With the first round of fines now being levied on buildings with 25,000-plus square feet not meeting regulatory criteria outlined in Local Law 97 (LL97), some New York City property owners and co-op and condo boards will purchase carbon offset certificates, a.k.a., carbon credits from the New York City Department of Buildings (DOB) as temporary solutions to mitigate costs.
Carbon credits may be especially helpful for properties requiring extensive infrastructure upgrades, which potentially could cost millions of dollars. With LL97 fi nes averaging $268 per ton of CO2 emission overages, buildings that exceed their allotments could face annual fines of $100,000 or more across the first threshold, which is effective from 2024 to 2029.
At this juncture, buildings are only allowed to purchase 10% of their carbon emission overages. But even if the credits do not eliminate fi nes altogether, they can provide a little extra time to make a building compliant. The credits will enable many owners and managers to prepare the work incrementally. The difference could be annual fines of a few thousand dollars or more over 10 years, versus immediate six-figure outlays.
According to Darren Johnson, senior account manager, Bright Power Inc., “Carbon credits could be part of a strategy to meet carbon emission limits, alongside other investments and improvements.”
Many perceptive building owners and managers began addressing the need for building upgrades when the Climate Mobilization Act was passed in 2019 and started arranging financing for the renovations. At that time, rates were still low, and financing was readily available.
But shortly after the legislation, the pandemic hit. Lockdowns prevented the work from starting and supply chain issues compromised costs and access to needed materials. More than five years later, in a stable economy with available supplies, buildings that were prepared early on at much lower borrowing rates are ahead of the curve.
For many properties, whether well-funded or not, the fact remains the main focus of the work will be done incrementally because of the high costs of electrification, which include necessary materials and building-wide construction. There is also universal concern as to whether the city’s grid is ready to handle an electric volume expected to rise dramatically, especially over the next 15 years, when the law requires an 80% reduction in carbon emissions.
Starting the Process
The initial work on any building should address façade leakage by making sure windows are tightly framed and vent systems up-to-date, which will automatically reduce emissions. Another strategy is to update heating and HVAC systems. Sadly, an unintended consequence of a potentially healthier environment is that electric heating systems are much more expensive for the consumer than those run by gas or oil. Electric cooking appliances raise costs, too.
The different types of buildings in New York City also factor in the wide range of expenditures required to meet sustainability goals and compliance. Older masonry-clad buildings in good condition tend to be relatively energy-efficient because of the way they contain and release heat. Although aging infrastructures will require new heat pumps, new boilers, updated electric wiring, new windows, new roofs, etc., if operated efficiently, prewar properties could be made compliant faster than many postwar structures featuring glass curtain walls, large windows and energy-guzzling PTAC systems.
The long-term benefits of adapting New York buildings to meet new energy efficiency standards are a given. But when the law passed, many of the guidelines did not factor in the prohibitively high costs of meeting the ongoing and increasingly stringent criteria of the Climate Mobilization Act and its centerpiece, LL97. Nor are there enough incentives available to significantly mitigate the prohibitively high costs of compliance. For the moment, the only respite may be the purchase of carbon offset certificates or carbon credits.
Property owners and managers who prepared early for Local Law 97 by refinancing mortgages and taking out loans at low interest rates before 2022 have been better able to make necessary renovations and limit their exposure to fines. There is no question that many buildings may be forced to take a more long-term approach by accepting the fines, while scaling the necessary upgrades over time.
Fortunately, Argo’s residential portfolio is 96% compliant, much of which may be credited to our in-house Compliance Department headed by Jessica Tusing, vice president, who works closely with Bright Power Inc. and other consultants to address ways to meet carbon emissions criteria.
Nearly all buildings that were constructed prior to 2010 will need some types of upgrades to reduce carbon emissions and help make New York a healthier, more livable city. If we do it right, we will not only be known worldwide as the center of finance and culture, but also as a modern paradigm for urban sustainability.
Gustavo Rusconi, CPM
Vice President, Director of Management
Argo Real Estate
50 West 17th St.
New York, NY 10011
(212)896-8600
