Decarbonising New York City brick by brick

New York City has gone big with its carbon reduction ambitions. A raft of legislation, collectively known as the Climate Mobilization Act (CMA), looks to achieve a six-million-tonne reduction in Greenhouse gas emissions by 2030. At its heart is Local Law 97 (LL97) which governs and regulates carbon reduction efforts for tens of thousands of buildings and sets out ever more exacting criteria for compliance with the holy grail of net zero until 2050.

For the architecture, engineering and construction industry, placing ESG (Environmental, Social and Governance) considerations front and centre is a novel concept.  

However, with LL97 drawing into its orbit some 50,000 buildings and accounting for 60 percent of New York City’s total building area, it is acting to focus minds, since failure to meet the thresholds of financial compliance by the requisite deadlines will result in stiff financial penalties determined by the extent of any shortfall. To put a figure on it, it’s USD$268 for each metric tonne over the building's established limit, levied annually. 

Avoid complacency and offset carbon

The first of these deadlines is May 2025 and although most will meet that initial benchmark, after an introductory five-year warm up period designed to allow asset owners to get their premises in order, come 2030, the emissions cap bar will be set much higher. At present, it is estimated 75 percent of buildings would not reach it without corrective action.  

“For those quick off the mark, however, public funds exist to help ease the financial burden.”

Essentially operating on a first come, first served basis, rebate and financing programmes, such as those linked to the New York State Energy Research and Development Authority and the Inflation Reduction Act, are available. However, in being fuelled by finite resources, this will reduce to nil over time.

Using energy to achieve compliance 

While a proportion of stakeholders will be hard-wired with a laggard mentality, there is some logic in the apparent procrastination of others implicated by LL97, given the anticipated advances in lower carbon technologies that could work to reduce costs and financial burdens. This rather speculative approach explains why some are determined to hold out until fiscal years 2028 or 2029 to allocate costs to site improvements. 

In the meantime, offsets are currently permitted, with deductions from emissions associated with annual electricity consumption granted when facilities use Renewable Energy Credits (RECS), carbon offsets or clean distributed energy resources. This means the less proactive can still achieve compliance by taking advantage of an ever-greener grid. 

Embracing the opportunity to improve asset value 

While some asset owners and managers are resistant to what they see as over-zealous state interference, aside from the avoidance of fines, there is clear scope for return on investment (ROI) on the outlay they are obliged to make. This is not limited to lower utility costs, higher occupancy rates, increased net revenue per occupant and improved asset transaction value from investment in the energy and cost efficiencies necessary to achieve compliance.

Certainly, early adherence to LL97 enhances price per square foot asset value and leaves building owners and managers well positioned when it comes to lease negotiations and site selection. 

New builds offer up significant advantages over existing assets in that their blank canvas state allows for optimum material selection to realise maximum efficiencies and lowest possible carbon intensity. Equally, those with the largest portfolios will be able to swallow the financial costs associated with compliance more easily than developers with smaller inventories, who may need to rely on tax breaks and other assistance to implement the changes effectively.  

Seeing low carbon as a force for good 

It is hard to argue against the force for good of New York City’s new low carbon transition requirements, and anyone imagining these to be passing phenomena, or that normal service will resume, is mistaken. 

“The takeaway here is to engage with the process in good time. This means setting aside adequate capital and adopting short-, medium and long-term strategies that go beyond mere conformity with the regulations to actively capitalise on the opportunities presented.”

Act now to avoid financial implications later  

Post pandemic, it is perhaps understandable commercial real estate attention has been trained on immediate and pressing concerns like soaring inflation and rising interest rates than on LL97. It is also likely that without the unscripted arrival of COVID-19, more buildings would have been future-proofed by now.

However, there seems little appetite from lawmakers to shift timelines to accommodate the unexpected, meaning the window of opportunity to implement the requisite changes in a financially cost-effective way, and as part of a coordinated strategic plan, is closing. 

New York City’s plan of action to make its built environment climate-fit-for-purpose was always going to have to be profound and far-reaching, given the extremes in weather it is increasingly subjected to and the age of its infrastructure. Belying its conservative East Coast reputation, LL97 would appear to fit the bill: a decidedly progressive piece of legislation that has become something of a blueprint for other US cities drafting similar laws.