Reported / Citable
Background
The South Coast Air Quality Management District (SCAQMD or “the District”) is the agency responsible for controlling air pollution in the South Coast Air Basin — the greater Los Angeles metropolitan area, encompassing Orange County and the urban portions of Los Angeles, Riverside, and San Bernardino counties. More than 17 million people live in the Basin, which holds the grim distinction of having the worst ground-level ozone (smog) in the United States. The Basin is in “extreme” nonattainment with every federal ozone standard under the Clean Air Act (CAA), and faces a hard deadline of 2038 to come into compliance — or lose federal highway funding and face substantial penalties.
Decades of incremental reductions in nitrogen oxide (NOx) emissions from appliances fell short. In its 2022 air quality management plan, the District concluded that widespread adoption of zero-emission technology across all stationary sources was the only viable path to the 67–83 percent NOx reduction required. After more than a year of rulemaking, the District adopted amended Rule 1146.2 in June 2024, phasing in zero-NOx standards for gas-fired water heaters, boilers, and process heaters over the next decade.
A coalition of appliance manufacturers and industry groups — including Rinnai America Corporation, Noritz America Corporation, the National Association of Home Builders, the California Restaurant Association, the California Apartment Association, and others — sued in the U.S. District Court for the Central District of California, arguing that Rule 1146.2 is preempted by the federal Energy Policy and Conservation Act (EPCA), 42 U.S.C. § 6201 et seq. The district court granted summary judgment for the District. The challengers appealed.
The Court’s Holding
A divided 2-1 Ninth Circuit panel — Judge Lucy Koh writing, joined by Judge Ana de Alba, with Judge Kenneth Lee dissenting — affirmed and upheld Rule 1146.2. The court held that EPCA, a 1970s statute enacted to prevent a patchwork of conflicting state energy efficiency standards, does not preempt the District’s NOx emissions rules, which were adopted under entirely different authority: a state implementation plan (SIP) to comply with federal air quality standards under the CAA.
EPCA’s preemption clause bars state regulations “concerning the energy efficiency, energy use, or water use” of covered appliances once the Department of Energy has set federal standards for those products. The majority held that the District’s Rule does not regulate energy use or energy efficiency — it regulates NOx air pollutant emissions. These are different legal categories. The panel distinguished the prior Ninth Circuit decision in California Restaurant Ass’n v. City of Berkeley, 89 F.4th 1094 (9th Cir. 2024) — which had struck down Berkeley’s natural-gas ban as EPCA-preempted — noting that Berkeley explicitly declined to address whether EPCA preempts CAA-based emissions rules, and that the California Restaurant Association had conceded in that case that “regulations of nitrogen oxide emissions” do not concern “energy use” under EPCA.
The panel also held that the challengers’ facial challenge failed on an independent ground: Rule 1146.2 covers process heaters, which are not among the “covered products” under EPCA and for which DOE has issued no federal energy standards, so EPCA’s preemption clause does not apply to them. Judge Lee dissented, arguing that Berkeley controls and that any rule prohibiting gas-fired appliances necessarily regulates their “energy use” — the consumption of fossil fuel — within EPCA’s preemption reach.
Key Takeaways
- EPCA does not preempt state air quality rules regulating NOx emissions from appliances when those rules are adopted as part of a state implementation plan to meet federal Clean Air Act ozone standards — at least within the Ninth Circuit.
- The Ninth Circuit drew a sharp line between energy-efficiency regulations (preempted by EPCA) and air-pollutant-emissions regulations (not preempted), even where both types of rule may produce overlapping practical effects on appliance sales.
- The Berkeley natural-gas-ban ruling is narrow and does not control challenges to CAA-based emissions rules; courts rejected the industry’s attempt to extend it to the SCAQMD context.
- SCAQMD’s 10-year phase-in of zero-NOx standards for water heaters, boilers, and process heaters in the greater Los Angeles area is now legally cleared — absent successful en banc or Supreme Court review.
- Appliance manufacturers and property owners in the South Coast Basin should treat compliance with Rule 1146.2’s phase-in deadlines as legally required and begin planning product transitions now.
Why It Matters
This ruling has sweeping practical consequences for anyone who owns, builds, renovates, or operates property in the greater Los Angeles area. SCAQMD’s Rule 1146.2 will eventually require zero-NOx appliances across a region of more than 17 million people. Businesses planning construction or tenant improvements — restaurants, hotels, apartment complexes, industrial facilities — should now plan around the rule’s phase-in timeline rather than waiting on litigation outcomes. The federal preemption argument, the industry’s strongest legal challenge, has now failed at the appellate level. En banc review or a Supreme Court petition remain possible given Judge Lee’s dissent, but challengers face a steep road.
More broadly, this decision validates California’s building electrification agenda. Other air districts facing CAA nonattainment deadlines — in the Bay Area, San Joaquin Valley, and Sacramento region — may adopt comparable zero-NOx appliance rules using this legal framework. Practitioners advising clients in construction, real estate, restaurants, or manufacturing throughout California should incorporate Rule 1146.2’s compliance timeline into long-range planning. Nationally, the ruling signals that states facing federal ozone mandates may impose emissions-based appliance standards beyond EPCA’s reach — a model other nonattainment states could adopt.