Three years after the passage of Local Law 97, the New York City law mandating emissions reductions in large commercial buildings, the impact of the pioneering legislation is beginning to be felt.
While building owners won’t face fines for noncompliance until 2024 — and in the case of the vast majority of buildings without significant emissions issues, 2030 — the fact that the law has serious financial penalties for not meeting reduction targets has created a push for owners to begin planning for emissions reductions, emissions monitoring, and even building retrofits and electrification.
“LL97 is one of the few laws with actual teeth,” said Nikhil Daftary, executive vice president of product at Carbon Lighthouse, a building analytics firm focused on decarbonizing buildings. “What’s interesting is that it’s forcing change in the market in interesting ways. You can’t just pay lip service, you need thoughtful implementation.”
New York City’s Local Law 97 will create substantial work for building consultants and engineers.
That change will come through the work of an ecosystem of engineering, consulting and monitoring firms, as well as investment in new building hardware and technology. The Urban Green Council, a building sustainability nonprofit that advocated for the law, estimates the retrofit economy that will emerge from LL97 will be worth $20B over the next decade. Massachusetts Institute of Technology urban studies professor David Hsu estimated that the law will create 141,000 new jobs by 2030.
Many in the industry see changes and investments spurred on by the law taking shape in earnest in 2022 after a pause during the pandemic. But while the cottage industry around compliance for LL97 is expanding, it may run into capacity problems.
JB&B Managing Partner Scott Frank, whose New York-based engineering firm specializes in carbon reduction, believes the industry will be significantly challenged by a lack of trained engineers and labor to get buildings into compliance on the current timeline.
“That’s a shoe that’s yet to drop for all of us,” Frank said.
It may not be just a New York problem. The law has also inspired similar, and similarly tough, legislation in other cities, including Boston’s Building Energy Reporting and Disclosure Ordinance, which aims to halve emissions from midsized and large buildings by 2030 and eliminate them by 2050. Washington, D.C.’s Building Energy Performance Standards seek to cut building emissions in half within a decade. All three run parallel to a growing push to mandate electrification of all new buildings in many municipalities, including NYC and San Jose, California.
While the mechanics and aims of each of the large emissions reduction laws differ, they all impact major commercial hubs and give owners of CRE portfolios more reason to explore and invest in more sustainable office spaces. As the push for Environmental, Social and Governance goals leads more investors to demand better emissions performance from potential investments, these municipal laws are accelerating an industry-wide push to make real estate green.
“New York, Boston and D.C. are top of the list for capital planning for large owners,” said Christopher Cayten, a partner at sustainability consulting firm CodeGreen, who sees a substantial increase in business this year once the ‘fog of war of Covid’ ends. “It has definitely accelerated the work we’ve done around decarbonization, and expanded the need for energy modeling, tenant energy tracking and submetering.”
Following these laws, and becoming compliant, may require hiring a number of different service providers, including consulting firms and proptech companies that can track and analyze emissions, engineers who can figure out plans for upgrading and even retrofitting buildings, contractors to make the adjustments, and finally, a means to train existing building staff and operators on running a more sustainable, perhaps electrified, facility.
These shifts start with data, the pursuit of which has become more complicated due to the nature of the legislation, which requires more detailed, real-world knowledge of emissions. Frank said the shift in energy modeling — predicting electricity usage and heating, and in turn, emissions — has become much more difficult and detailed than it was during previous decades of regulations.
He compares it to the tax code and the reality of tax payments; the former offers a hypothetical, perfect-world scenario of how things operate, while the reality is quite different.
But the next few years won’t necessarily allow firms to ease into compliance or leisurely plan for future capital investments. Already, there are signs of labor issues.
“We’re already seeing even relatively simple things like property condition reports take too long, and buyers in a fiercely competitive market having trouble finding people to generate data about building sustainability,” Daftary said. “If there’s a shortage of talent in this area now, will that jeopardize the goals of these laws later as you start to see validation matter?”
Cayten said the 2030 LL97 deadline, which is predicted to impact roughly 80% of New York City, is not nearly as far out as people think. To hit proper performance in 2030, he said, buildings will want to review performance in 2029, which means installing in 2028 and designing in 2027. Factor in an industry likely short of talent and facing a rush for business, and it will pay to begin planning as soon as possible.
“If we snowplow this into 2028, there won’t be enough labor, and the building department will be under siege with permitting,” Urban Green Council CEO John Mandyck said. “It’s to people’s advantage to really plan this out.”
This type of consulting and building evaluation and improvement isn’t new. But municipal emissions laws have pushed companies into investing in change, said Jack Robbins, a sales director at Evolution Energy Partners in Boston. Many of Evolution’s long-term clients were doing data management and energy evaluations on a voluntary basis, he said, but now the monetary consequence is making it something they want to target.
Reporting is time-intensive and a necessary first step, but the retrofits are what makes Evolution money. The issue is that some of the rules and mandates behind BERDO and other laws haven’t been finalized.
“We have clients who don’t know what the best next steps are, and we don’t either, because they’re still writing the regulations,” Robbins said.
While New York City may see shortages around staff and talent needed for compliance, the growth of the ecosystem around building sustainability will likely make such shifts easier in other cities, Cayten said. Ultimately, Mandyck said, the demand will create supply, as increasing investment in compliance gives consulting firms and contractors more reasons to invest in talent.