Preparing for building performance standards in cities
April 10, 2024
What can building owners and tenants do to adjust to decarbonization¡¯s new green building policies?
A version of this article first appeared in Design Quarterly Issue 21.
American cities are targeting carbon emissions in new building performance standards. Property owners, developers, and tenants should prepare themselves for these green building policies. They can look to the example of New York City, where regulations take effect in 2024.
But they¡¯ll need to be aware of local variables in the new green codes to understand the impact on their portfolios. Many will need to get started with a decarbonization strategy. On the double.
In New York, Local Law 97 is influencing leasing. We¡¯ve noted that well-positioned assets are highly desirable in the market.
What¡¯s happening with green building policies?
City leaders are taking on building decarbonization. Over the next two decades, they are targeting emissions reductions in buildings. There are new reporting requirements and regulations for building owners. These laws, often known as building performance standards, vary from city to city in scope, timeline, targets, incentives, and enforcement.
Some cities are adding laws to regulate embodied carbon, in addition to those for operational emissions. We¡¯ve helped building owner clients in New York City adjust to new reporting and regulations there. And we have some insights on what the changing mandates for building decarbonization mean for building owners across the US.
What kind of new building performance standards are cities implementing?
City: New York City
Policy: Local Law 97 (LL97)
Buildings: 25,000 square feet (SF) and above
Compliance: This law sets carbon limits that tighten every five years and creates a series of annual fines for exceeding those limits. New York will start to enforce compliance in 2024. It phases in stricter limits in 2030 and 2035. LL97 imposes fines for buildings that exceed carbon emission limits.
Goal: 40 percent reduction in aggregate greenhouse gas (GHG) emissions from buildings by 2030.
City: Seattle
Policy: Building Emissions Performance Standard Policy
Buildings: 20,000 SF and above
Compliance: Beginning in 2027, owners must document their performance. And in 2031-2035, they must meet GHG intensity targets. Seattle phases in more intense targets every five years through 2050.
Goal: Reduce buildings emissions by 40 percent by 2030 and hit net-zero carbon emissions by 2050.
Building performance standards require and incentivize existing buildings to meet energy and/or greenhouse gas emissions-based performance targets over time. The policies and laws, when combined with building codes regulating new construction, are a powerful tool for state and local governments to reduce the carbon impact of the built environment. (Source: Energycodes.gov, U.S. Department of Energy Building Energy Codes Program)
City: Boston
Policy: Building Emissions Reduction and Disclosure Ordinance
Buildings: Large existing buildings (residential buildings with 15 or more units and nonresidential buildings that are 20,000 SF or larger)
Compliance: Building owners need to report the total energy and water use every year and get third-party verification in certain years. Compliance begins in 2025 or 2030, depending on the building size. Building owners can make alternative compliance payments for buildings exceeding their limit.
Goal: Net zero emissions for all buildings by 2050.
City: Denver
Policy: Energize Denver
Buildings: 25,000 SF or larger
Compliance: Buildings must meet an EUI (energy use intensity) target by 2030. Thereare interim targets in 2024 and 2027. Existing buildings must submit annual performance data and meet the city¡¯s energy use targets.
Goal: A 65 percent emissions reduction by 2030 and 80 percent by 2040, compared with a 2019 baseline.
City: Washington, DC
Policy: Washington, DC¡¯s Building Energy Performance Standard
Buildings: Phasing in benchmarking for all privately owned buildings larger than 10,000 SF. Phasing in compliance for private buildings larger than 50,000 SF.
Compliance: Starting in 2024, all buildings over 25,000 SF require energy and water benchmarking, with third-party verification. It offers five pathways for compliance. And there are penalties for noncompliance based on building size.
Goal: Reduce greenhouse gas emissions and energy consumption by 50 percent by 2032, compared with a 2006 baseline.
City: Chicago
Policy: The Chicago Energy Benchmarking Ordinance passed in 2013.
Buildings: All existing commercial, institutional, and residential buildings larger than 50,000 SF.
Compliance: Large buildings report their annual energy use and require verification every three years.
Goal: Reduce greenhouse gas emissions by 26-28 percent by 2025, compared with a 2005 baseline.
What are other cities doing to set building performance standards? Los Angeles is following the state-level mandate of California. The state has set ambitious goals for carbon neutrality by 2045. It provides resources for building owners and tenants to improve their energy efficiency and reduce their carbon footprint.
Cities such as Milwaukee, Minneapolis, and Philadelphia are not far behind. All are considering or have passed stringent code regulations for buildings.
Many cities in the US¡ªfrom New York to Seattle¡ªhave passed laws that are connected to building energy performance.
What should building owners and tenants do to adjust to new building performance standards?
Know the deadlines and implications for the new laws. In New York, we¡¯re often helping clients understand how and when local laws 97 and 88 will affect them. And we¡¯re explaining what fines they might incur if they don¡¯t meet code. For some, we provide education and guidance; and for others, we¡¯re engaging in studies to inform their capital investment strategy.
Look at the influence Local Law 97 is having in New York City. New York is the first major US city to implement fines for buildings that exceed carbon emission limits. We see a lot of clients reaching out to us and asking for help with LL97 and LL88. They are looking for strategic decarbonization plans that will provide them with a positive return on investments and help avoid fines. But there¡¯s a lot of complexity to how the regulations are playing out in today¡¯s marketplace they need to understand as well.
Consider how regulations will reshape the market. What will be the impact of the regulations on leasing, selling, and repositioning buildings in your city?
In New York, the law is influencing leasing. Our clients who are looking to lease space are seeing verbiage in their lease that says they are responsible for the fines incurred from LL97. So, while landlords are competing to lease their spaces, they¡¯re also dropping in language about the fines from LL97. This is something that brokers and tenants need to know.
Tenants will gravitate toward the greenest buildings, those that have already been built or retrofitted for low emissions.
In New York, we see that well-positioned assets are highly desirable in the market. Tenants will gravitate toward the greenest buildings, those that have already been built or retrofitted for low emissions. This compounds the market advantage for greener buildings or retrofitted buildings, which are less likely to incur fines. Those that don¡¯t meet standards will be downgraded and risk becoming stranded assets. So, what to do with aging buildings that are not performing well? The impact of LL97 will go on for many years.
Monitor your energy consumption and greenhouse gas emissions. There are tools for this, like Energy Star Portfolio Manager. An owner can install submeters for their tenants, which can help clarify demand ownership.
Consider the low-hanging fruit. Get started with lower-cost measures to improve building energy efficiency and meet standards. For example, upgrade to LED lighting, install occupancy sensors, and add insulation where needed. Look at replacing systems nearing their end of life with new, efficient, electricity-ready models. Take advantage of planned capital expenditures to improve return on investment.
Some of our tech industry clients in NYC have already taken action to reduce their emissions. What are they doing? They are updating systems and lighting as part of a multiyear phased approach to decarbonization. Others are engaged in more intensive retrofitting as part of a decarbonization strategy.
Seek financial incentives and resources. These might come from state-level green banks, federal agencies, or city-level programs. These resources can help offset the cost of retrofitting or repositioning your buildings.
Denver provides funding for small, minority, and women-owned businesses to become more sustainable, for example. Boston offers funding for energy assessments for income-restricted residential buildings. And New York has a state-sponsored NY Green Bank. It is tasked with filling the financing gaps in sustainable infrastructure and energy markets. Federal tax credits are available for some HVAC and energy system changes.
Some tech industry clients in New York are updating systems and lighting as part of a multiyear phased approach to decarbonization.
Start to develop a comprehensive building decarbonization strategy today. You want a strategy that can achieve multiple goals. It should respond to emerging regulations. But it should also reflect your organizational goals, long-term strategy, and local market direction.
You can start with an energy audit. We¡¯ve conducted green audits for clients. In some cases, this looks at all their facilities across the US and identifies energy conservation measures, associated costs, and payback. A recent audit for a national client showed that changes would result in a 49 percent reduction in utility costs and a 48 percent reduction in overall building energy use. The payback is about 11 years.
Building owners and operators in other cities might be asking: ¡°What about us?¡± Now is a good time to get familiar with the building decarbonization programs your city or state is studying. Chances are good that more performance standards are coming soon.?