New York City passed a series of laws in 2019 designed to help it align with the Paris Agreement, and Local Law 97 was the centerpiece of the legislative package. Aiming to reduce citywide building emissions by 80 percent by 2050, Local Law 97 is perhaps the most ambitious crackdown on building carbon emissions in the world. Environmentalists say the transformative law could be the beginning of a Green New Deal for New York, a huge step forward in the fight against climate change. Under the law, commercial and residential buildings will face strict emissions caps, and the first deadline is coming up very soon in 2024.
While many are cheering on the law, actually implementing and enforcing it will be a complicated process, as NYC property owners are discovering. How the law’s implementation unfolds could also have significant implications for real estate owners elsewhere in the nation. Boston and Washington, D.C., are among other cities that have passed similar laws, and experts expect more copycat legislation nationwide. Meeting the stringent emissions standards in New York will require a tremendous amount of work, capital upgrades to buildings, and no shortage of political wrangling. It could be a preview of what many major cities in the U.S. will be going through in the years ahead, as buildings are targeted for decarbonization and new climate laws are passed.
A little help, please
Commercial and residential buildings over 25,000 square feet must comply with Local Law 97, with some exceptions. These include multifamily dwellings no more than three stories with no central HVAC system or hot water heating systems. Also, Local Law 97 sets emissions intensity limits based on building code occupancy groups. The two initial compliance periods will be 2024-2029 and 2030-2034. Future requirements through 2050 are yet to be determined, but emissions limits become significantly stricter with each five-year compliance period.
It’s estimated that 20 percent of affected NYC buildings will need to make changes to come into compliance by 2024, and 75 to 80 percent will require upgrades by 2030. About 71 percent of New York City’s carbon emissions come from buildings, and most of it is from about 50,000 structures that are more than 25,000 square feet. The buildings that don’t comply with the law could face penalties in the millions per year for the worst offenders.
New York has already faced challenges in rolling out Local Law 97. Property owners have submitted applications for emissions cap adjustments due in the summer of 2021, and, according to Raymond Pomeroy, an environmental lawyer at Stroock & Stroock & Lavan LLP, an NYC-based law firm, many still haven’t heard back from the city. The adjustments would provide temporary relief and additional time for compliance. “There’s a ton of work required for this law, and the city doesn’t seem to have all the staffing and resources they need for it,” Pomeroy said.
The new office responsible for enforcing and implementing the law, the Office of Building Energy and Emissions Performance, has six staff members, but many say they need more help. Mayor Eric Adams’ preliminary budget proposal for the next fiscal year didn’t add staffers to the building office, raising concerns that the office won’t have enough resources to tackle its tremendous workload. However, Adams and the City Council will negotiate the next city budget, so funding and staffers could be added.
Climate advocates say the office needs about 10 to 15 staffers because of the herculean task it faces. It must clarify building categories for the law, calculate complicated emissions formulas, establish emissions limits for 2035-2039 and beyond, and create formal rules for other aspects of the law. The whole process requires public review and input.
The Empire State Building has cut its carbon emissions by 40 percent in the past decade and still faces penalties in 2030. The iconic building will have to reduce energy by another 40 percent in the next decade to avoid fines.
Greening the grid
The public review process will be critical because many NYC property owners have concerns about how the law’s written. Pomeroy said one problem is the law penalizes density in buildings. “The law doesn’t consider dense building occupancies,” he said. “And more people in buildings drives up energy usage.” The way the law works, buildings have a budget for carbon emissions and can’t go over a certain amount. But the budget is determined on a generalized occupancy type and total square footage, ascribing the same coefficient to all buildings regardless of the work and other functions.
So, under the framework, a law firm with sparsely populated offices is treated the same as a financial firm with dense trading floors and data servers running 24/7. Two buildings like this could have similar energy-efficient systems but perform in a wildly different manner against the carbon budgets because of the varying energy needs of tenants.
As a result, NYC building owners who invested in sustainable energy before Local Law 97 may face harsh penalties. For example, the Empire State Building has cut its carbon emissions by 40 percent in the past decade and still faces penalties in 2030. The iconic building will have to reduce energy by another 40 percent in the next decade to avoid fines, according to the Real Estate Board of New York (REBNY). One Bryant Park is the world’s first LEED Platinum Building, and REBNY says it faces millions in fines by 2024 if it doesn’t make further upgrades. Some real estate owners are also concerned that penalties will be diverted to the city’s general fund and not re-invested into making the city carbon neutral.
But perhaps the biggest concern with Local Law 97 is that NYC’s electrical grid is still heavily reliant on fossil fuels. Basically, the law pushes for wide-scale electrification in commercial and residential buildings, but electrification won’t help reduce carbon emissions enough without a cleaner grid. Consequently, high-performance buildings could still have high carbon emissions and be left with little choice but to pay fines. That’s why the several clean energy infrastructure projects underway for New York City’s electrical grid are crucial for making the law work. “This is the biggest issue,” Pomeroy said. “How quickly can we green the grid, and how reliable will the electricity be?”
The New York Public Service Commission recently approved two transmission lines to bring electricity to NYC generated by hydroelectric, solar, and wind power. The Champlain Hudson Power Express will deliver electricity generated by dams in Canada and is slated to operate by 2025. The second project, Clean Path New York, will carry solar, wind, and hydropower from Delaware County in upstate New York to the borough of Queens. It’s expected to come online around 2027. Both projects could cut NYC’s dependence on fossil fuel generation by more than 50 percent by 2030, paving the way for a zero-emissions grid by 2040.
Currently, fossil fuels generate about 90 percent of New York City’s electricity, a much higher share than elsewhere in the state. NYC estimates it’ll pay between $2 billion to $4 billion for the projects over the next 25 years. It’s a hefty price tag, but the cleaner electricity transmission will make it easier for NYC buildings to meet carbon emissions reductions under Local Law 97.
We have no intention of giving anyone a free pass or letting anyone off the hook, but we also see no benefit to the environment in punishing someone who is actually doing everything possible.
Will fines be relaxed?
Some of the city’s office and multifamily buildings will still have myriad issues to work through to become compliant by 2024. They’re the biggest energy users, and some will have to make upgrades quickly. The diligent building owners will be in good shape, but Pomeroy doesn’t feel that every NYC building owner is like that. “It’s not just a matter of hiring a contractor to get the retrofits done,” he said. “Only a certain number of qualified engineers can do this work, and they need to be hired soon so everything can be done in time to meet the compliance deadlines.”
The 2024 cap only applies to the worst polluting buildings in the city (about 3,000 properties). Those buildings are likely to be mid-sized, about 25,000 to 50,000 square feet, and packed with tenants. Multifamily buildings make up a bulk of those affected, as they use more energy than any other sector, and most comes from natural gas burning, according to the Urban Green Council.
To soften the blow on real estate owners, Mayor Adams has already expressed that there could be changes to the law. Before Adams, NYC officials didn’t have much appetite for discussing Local Law 97 changes. The Adams administration presented potential options for building owners who face an “insurmountable barrier” in meeting compliance at a recent City Council committee hearing, according to The Real Deal. The administration floated an idea for an alternative to penalties, such as building owners helping retrofit low-income housing.
Carbon trading, which would allow owners to buy credits from properties with lower emissions, is off the table for now, though. “We have no intention of giving anyone a free pass or letting anyone off the hook,” said Rit Aggarwala, the city’s chief climate officer and commissioner of the Department of Environmental Protection. “But we also see no benefit to the environment in punishing someone who is actually doing everything possible.”
The Adams administration has frequently implied it may relax penalties. Those who fail to meet targets by 2024 would face a fine of $268 per metric ton of emissions over the limits, which means that some buildings could be on the hook for millions in fines. Real estate experts say building owners still need to prepare to comply with the law as it’s written. Even if there’s more compliance flexibility, some like Rosenberg & Estis Managing Member Michael Lefkowitz have suggested some building owners may opt to pay fines rather than complete energy upgrades if upgrades are too expensive.
All eyes on NYC
If New York City does relax penalties, the administration could face the wrath of climate advocates. “Local Law 97 will never work if you don’t fine buildings,” said Margaret Perkins, co-chair of the local solutions group at environmental organization 350NYC. “That’s the only language they understand.” Perkins noted that NYC buildings reported carbon emissions before Local Law 97 as part of another city initiative. They knew their emissions were high and did nothing. “The law has to be mandatory, and there has to be fines,” she said.
While building owners may fret about the law, it could have other positive effects besides its climate change goals, including creating jobs in building construction, design, and renovation. “Buildings will have to reduce energy tremendously, and it’ll require a large amount of labor-intensive work,” said Pete Sikora, Senior Advisor at New York Communities for Change, a nonprofit based in Brooklyn that pushed for the passage of Local Law 97. “There’s no time to waste, it’s a big job, and it needs to get done. The law will create about 150,000 jobs in the city in just this decade.”
Sikora sits on the city’s 16-member Climate Advisory Board, which issues recommendations about meeting Local Law 97’s goals. He said the law is also pushing for a cleaner electric grid, another good byproduct of the legislation. Real estate is a powerful interest group in NYC, so for them to hitch their interest on a cleaner grid is huge, he said.
New York City’s success, or failure, with Local Law 97 will be watched closely by landlords and building owners everywhere. The same goes for cities that have passed similar laws, like Boston and Washington, D.C. It’s estimated that about 75 percent of carbon emissions worldwide come from cities, and buildings are one of the largest contributors, according to the United Nations Environment Programme.
Transforming buildings from energy hogs to high performance will be at the center of many climate laws in the future. “You can see with the automotive sector transitioning to electric vehicles that a lot can happen without much government intervention,” Sikora said. “That will not automatically happen in the real estate world. Generally, real estate owners don’t do energy retrofits and make buildings cleaner unless they have to. The returns aren’t good enough for them, so laws like Local Law 97 are necessary.”
Whether building owners agree with Sikora’s take or not, the reality is that increased concern for climate change means many real estate portfolios will be forced to decarbonize soon. Copycat legislation elsewhere in the U.S. may not be as strict as New York’s Local Law 97, but fines and enforcement will probably be in the mix. Cities and municipalities have used incentives to push sustainability for years, but now they’re starting to wield the stick of mandatory emissions reductions. Most real estate observers expect this to only increase in the future. New York is currently one of a few test labs for the worldwide effort to decarbonize buildings. And depending on how it shakes out, buildings in many more locales could be next.