New York City's Climate Act Lets Buildings Purchase Carbon Offset Certificates

There are many ways to meet the requirements of New York City’s climate mobilization act, but they all involve spending money to reduce your building’s carbon emissions. For some buildings the investment is too great, leaving them subject to city penalties. To help mitigate this situation, the city adopted a new rule in January allowing the purchase of carbon offset certificates, which, while not free, will help buildings avoid penalties and buy more time to fully comply with the law. 

What Are Carbon Offset Certificates?

One carbon offset certificate costs the same as the “per ton” penalty, which is $268. So, for example, if your building exceeded its emissions target by 100 tons of carbon emissions, your penalty would be $26,800 annually. Now the city will allow your building to buy carbon offsets up to 10 percent of what your penalty would be, get some more time to lower your carbon emissions, and assure the city that you have created a pathway to do so. 

Purchasing an offset won’t necessarily save your co-op or condo money, but it will keep you in compliance with Local Law 97. It provides an alternative to fines should your building not meet its emissions target and, more importantly, it removes penalty exposure, which will keep financing and insurance options open. “It’s marginally more attractive than incurring the penalty in that it will keep violations off the building’s books,” says Mark Balsam, president of the compliance consultancy firm ReDocs.

Additionally, purchasing all available offsets is an essential component to demonstrating hardship — and a means of negotiating an adjustment or penalty mitigation with the Department of Buildings (DOB). The city set the price of an offset to be equal to the carbon emissions penalty “so that there isn’t any gaming of the system,” says William McCracken, a partner at the law firm Moritt Hock & Hamroff.

Offsets should not be confused with beneficial electrification credits, which reward building owners for heat pump installations and other electrification upgrades. These early adopters of electrification are very unlikely to face fines in the first compliance period but can bank the credits against any future penalties beyond 2030. 

Carbon Offsets as a Compliance Strategy

If your building is facing penalties in the first compliance period through 2029, offsets might offer a strategy to reduce or avoid them. For those facing financial hardship, the city is willing to provide a penalty adjustment if certain targets are met — one of them being that your building has bought offsets up to 10 percent of your emissions limit. “You are buying that offset in lieu of paying a penalty to the city. If you don’t buy the 10% of offset, you might not get the benefits of a penalty mitigation or an adjustment or a mediated resolution, which can buy you time and give you space to try and comply,” McCracken says. This means that an essential component of demonstrating hardship is the purchase of all available offsets.

Consider a scenario in which a building is 20% over its emissions threshold. A maximum of 10% of the excess could be paid as an offset. Even though the building is still vulnerable to fines and therefore violations, offsets are the only way to potentially mitigate the penalties further. “With offsets, they may get you to a point where the buildings department will let you off the hook for the remainder,” McCracken says.

Although the majority of apartment buildings are able to meet LL97 requirements for the first compliance period, Chris Halfnight, senior director of research and policy at the Urban Green Council, anticipates “some meaningful demand” for the offsets when building owners are able to buy them. As carbon emissions caps get progressively lower, demand for offsets will likely increase. Halfnight points out this ramp-up period allows the program to “work out the kinks in implementation and fine-tune the program’s design.” 

How Offsets Fit Into Long-Term Emissions Reduction Plans

With more stringent emissions thresholds on the horizon, any building should be considering the long-term financial implications of doing the emissions-reduction work versus paying penalties. If your building or management has taken the position that it is cheaper to pay the fines than do the upgrades, the offsets may present an opportunity to be in compliance for now, while you figure out next steps. 

“There are some boards looking for every option other than doing the work,” says Darren Johnson, senior account manager at the energy-management firm Bright Power. This may be due to wishful thinking that the law will be overturned, shareholder pressure to avoid the disruption of upgrades, or having run out of time to do the work. “You can’t just start a project involving the heating system anytime you want to in a calendar year,” Johnson says. For these buildings, offsets present a compliance stopgap. “It will be a bridge while they figure out how to arrange financing, whether they can do an assessment and how soon,” Johnson says. 

How to Buy Offsets 

According to the DOB, offset certificates will be available to purchase via the department’s reporting portal. “This is currently undergoing beta testing and is scheduled to launch ahead of the reporting deadline in May,” says DOB press secretary Andrew Rudansky. When the portal is live, you’ll be reminded of the opportunity to buy offsets when you file your LL97 report. 

In order to purchase the maximum amount of offset certificates for LL97 compliance, you’ll need to know your building’s annual greenhouse gas emissions limit.

Funding Loop: Offsets Give Back

The money paid for carbon offset certificates will go into what’s called the Affordable Housing Reinvestment Fund (branded as the GreenHOUSE Fund by Mayor Eric Adams) and flow through the Resilient & Equitable Decarbonization Initiative (REDi). This is a joint venture between the city’s Department of Housing Preservation and Development (HPD) and the New York State Energy Research and Development Authority (NYSERDA). The fund will take proceeds from offset purchases to help decarbonize and electrify affordable housing. 

A nongovernmental third party will send newly purchased offset funds to a project already approved for HPD funding through REDi. The fund administrator will then update a publicly available GreenHOUSE Fund registry to show which project has received the offset funds, tracking their use and itemizing their effectiveness. In this way, a funding loop is created whereby market-rate buildings buy offsets and the revenue from these purchases flow into the GreenHOUSE registry, which, in turn, will fund decarbonization projects in buildings with income restrictions. These “affordable” buildings could be low-income co-ops or rentals.

A HPD spokesperson says there’s an “active pipeline” of buildings seeking support to decarbonize with offset funds. Qualifying buildings are those already getting HPD support, but funds will not be tied to Con Edison customers, as they currently are with REDi. This presents opportunities to fund projects in places like the Rockaways, serviced by the Public Service Enterprise Group rather than Con Ed. Buildings wanting to take offset funds cannot take incentives from other NYSERDA or Con Ed programs, such as the NYSERDA Low-Carbon Pathways Program or the Con Edison Affordable Multifamily Energy Efficiency Program. However, there is currently no funding cap for projects using offset funds.