What Building Owners Need to Know About the Climate Mobilization Act

By Deana L. Wetzel  |  October 7, 2019

On April 18, 2019, in response to the growing threat of climate change, New York City Council passed a package of bills and resolutions collectively called the Climate Mobilization Act. The Climate Mobilization Act is intended to improve the energy efficiency of New York City over the next several decades by significantly reducing greenhouse gas emissions from buildings. Implemented and enforced by the newly created Office of Building Energy and Emissions Performance, the Climate Mobilization Act is expected to create thousands of jobs in New York City and represents a bold step in the fight against climate change. However, as it contains a multitude of laws affecting New York City’s commercial and residential buildings, building owners and developers in the city should familiarize themselves with the Climate Mobilization Act now in order to understand any new requirements that they may need to comply with in the future.

Below are some of the key ways the Climate Mobilization Act will affect building owners and developers in New York City.

LOCAL LAW 97 – LIMITING CARBON EMISSIONS

At the center of the Climate Mobilization Act is Local Law 97, which introduces limits on the greenhouse gas emissions of private buildings exceeding 25,000 square feet as well as tax lots with two or more buildings exceeding 50,000 square feet—which will include many of the city’s co-ops and condos. These carbon emission limits, calculated based on the occupancy group of the building, will go into effect in 2024. In 2025, buildings covered by Local Law 97 will then be required to submit a report showing their carbon emissions from the prior year, with any buildings that release more than the allowed carbon emissions being subject to penalties for non-compliance. (The maximum penalty for non-compliance with regard to the carbon emission limitations will be equal to the difference between the building emission limit for the year and the amount of emissions reported by the building that same year multiplied by $268.) In 2029, the emission limits will be lowered even further, with the goal of reducing the carbon emission of New York City’s buildings by 40% in 2030 and 80% by 2050, relative to 2005 levels.

In addition to the emissions limitations, Local Law 97 introduces additional energy conservation requirements for covered buildings, including thirteen measures which must be implemented by December 31, 2024. These include adjusting temperature set points for heat and hot water, repairing heating system leaks, maintaining the heating system, insulating pipes, upgrading lighting, weatherizing and air sealing.

BUILDINGS WITH ALTERNATE REQUIREMENTS

Buildings with one or more rent-regulated units or Housing Development Fund Corporations (HFDCs) will have alternate requirements, such as submitting evidence of having performed the measures required in the law instead of meeting the emissions limits.

Certain buildings are exempt from the Climate Mobilization Act—these include houses of worship, New York City Housing Authority buildings, city-owned buildings, multi-family properties that are three stories or less with no central HVAC or hot water heating systems and industrial facilities primarily used for the generation of electric power and steam.

COMPLYING WITH LOCAL LAW 97

In the effort to achieve compliance with Local Law 97, building owners will have the option of purchasing carbon offsets or renewable energy credits (RECs) to deduct from their reported annual building emissions. Another option is carbon trading, where building owners can balance their emissions via credits purchased from other building owners whose building emissions fall under the emissions threshold. It is worth noting that property owners with large portfolios may be able to offset poor emission performing buildings with high emission performing buildings via carbon trading.

MANAGING THE COST OF BUILDING IMPROVEMENTS

As the cost for some building owners to comply with the new emissions limitations could be substantial, Local Law 96 of the Climate Mobilization Act creates the “Property Assessed Clean Energy” (PACE) program, a long-term financing program tied to a property that will enable building owners to undertake the necessary improvements to bring their buildings into compliance with the greenhouse gas emission limits. This financing will generally be limited to the amount of money saved through the resulting reduction in energy use and will be administered by New York City Energy Efficiency Corporation. It is expected that the financing will be paid back through a form of tax assessments on the property, amortized over the expected useful life of the improvements financed.

GREEN ROOF LEGISLATION

Those eyeing new development or extensive renovations in New York City should take note of Local Law 94, which increases energy efficiency by requiring the inclusion of solar panels or “green roofs” (roofs which are fully or partially covered in vegetation) in new construction and for buildings undergoing certain types of major renovations. The law applies to both residential and commercial buildings, though Local Law 92 of the Climate Mobilization Act adjusts the requirements for smaller buildings and requires the Department of Housing Preservation and Development (HPD) to study the impact of compliance on affordability.

Local Law 93 requires the office of alternative energy to post and maintain links on its website with information regarding the installation of green roofs and green roof systems, and Resolution 66 of the Climate Mobilization Act would increase the real property tax abatement for the installation of a green roof to $15 per square foot, to better incentivize building owners to build green roofs.

ADDITIONAL CHANGES

Local Law 95 addresses building owners’ concerns about the grading scale of Local Law 33, which has been called inaccurate. (Local Law 33 is a New York City ordinance that requires buildings over 25,000 square feet to post an energy efficiency grade at each public entrance of the building.) Local Law 95 adjusts the grading scale, giving higher grades to more energy-efficient buildings.

Other components of the Climate Mobilization Act include Local Law 98, which provides a clear process for the design, construction, maintenance and removal of large wind turbines. Local Law 99 mandates an assessment on the feasibility of replacing city gas-fired power plants with battery storage systems. (This assessment will be part of a long-term energy plan and will be updated every four years.)

One last feature of the Climate Mobilization Act, worthy of note though it pertains to more than just building owners, is the imposition of a five-cent fee on all paper bags given by stores which will begin on March 1, 2020. (Customers who are part of a supplemental nutrition program would be exempt from this.)

CONCLUSION

Overall, the Climate Mobilization Act is a forward-thinking, historic group of bills that can affect major change in New York City’s carbon emissions and overall energy efficiency. In the short-term, however, the city’s building owners must familiarize themselves with the act in order to begin preparing for the changes that lay ahead. Our real estate specialists are closely monitoring how the Climate Mobilization Act will affect property owners and developers in the city and will continue providing important updates.

This article originally appeared in the Commercial Observer on October 7, 2019.

About Deana L. Wetzel

Deana L. Wetzel

Deana L. Wetzel, CPA, is a Director in the Real Estate Group at Marks Paneth LLP. Ms. Wetzel specializes in audit and consulting engagements for both commercial and residential real estate clients as well as co-ops and condominiums and is involved with several high-profile real estate clients. She advises clients on all facets of accounting and tax issues. She also assists clients with many different types of real estate transactions, including acquisitions, dispositions and debt... READ MORE +

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