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Home My WebLink About2025-12-13 Climate Action and Sustainability Committee Agenda PacketCLIMATE ACTION AND SUSTAINABILITY COMMITTEE Special Meeting Saturday, December 13, 2025 Mitchell Park Community Center, El Palo Alto Room 3700 Middlefield Road, Palo Alto, CA 94303 9:00 AM PUBLIC COMMENTS Requests to speak will be taken until 5 minutes after the staff’s presentation or as determind by the Chair. Written public comments can be submitted in advance to city.council@PaloAlto.gov and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. TIME ESTIMATES Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Committee reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on teh agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. 1 December 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. CALL TO ORDER 2025 S/CAP CLIMATE ACTION PRIORITIES SESSION PROGRAM A. Workshop on Economics of Large-Scale Community Electrification, Challenges, and Innovative Program Strategies for the Single-Family Sector; CEQA Status - Not a Project. Late Packet Report 1. Welcome and Introduction (9:00 – 9:10 AM) Objective: Understand what types of mechanisms Council and the public is interested in using to advance S/CAP 80x30 goals related to climate action. Promote greater understanding of tradeoffs in financing and regulations to achieve goals. 2. Overview of Climate Action Priorities (9:00 – 9:40 AM) 3. Breakout Group #1 (9:40 – 10:00 AM) Benefits and Challenges of Mandates and Voluntary Incentives to Achieve 80x30 4. Evaluating Decarbonization Programs (10:00 – 10:30 AM) BREAK (10:30 - 10:40 AM) 5. Breakout Group #2 (10:40 – 11:50 AM) Possible Implementation Tools and Approaches to Achieve 80x30 LUNCH BREAK (11:50 - 12:05 PM) 6. Breakout Group #2 Continued (12:05 – 12:35 PM) 7. Public and Closing Comments (12:35 – 1:00 PM) 2 December 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. ADJOURNMENT PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1.Written public comments may be submitted by email to city.council@PaloAlto.gov. 2.For in person public comments please copmlete a speaker request card located at the table at the entrance of the meeting room and deliever it to the Clerk prior to discussion of the item. 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A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 3 December 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. Climate Action and Sustainability Committee Staff Report Report Type: 2025 S/CAP CLIMATE ACTION PRIORITIES SESSION PROGRAM Lead Department: City Clerk Meeting Date: December 13, 2025 Report #:2511-5579 TITLE Workshop on Economics of Large-Scale Community Electrification, Challenges, and Innovative Program Strategies for the Single-Family Sector; CEQA Status - Not a Project. This will be a late packet report published on December 4, 2025. Item A Item A Staff Report Item A: Staff Report Pg. 1 Packet Pg. 4 of 19 Climate Action and Sustainability Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Public Works Meeting Date: December 13, 2025 Report #:2507-5025 TITLE Workshop on Economics of Large-Scale Community Electrification, Challenges, and Innovative Program Strategies for the Single-Family Sector; CEQA Status - Not a Project RECOMMENDATION This is a discussion item, and no recommendation is requested. Staff is seeking discussion and idea-generation, and will use input from this session to shape a broader community and policymaker discussion on funding strategies to meet Palo Alto’s climate goals. Staff is also seeking policy maker and stakeholder feedback on the studies and analyses attached to this report, which were used to develop the insights for this workshop and provided the data sets and financial models that will enable future staff analyses and discussions on this topic. EXECUTIVE SUMMARY Palo Alto’s climate goals – notably the “80 x 30” target of reducing greenhouse gas (GHG) emissions 80% below 1990 levels by 2030 – require community-wide electrification of a large portion of Palo Alto’s vehicles, buildings, and infrastructure. This public workshop with the Climate Action and Sustainability Committee (CASC) provides an opportunity to discuss the economics of large-scale electrification and to brainstorm innovative program strategies to accelerate electrification in the single-family residential sector. Staff worked with a consultant team - Willdan, E3 (a Willdan company), and Rincon - to develop financial models, data sets, and insights that can be used to analyze and develop policy scenarios defined by staff and policy makers. This policy work is expected to take place throughout 2026 and early 2027. In developing these tools, the consultant team modeled three illustrative scenarios and strategies. Completed prior to the current state and federal climate, these scenarios will need to be updated to reflect new challenges that impact the pace and financial needs. Staff will need to model more sophisticated strategies (such as those involving financing), these scenarios analyzed illustrate insights that will be useful in today’s workshop, including: Item A. Item A Late Packet Report Item A.: Staff Report Pg. 1 Packet Pg. 5 of 19 •Vehicle electrification and some types of building electrification (e.g. in single-family homes with existing A/C, commercial equipment like packaged HVAC units) yielded net lifecycle savings, while many other types of building electrification were a net lifecycle cost when compared to continuing to emit carbon from buildings (e.g. in single-family homes without existing A/C, commercial boilers). •In the longer term (30-40 years), electrification is a net benefit to the community as a whole (based on the net effect on the combined ongoing expenses of the residential and non-residential community members and the City both in its municipal and its utility role) due to the savings from using one fuel source (electricity) instead of three (gasoline, methane, and electricity), though different entities within the community may see different levels of benefit and some may even see a net cost. •If vehicle electrification plays a large enough part, electrification can be a net benefit to the community (as described above) in the short term as well (with the same caveats noted above). •Achieving 80% emissions reductions on a longer timeline reduces direct community costs. Indirect costs related to climate change (such as the cost of carbon removal of the additional carbon emitted for longer timeline strategies or the costs of the higher impacts of climate change) were not analyzed in this study, however, and should be weighed against strategies involving a longer timeline in case they outweigh the savings. •A financial strategy focused solely on City-provided incentives requires significant large new City revenue sources (like new taxes or rate increases) compared to strategies including financing, though in both cases these new revenue sources may be partially or fully offset by savings in household expenses (e.g. utility bills, vehicle fuel, and maintenance costs) depending on the assumptions. These and other findings are described in more detail in this staff report and the attached reports. The finding about the City cost of an incentive-only strategy shows that creativity and innovation will be needed to develop good alternative policy choices for the community and will require prioritization of initiatives as likely revised financial models will require higher support. While the cost of larger revenue sources for an incentive-only strategy might be offset by household savings, it can be challenging to draw those connections for the public and there will need to be discussion over the period of time those savings materialize compared to costs invested. Other strategies including financing or other creative ideas need to be developed to give the City Council a full range of policy choices so they can evaluate which would be preferable to the community. Staff intends to work on developing and modeling updated scenarios and alternative strategies through FY 2027 in partnership with policy makers and community stakeholders. This workshop is intended to kick off that process. Staff will present and discuss these findings, then have workshop participants break into groups to discuss the challenges of achieving 80 x 30 and any promising solutions they want to suggest for further exploration. Staff will then share some of Item A. Item A Late Packet Report Item A.: Staff Report Pg. 2 Packet Pg. 6 of 19 its ideas for decarbonization programs, and breakout groups will reconvene to discuss implementation tools and approaches for the most promising ideas. The goal is to generate feedback and creative solutions that can inform Palo Alto’s climate action financing strategy going forward. BACKGROUND 1 The S/CAP outlines strategies across eight areas, of which four (Climate Action, Energy, Electric Vehicles, and Mobility) are primarily focused on reducing community emissions. It also set the additional objective of achieving carbon neutrality by 2030 for the community. 2 which included initiation of an S/CAP Funding Study to explore potential funding and financing strategies, as well as several complementary studies (an EV Charger Needs Assessment, studies of electrification opportunities in multi- family and non-residential buildings, and a Funding Source Survey). 3 This model and its input studies – including assessments of gas equipment in single-family, multi-family and non-residential buildings, an Electric Vehicle (EV) charger needs assessment, and a survey of 1 City Council, June 5, 2023; Agenda Item #14; SR #2303-1158 https://www.cityofpaloalto.org/files/assets/public/v /1/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2023/20230605-item14-scap/mini- packet_city-council-special-meeting_20230526171309606.pdf 2 https://www.cityofpaloalto.org/files/assets/public/v/1/sustainability/reports/2023-2025-scap-work- plan_final.pdf 3 City Council, January 16, 2024, Staff Report 2308-1939, https://www.cityofpaloalto.org/files/assets/public/v/1/a dministrative-services/budget-adjustments-and-monitoring/fy-2024-budget-adjustments/january/january-18-ccm- item-4.pdf#:~:text=an%20analytical%20model%20to%20estimate,and%20infrastructure%20upgrades%2C%20utilit y%20rate Item A. Item A Late Packet Report Item A.: Staff Report Pg. 3 Packet Pg. 7 of 19 funding sources – provide data to evaluate different electrification rollout scenarios and their financial implications. ANALYSIS 4 the pace at which the community electrifies and the strategies it uses affect how the costs and benefits are distributed throughout the community, whether that benefit is realized only in the long term or also in the short term, and the range to which additional revenue sources are needed for City programs. Staff will present some of these high-level study findings, including that an incentive-heavy approach requires new City revenue sources, such as taxes or utility rate increases, though these would be at least partially offset by utility bill savings. Other approaches involving more financing would require less new revenue though take on borrowing liabilities and costs. The breakout sessions in today’s workshop will focus on discussing these findings, gathering community ideas on solutions, sharing some staff solutions, and brainstorming ways of implementing the most promising approaches. 4 As noted earlier in this report, community benefit in this context means the net effect on the combined ongoing expenses of the residential and non-residential community members and the City both in its municipal and its utility role. It means that the savings generated by electrification in the form of financial outflows from the community (e.g. natural gas purchases, gasoline) exceed the increased costs associated with electrification (e.g. additional electricity purchases) on an annual basis over the entire period modeled (2024-2060), based on the assumptions in the illustrative scenarios modeled. It is analogous to the “Total Resource Cost” test that utilities do for energy efficiency to determine whether a particular efficiency measure is cost-effective for the utility and its customers taken as a whole, before determining the measure’s effect on individual utility customers and the utility’s overall costs and revenues. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 4 Packet Pg. 8 of 19 and modeling updated scenarios and alternative strategies through 2026 and early 2027 in partnership with policy makers and community stakeholders. •Vehicle electrification and some types of building electrification yielded net lifecycle savings, while many other types of building electrification were a net lifecycle cost when Item A. Item A Late Packet Report Item A.: Staff Report Pg. 5 Packet Pg. 9 of 19 compared to the cost of continuing to burn methane in building equipment. If compared to potentially higher gas prices, however, such as those that would be needed to achieve the 80% emissions reduction goals using strategies like biogas, building electrification becomes a net lifecycle benefit. •In the longer term, electrification is a net benefit to the community as a whole (based on the net effect on the combined ongoing expenses of the residential and non-residential community members and the City both in its municipal and its utility role) due to the savings from using one fuel source (electricity) instead of three (gasoline, methane, and electricity), though different entities within the community may see different levels of benefit and some may even see a net cost. •If vehicle electrification plays a large enough part, community electrification can be a net benefit to the community (as described above) in the short term as well (with the same caveats noted above). •By allowing vehicle electrification to play a larger part, achieving 80% emissions reductions on a longer timeline reduces direct community costs. However, the analysis did not assess the potential for additional social and direct costs of reducing emissions on a slower timeline (e.g. damages from climate change), which could erode or eliminate the cost savings associated with a slower timeline. •Different groups within the community have different results, depending on the building equipment they electrify. For example, homes with air conditioning or commercial buildings with mixed-fuel packaged units would be expected to see a small incremental up-front cost, offset by energy savings, while commercial buildings with boilers or homes without air conditioning may not have their incremental up-front cost offset by energy savings. This is expected to be an issue when the equipment is first electrified, but subsequent replacements are expected to be lower cost in most cases. •A financial strategy focused solely on City-provided incentives requires larger new City revenue sources (like taxes or rate increases) than strategies including financing. The larger revenue source requirement is offset by larger savings in household expenses (e.g. utility bills and financing charges), however, than in a scenario involving financing, which would impact ongoing household expenses. However, tying tax or rate increases to these greater savings could be difficult, since the taxes or rate increases are tangible, while the bill savings are less apparent to people. •Single-family residents who fully electrify vehicles and building equipment would be expected to see a net benefit from electrification of vehicles but a net lifecycle cost for building electrification, especially for homes without pre-existing air conditioning units that can be easily replaced with heat pumps. However, residents who fully electrify are expected to see an overall net benefit from the electrification of vehicles and buildings together. •Multi-family residents who fully electrify vehicles and building equipment are expected to see a similar net benefit from vehicle and building electrification, though the cost of multi- family EV charging impacts savings in this group. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 6 Packet Pg. 10 of 19 •Non-residential building owners do not typically have savings from vehicle electrification, but the energy bill savings from the larger gas equipment in non-residential buildings can offset the cost of installation, leading to net savings for some building owners in this sector. Single-Family Homes Report Item A. Item A Late Packet Report Item A.: Staff Report Pg. 7 Packet Pg. 11 of 19 more complex solutions such as ductless heat pumps or air to water heat pumps. Homes with existing air conditioning (A/C) systems will have a lower cost to electrify than homes without A/C, since homes with existing A/C systems can often simply replace their A/C systems with a heat pump without adding more infrastructure. Multifamily Buildings Report •Most multi-family units (60% to 70%) are served by in-unit space heating systems rather than central systems. •About half of all multi-family space heating is electrically driven, mostly using electric resistance. This presents an energy efficiency opportunity to replace resistance heating units with air source heat pumps. Making such replacements would not advance the City’s emissions reduction goals, but would save residents money. •The half of multi-family space heating provided by gas is estimated to be provided by furnaces (about 40%) and mixed fuel packaged units (about 60%), with a few space heating boilers. Units served by packaged units, or by a separate furnace and air conditioner, are expected to be less costly to electrify than units with only furnaces. •72% of multi-family buildings are estimated to have air conditioning, which makes them easier to electrify, as in single-family homes. •No estimate was provided on the number of in-unit vs. central water heaters, but all seven Palo Alto sites surveyed had central water heaters. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 8 Packet Pg. 12 of 19 •37% of all multi-family water heaters were estimated to be electric, and almost all of those were estimated to be electric resistance rather than heat pump water heaters. As with space heating, this presents energy efficiency opportunities. •58% of all multi-family water heaters were estimated to be gas storage water heaters involving a gas burner and separate or integrated water storage. These would be replaced by air to water heat pump water heaters, either split or integrated depending on the system size. •The remaining 5% were estimated to be gas tankless water heaters, which would likely be in smaller buildings with lighter gas use and would need to be replaced by packaged heat pump water heaters. Non-Residential Buildings Report •Non-residential space heating equipment is estimated to be about 70% gas driven, mostly by mixed fuel packaged units (50%) and boilers (16%), with furnaces making up the remainder. Most of the 30% of equipment that is electrically driven is run using electric resistance. This presents an energy efficiency opportunity to replace resistance heating units with air source heat pumps. Making such replacements would not advance the City’s emissions reduction goals, but would save building owners money. •Nearly all buildings are estimated to have air conditioning, with nearly 85% of that air conditioning being provided by packaged units that are easy to convert to heat pumps. •Boilers, while representing a small fraction of the space heating equipment in commercial buildings, are estimated to make up about 70% of the gas consumption due to the larger systems they serve. They are more complex to electrify, but could produce significant emissions savings. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 9 Packet Pg. 13 of 19 •Over 60% of water heating in commercial buildings was estimated to be gas-driven. The electrically driven water heating was estimated to mostly be resistance heating units, providing opportunities for energy efficiency. •90% of commercial gas water heaters were estimated to be gas storage water heaters involving a gas burner and separate or integrated water storage. These would be replaced by air to water heat pump water heaters, either split or integrated depending on the system size. •The remaining 10% were estimated to be gas tankless water heaters, which would need to be replaced by packaged heat pump water heaters or electric tankless water heaters if electric capacity were available. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 10 Packet Pg. 14 of 19 For additional funding sources to repay City-issued financing or to assist community members in repaying private loans, the survey noted a variety of alternatives, virtually all of which would require a ballot measure5. Potential funding sources included: •A variety of tax types, including property, parcel, and utility user taxes •Special benefit districts raising revenues to electrify smaller areas within Palo Alto •Increased utility revenues FISCAL/RESOURCE IMPACT 5 The placement and timing of a potential ballot measure would need to be reviewed in the context of other voter initiatives being considered by the City and local jurisdictions as well as testing of voter opinion and feasibility. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 11 Packet Pg. 15 of 19 Figure 1: Community ongoing costs and benefits in key years, Low Local Action scenario 6 The City fiscal resource impact depends on the strategy used to assist residential and non- residential community members (who are also utility ratepayers) with electrification. An 6 Footnote to Figures 1 and 2 with additional detail on legend categories; •“Net Benefit” means all savings in the chart net of all costs in the chart •“Net Incremental O&M (Vehicles / Equipment)” means net savings in operations and maintenance from electrifying vehicles and equipment, a benefit which accrues to the owners of those vehicles and equipment •“Avoided Gasoline and Diesel Cost” is a savings that accrues to the owners of electrified vehicles •“Avoided Gas Supply Cost” is a savings that accrues to current or previous natural gas customers who convert gas equipment to electric and only includes gas supply and transportation to Palo Alto, not distribution cost (so not the full retail rate). The net savings at an individual level is displayed separately in this report and does not take into account the full retail rates. Item A. Item A Late Packet Report Item A.: Staff Report Pg. 12 Packet Pg. 16 of 19 incentive-heavy approach requires new City revenue sources, while strategies relying more on financing could reduce the need for new City revenues. Staff intends to develop and analyze a range of policy options and their revenue needs for City Council consideration in 2026. STAKEHOLDER ENGAGEMENT 7 where a preliminary economic analysis of large-scale electrification was presented. This analysis was also provided in a webinar format.8 Following this meeting, and the City Council’s establishment of an S/CAP Ad Hoc Committee in 2021, staff convened additional stakeholder workshops and briefings as the S/CAP strategies were refined. The Committee provided a focused forum to involve Council members in guiding the plan update and ensuring ongoing communication with community stakeholders. Wide-reaching and coordinated public engagement was done as part of the S/CAP Update prior to acceptance of the proposed S/CAP Goals and Key Actions, as described in a September 27, 2022 Council Meeting.9 These discussions informed development of the draft 2023-2025 S/CAP Work Plan, which included studying financial strategies to manage the electrification transition. This engagement process culminated in June 2023 with Council’s adoption of the updated S/CAP.10 •“Third Part Charging-as-a-Service Cost” is a charge (often per kWh) that is paid by drivers (or also by the City if charging incentives are offered) to the EV charging provider to repay the up-front cost of the charging equipment •“Debt Expense” is debt service paid to lenders by the City for new infrastructure and by electrifying community members (or the City via incentives) for electrified equipment and vehicles •“Incremental Electric Supply Cost” represents the increased electric supply cost (excluding distribution costs, so not the full retail rate) and is paid by electrifying community members. The net impact at an individual level is displayed separately in this report and does take into account the full retail utility rates. •Note that the beneficiaries and payors noted above can change based on the funding strategy chosen. For example, under a system of incentives funded by a tax, the design of the tax and incentive programs could change who is receiving the benefits and who is paying the costs. 7 City Council, April 19, 2021, Report #12009, Council Review of the S/CAP Update Report, Provide Feedback on Poli cy Tools, and Direction to Staff to Implement an S/CAP Engagement Strategy, https://www.cityofpaloalto.org/files/ assets/public/v/3/agendas-minutes-reports/reports/city-manager-reports-cmrs/year-archive/2021/id-12009.pdf 8 https://www.youtube.com/watch?v=kZB4P7tLvrg&list=PLJ0x6PDuVXlPJ2o1qIlEXINb8rQ8HNMid&index=17 9 City Council, September 27, 2022, Staff Report #14606 (Stakeholder Engagement section, page 22), S/CAP Update and Initial Council Action: Acceptance of Sustainability and Climate Action Plan (S/CAP) Goals and Key Actions; http s://www.cityofpaloalto.org/files/assets/public/v/7/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20220927/20220927pccsmlinked-amended-v2.pdf#page=79 10 City Council, June 5, 2023; Agenda Item #14; SR #2303-1158 https://www.cityofpaloalto.org/files/assets/public/ v/1/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2023/20230605-item14-scap/mini- packet_city-council-special-meeting_20230526171309606.pdf Item A. Item A Late Packet Report Item A.: Staff Report Pg. 13 Packet Pg. 17 of 19 As described above, in the Background section, the studies proceeded throughout 2024. Preliminary results from all studies were generated in Q4 2024. In October 2024 staff discussed with the Climate Protection Ad Hoc Committee scenarios to model in the Funding Study using the data and financial models developed earlier in the year. The consultant generated preliminary results based on those scenarios and staff reviewed key insights and outputs with the Climate Protection Ad Hoc Committee and Working Group in December 2024. ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item A. Item A Late Packet Report Item A.: Staff Report Pg. 14 Packet Pg. 18 of 19 Attachments for Staff Report 2507-5025 are available at the below links: Attachment A: S/CAP Funding and Financing Study Attachment B: EV Charger Needs Assessment Attachment C: Single-family Building Sector Study Attachment D: Multi-family Building Sector Study Attachment E: Non-Residential Building Sector Study Attachment F: Funding Source Survey Item A. Attachment A - F Links Item A.: Staff Report Pg. 15 Packet Pg. 19 of 19