Decarbonizing New York City brick by brick

New York City has big carbon-reduction ambitions. A raft of legislation—collectively known as the Climate Mobilization Act (CMA)—aims to achieve a six-million-ton 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 increasingly stringent criteria for compliance—on the long road to the holy grail of net zero by 2050.

For the architecture, engineering, and construction industry, putting ESG (Environmental, Social, and Governance) considerations front and center is still a relatively new approach.

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 sharpening focus: failure to meet the required emissions thresholds by the compliance deadlines can trigger steep financial penalties, calculated based on the size of any shortfall. In plain terms, it’s $268 for each metric ton over the building’s established limit, assessed annually.

Avoid complacency and offset carbon

The first of these deadlines is May 2025. While many buildings will meet that initial benchmark, after an introductory five-year “warm-up” period designed to give asset owners time to get their buildings in order, the 2030 emissions cap will be much more demanding. Today, it’s estimated that 75 percent of buildings wouldn’t meet it without corrective action.

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

Many rebate and financing programs—such as those tied to the New York State Energy Research and Development Authority and the Inflation Reduction Act—are available on a first-come, first-served basis. But because these programs rely on limited funding, availability is expected to diminish over time.

Using energy to achieve compliance 

While some stakeholders may have a “wait-and-see” mindset, there is a certain logic behind the hesitation of others impacted by LL97, given expected advances in lower-carbon technologies that could help reduce costs and soften the financial hit. This (somewhat speculative) approach helps explain why some owners plan to wait until fiscal years 2028 or 2029 to commit funding for 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. As the grid continues to get cleaner, less proactive stakeholders can still work toward compliance—at least in the near term.

Embracing the opportunity to improve asset value 

While some asset owners and managers resist what they see as overzealous state involvement, there’s a clear potential return on investment (ROI) beyond simply avoiding fines. The upside isn’t limited to lower utility costs; it can also include higher occupancy, increased net revenue per occupant, and improved asset transaction value driven by energy and cost efficiencies required to comply.

Early adherence to LL97 can strengthen price-per-square-foot asset value and leave owners and managers well positioned for lease negotiations and site selection.

New builds offer meaningful advantages over existing assets, since a “blank-slate” design approach allows for optimal material selection to deliver maximum efficiency and the lowest possible carbon intensity. Likewise, organizations with larger portfolios may find it easier to absorb the costs associated with compliance than developers with smaller inventories, who may need to lean more heavily on tax incentives and other support to implement changes effectively.

Seeing low carbon as a force for good 

It’s difficult to argue against the broader public benefit of New York City’s low-carbon transition requirements, and anyone expecting these measures to fade—or for business-as-usual to return—will likely be disappointed.

“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 capitalize on the opportunities presented.”

Act now to avoid financial implications later  

In a post-pandemic market, it’s understandable that commercial real estate attention has focused on immediate pressures like inflation and rising interest rates rather than LL97. It’s also likely that, without the unexpected arrival of COVID-19, more buildings would have been future-proofed by now.

However, there appears to be limited appetite among lawmakers to shift timelines to account for unforeseen disruption. That means the window to implement required changes in a financially efficient way—supported by a coordinated, strategic plan—is closing.

New York City’s plan to make its built environment climate-fit-for-purpose was always going to need to be bold and far-reaching, given the increasingly extreme weather events and the age of its infrastructure. Despite the city’s conservative East Coast reputation in some circles, LL97 is a decidedly progressive piece of legislation—one that has effectively become a blueprint for other U.S. cities drafting similar laws.