The Energy Department issued new guidance on Friday that blocks states from offering rebates to households replacing gas appliances with electric models. The rule change affects $8.8 billion in federal funding Congress approved through the Inflation Reduction Act, targeting one of the Biden administration's signature climate policies designed to cut residential fossil fuel use.

Under the revised rules, states can no longer distribute rebate money for fuel-switching purchases, such as swapping a gas furnace for an electric heat pump or a gas stove for an induction range. Households can still claim rebates for upgrading existing electric appliances to more efficient versions. The American Gas Association praised the changes, saying they protect consumer appliance choice.

Twelve states and Washington, D.C. had already launched rebate programs and must now pause to rework their eligibility requirements, creating disruptions for contractors and homeowners. Legal challenges appear likely. Edward Yim of Lawyers for Good Government said the guidance violates the Inflation Reduction Act's statutory language, which explicitly authorized payments to replace nonelectric appliances.

The guidance also drops the requirement that rebated appliances carry Energy Star certification, a shift that follows the EPA's attempted elimination of the program. Colorado Energy Office director Will Toor warned the changes could hurt low-income rural households stuck with expensive propane heating, calling the move a blow to energy affordability efforts.