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July 1, 2020

Stroock Special Bulletin

By: Raymond "Rusty" Pomeroy II, Brian Diamond, Karen Scanna, Ross F. Moskowitz, Joseph B. Giminaro, Robert Abrams, Trevor T. Adler, Jeffrey R. Keitelman, Joshua Sohn, Chloe F. Rosenberg

The Act’s first deadline is 1 year away. Here’s what building owners should know right now.

Building owners are facing myriad operational and financial issues as a result of the ongoing COVID-19 pandemic, including increased costs due to safe reopening requirements, reduced income due to tenant defaults, reduced tenant demand for space, government restrictions on eviction proceedings, and increased scrutiny from lenders. Building owners in New York City, though, have the added task of preparing for the coming implementation of the 2019 Climate Mobilization Act (the “CMA” or the “Act”). (For a detailed overview of the Act, please see our previous CMA alert, “The NYC Climate Mobilization Act: How to Prepare and What you Need to Know.”)

In this alert, we focus on the most pressing upcoming deadline under the Act – the deadline to submit applications for adjustments to a building’s statutory emissions limitations – and provide an update on the City’s ongoing efforts to develop the infrastructure and plans necessary to effectively administer the Act.

1. Applications for adjustment are due on July 1, 2021.

The Act provides an opportunity for building owners to apply to the Department of Buildings (DOB) for adjustments to statutory building emissions limits. As we detailed in our Stroock Bulletin titled “The NYC Climate Mobilization Act: Examining Relief Provisions,” the Act provides for potential adjustments if there are legal or physical barriers to compliance, if installing the necessary energy efficiency retrofits would result in a financial hardship, if special circumstances regarding the building’s use or occupancy results in unusually high building energy use, and for not-for-profit hospitals and health care facilities.

These applications for adjustment, with the required supporting documentation, must be submitted to DOB by July 1, 2021. While DOB has not yet released its application form, building owners should be carefully assessing whether they may qualify for any of the available adjustments, and should already be assembling the supporting documentation for their applications.

For example, the adjustments for legal or physical constraints and financial hardship both require, among other things, that the building owner establish that it has (1) complied with the Act to the maximum extent practicable; (2) made a good faith effort to purchase renewable energy or carbon offset credits; and (3) availed itself of all available city, state, federal, private and utility incentive programs for which it reasonably could participate. Similarly, the adjustment for high energy use buildings requires, among other things, that the building owner establish that the building is in compliance with the NYC energy conservation code in effect on January 1, 2015, and submit a detailed compliance plan including changes to building operations, management and potential alterations that will ensure compliance with the emissions limitations starting in 2030.

To make the required showing for these adjustment applications, building owners will need to have an in-depth understanding of their building’s current energy use and what types of operational changes and/or building retrofits will be necessary for the building to comply with its emissions limitation. Some of the questions building owners should already be asking of their operational personnel and consultants include: How long will it take to implement such changes? How much will the changes cost? What is the availability and costs for the acquisition of renewable energy credits or carbon offsets and how do those costs compare to the costs of retrofits? What potential funding sources might be available, and how do I determine if I’m eligible?

2. Adjustment requires pursuing loan and grant opportunities.

In order to qualify for an adjustment to the buildings’ statutory emissions limitation, the Act generally requires that building owners take advantage of available loan and grant opportunities for energy efficiency retrofits.

The primary, but not only, financing program available for building owners is the City’s newly created Commercial Property Assessed Clean Energy (C-PACE) loan program. C-PACE, which was created as part of the CMA, is sponsored by the Mayor’s Office of Sustainability and administered by the New York City Energy Efficiency Corporation (NYCEEC). Unfortunately, with just one year to go before applications for adjustments are due, NYCEEC has still not released eligibility guidelines or application materials.

Additional funding sources to explore may be available through the New York State Energy Research & Development Authority (NYSERDA), the U.S. Small Business Administration’s Environmental Grants and Loans Program, the U.S. Department of Energy, utility providers and other programs.

The burden is on the building owner to identify and avail itself of “all available city, state, federal, private and utility incentive programs related to energy reduction or renewable energy for which it reasonably could participate.” Building owners should be investigating all such programs and developing an understanding of the various requirements and application processes. Building owners with current loans must also take care to ensure that their existing loan documents permit additional financing and understand the extent to which lender consent may be required.

3. The Climate Advisory Board studies an emissions trading scheme.  

The Act created a Climate Advisory Board, and tasked the Board with, among other things, providing advice, guidance and recommendations to the Mayor’s Office of Sustainability with regard to a potential citywide trading scheme for greenhouse gas emissions. The feasibility study for the trading scheme is to be submitted to the Mayor and Speaker of the City Council no later than January 1, 2021. If adopted, this trading scheme could create an efficient, market-based means of compliance with the Act’s emissions limitations by allowing buildings below the emissions limitation to sell emissions credits to buildings that exceed the emissions limits.

The members of the Advisory Board were appointed by the Mayor and City Council Speaker Johnson in December 2019, and we understand that the Board has been meeting remotely during the pandemic to continue its work. These meetings, however, are not publicly noticed or open to public participation, and this lack of transparency makes it difficult for the regulated community to understand what progress, if any, is being made on this important initiative.

4. The Department of Buildings expands with new office.

The Act created a new Office of Building Energy Emissions Performance within the DOB to oversee implementation of and administer the Act. Pursuant to the Act, the new office is to have its own director, who is to be a Registered Design Professional, appointed by and reporting to the Commissioner of DOB. With one year to go before the first CMA deadlines, we are not aware that DOB has appointed a director for the new office, nor has DOB issued any formal guidance to the regulated community regarding the application process.

Notwithstanding, DOB Commissioner La Rocca did recently announce the creation of eight new Climate Working Groups to help develop best practices for building owners to comply with the Act. The members of the new Climate Working Groups represent energy efficiency and engineering expertise from government, utilities, the private sector and not-for-profits. Working groups were created in the following areas:

  • Building Technologies & Pathways (Multifamily Buildings)
    Focus: Improving building scale energy usage for multifamily buildings through retrofits, enforcement improvements and studying tenant energy use.
  • Building Technologies & Pathways (Commercial Buildings)
    Focus: Examine the impacts of tenant/owner structure, building typology and building electrification on energy usage and Greenhouse Gas Emission reduction opportunities.
  • Carbon Accounting
    Focus: Recommend methodologies to calculate buildings’ Greenhouse Gas Emissions and identify the metrics to prove reliable and effective results.
  • Energy Grid
    Focus: Understand potential impact of a changing energy infrastructure on buildings and provide advice on how to navigate it.
  • Economic Impact
    Focus: Analyze the economic impact that achieving reduced energy and emissions may have on citywide financial growth, leasing agreements and operating costs.
  • Hospitals
    Focus: Address the unique energy demands of health care facilities and recommend solutions for compliance.
  • Communications
    Focus: Provide input on necessary outreach to educate building owners, designers and operators about requirements for compliance and create a transparent environment on new rules and regulations.
  • Implementation
    Focus: Provide input on practical realities of demonstrating compliance and achieving long-term goals of the mandate.

Recommendations from this advisory process are due by January 2023.

5. CMA deadlines have not been extended.

With one year to go before applications for adjustments are due to be submitted, there is no adjustment application form, no director for the office that will oversee implementation of the Act, no eligibility criteria or application for the C-PACE loan program of which owners must avail themselves and no agency guidance regarding the adjustment process, and the City continues to grapple with the historic impacts of the COVID-19 virus.

All of this uncertainty might lead one to believe that an extension of the application deadlines, and perhaps even of the building emissions limitations are warranted. While we know that multiple building owners and organizations continue to push for extensions of the Act’s mandates, we are not presently aware of any significant movement within the City to actually delay the Act’s implementation. As such, our guidance to building owners continues to be to prepare to submit applications for adjustment by the prescribed July 1, 2021, deadline, and to comply with the Act’s building emissions limitations beginning in 2024.

______________________________

For More Information:

Trevor T. Adler

Brian Diamond

Joseph B. Giminaro

Jeff Keitelman

Ross F. Moskowitz

Raymond "Rusty" N. Pomeroy II

Karen Scanna

Joshua Sohn

Chloe F. Rosenberg

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.

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