A group of Colorado landlords and large building owners are suing in federal court over state and city of Denver energy regulations in a lawsuit that raises questions about the balance of economic growth and green energy — and is sparking a debate on federal and state powers in regulating energy.

Complying with Colorado and Denver’s stringent energy conservation standards will force landlords to raise rent and displace tenants during lengthy renovation projects, real estate groups representing thousands of property owners claim in the lawsuit. The suit claims that the regulations would “de facto prohibit the use of natural gas appliances” and argues that the standards are illegal because they are stricter than federal guidelines. 

The case is “absolutely” at the forefront of a developing legal debate about the extent to which energy regulation should be handled at the federal or state and local levels, a director of policy at the Colorado-based Independence Institute, Jake Fogleman, tells the Sun. 

“The Ninth Circuit recently just upheld a federal ruling striking down Berkeley, California’s gas ban, that was the first in the nation,” he says, adding that while Colorado is in a different circuit, the Ninth Circuit decision is the “most advanced ruling” on the topic so far. 

“These gas bans are starting to pop up more and more, predominantly on the West Coast and in New York as well,” he says. “But as you’re starting to see it in other states and at the municipal level, I think it’s very much going to be a hot-button legal question going forward.”

Colorado’s rules apply to both existing and new buildings, making it even more extensive than the Berkeley standards, which only apply to new construction. 

“My understanding is the percentages are so strict, it set such a straight cap, that pretty much the only way for them to be able to comply is either to electrify or just accept that they’re going to get thousands of dollars worth of fines every month, which is not exactly a good set of options for them,” Mr. Fogleman says. 

The Colorado regulatory agency that finalized the energy standards acknowledged in an economic report that “landlords might pass on some or all of the cost of implementing this rule to their tenants, which will lead to higher rents.” 

“This is absolutely going to result in higher rents,” Mr. Fogleman adds, noting the state’s own economic analysis. 

Meanwhile, the state’s housing crisis has been front and center, he says, and “this multibillion-dollar regulation” would counteract any positive steps towards more affordable housing. 

The lawsuit argues that the Constitution’s Supremacy Clause and federal law, through the Energy Policy and Conservation Act, preempts the state and local standards on appliances since those areas fall into the Department of Energy’s purview. 

Federal law “requires a consistent national and practical approach to energy regulation,” the lawsuit reads. “Congress intended EPCA to preempt patchwork state or local laws that are unworkable, that undercut a coordinated national energy policy, that overlook the public’s need for reliable and resilient energy, and that deny consumer choice.”

A coalition of environmental groups defended Colorado and Denver’s energy standards, arguing that they “promote energy efficiency, reduce renters’ energy bills, and cut unhealthy indoor and outdoor air pollution.”

“The quality of the air we breathe is critical to our health,” a policy and advocacy manager at Healthy Air and Water Colorado, Megan Kemp, said in a statement. “The standards being threatened are designed to cut air pollution from buildings, one of the largest sources of health and climate-harming emissions in Colorado.” 

The Sun was unable to reach several of the real estate groups bringing the lawsuit, including the Colorado Apartment Association. The named defendant, the Colorado Department of Public Health and Environment’s Air Pollution Control Division, declined to comment, citing pending litigation.