agency responsible for air pollution control in California’s South Coast Air Basin — a region covering most of Los Angeles, Orange, Riverside, and San Bernardino counties that has the worst ozone pollution in the United States. The Basin is in “extreme” nonattainment with all federal ozone standards under the Clean Air Act (CAA). That classification puts it at risk of losing federal highway funding and facing substantial federal penalties.
In 2022, SCAQMD determined that the only viable path to bringing the Basin into compliance with federal ozone standards was to achieve zero nitrous oxide (NOx) emissions across stationary sources — including gas-fired water heaters, boilers, and process heaters. In June 2024, the District adopted amendments to Rule 1146.2, which phases in prohibitions on the manufacture, sale, or installation of gas appliances that emit more than zero NOx over the next decade.
Rinnai America (a water heater manufacturer), Noritz America, the National Association of Home Builders, the California Restaurant Association, homebuilder and hospitality groups, and other industry plaintiffs filed suit arguing that the Energy Policy and Conservation Act (EPCA) — a federal statute authorizing the Department of Energy to set national energy efficiency standards for appliances — preempts Rule 1146.2. They relied primarily on California Restaurant Ass’n v. City of Berkeley (2024), in which the Ninth Circuit held EPCA preempted Berkeley’s ban on natural gas piping in new construction. The district court granted summary judgment for SCAQMD. The Ninth Circuit affirms, 2-1.
The Court’s Holding
The panel majority (Judge Koh, joined by Judge de Alba) holds that EPCA does not preempt Rule 1146.2. EPCA’s preemption clause targets state regulations “concerning energy use” of covered appliances — a provision designed to prevent the patchwork of state energy efficiency standards that proliferated in the 1980s. Rule 1146.2, by contrast, regulates NOx emissions, not energy use or energy efficiency. A state can, through its emissions rules, influence what appliances are viable in practice; but that downstream effect does not transform an emissions rule into a regulation “concerning energy use.”
The majority distinguishes California Restaurant Ass’n v. City of Berkeley in several ways. First, the Berkeley decision addressed a total ban on natural gas infrastructure in new buildings — a rule that functionally concerned energy use. Second, and critically, the Berkeley decision expressly declined to address whether EPCA preempts state regulations enacted to comply with another federal statute (the CAA). Third — and in a particularly pointed move — the California Restaurant Association itself conceded in the Berkeley litigation that “regulations of nitrogen oxide emissions” do not “concern energy use” and are not preempted by EPCA. The same plaintiff cannot take the opposite position here.
The majority also holds that the plaintiffs’ facial challenge fails for process heaters (an appliance category not covered by any DOE standard under EPCA), because they cannot show Rule 1146.2 is unconstitutional in every application. Judge Lee dissents, arguing Berkeley controls and EPCA preempts any regulation that effectively requires appliances with specific energy performance characteristics.
Key Takeaways
- EPCA’s preemption clause targets state energy efficiency regulations, not Clean Air Act compliance rules — even if those compliance rules effectively require a shift away from gas appliances.
- California’s SCAQMD (and by analogy, CARB and other California air agencies) can mandate zero-NOx appliance standards as part of their federally required CAA implementation plans without EPCA preemption.
- The Bay Area Air Quality Management District’s similar gas appliance electrification standards (adopted March 2023) remain unchallenged and have now received additional implicit support from this decision.
- Gas appliance manufacturers and gas utilities should plan for the ten-year phase-in of zero-NOx standards in the South Coast Basin; the legal challenge is now exhausted in the Ninth Circuit (absent en banc reversal or Supreme Court review).
- The dissent means this issue remains contested and could be appealed to the Supreme Court, particularly given the Berkeley/Rinnai tension that now exists within the Circuit.
Why It Matters
This is one of the most consequential California environmental regulatory decisions in years. The South Coast Basin has failed federal ozone standards for decades, and gas appliances — particularly water heaters — are a significant source of NOx in densely populated areas. SCAQMD’s Rule 1146.2 is effectively a phased mandate to replace gas water heaters and boilers with electric alternatives across an enormous swath of Southern California.
The ruling clears the primary legal obstacle to that mandate. Gas appliance manufacturers, contractors, homebuilders, restaurants, and apartment owners now know that SCAQMD’s phase-in schedule is legally valid and will proceed. For California practitioners advising clients in construction, real estate development, hospitality, or industrial operations in the Los Angeles Basin, the planning horizon on gas appliance procurement just shortened. The practical consequence of this decision is that zero-NOx electric or heat-pump water heaters and boilers will become the only compliant option in Southern California within the decade — and the Ninth Circuit has confirmed that the federal government’s appliance efficiency law provides no escape from that requirement.