Mazars logo Mazars logo Mazars logo The Ledger

The Climate Mobilization Act: A Game-Changer for New York City’s Real Estate Industry

In April 2019, the New York City Council passed the NYC Climate Mobilization Act (CMA), an ambitious plan to slash carbon emissions from buildings. The city subsequently declared a climate emergency in late June, becoming the 18th US city, alongside international metropolises like London, Paris and Sydney. New York State also passed the Climate and Community Protection Act, aiming for a carbon-neutral economy by 2050. These cascading declarations show the strong political will to address this issue.

The CMA aims to reduce New York City’s greenhouse gas emissions by 30% by 2030 (compared to a 2005 baseline), and to achieve carbon neutrality by 2050.

The CMA focuses, through Local law 97, on reducing emissions from existing large buildings. Approximately 70% of the city’s greenhouse gas emissions come from its buildings, with large buildings (greater than 25,000 square feet) producing a disproportionate part of emissions. Large buildings release 35% of the city’s total greenhouse gas, yet are only 2% of the total number of buildings. This often stems from poor efficiency in energy consumption: compromised envelopes require more energy for heating and cooling, and hold increased risk of refrigerant leakage, while inefficient lighting and equipment require more energy for operations.

Approximately 50,000 buildings are affected by the law. Exemptions exist[1], and the Office of Building Energy and Emissions Performance, to be created in 2019 to regulate and enforce the standards, will consider adjustments and assistance where necessary.

Each building’s target will be calculated based on occupancy classification. Carbon limits per building will be degressive, with an aim to reduce overall building emissions by 30% by 2030, 60% by 2040 and 80% by 2050.  However, highest emitting 20% of buildings will have targets to meet as soon as 2024. Asset owners are expected to retrofit properties to be more energy efficient, switch to green power and/or offset emissions by purchasing renewable energy credits.

Another part of the CMA (Local laws 92 and 94) enters into force in November 2019, requiring that all new construction and existing buildings undergoing major roof renovations, regardless of size, should install green roofs: plants, solar panels, small wind turbines or a combination of all three.

Adapted financial mechanisms

The CMA also includes financial mechanisms to help asset owners find flexibility in their application process.

New York City is collaborating with global peer cities (Hong Kong, London, Singapore and Toronto) to create a building climate efficiency trading scheme, where building owners will be able to trade carbon emission permits and energy efficiency credits. Thus, buildings that reduce their energy consumption and greenhouse gas emissions over their annual target will be able to sell their excess credits to buildings that haven’t met their targets in any of the cities taking part in that exchange, while buildings that haven’t met their target will be able to buy credits to avoid being fined.

Local law 96 establishes a Property Assessed Clean Energy (PACE) Program, with loans to finance the installation of renewable energy systems and energy efficiency improvements. PACE loans are repaid as a charge on a building’s tax bill, with debt service sized to the savings from the efficiency or clean energy project, meaning that annual energy cost savings will cover the cost of the payments.

Local law 92 introduces a real property tax abatement for the installation of green roofs of $15 per square foot, effective immediately.

Finally, the CMA provides that, beginning in 2024, buildings that emit carbon over their calculated limit will be subject to a fine of $268/ton of carbon.

Other programs will help asset owners meet their requirements: the City of New York has a Retrofit Accelerator program providing free, personalized advice to streamline the process; New York State’s Energy Research and Development Authority (NYSERDA) offers a number of programs to help with energy efficiency and clean energy; utilities have incentive programs for energy efficiency and renewable energy; and mortgage corporations such as Fannie Mae and Freddie Mac have green financing programs.

An opportunity for New York City’s real estate industry

Despite the planned financial mechanisms, this regulation places a significant burden on the real estate industry, and real estate owners are concerned about the cost.

However, this is also an opportunity for New York City’s real estate industry. Asset owners have a chance to lead the GRESB, the Environmental, Social and Governance (ESG) benchmark for real estate portfolio, whose assessments are increasingly coveted by institutional investors as a risk management tool. Better energy efficiency will help make buildings more resilient to some aspects of climate change, including more frequent and intense heatwaves. And through better insulation and air circulation, retrofitting the building will also mean lower energy bills and more comfortable buildings for tenants, allowing asset owners to hope for a “greenium” – higher asset value granted by its virtuous features.

Mazars USA can help you understand the impact of the CMA on your business and provide solutions to help you meet the requirements of this law in the most cost-effective manner.

Please contact your Mazars USA LLP professional for additional information.

[1] for buildings with one or more rent-regulated units, houses of worship, single-family homes, hospitals, multifamily properties that are three stories or less with no central HVAC systems or hot water heating systems, New York City Housing Authority buildings, city-owned buildings and industrial facilities primarily used for the generation of electric power or steam. Those buildings however should comply with a list of 13 prescriptive energy conservation measures, to be implemented by December 31st, 2024.