https://www.crainsnewyork.com/features/legislation-cut-carbon-emissions-will-cost-property-owners-billionsApril 22, 2019 12:00 AM
Legislation to cut carbon emissions will cost property owners billions
Will Bredderman
Daniel Geiger
The City Council passed an array of environmental regulations just in time for Earth Day—and major property owners are going to have to spend some serious green.
At the center of the Climate Mobilization Act, which passed last week and is expected to be signed by Mayor Bill de Blasio on April 22, are ceilings on the greenhouse-gas emissions of private buildings exceeding 25,000 square feet. The caps will go into place in 2024 and tighten in 2030 and 2040, with a goal of slashing the city's emissions to three-fifths of 2005 levels at the end of the next decade and to one-fifth that amount by midcentury.
The measure exempts or sets more lenient limits for houses of worship, single-family homes, hospitals, certain low- and middle- income cooperatives, New York City Housing Authority complexes, public edifices and power plants. To the chagrin of major real estate interests, that means the weight of the law falls mainly upon commercial buildings and market-rate condominiums and co-ops.
"This will be the largest disruption in the history of New York City real estate," said John Mandyck, the chief executive officer of the Urban Green Council. "Buildings will have to do deep energy retrofits or buy green power or eventually look at carbon trading. We get that it's tough and that billions of dollars will need to be spent to reduce carbon emissions. But new technology and new business models will be invented to help buildings get there."
The Urban Green Council had convened in recent years a working group to help craft emissions regulations, but its recommendations were changed by the City Council, infuriating the Real Estate Board of New York, which had participated in the group.
"Unfortunately, [the legislation] does not take a comprehensive, citywide approach needed to solve this complex issue," REBNY President John Banks said in a statement. "A coalition of stakeholders including environmental organizations, labor, engineering professionals, housing advocates and real estate owners came together and proposed comprehensive and balanced reforms that would have achieved these goals."
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Last year's model
In 2010 the Durst Organization's then-new 1 Bryant Park—also called the Bank of America Tower—became the first skyscraper to win the top status of "platinum" from the U.S. Green Building Council's Leadership in Energy and Environmental Design program. Its eco-friendly features include floor-to- ceiling double-paned windows that trap heat from the sun, a rainwater capture system that supplies the cooling towers and toilets, and an on-site cogeneration plant that burns natural gas to produce two-thirds of the building's electricity and its heat.
But according to the company's calculations, the Climate Mobilization Act will saddle the tower with $2.5 million in fines in 2024. And that will just be the beginning.
"The fine will escalate annually from there," lamented Alexander Durst, chief development officer at the family-run firm.
The problem, Durst said, is that 1 Bryant Park is open 24 hours a day and hosts 11,000 workers—and the company and other real estate interests say the legislation penalizes density and intensity of use. That is because it targets only large buildings and uses formulas based on building class and square footage to determine how much carbon a structure may emit and how much electricity it may pull from the grid. This would appear to contradict past city and state policies that favored concentrated, centralized commercial and residential development.
The Dursts aren't the only ones worried that their past investments in energy efficiency won't spare them from fines. Ed Ermler, president of the Roosevelt Terrace co-op complex in Jackson Heights, Queens, spent much of the past decade persuading his shareholders to invest in a natural gas cogeneration plant, light-emitting diode fixtures and cutting- edge temperature control and regulation technology.
He does not believe he can suppress his building's carbon emissions much more, and said they will exceed the bill's limits. That will force his co-op—home to many elderly residents—either to pay fines or buy greenhouse-gas offsets by giving money to approved environmental projects.
"We're already at a minimal baseline to begin with," Ermler said. "At the end of the day, I'm going to have my seniors—who are hard-pressed to pay their maintenance on a good day—getting hit with assessments. And I'm going to end up with a lot of co-ops I can't sell."
REBNY similarly lamented the potential consequences of the legislation. Banks, the industry group's president, said it recognized the challenge of climate change, but the bill's exemptions will make it impossible to cut the city's overall emissions as drastically as hoped. The bill's goal is for large buildings to reduce emissions 40% by 2030.
Meanwhile, Banks warned, the city will be less attractive to growing sectors of the economy that expect long hours and compact workspaces.
The bill "will fall short of achieving the 40-by-30 goal by only including half the city's building stock," he said. "The approach taken today will have a negative impact on our ability to attract and retain a broad range of industries, including technology, media, finance and life sciences."
There were critics on the City Council too. One Republican said it would raise the cost of housing.
"We live in the most expensive city, with the most expensive housing market in the U.S.," said Staten Island's Joseph Borelli, a candidate for public advocate. "Why that is not priority No. 1—alleviating the cost to develop structures and lower the market rate of apartments—is beyond me."
Buildings with rent-regulated units were exempted.
Buck Ennis
Fine time: One Bryant Park, center, despite numerous energy-efficiency measures, would pay escalating annual penalties starting at $2.5 million in 2024 if it doesn’t reduce its carbon footprint, its owners say.
Planning for the planet
Queens Councilman Costa Constantinides, who heads the Committee on Environmental Protection and sponsored the emissions-cap legislation, dismissed many of those concerns. He noted that only 20% of buildings in each category will have to alter their physical structure or their consumption patterns by 2024, and he highlighted studies showing buildings of 25,000 feet or more account for 2% of all structures in the city but produce 30% of its carbon emissions.
His office pointed to sections of the legislation that place lighter restrictions on electricity consumption for buildings with cogeneration plants, and allow for dispensations or reduced penalties for buildings with long hours and high utilization of space, or engaged in energy-intensive industries. Other bills in the Climate Mobilization Act create instruments for financing building retrofits and on-site renewable energy infrastructure, and allow property owners to surpass emissions caps by purchasing green power.
"New York City deserves bold, meaningful climate legislation to reduce our carbon emissions while acknowledging the daily real-world challenges many New Yorkers face," Constantinides said. "After engaging with the varied communities, industries and interests impacted by this bill, I believe we have that sound legislation."
Several sources pointed out to Crain's that the Champlain Hudson Power Express, a transmission cable bringing renewable hydroelectric power from Canada, will come on line in 2021—supplying energy that will not count toward emissions caps.
"In recognition that some buildings just use more energy, [there is] an alternative compliance path," said Jeffrey Perlman, the founder and president of Bright Power, a firm that does building energy audits and green retrofitting. "Buildings that are 40% over their target need only reduce carbon emissions by 30% over 2018 levels. Additionally, buildings can purchase carbon offsets for 10% of their emissions and renewable energy to offset emissions from electricity."
Council Speaker Corey Johnson waved off the real estate industry's complaints more succinctly, calling attention to the scientific consensus that society has about 12 years to ward off the most serious impacts of climate change. No dollar amount, he suggested, could equal the human cost of environmental devastation.
"That is a sad argument. If that's the best they have, then this is not a fair fight," Johnson said. "You can't put a price tag on life on Earth."
