What Building Owners Need to Know
On October 6, 2022, NYC Department of Buildings (DOB) proposed draft rules that address and clarify some of the many anxiety-inducing issues left open by the passage of Local Law 97 three years ago. While there is still much to be ironed-out, the DOB's latest proposed draft rules provide building owners with some much-needed clarity regarding their ability to comply with the greenhouse gas (GHG) emissions reduction requirements imposed under Local Law 97.
Beginning in 2024, Local law 97 will impose strict yearly GHG emission limits on large to mid-sized buildings covered under the law. When exceeded, building owners may be subject to penalties of $268 for every metric ton of GHG emissions over the limit that year. Causing even more concern amongst building owners is that in 2030, the GHG emissions limits imposed under Local Law 97 are set to decrease while the penalties imposed for exceeding such limits are set to increase.
The proposed DOB draft rules, however, address a number of issues related to a building owner's compliance with Local Law 97, including: establishing requirements for reporting building emissions; setting GHG emission limits for future compliance periods; assigning GHG coefficients for energy sources that were not contemplated by Local Law 97; confirming that a building owner's good faith efforts, along with other mitigating factors, may be considered in determining penalties for non-compliance; clarifying and refining the process for a number of required calculations; creating an exemption for energy consumed in connection with the charging of electric vehicles; providing an allowance for building owners who purchase off-site solar energy; and delineating reporting requirements for mid-year changes in building status.
Most notable, however, are the DOB's proposed rules expanding Local Law 97's available occupancy use groups from 10 to 61, setting the GHG coefficient for utility electricity during the 2030-2034 compliance period and establishing limits on the use of Renewable Energy Credits ("Credits") as an alternative means of compliance.
In expanding Local Law 97's available occupancy use groups from 10 to 61 by including all Energy Star use groups, the proposed draft rules will help create more particularized GHG emissions limits for building owners. The occupancy use groups are used as factors in calculating the overall GHG emissions limit for a particular building under Local Law 97. This means that the GHG emissions limit for a particular building is dependent, in part, on which occupancy use group that building is assigned. Currently, Local Law 97 only includes 10 occupancy use groups. This can lead to a scenario where building owners, with varying building uses and disparate energy demands, are bunched together into the same occupancy use group for the purpose of determining one's GHG emissions limit. By accounting for 61 variations rather then 10, the DOB's proposed draft rules refine the calculations used for setting emission limits for each building in a way that is more tailored to its actual uses and energy needs.
Another impactful element of the DOB's proposed draft rules is its proposed GHG coefficient for utility electricity in the 2030-2034 compliance period. Generally, a building's GHG emissions are calculated by multiplying the amount of energy used in the building by the GHG coefficient assigned to each source of energy. Because utility electricity tends to make up the largest source of energy for most buildings, the GHG coefficient assigned to utility electricity will likely be the biggest factor in determining a buildings emissions, and thus, its ability to comply with its GHG emissions limit. The DOB's draft rules propose a 50% reduction in the GHG coefficient for utility electricity during the 2030-2034 compliance period from what is set for the 2024-2029 compliance period under Local Law 97. This significant reduction should aid building owners in maintaining compliance with their 2030-2034 GHG emissions limits without the need for significant investment.
The DOB's draft rules have also proposed additional limits on a building owner's ability to use Credits as an alternative means of compliance with Local Law 97's emission limits. Currently, Local Law 97 allows building owners to purchase Credits to offset their GHG emissions without limit on the number that could be used. The only requirement is that the Credits must relate to renewable energy that is directly added to NYC's electrical grid. The DOB's proposed draft rules, however, would create an additional restriction on the use of Credits by requiring that Credits only be used by building owners to offset emissions that come from the use of NYC's electrical grid. As such, those emissions stemming from on-site fuel consumption, for example, would not be able to be offset using Credits. While the intention behind the proposed rule is to incentivize building owners to spend money on energy efficiency retrofits by limiting their ability to use offsets, utility electricity tends to make up a large share of most building's total energy usage. As such, the proposed limitations on the use of Credits should not significantly alter building owners' ability to comply with the emission limits set under Local Law 97 in the absence of such improvements. Nor is it expected to significantly alter building owners' use of, or desire for, Credits.
The DOB will be holding an online, public hearing to solicit feedback on the proposed draft rules on November 14th, 2022, at 11 a.m. and will be accepting comments from the public on an on-going basis until that date.
Shearman & Sterling will continue to monitor NYC DOB's rulemaking activity relating to the implementation of Local Law 97.
Special thanks to extern Brandon Naman for his contribution to this publication.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
