Q: Local Law 97: Opportunity or Headache

Whether Local Law 97 becomes a headache or an opportunity depends on how you approach it. LL97 is different from previous regulations in its open-ended, performance-based framework and in its interplay with a rapidly evolving incentive landscape. Simply put, as a result of both New York State policy and the passage of the federal Inflation Reduction Act, there have never been more rebate dollars and low-cost capital available. These changes leave boards and managers with an overwhelming combination of choose-your-own-adventure technology solutions and energy-efficiency program funding that may result in a tale of two cities. Many buildings are starting to develop plans that align their overall goals and needs with decarbonization solutions bought down with other people’s money that make business sense. Other buildings are at risk for missing the boat on rebates and getting caught up with higher prices and less contractor availability in an increasingly likely local energy-efficiency supply chain and labor crunch a few years down the road.  

Why LL97

LL97 arose from the recognition that knowing may be half the battle, but knowing alone wasn’t moving the needle on energy performance. Let’s start at the beginning. In 2009, the Bloomberg administration and the City Council enacted Local Law 84, requiring annual energy benchmarking of all New York City buildings larger than 50,000 square feet. As much as we take annual benchmarking for granted now, many people at that time were raising legal concerns and suggesting that the city did not have a right to collect and publish this kind of data. Yet much like the 2003 smoking ban, annual benchmarking took off in New York City and rapidly spread to dozens of cities across the country. 

At the same time, Local Law 87 was developed, requiring energy audits once a decade on a staggered basis, with 10% of buildings impacted every year, starting in 2013. Flash forward about a decade, and, thanks to a foundation of data, we know that between 2012 and 2019, citywide site energy use intensity in buildings over 50,000 square feet did not budge. The carbon footprint did drop during this time frame as a result of a cleaner electric grid, the city’s mandate to phase out No. 6 oil or the attractive economics of switching from more carbon-intensive — and more expensive — oil to gas.

The original LL87 proposal also required owners to implement all energy-efficiency upgrade recommendations with a payback of less than five years. But after some pushback, the payback time frame was eliminated. In 2019, LL97 was passed, requiring buildings to more deeply reduce their carbon footprint beyond just switching to gas. And once again, other cities have followed, with similar regulations now in place in Boston and Washington, D.C., and with more than 40 other jurisdictions pledging to follow suit by April 2024. In short, such “building performance standards” are the new normal.

How LL97 Works

Every unit of electricity, gas, oil or Con Edison steam used by a building has a carbon footprint. Let’s say that when you add up all of this energy use, a 100,000-square-foot building has a carbon footprint of 500 tons. Under LL97, every building also has a carbon cap based on its size and space type. These caps reduce over time like a limbo stick. If that 100,000-square-foot building is 100% residential, it will have a carbon cap of 675 tons for 2024-2029, 335 tons for 2030-2034 and 269 tons for 2035-2039. Such a building is subject to annual fines of $268 for every ton of carbon over its respective limit for that year. If that building has a Duane Reade on the ground floor, its carbon cap is calculated based on the weighted average carbon limit assigned to residential versus retail space use. If that building were incorrectly filed as a 120,000-square-foot building, the allowable carbon cap would be higher and the resulting fine would be lower (but inaccurate). 

As a result, in 2025 and every year thereafter, buildings will need to have a registered professional engineer or architect certify energy use and building square footage. This professional is at risk of receiving a civil penalty and a fine of up to $500,000 for submitting false information. If we are moving into a new carbon economy, LL97 annual reporting is the new accounting system.  

LL97 limits for 2024 were set based on an analysis of 2017 benchmarking data. These limits were defined so that approximately 1 in 4 buildings will require carbon-reducing upgrades to avoid 2024-2029 fines and approximately 3 in 4 buildings will require carbon-reducing upgrades to avoid 2030-2034 fines (accounting for the benefits of a cleaner electric grid by 2030).    Draft rules published by the DOB in September 2023 clarified the planning documentation required to realize a “good-faith effort,” two-year extension of 2024 fines. The rules also allow for bonus carbon-reduction credits for “beneficial electrification” technologies. Both of these developments provide the market with greater flexibility and are also consistent with the Adams’ Administration’s position that “Building owners must now recognize that reducing [greenhouse-gas] emissions is a responsibility of property ownership.” 

Your Three-Step Guide to LL97 Success

The first step for any building is to understand where it stands regarding LL97 exposure. Getting an official survey of building square footage must be done for 2025 LL97 filing purposes anyway, and having this information sooner will provide you with the most accurate understanding of your fine exposure. Building Energy Exchange’s online energy calculator (https://be-exchange.org/ll97-calculator/) is a great resource that can be used to estimate fine exposure. 

The second step is to better understand the building’s capital needs and drivers of  carbon performance. In a typical prewar building, fossil fuel for heating and hot water represents 90% or more of the carbon footprint. Note that many of the quirks some people see as just part of the charm of living in older and taller buildings are actually addressable engineering issues! The same upgrades that reduce carbon footprint can also improve the performance of clanging steam-heating systems, view-blocking window ACs, and toilet or kitchen vent systems that pull too much air from some apartments and not enough from others. 

The third step is to develop a plan that will eliminate LL97 carbon fine exposure, aligns with other board priorities and building needs, and leverages outside dollars. Cadence OneFive’s Momentum platform also builds on this public data to instantly analyze fine exposure, relevant retrofit scopes and rebate potential. Such plans should account for the multiple years it can take to scope, implement and fine-tune many building upgrades. A building certainly doesn’t need to implement everything at once. It may make sense to undertake a few upgrades a year for several years, or it may make sense to coordinate most work with a mortgage refinance or major end-of-life system replacement a couple of years down the road. And plans can and should evolve over time as market pricing, rebates and building needs change. Available rebates really depend on the particular upgrade scope of work coming out of such plans.  

Currently available rebates and credits include:  

• Con Edison Multifamily Efficiency Program  The go-to program for basic energy-efficiency upgrades from energy management systems to LED lighting. Note that over time these rebates will be shifting. Under a recent State Department of Public Service order, no utility-efficiency programs will be allowed to incentivize lighting upgrades. So if you haven’t already done your corridor and stairwell LEDs, you may miss out on rebates if you don’t act soon. 
• NYS Clean Heat Program Rebates for efficient heat pumps that dramatically reduce both space heating and hot water heating carbon footprint
• NYSERDA Low Carbon Pathways Program  Additional rebates for heat pumps that can “stack” on top of NYS Clean Heat Program along with deeper insulation and ventilation upgrades that tend to go beyond minimum 2030 compliance. 
• Solar Investment Tax Credit  A 30% credit for the installation of solar panels (contractor can take credit and pass through to building owner).
• 179D Commercial Building Tax Deduction  $2.50-$5.00 per square foot tax deduction for energy-efficiency upgrade scopes that reduce building energy use by 25-50% (contractor can take credit and pass through to building owner).
• 25C Residential Building Energy Efficiency Credit  $2,000 per apartment tax credit for installation of certain kinds of high-performance heat pumps. While this credit was conceived for single-family homes, an IRS ruling indicates that it can also apply to co-ops (non-heat-pump technologies supported by this credit are, however, less relevant to typical multifamily buildings in New York City).

In addition, there are some unique energy-efficiency financing products that can help preserve your reserves, including:

• Inclusive Prosperity Capital’s Catalyst Loan Product
• New York Energy Efficiency Corp.’s Multifamily Express Green Loan Product
• NY Green Bank General Clean Energy Financing RFP  or Affordable Housing RFP (both applicable for projects of $5 million or more)

Above all, keep in mind that this is a dynamic landscape. Future contractor pricing may change along with rebates. In a poll of over 100 property managers, Cadence OneFive and SiteCompli found that 3 out of every 4 property managers think the cost of energy-efficiency upgrades is going to go up and contractor availability is going to go down in three years as a result of LL97. As such, not having a plan is very likely to result in missed opportunities, unnecessary scrambles and overspending.

In summary, perhaps the most valuable resource available to boards and managers is time. Developing a smart decarbonization plan soon that aligns with your building’s goals and needs could turn LL97 from a headache into an opportunity.