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New York Developers Rush to Reduce Emissions as Hefty Fines Loom

Worried about higher temperatures, more frequent and intense rainfall and rising seas nibbling on New York’s shores, the City Council passed Local Law 97 in 2019 as part of a landmark package of legislation aimed at reducing greenhouse gas emissions that cause climate change.

The law targets large buildings in New York and sets limits on their emissions. The city’s one million buildings generate nearly 70 percent of CO2 emissions because much of the energy for heating, cooling and lighting comes from burning fossil fuels.

Now, with just 16 months until the deadline to meet the first thresholds — and with the threat of fines reaching millions of dollars a year for buildings that fail to do so — landlords are on high alert.

The good news is that, according to city estimates, nearly all 50,000 buildings covered by the law will meet the first deadline, January 1, 2024. But that leaves 2,700 buildings in the city where action is needed to avoid fines: heating systems have been tuned, leaking windows replaced and energy-efficient lighting installed.

And the emission thresholds drop significantly before the second deadline, in 2030, which likely means that many more buildings will have to make major changes – not only adapting building systems but also replacing them – or pay hefty fines.

Real estate companies with large portfolios — and often staff dedicated to sustainability initiatives — have generally put their carbon action in order, and many are on track to avoid crushing fines in the near term. But mom-and-pop companies that own older buildings that still have oil or gas furnaces in their basements, and the boards that run the city’s housing cooperatives and apartments, have their backs against the wall. Some are still trying to figure out what to do and how to pay for capital projects they never expected.

“We don’t really know what our obligations are and what our sanctions will be,” said Debbie Fechter, a partner at Digby Management, a family-owned real estate company that has four buildings in Manhattan and is subject to Local Law 97.

She added that her company struggled to attract the attention of the consultancies that conduct energy audits of buildings and help owners understand how to comply with the law.

Some owners have withdrawn. In May, two garden apartment complexes in Queens and the owner of a mixed-use building in Manhattan sued the city, arguing that the law would saddle them and others with “draconian” fines and request that enforcement be blocked.

City officials, who will not comment on pending lawsuits, have said they are sympathetic to struggling owners and can waive or reduce fines for those making “good faith” efforts – latitude enshrined in local law 97 The city is still enacting rules for applying the law and has halted a funding program that would pay for the kind of renovation many buildings need.

But Mayor Eric Adams’ administration has also vowed to uphold the law and hold building owners accountable as part of a wide-ranging effort to tackle climate change. And a recent Supreme Court ruling By curbing the federal government’s ability to control emissions, the fight against climate change at the local level is critical.

“Local Law 97 says to everyone in the real estate industry: Climate change is your problem,” said Rohit T. Aggarwala, the city’s chief climate officer. “An essential part of working in the real estate industry is transitioning to a carbon-free future.”

Local Law 97 aims to reduce emissions from large buildings by 40 percent below 2005 levels by 2030 and 80 percent by 2050. It applies to most structures larger than 25,000 square meters, which represent more than half of the built-up square meters in the city. The law aims to get them to use less energy in general and move from fossil fuels to electric power for things like heating.

“The basic mission is to put buildings on a carbon diet,” said Paul Reale, director of building management research at the Building Performance Lab at the City University of New York.

Property managers opposed Local Law 97 because of the cost it incurs and because it targets large buildings, lets smaller and other categories of property off the hook.

Members of the real estate industry have also questioned the rush to electrify, questioning whether the network can handle increased demand and warning of potential outages. They blame the law for holding buildings responsible for the carbon emissions generated by the power plants that supply their electricity and still rely on fossil fuels.

“That’s beyond the control of the building owner,” said Zachary Steinberg, senior vice president of policy at the New York Real Estate Board, a lobbying group.

New York law has inspired similar legislation in other cities, including Boston and Washington. The laws go hand in hand with the “electrify everything” movement that is sweeping municipalities across the country.

Newer buildings generally seem easier to comply with the law than older buildings. Many already rely on electricity for heating, and some may also be able to pass the cost on to their tenants, who consume much of the power used in a building. The ability to promote their buildings as low-carbon can benefit owners, as many businesses want to rent space in properties that align with their own sustainability goals.

“This increases asset values,” said Jimmy Carchietta, founder and chief executive of the Cotocon Group, a thriving engineering firm that does energy audits for buildings.

Brookfield Properties, for example, recently announced that it would use hydropower to run its One Manhattan West office building.

The Durst Organization, one of the oldest real estate developers in the city, says most of its buildings will meet the 2024 thresholds, but expects to be fined $2.4 million a year for One Bryant Park, a skyscraper in New York City. Midtown Manhattan and home to Bank of America’s corporate and investment banking.

When it was completed in 2010, One Bryant Park was announced as a model of green construction. But the 51-story building consumes a lot of energy because it is fully occupied, Bank of America has trading floors that operate around the clock, and Durst cycles in lots of fresh air.

“Written law penalizes density,” said developer president Douglas Durst, pointing out that sparsely populated buildings that use less energy may not be penalized even if they are inefficient.

Writing the rules for the law and then enforcing them is the job of the Department of Buildings and its new Office of Building Energy and Emissions Performance. The office operates through calls from 89 buildings that the city says are exceeding their emissions limits by 40 percent or more. In addition, 21 non-profit hospitals have appealed and nine cases have been opened.

The city offers free guidance to building owners and managers through a program called the NYC Accelerator. But one financing program the offer of cheap loans was shelved for revisions after only two projects were funded. It is unclear when the program will be operational again.

Mr Aggarwala attributed the break to the growing pains of a new program and noted that funding was available from other sources.

Property managers have sought alternative ways to comply with local law 97. City officials say carbon trading, a scheme whereby building owners buy credit from lower-emission properties, is off the table. But owners may be able to offset their carbon emissions by purchasing renewable energy certificates to fund projects that will deliver clean energy to the five boroughs. In the short term, however, only a limited number of RECs, as they are called, will be available, city officials say.

“Local Law 97 has a lot of sticks – it doesn’t have a lot of roots,” said Mr. Steinberg of the Real Estate Board. “We need to have a real conversation about a tax-reduction program.”

Environmentalists and others are wary of loopholes that allow owners to avoid emissions from their buildings.

“We need to act urgently,” said John Mandyck, chief executive of the Urban Green Council, which includes environmentalists and real estate developers. “The climate is not waiting.”

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