In less than four years some New York City building owners will have to meet the carbon emissions standards set by Local Law 97 of 2019, requiring them to reduce their emissions or pay a hefty fine.
The de Blasio administration has begun creating the mechanisms to enforce the landmark law, which passed in May 2019.
However, building owners have not yet been able to calculate the total costs and time needed to implement the energy efficient retrofits needed within their buildings, as the de Blasio administration is just beginning to conduct studies looking into ways building owners can meet the emission standards that have been set.
Applications for financial assistance with the retrofits have also been delayed as the city continues to deal with COVID-19. Meanwhile, some building owners worry that the standards set by Local Law 97 do not take into account the economic hardships some building owners might be facing due to the pandemic.
Working groups and key office operating
Local Law 97 was one of the 10 bills passed by City Council and Mayor Bill de Blasio back in April 2019 as part of the Climate Mobilization Act. With buildings in New York City responsible for two-thirds of the city’s annual carbons emissions, Local Law 97 is meant to help the city reach its goals of achieving a 40 percent reduction in carbon emissions by 2030 and then an 80 percent reduction by 2050.
The strict carbon emissions cap will begin in 2024, impacting over 50,000 buildings in New York that are 25,000 square feet or larger. Exempt from the hard cap in Local Law 97* are buildings with rent-regulated units, low-income housing, NYCHA buildings and houses of worship.
Local Law 97 also included provisions to create a Buildings Emissions Unit within the NYC Department of Buildings (DOB) in order to handle the daily tasks of implementing the emissions cap and monitoring the buildings. The unit has been operational since March.
In April the DOB also created eight climate working groups: Building Technologies and Pathways (Multifamily Buildings), Building Technologies and Pathways (Commercial Buildings), Carbon Accounting, Energy Grid, Economic Impact, Hospitals, Communications and Implementation.
The groups, which started meeting virtually in May, were created to help the DOB and the NYC Climate Advisory Board conduct studies that would look into what retrofits, strategies and technology building owners can use to become more energy efficient. They are also developing recommendations for how the city can best implement and monitor the emissions reduction law. Members of the Climate Working Groups where chosen from a wide range of stakeholders and experts in their fields.
According to Grace Munns, a spokesperson for the DOB, the working groups and the Climate Advisory Board will release a report of their recommendation to City Council and the mayor by Jan. 1, 2023. Munns also said they will be working closely with building owners to help them understand the requirements and recommendations so that they can meet the standards set by Local Law 97.
Hard to predict costs
Advocates for property owners say the process of retrofitting a multi-unit building is not quick, with the planning, financing and approval process all predating what can be a lengthy construction job.
Susan Golden, a partner at the law firm Venable LLP, said that because of COVID-19 there is a concern among some building owners that they might not be able to pay for the retrofitting costs, if they don’t qualify for financial assistance.
“Building owners are now facing the repercussions of and all the economic hardships that came with COVID-19,” said Golden. “The shutdown, tenants not necessarily being current on rent and this [retrofitting] is an added cost. Whatever the cost might be, this is an added cost that they are looking at, at a time when they may not always have the money to spare.”
To help some building owners with the costs, Local Law 97 established a Property Assessed Clean Energy (PACE) financing loan. This will allow for qualifying commercial and multifamily building owners to take out a low-cost, long-term* loan in order to fund the necessary energy efficiency and clean energy retrofits needed to reduce their carbon emissions. The loans are approved by the New York City Energy Efficiency Corporation (NYCEEC) and are repaid through the building’s property tax bill so that the loan is tied to the building, not the owner.
Peter Erwin, the associate director for programs at NYCEEC, said that the loan is meant to make sure that building owners will be able to financially access the improvements needed to be in compliance.
“Under the law, PACE would be able to fund 100% of all of the measures that are related to reducing site energy use. And that includes the energy audit, the feasibility studies and the architectural or engineering work that goes into designing a system like that.”
However, COVID-19 has delayed the launch of PACE as City Council and the mayor have yet to set the criteria for who is eligible for the loan as well as the criteria for what third party lender can finance the loan.
Hilary Atzrott, an associate at Venable LLP, said that some of her clients worry that delays in making the loan available to building owners might lead to a rush of applications by landlords hoping to meet the standards and avoid the fines.
“Right now, everyone’s primary concern is of course the impact of COVID but 2024 is going to be right around the corner and these [retrofits] aren’t changes that can just happen for a building overnight,” Atzrott says. “So, I think if it doesn’t stay top of mind for people there is a concern that there will be a rush towards the end to try to apply”
Erwin said that despite the delays the criteria should be passed by the end of the summer so that NYCEEC can launch the online application process before the end of 2020.
Currently buildings with one or more rent-regulated units and other types of affordable housing are exempt from the strictest standards under Local Law 97. Instead exempt buildings will have a separate set of guidelines, standards and dates that they must follow in order to be in compliance with Local Law 97.* This separate treatment was intended to make sure that the retrofit costs would not be passed onto the tenants through the Major Capital Improvements program, which would allow for landlords to increase rent by 6 percent if they made certain updates to the building.
However, in June 2019 the New York State Legislature amended the Major Capital Improvements program, now only allowing landlords to increase rent by 2 percent if they make any changes.
On May 28, Costa Constantinides, the chair of the Environmental Protection Committee, introduced a bill that would expand local Law 97 to include buildings where 35 percent or fewer of the units are rent regulated. The expansion of Local Law 97 is supposed to help guarantee every New Yorker the right to cleaner air.
Frank Ricci, a spokesperson for the Rent Stabilization Association, which represents owners of rent-stabilized buildings, said that any expansion of the bill would be a disaster, since the cash flow of these buildings are limited due to the rent regulations.
“There is no room whatsoever in these buildings financially to do major upgrades,” said Ricci. “It just isn’t going to happen. So, you are going to have widespread noncompliance, if they were to change that law you would have widespread noncompliance with Local Law 97.”
Residential buildings contribute nearly a third of the city’s carbon footprint, and rent-stabilized apartments comprise 44 percent of the city’s rental inventory.
*This story was updated to clarify that it is not yet clear what the financing options will look like, and that LL97 exempts some buildings from its strictest rules but not from all regulation.