NYC’s big building-decarbonization law faces its first major test

Local Law 97, New York City’s groundbreaking, multistage effort to rein in carbon emissions from its big buildings, is facing its first major test — and it’s just a preview of the much steeper challenges to come.

Last week, New York City Mayor Eric Adams (D) released proposed guidelines for how owners of the worst-performing buildings can comply with the law’s mandate to curb emissions by 2024. Next year, the city will begin imposing fines on buildings that haven’t reduced their emissions below certain thresholds, with even steeper cuts and rising fines to come in 2030 and 2040.

The response to the new compliance guidelines was swift. Real estate owners opposed to the law reiterated long-standing complaints that the mandates will force them to choose between paying steep fines or making efficiency investments that don’t make economic sense today.

Environmental activists countered with evidence that near-term compliance is not nearly as costly as opponents say it will be. They also worry that two parts of the proposed regulations, which would allow laggard buildings to postpone compliance for two years and use clean-energy purchases to offset continued building emissions after that date, amount to a surrender by the Adams administration to real estate interests at the expense of fighting climate change.

“Mayor Adams is proposing a gigantic giveaway to his real estate buddies that’s going to increase pollution and crush jobs,” said Pete Sikora, climate and inequality campaigns director of New York Communities for Change and a former member of the Local Law 97 advisory board.

That’s why Sikora’s group and a host of environmental and community activists are protesting what they describe as loopholes in the new proposed guidance. The conflict over these proposals underscores a key tension around the broad goal of decarbonizing buildings: how to balance the carrots with the sticks. If the cost of meeting the law’s emissions-reduction mandates is too high, building owners may simply choose to pay the fines instead, an outcome that does little to help the climate.

But building-efficiency experts agree that meeting the law’s 2024 targets should be relatively simple for the vast majority of commercial and multifamily residential buildings in New York City. As evidence, they point to the fact that 89 percent of buildings covered by the law are already in compliance with its requirements, including many older buildings that are harder to retrofit to become more energy-efficient. They also note that alternative compliance options have been established for more challenging buildings such as low-income housing.

“I do not believe there is a serious building professional in this city who would say that a building making a good-faith effort, absent very unusual circumstances, would not be able to get under the 2024 limit,” said Sikora. ​“In some buildings, they could do it almost immediately if they wanted by making some very basic changes — putting in LEDs [and] aerated shower heads, insulating exposed heating pipes, tuning the boiler correctly” and other such remedial actions.

What will be harder, he said, is meeting Local Law 97’s longer-term goals. Roughly 70 percent of the city’s buildings do not yet comply with the law’s tougher targets of cutting carbon emissions by 40 percent from 2019 levels by 2030.

Hitting that end-of-decade figure in particular will require far more extensive efforts to switch from the oil- and fossil-gas-fueled systems that heat the majority of buildings today to electric heat-pump systems or low-emissions district heating and cooling systems. It will also require deeper building-efficiency retrofits to ease stress on the power grid.

Difficult as it may be to pull off, it’s crucial to meet these targets. Buildings contribute 70 percent of the carbon emissions in New York City, which means ​“we will not achieve our climate goals without addressing buildings,” said John Mandyck, CEO of the nonprofit Urban Green Council, which has played a key role in creating the law and monitoring its implementation. While building owners have been waiting for key guidelines on how the law will be enforced, with last week’s proposed guidance, ​“the compliance pathway is now evidently clear,” he said.

But the ongoing political fight over the law’s short-term targets could derail these longer-term efforts, Sikora said. New York City officials estimate the costs of hitting the law’s 2030 targets to range from $12 billion to $15 billion. If building owners don’t start making investments now, they run the risk of missing the law’s targets, which are designed to reduce the city’s carbon emissions in line with the Paris Agreement, he said.

“The law’s limits are achievable and affordable,” he added — a view backed by the Urban Green Council and other groups. The 2024 targets were meant to ​“get the most polluting buildings here to cut their pollution as a warmup to the 2030 requirements, which are quite a bit tougher.”

The ​“good-faith effort” pathway: A helping hand or a dodge? 

Environmental groups have two key complaints about the regulation proposed by the Adams administration last week.

The first is the proposal to allow the roughly 11 percent of buildings not yet hitting their targets to escape fines through 2026 if they make a ​“good-faith effort” to get on track. Some environmental groups argue that building owners have already had four years to prepare for 2024 targets and shouldn’t be rewarded for inaction.

“Responsible landlords are already doing that, not just to cut pollution but to save money on bills, too, and raise the property value,” Sikora said. ​“The mere fact that some landlords are incompetent doesn’t mean they should be let off the hook.”

But in Mandyck’s view, the good-faith exemption is a reasonable approach to forcing buildings that are behind schedule to meet the law’s mandates. Since Local Law 97 was passed in 2019, ​“we had Covid; we had supply-chain delays,” he noted. ​“It took the appropriate amount of time for regulations to unfold. And we’re now months away from compliance. So we have two options: We fine all those buildings and forfeit the carbon savings, or we find a pathway for compliance.”

The law’s fines — $268 per metric ton of carbon dioxide emissions that exceed an individual building’s cap — equate to ​“the highest price of carbon in the world,” he noted. ​“Do we tie up the administrative courts and start issuing fines? Then people are paying fines and not doing investments in the buildings. We need carbon savings — we don’t need fine revenue.”

Tristan Schwartzman, energy services director and principal at New York City–based building engineering consultancy firm Goldman Copeland Associates, agreed that a two-year extension could help a number of his clients that ​“do have a path that’s going to be arduous but feasible” to meet their compliance deadlines.

To qualify for the good-faith exemption, ​“you have to have a plan in place; you have to show that you’ve done something that’s been impactful,” he said. ​“There are a lot of hurdles you’re supposed to jump — but those are hurdles you’re supposed to be jumping anyway.”

But as Sikora and other environmental groups point out, it’s virtually impossible to discern whether owners of noncompliant buildings are indeed acting in good faith. These critics fear that the exemption will instead offer a two-year reprieve from fines for a subset of property owners who have been working to undermine the law.

Those efforts include a lawsuit filed last year by groups representing residential cooperative buildings in the borough of Queens demanding that the law be overturned. They also include millions of dollars of advertising and lobbying by the Real Estate Board of New York, a politically powerful group led by Douglas Durst, the owner of high-profile properties including some that are out of compliance with the law, such as the Bank of America Tower at 1 Bryant Park in Manhattan.

The group issued an analysis in January claiming that the fines from Local Law 97 could add up to $213 million for 3,780 buildings in 2024 and $902 million for 13,544 buildings in 2030, citing these findings as proof of ​“significant economic disruption that will occur if property owners are not provided adequate tools to reduce emissions.”

But Sikora noted that these figures misrepresent the financial impact on individual buildings and their tenants.

He cited the example of Bob Friedrich, the board president of Glen Oaks Village, a 2,900-unit co-op in Queens, who has been an outspoken opponent of Local Law 97 and a plaintiff in the lawsuit seeking to overturn the law. Friedrich has claimed that Glen Oaks would have to invest about $24.5 million to upgrade its gas and oil boilers to seek to comply with the law, and may still face an estimated $400,000 per year in fines from 2024 to 2030.

But divided among 2,900 units, that fine adds up to about $130 per unit per year through 2030, or ​“the equivalent of a parking ticket,” Sikora said. Similar economics apply to many other properties, making the law’s fines far from the death blow that many property owners have claimed they will be, he said.

Offering noncompliant buildings a route to avoid penalties for failing to achieve the relatively lax 2024 standards also risks setting a bad precedent for the much tougher 2030 targets, he added. That makes the good-faith exception a potential ​“signal to landlords and others that, well, maybe they’ll be delayed too.”

The battle over RECs 

It’s certainly true that the carbon-intensity of New York City’s electricity supply will influence the emissions impact of building electrification, Sikora said. But that doesn’t mean building owners should be able to use clean-energy accounting to avoid investing in fundamental efficiency improvements.

And that brings us to the second key criticism environmental groups have made against the Adams administration’s proposed regulations. This critique centers around the role of renewable energy credits (RECs) — contracts between building owners and clean-energy producers — in the Local Law 97 scoring regime.

Today, building owners can use RECs to procure clean electricity that can be delivered to the larger New York City grid to offset their building’s emissions from electricity usage. But environmental groups have been demanding that the Adams administration set a more stringent standard, one proposed by the Local Law 97 advisory board and supported by energy experts, to limit the use of RECs to offset no more than 30 percent of a building’s total emissions.

The problem with RECs, Sikora said, is that Local Law 97 doesn’t require that they be ​“additional,” or tied to paying for a renewable energy project that wouldn’t have been built without the money from their purchase. Instead, building owners can purchase RECs from already existing clean-energy projects and use them to comply with the law.

That’s a problem, because in New York state, as with many other parts of the country, these RECs are becoming so plentiful that they offer building owners a much cheaper path to compliance than investing in energy-efficiency upgrades to their properties.

Today, New York City gets most of its electricity from fossil-fueled power plants. But with new transmission lines capable of carrying massive amounts of zero-carbon energy into New York City now being built and expected to be complete by 2026, building owners will soon have access to plenty of RECs from clean-energy projects that have already been built.

The Real Estate Board of New York has pushed for expanding the opportunities to use RECs to offset not just building emissions associated with electricity consumption but all building emissions. The new proposed compliance guidelines did not take up that proposal — but it also declined to institute the 30 percent cap that environmental advocates are pushing for.

It’s important to note that buildings that take the good-faith alternative pathway will be barred from using RECs to meet their requirements. But Sikora said the real danger of the current REC policy is that it could be extended to 2030 and later, threatening the law’s more ambitious longer-term goals. The Urban Green Council has estimated that 40 percent of multifamily properties and 80 percent of office buildings could offset their emissions over their 2030 limits through the use of RECs alone.

That’s a problem because ​“in reality, it’s not possible for the city and the state to reduce pollution unless they reduce pollution at the source — at the buildings,” Sikora said. ​“And that means they have to get a lot more energy-efficient.”

Green groups including Sikora’s are calling for the Adams administration to put a REC cap into place and reconsider the good-faith exemption over the coming month of public comments and hearings on the proposed rules.

Where will the money come from? 

Sikora didn’t downplay the challenge of paying for the deep efficiency and electrification efforts that New York City buildings will need to undertake to meet Local Law 97’s longer-term mandates. But he sees a much larger role for public funding to close that gap — and while city and state agencies are providing money through a variety of programs, it isn’t yet enough, he said.

“We think the city and state should apply billions of dollars per year to decarbonize the building stock,” he said. That big one-time transition away from gas or oil to heat pumps is a big cost.” On the other hand, ​“we do not think the city needs to subsidize affluent [building] owners.”

That work must start with increased funding for the variety of affordable-housing units that are currently allowed to comply with the law via so-called ​“prescriptive pathways,” he said. The Urban Green Council estimates that rent-controlled apartments, public housing and other affordable-housing units make up one-third of all buildings covered by Local Law 97.

Mandyck noted that the new proposed guidance provides more clarity on how those buildings can comply via ​“commonsense” measures, such as insulation on water heaters and steam pipes and thermostats or temperature controls on radiators.

But Schwartzmann contended that many of these buildings ​“are really poorly maintained because they don’t have money to maintain them properly,” due to the challenging economics of financing improvements in rent-controlled buildings or tight budgets for public housing. ​“The city should be throwing money at that problem, not pushing it downstream.”

Last week’s proposed regulations also included a booster for buildings exploring the switch from fossil-fueled to electric heating, primarily via heat pumps — a new credit that increases the value of electrifying at least part of their heating demands.

The new credit system ​“not only gives you a zero-emissions equivalent for the electricity it uses, it gives you a negative” carbon score, said Jared Rodriguez, a principal with Emergent Urban Concepts and adviser to the New York State Energy Research and Development Authority. ​“It’s a very clear signal that they want you doing at least partial load electrification — and that you’ll get some credit for it.”

That’s an important boost for a technology that still costs more than fossil-fueled boilers and furnaces, both in terms of upfront equipment and installation costs and in ongoing utility costs, Schwartzman said. ​“There was a real hesitancy to move toward these electrified options because they’re not going to save you money at this point, because electricity costs more than gas,” he said.

Last year’s Inflation Reduction Act will help make efficiency and electrification more affordable via tax credits and incentives for equipment, installation and workforce training, Mandyck noted. City officials have said they will pursue funding from a variety of federal sources, such as ​“green bank” loans, to ease the cost burden.

The New York state government is also funding efforts to bring down the cost of novel decarbonization technologies, he added. Some examples include a $70 million initiative to develop window-mounted heat pumps that both cool and heat apartments and the $50 million Empire Building Challenge that’s targeting high-rise commercial and residential buildings for complex efficiency and electrification retrofits.

“Because of the scale of New York City and the state…we’re going to spur innovation that’s going to help the whole market,” he said. Local Law 97 is just the most ambitious of a number of similar mandatory building-performance standards already in place in cities including Boston, Denver and Washington, D.C. and in states including Colorado, Maryland and Washington, he noted.

Finally, it’s important to remember that the climate emergency requires building owners to think differently about the costs and benefits of efficiency and electrification, Mandyck said. ​“We need to think about payback differently. Climate is a life-safety issue now. Nobody asks what the payback is to put a sprinkler safety system in your building. There’s no payback there — if there isn’t a fire.”