Construction codes are pushing new buildings toward net zero, but roughly 80 percent of the expected 2050 building stock already exists today and needs to undertake major upgrades to meet emissions limits in line with the Paris Agreement. To address this issue, cities and states across the U.S. have started to limit emissions from existing buildings with regulations known as Building Performance Standards (BPS).
In 2019, New York City Council passed the first BPS in the country—Local Law 97 (LL97), part of a suite of laws titled the Climate Mobilization Act—aiming to reduce building-based emissions 40 percent by 2030 and 80 percent by 2050. Local Law 97 affects more than 50,000 privately owned buildings across New York City that are 25,000 square feet (2,322 sq m) and larger, regardless of property type, age, or landmark status. (City-owned buildings have a separate 50 percent emissions reduction goal by 2030.)
Emissions limits, starting in 2024, are assigned based on the types of spaces in a building as defined in the Energy Star Portfolio Manager Tool and ratchet down every five years, converging at 1.4kg CO2e/square foot by 2050. Building owners must pay $268 annually for every metric ton of CO2 by which they exceed the emissions limits. Affordable housing, houses of worship, and nonprofit hospitals have alternative compliance pathways. The 2024 limits affect approximately the bottom 20 percent of performers, whereas the 2030 limits will affect about 65 percent of large buildings in the city.
Given the novelty and complexity of LL97, it took the NYC Department of Buildings until December 2023 to clarify aspects of the law such as on-site renewable resources, time-of-use emissions calculations, Renewable Energy Credits, “beneficial electrification,” and a definition of “good faith efforts” that building owners can use to apply for a two-year extension of the first deadline.
So, what does it all mean for the real estate industry? It’s the middle of 2024, and the clock is ticking. 2024 is the first year that emissions must be measured against the LL97 limits. By May 1, 2025, owners of covered buildings must submit proof that their buildings met the limit in 2024 or start paying annual fines of up to a million dollars, and possibly more. And even if a building is under the 2024 limit, it is likely to exceed the second round of limits, and owners need to start planning for 2030 compliance now.
Complying with LL97 requires a long-term, whole-building decarbonization strategy that incorporates energy modeling, capital planning, and tenant leasing and fit-outs—requiring involvement from operations, construction, and leasing teams. Building owners should evaluate how their buildings currently compare to the LL97 limits, review their short- and long-term capital plans, and evaluate how current and potential new tenants can reduce and be accountable for their own emissions. Because LL97 regulates emissions, not energy use, building owners must evaluate efficiency initiatives in terms of emissions, not just energy. Because the city has set 2030 electricity emissions factors based on New York state’s aggressive grid decarbonization goals (50 percent lower than 2024’s), LL97 is pushing building owners to electrify systems now powered by fossil fuels.
Asset values of NYC buildings are already being affected, with buyers discounting prices to cover or mitigate emissions fines. High-performing buildings with low emissions intensities and robust plans to move away from fossil fuels are more attractive to investors, lenders, and tenants as they seek to align with their broader climate and ESG goals.
If you invest in New York City or are pondering it, you need a comprehensive strategy to address LL97 now and into the future. It could make or break your next deal.
And New York City is just the beginning. Twelve other cities have already passed BPS, and the National Building Performance Coalition includes more than 30 more jurisdictions that have committed to passing BPS by Earth Day 2024.
