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- Challenges for Co-Ops, Condos and Other Residential Buildings in Complying With New York City’s 2019 Climate Mobilization Act
Challenges for Co-Ops, Condos and Other Residential Buildings in Complying With New York City’s 2019 Climate Mobilization Act
New York Law Journal
There has been extensive media focus on the Green New Deal introduced by U.S. Senator Ed Markey and Representative Alexandria Ocasio-Cortez in February 2019, with critics calling it both wildly overambitious (it calls for the United States to obtain 100% of its energy from renewable sources in 10 years) and unduly vague (it is a manifesto of climate action principles more than legislation). However, those critics may have missed the point. In the face of federal inaction on climate change, dozens of states and cities have already taken concrete steps towards decarbonization. The federal resolution (H. Res. 109, S. Res. 59) is drawing attention to, and in some cases momentum for, these local versions of “green new deals.”
New York City has been laying the groundwork for ambitious reductions in greenhouse gas emissions for years. In 2009, for example, as part of the City’s Greater Greener Buildings Plan, the City enacted legislation to require large buildings to annually “benchmark” energy (and water) consumption and conduct regular energy audits. In 2014 Mayor Bill de Blasio announced the City’s commitment to reduce greenhouse gas (GHG) emissions 80 percent by 2050 against 2005 levels. On April 18, 2019, with great fanfare, the New York City Council passed a key component of the City’s climate strategy, the 2019 “Climate Mobilization Act.” The Act aims to reduce greenhouse gas emissions in New York City by cutting building emissions by 40% by 2030 and 80% by 2050. It is one of the most demanding climate change laws in the country and will have an unprecedented impact on large residential buildings, which is the focus of this article.
Summary of the Law: Demanding Targets and Major Exclusions
Covered Buildings, Requirements and Penalties: For “covered buildings,” the law sets an annual emissions limit (the “building emissions intensity limit”) based on a building’s gross square footage and occupancy type (residential, office, school, etc.). Each occupancy group has its own limit now identified in the New York City Building Code. The typical apartment building would be occupancy group R-2 and the emissions limit would be .00675 metric tons of carbon dioxide per square foot per year during years 2024 to 2029. The emissions limits drop over time, and failure to meet limits produces gradually increasing fines.
The law generally covers buildings with over 25,000 gross square feet, but there are substantial exceptions, including City-owned buildings, NYCHA buildings, houses of worship, low and middle income housing, and residential buildings with rent regulated apartments. Not-for-profit health care providers are “covered” but special rules apply. Stakeholders as diverse as the Natural Resources Defense Council and the Real Estate Board of New York have pointed out that because of these carve-outs, the Act’s main provisions apply to only about 40 to 50 percent of the City’s building square footage.
Since New York City’s Benchmarking law already requires most apartment buildings to measure and publicly report their emissions intensity, it is possible to determine the impact of the Act on most covered buildings. Here are three examples of how buildings will be impacted in the first compliance year of 2024:
- The authors’ client is a 100,000 square foot cooperative building. It produces 608 tons of carbon dioxide per year. Under the 2024-2029 limit, the limit is 631 tons. So the building is in compliance with at least that portion of the law.
- One of the author’s neighbors is a large cooperative building of over 200,000 square feet. It produces 1,556 tons of carbon per year. Under the Act, that must drop to 1475 tons per year by 2024—a 6% drop. The law imposes a fine of $268 for each ton that the building exceeds its limit—here $21,708 in the first year. This building already has a combined heating and cooling system, solar panels and new windows—so there are no easy paths to compliance.
- Finally, one of the authors lives in a large cooperative building with several rent-stabilized units that predated its conversion to a cooperative in 1984. The Act exempts this building from the emissions limits entirely.
Over time, the Act quickly ratchets down emissions limits and all buildings in all occupancy groups will need to make major changes to the way they operate to comply with the limits that take effect between 2029 and 2050. To illustrate, in 2030 the emissions limit for the 200,000 square foot cooperative with current emissions of 1556 tons per year would drop to 1149 tons per year, and by 2040, to roughly 305 tons per year. Assuming no change in emissions, fines for non-compliance would increase to $109,076 per year in 2030 and to $335,268 per year in 2040.
Complicating long-term compliance for covered buildings is the fact that many of the parameters applicable to post-2029 compliance that would inform a building’s analysis of compliance strategies are unknown and unlikely to be set anytime soon. For example, rules determining how emissions from electrical consumption will be calculated for 2030-2034 are not required to be promulgated until Jan. 1, 2023. Without that information, an investment in electric heat pumps, for example, would be a risky endeavor. Buildings may opt to pay fines and continue burning oil in the short term while awaiting clearer guidance from the Department of Buildings.
Compliance Options: Many Details Yet to Be Determined. The Department of Buildings will have a tremendous workload over the next three years devising rules for compliance and exceptions that are called for by the Act preparing for 2024. Here are the compliance options that building owners can expect, with some major components yet to be determined:
Building Upgrades. Heat and hot water account for nearly three-quarters of the GHG emissions produced by multifamily residential buildings (see Mayor’s Office of Sustainability, One City Built to Last Technical Working Group Report (2014)). Thus, any strategy to reduce emissions must focus on these systems as well as opportunities to prevent heat loss through building envelopes, hot water pipes, and elsewhere. While some buildings may find low-hanging fruit in the short term, the deep reductions expected after 2029 will require major overhauls, beyond insulating hot water pipes and replacing windows.
Purchase renewable energy credits. Credits, or RECs, are already available on the market in New York State through the New York Generation Attribute Tracking System, which is overseen by NYSERDA. Each REC represents one megawatt hour of renewable energy generated in New York State. This would be the first time, however, that buyers would be purchasing them to satisfy a building code requirement, and it’s unclear whether supply would match this new demand. It’s also unclear how RECs would be credited against emissions. Finally, the Act’s inclusion of hydropower as a renewable energy source eligible for credit diverges from the State definition of REC, further complicating the potential markets for these credits.
Purchase Greenhouse Gas Offsets. Owners can comply with up to 10% of their annual emission limit through purchase of GHG offsets, which typically represent one ton of carbon dioxide sequestered or avoided through forestation, landfill methane gas capture or another project. The New York State Department of Environmental Conservation already operates a certification program for offsets in the state. The Department of Buildings will have to establish rules for where building owners may look to purchase credits either through the DEC program or another offset program overseen by a nonprofit organization, United Nations or otherwise.
Install onsite clean energy. Building owners can meet some of their emissions limits by installing an onsite “clean distributed energy resource,” which includes wind or solar facilities and battery storage. The Department will need rules to establish how much such projects count towards annual emission limits but few buildings will be able to meet all their energy needs through onsite generation.
Carbon trading. As noted above, a lucky few buildings are already in compliance with emission limits due to energy efficiency or onsite energy generation. For those buildings, the Act directs the Department to study the creation of a citywide trading program for compliance credits by Jan. 1, 2021. Buildings with lots of space for efficiency measures or renewable energy production may truly benefit from this program. However, with the deep reductions required in later years, the pool of credits available for trading will likely shrink.
City Loans. Concurrent with passage of the Act, the City Council approved a law requiring the Mayor to designate an agency to create a “sustainable energy loan fund.” New York State law already empowers municipalities to create such programs, often referred to as “property assessed clean energy” or “PACE” programs because property owners repay the loans through assessments on their property taxes. The loans would fund installation of energy efficiency projects, solar panels or similar measures and require repayment over the lifespan of the improvement. This program may prove vital for owners that lack cash or access to traditional bank loans.
Seek adjustments to annual limits for hardship. The Act authorizes the Department to grant adjustments to emissions limits based on a range of specific hardship criteria. Landmark buildings, hospitals and energy-intensive buildings (e.g., technology related) are just three examples of building types that, while covered by the Act, may find themselves unable to comply or purchase enough offsets or credits to comply and may meet hardship criteria. However, authorized adjustments are time limited, and properties qualifying in the short-term will need to plan for eventual compliance with the Act. Such compliance may prove challenging given the sharply lower emission limits in effect in later years.
Excluded Buildings and Alternative Requirements. As noted above, the Act has extremely important exceptions, including co-ops and condos that contain only a handful of rent-stabilized units (including this author’s building). These buildings still must comply with the Act in one of two ways—voluntarily meet the emission limit that would apply to them, or make a series of mandatory and potentially costly energy efficiency upgrades including upgrades to heating and cooling systems and lighting. Not-for-profit health care providers have the option to reduce their emissions in the near term by set percentages over prior reported emissions (15% in 2024-2029, 30% in 2030-2034) in lieu of meeting the applicable emission limit.
The cost of living in New York City, particularly housing, is among the highest in the nation. At the same time, urban residents tend to have half the carbon footprint of suburban residents. City dwellers live in small apartments and drive much less than their suburban counterparts. A user-friendly tool developed by UCLA Berkley allows users to look at their municipality’s relative carbon footprint. That tool makes clear that the average Manhattan household has a carbon footprint half that of the average household in a nearby suburb. (Rural areas tend to fair better.) This is all to say that the Climate Mobilization Act, to the extent it substantially increases the cost of living in New York City, has a fairness problem—extracting greenhouse gas reductions from urban residents that are already doing the most to address the climate crisis. Let’s hope that the Green New Deal truly spurs dozens of states and hundreds of other municipalities to do their fair share.
Locally, the Act creates its own fairness considerations. It puts the onus for achieving “groundbreaking” reductions in GHG emissions on a mere 40 to 50% of the City’s large and mid-size building owners. As the City begins moving towards the Act’s implementation, and covered buildings face difficult (and expensive) choices, we expect pressure will build on New York City’s leaders to ensure that the burden of achieving an 80 percent reduction in GHG emissions by 2050 will be shared by more buildings, not to mention drivers and other energy consumers.
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Reprinted with permission from the June 19, 2019 edition of the New York Law Journal © 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.