When It Comes to Local Law 97 Compliance, You’ve Gotta Have (Good) Faith

New York City building owners faced with compliance obligations under New York City Local Law 97 of 2019 (“Local Law 97” or the “Law”)’s strict greenhouse gas (GHG) emissions caps are finding little relief from the Law’s alternate compliance options.

One potential relief measure is for the building owner to establish it has made “good faith efforts” to comply, thereby becoming eligible for discretionary penalty mitigation from the Department of Buildings (DOB). This article reviews the current state of play for some of Local Law 97’s built-in alternate compliance methods, then discusses the DOB’s recent rulemaking establishing the “good faith efforts” requirements.

Local Law 97 establishes strict GHG emissions caps for covered buildings in New York City. 28 NYCAC §§ 320.1 et seq. The Law applies to buildings over 25,000 square feet, subject to limited exceptions. The GHG emissions caps went into effect on January 1, 2024, and become significantly more stringent over time in five-year increments. By 2050, all covered buildings will be subject to a zero GHG emissions cap.

Local Law 97 does not prescribe any particular means of compliance with the GHG emissions caps. Building owners may undertake building energy efficiency retrofits, transition from fossil fuel systems to electric systems, or install on-site solar and/or battery storage systems. Some measures, such as lighting upgrades and modern thermostatic controls, would typically be considered the “low-hanging fruit” of energy efficiency retrofits. For many buildings, low-hanging fruit will not be enough to comply with Local Law 97 in the short term, and they will certainly not generate enough GHG emissions reductions to comply with Local Law 97 in the long term.

In order to comply with Local Law 97 in the long term, buildings will need to become significantly more energy efficient in all areas and will need to transition away from fossil fuel use in favor of all electric building systems.

Compliance with the increasingly stringent GHG emissions limits relies on the state achieving its goal of a zero-emissions statewide utility grid by 2040. Without massive advances in renewable energy transmission, off-shore wind power, and utility-scale battery storage, compliance for even the most efficient buildings will be impossible. In the interim, many building owners will need to rely on Local Law 97’s alternate compliance and penalty mitigation measures to offset penalties.

The Law provides building owners with a number of alternate pathways to compliance, including opportunities to apply for adjustments to the building’s GHG emissions limit, and the ability to purchase Renewable Energy Certificates (RECs) and/or GHG offsets to offset building emissions. Unfortunately, DOB rulemaking efforts have called into question the utility of these alternate compliance pathways.

Adjustments to Building GHG Emissions Limits

Local Law 97 includes provisions that allow for building owners to apply for adjustments to the building’s GHG emissions limit in three circumstances: where the building has unusually high energy needs; where legal or physical constraints to compliance exist; and where the building owner would face an undue financial hardship.

Owners of buildings with high energy needs attributable to a special circumstance (e.g., 24-hour operations, operations critical to human health and safety, etc.) can apply for an adjustment that would replace the Law GHG emissions limit with an emissions limit equaling 70 percent of the building’s actual 2018 emissions. 28 NYCAC § 320.8.

Guidance promulgated by DOB to implement this adjustment, however, is highly complex and burdensome and requires, among other things, that the applicant prove that the building is in compliance with the city’s 2014 Energy Conservation Code and submit a plan for the building to achieve compliance with the stricter Local Law 97 limits for the 2030-2034 compliance period. See, NYC Sustainable Buildings Local Law 97 Adjustments Application Filing Guide, September 2023, available at: https://www.nyc.gov/site/sustainablebuildings/requirements/adjustments.page. Applicants for this adjustment are not eligible to use any RECs as a means of compliance.

Adjustments are also available for buildings with legal and/or physical constraints to compliance (e.g., a landmark designation that prohibits certain energy efficiency retrofits from being installed), and for buildings with a demonstrated financial hardship. 28 NYCAC § 320.7.

These adjustments are of limited duration (three years for legal/physical constraints and one year for financial hardship) and apply to only a small subset of covered buildings. Further, recently proposed rules from DOB would place significant constraints on building owners seeking to apply for them. See, DOB Proposed Filing Requirements for Application to Adjust Emissions Limits, available at: https://rules.cityofnewyork.us/proposed-rules/.

Renewable Energy Certificates and GHG Offsets

Local Law 97 allows building owners to purchase RECs to offset the building’s annual GHG emissions. 28 NYCAC § 320.3.6.1. However, rulemaking by DOB has placed significant limitations on the use of RECs. RECs may be used only to offset GHG emissions related to the building’s electrical use (i.e., GHG emissions related to the use of fossil fuels or district steam may not be offset). 1 RCNY § 103-14(e(1)(i).

More importantly, the only RECs that qualify for use under Local Law 97 are those generated in or directly delivered into the New York City electrical grid. 28 NYCAC § 320.3.6.1(ii).

The New York State Energy Research and Development Authority has established the Tier 4 REC program to administer the Local Law 97 qualifying RECs. The problem is that there are no Tier 4 RECs. The first Tier 4 RECs are not expected to become available until completion of two new transmission projects that will deliver renewable power from upstate New York and Canada directly to New York City. These projects are “scheduled” to be online in 2026 and 2027.

In addition, a number of large off-shore wind projects are planned, but not yet under construction. Until these projects are actually completed, no Tier 4 RECs will be available for use to offset Local Law 97 penalties.

Local Law 97 also allows a building owner to purchase GHG offsets and to offset up to 10 percent of the building’s total energy use. 28 NYCAC § 320.3.6.2. DOB recently proposed rules to implement this provision of the law. See, Proposed Calculation of Emissions Limits for Buildings, available at: https://rules.cityofnewyork.us/proposed-rules/.

DOB has proposed to have a newly created entity, the New York City Affordable Housing Development Fund, manage the GHG offset program, and only GHG offsets related to affordable housing projects will qualify for purchase. By turning this important program over to an entity with no staff, no experience with GHG offset projects, and no infrastructure to support a GHG offset trading platform, DOB has raised serious doubts as to whether any GHG offsets will be available for purchase by building owners.

Good Faith Efforts

In light of the above, building owners facing penalties under Local Law 97 are largely left to seek discretionary penalty mitigation from DOB. Local Law 97 grants DOB the authority to mitigate Local Law 97 penalties based on DOB’s determination that the building owner made “good faith efforts” to comply with the law. 28 NYCAC § 320.6.1.

In February 2024, DOB released rules outlining how a building owner can establish its “good faith efforts.” 1 RCNY § 103.14(i)(2).
Three threshold criteria must be met. The building owner must: (1) have filed its annual emissions statement under Local Law 97 and must be in compliance with any Local Law 97 adjustments that have been granted; (2) certify its compliance with Local Law 84 of 2009’s benchmarking requirements (28 NYCAC § 309.1 et seq.); and (3) certify its compliance with Local Law 88 of 2009’s lighting upgrades and sub-metering requirements (28 NYCAC § 310.1 et seq.).

Once these threshold criteria are met, the building owner must additionally establish one of the following six “good faith efforts” criteria:

• Demonstrate that work necessary to achieve compliance is currently underway by having a fully approved application and a permit issued for such work;
• Demonstrate that electrification readiness work is underway by securing an approved alteration application and a letter from a utility attesting to the work;
• Demonstrate that the building was previously under the emissions limit for the previous reporting year;
• Demonstrate that the building is a critical facility like a hospital whose services would be significantly impacted if they have to pay the full penalty;
• Demonstrate that the building has applied for or been granted an adjustment pursuant to section 28-320.7 of the Administrative Code; or
• Provide a Decarbonization Plan by May 1, 2025, that will bring the building into compliance with its 2024 limits no later than 2026 and with its 2030 limits no later than 2030, and demonstrate each year through 2030 that the work is proceeding on schedule.

A building owner who opts to submit a Decarbonization Plan is precluded from using RECs to offset emissions. At bottom, most of DOB’s rulemaking efforts have had the effect to make compliance with Local Law 97’s GHG emissions limits significantly more difficult. Building owners facing compliance challenges should likely not be relying on adjustments or the use of RECs or GHG offsets as a means of compliance, and should be preparing now to position themselves to qualify for “good faith efforts” penalty mitigation.

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Reprinted with permission from the November 21, 2024 issue of the New York Law Journal. © 2024 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com.