Jan 9, 2024 - Energy & Environment

New York jump-starts the "building decarbonization" trend

Map of U.S. City and State Policies for Existing Buildings indicating building performance standards

Cities and states have instituted "building performance standards," which limit the amount of greenhouse gases that residential and commercial buildings can emit. Map courtesy of the Institute for Market Transformation

New York City will soon begin penalizing owners of buildings that emit too much greenhouse gas — a move toward requiring net-zero building emissions by 2050.

The big picture: Four states and nine cities and counties have adopted such policies, known as "building performance standards" — which are likely to go national.

Why it matters: Residential and commercial buildings emit 13% of harmful carbon emissions, according to the EPA — far more in cities, where they are concentrated — and are a major contributor to climate change.

  • Environmentalists praise the building decarbonization movement as a key element of the burgeoning effort to tamp down cities' contributions to global warming.
  • But developers and landlords are bracing for the new requirements, fearful of the massive costs involved in ripping out gas-burning heaters and retrofitting older structures.

Driving the news: New York City's new law — known as Local Law 97, or LL97 — is considered a landmark in such policies, which cap emissions or energy consumption and require building owners to improve energy and water use.

  • It goes into effect Jan. 20, applies to all 50,000 city buildings over 25,000 square feet, and includes progressively stricter emissions standards over the next 16 years.
  • Buildings "account for approximately two-thirds of greenhouse gas emissions in New York City," according to the law, which was passed in 2019 (making it the second such ordinance to pass, after Washington, D.C.'s).
  • For owners of older buildings, it could prove very expensive, requiring massive retrofits and the replacement of gas-burning furnaces with pricy heat pumps and other technology. (Federal and state tax incentives are available, but landlords say they only go so far.)

What they're saying: Local Law 97 "is the biggest driver of investment in decarbonizing buildings in any city in this country," says Cliff Majersik, senior adviser at the nonprofit Institute for Market Transformation.

  • The law "applies to the biggest city in the country, and it has ambitious goals."
  • Building owners everywhere "are increasingly viewing building performance standards as a fait accompli" and planning accordingly, Majersik tells Axios.

How it works: Decarbonizing a building can involve insulating and air-sealing it, replacing heating and cooling systems with non-gas alternatives, and installing LED lighting.

  • Some landlords will have to make major improvements, like replacing old boilers with heat pumps and replacing water pipes with ductwork that distributes hot and cold air.
  • For violators, annual financial penalties are set at $268 per ton of CO2 equivalent over an individual building's limit, based on 2024 energy usage and emissions.

Where it stands: In New York City, 91% of building owners are in compliance with the decarbonization rules about to kick in.

  • Those remaining can avoid penalties by taking various steps (to the dismay of environmentalists, who advocated for tougher enforcement).
  • "Where it really will begin to bite will be in 2030," when 40% reductions of greenhouse gas emissions will be required, Majersik says.

State of play: There's dismay within New York real estate circles about the mounting expenses associated with the law — which comes on top of high office vacancies and proposals to convert office buildings to apartment houses.

  • "Right now in New York, it is probably cheaper to tear a building down than to re-use a building — and I think that's true in lots of markets," says Jon Meyers, a partner at real estate developer HR&A Advisors.
  • While retrofitting buildings is far more climate-friendly than demolishing and rebuilding, the unfortunate reality is that the latter can sometimes make more financial sense.
  • Residents of some co-op and condo buildings are livid about their compliance expenses, while some fear that electric heat isn't as effective as gas.
  • A lawsuit aimed at blocking Local Law 97 was dismissed in October.

The other side: Some landlords and building owners are embracing the changes, looking forward to saving money through energy efficiency.

  • "They're spending less on their utility bills, and making themselves more attractive to tenants," Majersik says.
  • "There is a real return on investment for positioning your building as a high-performance building."

Meanwhile: Some are making rosy predictions for what could happen if NYC's Department of Buildings keeps pushing decarbonization.

  • "Such a focus will unleash a massive investment in building envelope upgrades and heat pumps, creating thousands of local, high-quality jobs, maximizing uptake of federal incentives, and reducing harmful air pollutants, all while improving comfort and quality of life for residents," reads a joint statement from the Regional Plan Association, Urban Green Council and other groups.

Zoom out: The federal government set its own building performance standards in 2022, requiring agencies to cut energy use and electrify equipment in government-owned properties.

  • The Securities and Exchange Commission's climate disclosure rules, which are not yet finalized, would require public companies to disclose greenhouse gas emissions from their buildings and other operations.
  • The Biden administration also set up the National Building Performance Standards Coalition, comprised of roughly 40 state and local governments that want to adopt laws like New York's.

What's next: Developers of future buildings are already looking toward the use of low-carbon building materials — and even carbon-negative ones — after having paid very little attention to the issue until recently.

  • "With new construction, there's an opportunity to build carbon management into the building," says Greeshma Gadikota, a professor of civil and environmental engineering at Cornell University.
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