To commemorate Earth Day on April 22, 2019, New York City Mayor Bill de Blasio announced  a groundbreaking suite of laws enacted by the New York City Council to require and facilitate the reduction of greenhouse gas emissions from a significant number of buildings in NYC.  Taken together, the laws represent the most ambitious carbon reduction effort of any city in the nation and should significantly advance the City’s goal of reducing greenhouse gas emissions 80 percent by 2050.  Building owners and developers that get ahead of the issue will likely enjoy a competitive advantage over those who fail to integrate the new requirements into their business strategies.  To thrive in this new regulatory environment, it will be necessary for building owners not only to understand the laws and participate in rulemaking processes for their implementation, but also to become more knowledgeable about the incentives and resources available to fund energy efficiency retrofits and renewable energy installations.  Building owners also would be wise to carefully collaborate with tenants to plan and implement sustainability measures.

The most significant law in the package is Intro. 1253-C (the “Building Emissions Law”), which requires buildings over 25,000 square feet to meet strict greenhouse gas emissions limits based on occupancy group by 2024.  The emissions limits become more stringent for calendar years 2030 to 2034, with the NYC Department of Buildings (“DOB”) establishing limits for 2035 and beyond by regulation.  A building’s emissions will be calculated by multiplying the square footage of the building by the greenhouse gas emissions equivalent assigned by the Building Emissions Law to the building’s energy source (e.g., #2 fuel oil, natural gas, utility electricity, etc.).  Several types of buildings are subject to alternative requirements, including religious institutions, hospitals and rent regulated buildings.  Many of these building types must undertake specific energy conservation measures—including insulation, lighting upgrades, and heating sensors—or demonstrate that they meet the emissions limits that would otherwise be applicable.

The Building Emissions Law includes three carbon reduction mechanisms in addition to traditional building retrofits: (1) building owners could purchase renewable energy credits, which are tradable or transferable within national renewable energy markets;  (2) building owners could purchase greenhouse gas offsets, which are credits representing one metric ton of carbon dioxide equivalent emissions reduced, avoided, or sequestered by a project, as verified by an independent third party; these offsets can account for up to 10 percent of the building’s emissions limit; and  (3) building owners could take credit for the output from a “clean distributed energy resource” located at, on, in, or directly connected to the building.  If properly implemented, these carbon reduction mechanisms have the potential to spur renewable energy development and other forms of distributed generation in the City.  They could provide building owners and developers creative tools for not only achieving the building emissions limits, but also developing surplus energy or storage capacity that could be sold to other building owners.

One item to watch: by January 1, 2021, the Mayor’s Office of Sustainability must complete a study of the feasibility of a citywide trading scheme for greenhouse gas emissions from buildings, which must ensure equitable investment in environmental justice communities and avoid any localized increases in pollution.  Such an emissions trading scheme could be a gamechanger for building owners and developers evaluating how and when to reduce their buildings’ emissions.

By May 1, 2025 and by May 1 of every year thereafter, building owners will be required to submit a report to DOB, certified by a registered design professional, confirming that the building complies with the emissions limit and providing other information required by DOB regulations that will be promulgated to implement the Law.  If the annual report shows that the building did not meet the emissions limit, the building owner will be liable for a civil penalty of $268 times the difference between the building emissions limit for the year and the reported building emissions.  The Building Emissions Law includes aggravating and mitigating factors for calculation of the penalty, such as the owner’s good faith efforts to comply with the emissions limits (including investments in energy efficiency and other emissions reductions), history of compliance, and the relationship to any unforeseeable events outside of the owner’s control.  It will therefore be necessary for building owners to document their good faith efforts to bring themselves into compliance.  The Law imposes criminal penalties for knowingly making a materially false statement in an annual report or other DOB submission and imposes civil penalties for the failure to file a report.

Under four circumstances identified in the Building Emissions Law, building owners can apply to DOB for an adjustment to the building emissions limit.  One circumstance is where an owner is constrained from making capital improvements to comply with the emissions limit due to other laws such as a landmark designation or due to the building’s physical conditions. If the owner has made a good faith effort to purchase greenhouse gas offsets and has availed itself of all relevant and appropriate incentive programs, DOB can grant an adjustment for three years.  The second circumstance is where the cost of financing capital improvements necessary to comply with the emissions limit would prevent the building owner from earning a reasonable financial return or the building is subject to financial hardship as defined in the Law. If the owner is not eligible for any program that provides relevant financing; the owner has made a good faith effort to purchase greenhouse gas offsets or renewable energy credits; and the owner has availed itself of all relevant and appropriate incentive programs, DOB can grant an adjustment for one year.  The third circumstance is where the 2018 emissions for an existing building exceed the emissions limit by more than 40 percent due to the nature of building use, such as 24-hour operations or energy-intensive communications technologies.  Such adjustment can be effective for reporting years 2025 through 2030.  The fourth circumstance is for an existing nonprofit hospital or healthcare facility, with revised emissions limits applicable in 2024 through 2034.

The Building Emissions Law creates a new body within DOB: the Office of Building Energy and Emissions Performance, which is tasked with overseeing implementation of the Law, including reviewing the annual emissions reports, auditing and inspecting buildings covered by the Law, determining penalties for noncompliance, and reviewing applications for adjustments of and deductions from emissions limits.  DOB will promulgate regulations to implement the Law and set future emissions limits, thereby providing stakeholders opportunities for public comment and input.  Building owners and other members of the regulated community will likely play an active role in commenting on such regulations.

Other laws signed by de Blasio are likely to shape how building owners plan and finance improvements to meet emissions limits.  For example, Intro. 1252-A establishes a Property Assessed Clean Energy (“PACE”) financing program for energy efficiency improvements and renewable energy installations.  Intro. 1032-A and Intro. 276-A require the installation of solar photovoltaic modules or a green roof on 100% of the roofs of new buildings or existing buildings that replace the entire roof deck or roof assembly, where certain roof size and slope conditions are present.  There are exemptions for certain rent-restricted buildings.

The Building Emissions Law, taken with other laws announced  on April 22, could fuel the already burgeoning renewable energy landscape in the New York metro area, including offshore wind and rooftop solar.  Actively pursuing these expanding renewable energy possibilities, as well as future distributed resources like electric vehicle charging stations in building garages, may help building owners and developers comply with the new emissions limits in a cost-effective way that makes sense for their businesses.

Stay tuned on the SPR blog as we track the implementation of these laws, including related regulations and agency guidance, and the City’s energy efficiency and climate change initiatives.