On April 22, 2019, the New York City Council celebrated Earth Day by enacting the “Climate Mobilization Act” into law. The centerpiece of this important legislative package is Introduction 1253-2018 (“Intro 1253”). This local law will impose binding limits on the emission of greenhouse gases from major buildings in New York City, beginning in calendar year 2024. Although the law includes important exceptions and the opportunity for “adjustments” to its generic emission limits, the law is clearly one of the most ambitious actions yet taken by a municipality to curb greenhouse gas emissions from existing buildings.

Because of its excellent public transportation system, buildings are responsible for approximately 70 percent of New York City’s greenhouse gas emissions, and about half of those emissions come from large buildings. Recognizing this, the City has focused much of its climate mitigation efforts over the years on achieving emission reductions from the building sector, with aggressive energy codes and local laws requiring benchmarking, energy audits and retro-commissioning for major buildings.

Now New York City has upped its game with the imposition of mandatory emission restrictions on industrial, institutional, commercial and residential buildings with more than 25,000 gross square feet of floor area. The general outlines of Intro 1253 were developed in negotiations convened by the Urban Green Council among more than 70 experts representing 40 organizational stakeholders.

Intro 1253 will impose “intensity limits” on “building emissions” from “covered buildings” for each year beginning with an initial compliance period that runs from 2024-2029. The law defines the term “building emissions” as “greenhouse gas emissions as expressed in metric tons of carbon dioxide equivalent emitted as a result of operating a covered building.” Thus, the limits on building emissions will apply not only to on-site emissions (such as those from the building’s boiler) but will include the imputed emissions associated with generating the electricity consumed in building operations. The building emissions intensity limits, which are tailored to specified Building Code “Occupancy Groups,” will kick in beginning in 2024 and will then be ratcheted down in five-year intervals after 2029 as needed to reduce greenhouse gas emissions from covered buildings by 80 percent by 2050.

Not all buildings in excess of 25,000 gross square feet are covered by the mandates. One important exception exempts from the emission limits “rent regulated accommodations,” which are defined to include, among other things, any building with one or more rent stabilized units. Affordable housing advocates insisted on this exemption because New York State law allows landlords in rent stabilized buildings to raise rents to cover the costs of “major capital improvements.” In light of this “MCI issue” the housing community was concerned that the energy efficiency improvements required under Intro 1253 would cause stabilized rents to spike, even to the point of high-rent vacancy deregulation, resulting in the loss of affordable housing stock. While Intro 1253 addresses this concern by excluding rent-regulated buildings from the definition of “covered buildings,” the law requires the owners of excluded rental buildings to implement several prescriptive “energy conservation measures,” such as repairing heating system leaks, insulating pipes for heating and hot water, weatherizing windows and ductwork, and installing timers on exhaust fans. Among some of the other exclusions to the definition of “covered buildings” are facilities used for the generation of electric power or steam, buildings owned by the New York City Housing Authority (which is directed to “make efforts” to reduce building emissions by 40 percent by 2030 and 70 percent by 2050) and places of public worship.

Not-for-profit hospitals and healthcare facilities also are singled out for special treatment. Although not excluded from the definition of “covered buildings,” such facilities will be subject to a less stringent standard that will limit emissions to 85 percent of 2018 emissions for the 2024-2029 compliance period, and 70 percent of 2018 emissions for the 2030-2034 period. But this alternate emission limit will apply only to those facilities that apply for relief from the mandatory building emissions intensity limits by July 21, 2021.

The limits imposed by Intro 1253 should be viewed as “stopgap” standards aimed at making some progress towards reducing emissions from the most inefficient buildings while permanent – and more aggressive – standards are being developed. The ordinance calls for creation of an “advisory board” of experts selected by the Mayor and the Speaker of the City Council, which is charged with, among other things, the task of submitting a report by January 1, 2023 that “provides recommendations for improving … emission performance requirements for covered buildings.” Those requirements “shall be targeted to achieve a 40 percent reduction in aggregate greenhouse gas emissions from covered buildings” by 2030.

Intro 1253 provides a number of flexible pathways for compliance. Thus, deductions may be taken from reported annual emissions for “renewable energy credits” (“RECs”) purchased by or on behalf of a building owner, so long as those RECs are generated by a renewable capacity resource “located in or directly deliverable into New York City” for the reporting calendar year. The ordinance allows the use of RECs from hydropower projects as well as the sorts of renewable energy projects that may generate RECs under New York State programs.

For calendar years between 2024 and 2029 deductions for up to 10 percent of reported annual emissions may also be taken for “greenhouse gas offsets” (i.e., “carbon dioxide equivalent emissions reduced, avoided or sequestered” by a wide variety of projects) purchased by or on behalf of a building owner. The law provides that such offsets “must exhibit environmental integrity principles, including additionality,” in accordance with rules promulgated by the Department of Buildings. Additional deductions are allowed from a building’s calculated annual building emissions for the “output of a clean distributed energy resource located at, on, in or directly connected to the building.”

Although the law does not currently allow for emissions trading among covered buildings, it appears that the City is headed in that direction. Intro 1253 directs the Mayor’s Office of Long Term Planning and Sustainability to study the feasibility of a City-wide trading scheme, and to submit a report and implementation plan to the Mayor and Speaker of the City Council by no later than January 1, 2021.

The Department of Buildings is permitted to grant temporary adjustments to the annual building emissions limit for a covered building (upon making specified findings) where: (i) capital improvements are required for compliance and it is not reasonably possible to make such improvements because of landmark or other legal restrictions; (ii) financial hardship; or (iii) for the 2024-2029 compliance period, where the 2018 building emissions are more than 40 percent higher than the 2024-2029 emission limits for the building and the owner demonstrates that the excess emissions are “attributable to special circumstances related to the use of the building,” such as “24 hour operations, operations critical to human health and safety, high density occupancy, energy intensive communications technologies or operations, and energy-intensive industrial processes.”

Intro 1253 imposes significant civil penalties for exceeding the annual building emissions limit, which are to be calculated based upon the difference between the limit and reported emissions. Under some circumstances those penalties could run into the hundreds of thousands of dollars. However, the law gives the administrative tribunal responsible for imposing such penalties broad discretion to consider “aggravating or mitigating factors.”

Owners of covered buildings would be well advised to begin developing a strategy for addressing the requirements of Intro 1253. They should consult with technical experts to determine whether their buildings would comply with the initial building emissions limits and how the increasingly stringent limits would affect them in the future. Among other things they should identify the improvements needed to come into compliance with the standards, and the financial impacts of those improvements. In making this assessment they should consider whether and how they might finance such improvements utilizing the programs available under City and State laws. In this regard, they should consider the advantages of the financing that will be offered under New York City’s newly authorized Property Assessed Clean Energy (“PACE”) program.

The real estate community should understand that the program established by Intro 1253 is a work in progress. The law creates a new unit within the Department of Buildings – the “Office of Building Energy and Emissions Performance” – which will be responsible for developing the regulations needed to put meat on the bones established by Intro 1253, and thereafter to implement the program pursuant to such regulations. Among other things, it is critical that those regulations establish a program that: (i) streamlines the process for granting adjustments to the emissions limits applicable to particular buildings, and mitigating penalties where appropriate; and (ii) creates a workable procedure for recognizing RECs and crediting greenhouse gas offsets. Perhaps most importantly, the real estate industry should participate in the building emissions trading study to ensure that this important flexible compliance mechanism is properly designed and implemented.