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April 16, 2021

Stroock Client Alert

By: Raymond "Rusty" Pomeroy II, Karen Scanna, Brian Diamond, Ross F. Moskowitz, Joseph B. Giminaro, Trevor T. Adler, Elsa A. Ben Shimon, Jeffrey R. Keitelman, Joshua Sohn

On Friday, April 9th, the Department of Buildings (“DOB”) released long-awaited guidance for building owners seeking to apply for statutory adjustments to the greenhouse gas (“GHG”) emissions limits established in the City’s Climate Mobilization Act (the “CMA” or “Act”). The release of the guidance kicks off what will be a 10-week sprint for building owners to employ the necessary professionals, gather the required data, and complete the required forms, analyses and plans, in order to be able to submit their application for adjustment by the deadline of June 30, 2021.

The guidance is detailed and extensive, and specifically addresses the requirements necessary for building owners to qualify for the CMA’s high energy use building adjustment and not-for-profit hospital and healthcare facility adjustment. Because the hospital and healthcare facility adjustment is an as-of-right adjustment that applies to a specific and limited class of covered buildings, this bulletin will focus on the guidance as it applies to the high energy use adjustment, a discretionary adjustment applicable to covered buildings with particularly high energy demands. The guidance was preceded by DOB’s issuance of draft rules related to the requirements for the not-for-profit hospitals and healthcare facilities. Oddly, however, and notwithstanding that the guidance provides DOB’s interpretation of key statutory provisions related to the requirements for the high energy use adjustment, the guidance was not preceded by any formal rulemaking process related to that adjustment. With no rulemaking process through which the regulated community could have reviewed and provided comments to DOB regarding the requirements, the guidance is the regulated community’s first look at the new requirements.

Stroock has provided several in depth looks at the CMA and the various adjustments potentially available to the owners of covered buildings under the Act. Our previous bulletins can be found here.

The CMA establishes strict GHG emissions caps for covered buildings, beginning in 2024, and becoming increasingly more stringent in 5-year increments, or compliance periods. The Act provides for certain “adjustments” to the statutory GHG emissions caps, that may be applicable to the owners of covered buildings. Adjustments are available where legal or physical constraints (e.g., landmarks designations, space issues) prevent a building owner from implementing the energy efficiency retrofits necessary to achieve compliance with the Act; where compliance with the Act would pose an unreasonable financial burden on the building owner or where the building is under a financial hardship; for certain high energy use buildings; and for not-for-profit hospitals and healthcare facilities. Only the high energy use adjustment and the hospital and healthcare facility adjustment include statutorily prescribed application deadlines (“before July 1, 2021” and “no later than July 21, 2021,” respectively). These impending application deadlines are presumably why DOB’s recent guidance is only applicable to these adjustments.

The adjustment available to high energy use buildings, if granted, would result in an adjusted 2024 emissions cap that is 70% of the building’s actual 2018 emissions. This 70% of 2018 cap would replace the emissions cap as calculated under the Act. In order to qualify for the adjustment, the owner of a covered building must:

1. Demonstrate that the building’s actual emissions for calendar year 2018 exceeded the building’s CMA GHG emissions cap by more than 40%;

2. Demonstrate that the building’s excess emissions are attributable to a special circumstance (including but not limited to 24-hour operations, operations critical to human health and safety, high density occupancy and energy intensive communications technologies, operations and industrial processes);

3. Demonstrate that the energy performance of the building is equivalent to a building in compliance with the NYC 2014 Energy Conservation Code (“ECC”); and

4. Submit a plan (the “Emission Reduction Plan Report”) setting forth a schedule of alterations to the covered building or changes to the operations and management of the covered building sufficient to ensure that the covered building will be in compliance with the annual building emissions limits for calendar years 2030 through 2034.

The guidance provides detailed instructions with respect to how the building owner is to measure the building’s actual 2018 GHG emissions, as well as the 2024 emissions cap applicable to the building, in order to demonstrate that 2018 actual emissions exceeded by more than 40% the 2024 emissions cap. The guidance also requires completion of a new DOB form workbook, Form EN97A, and a related Special Circumstances Report, to demonstrate -- via “quantitative evidence from measured data, calculations, metering, or sub-metering data” -- that the special circumstance is responsible for the actual emissions in excess of the 2024 emissions cap by more than 40%.

The CMA is silent with respect to how a building owner can demonstrate equivalency with the ECC. In the guidance, DOB interprets this statutory requirement to essentially mean that a building that would otherwise be in compliance with the 2024 emissions cap, but for the excess emissions attributable to the special circumstance, has established ECC equivalency. Conversely, where a building’s GHG emissions exceed the 2024 emissions cap, even after subtracting out the emissions attributable to the special circumstance, the applicant has failed to establish equivalency with the ECC. Thus, the building’s actual 2018 emissions, minus the emissions attributable to the special circumstance, result in an Adjusted Building Emissions (“ABE”) figure. If the ABE is less than or equal to the 2024 emissions cap, equivalency is established. If the ABE exceeds the 2024 emissions cap, equivalency is not established.

In the event that equivalency is not established, the excess emissions are referred to as the “ECC Equivalent Min. GHG Reduction Requirement.” As that term suggests, an applicant who has not demonstrated ECC equivalency must include in the Emissions Reduction Plan Report described in item 4 above the measures that will be taken to reduce the excess emissions, such that the building may then demonstrate ECC equivalency. These reductions must take place before the application for adjustment can be approved by DOB, and the applicant must provide evidence, in the way of actual energy use data for any of calendar years 2021, 2022, 2023 or 2024, showing that the building’s actual emissions, minus the emissions attributable to the special circumstance, are below the 2024 emissions cap. These required reductions would be in addition to the reductions required beginning in 2024.

DOB also notes that part of the department’s review will consist of “a qualitative check for equivalency of the actual building versus a 2014 ECC compliant building,” and that DOB may require additional documentation to establish equivalency and that the building achieve additional GHG emissions reductions, further below the 2024 emissions cap, to achieve equivalency.

Regarding the required filing of a compliance plan (i.e., the Emissions Reduction Plan Report), showing how the building will be brought into compliance with the Act’s emissions caps by 2030, the guidance suggests that the plan should contain sufficient information for DOB to understand the specific measures being proposed, along with an analysis of the emissions savings expected to be achieved. Examples of strategies suggested by the guidance include implementation of energy efficiency measures, retro-commissioning of equipment, changes to building operations and maintenance, and the use of various distributed energy resources.

Notably absent from the guidance is any reference to the use of Renewable Energy Credits (“RECs”) or carbon offsets as an alternative compliance method. Though the Act specifically provides that building owners may deduct from the building’s annual emissions RECs or carbon offsets purchased by the building owner, the guidance seems to indicate that option is not available as part of the compliance plan for building owners seeking the adjustment.

Further, the Act provides that the high energy use adjustment may be extended to apply to the Act’s second compliance period of 2030 through 2035 “upon submission of a schedule of alterations to the covered building or changes to the operations and management of the covered building . . . sufficient to ensure that by 2035 the covered building will comply with a required building emissions limit that is 50 percent of the reported 2018 building emissions for the covered building.” (emphasis added). The requirement in the guidance that the Emissions Reduction Plan Report demonstrate that the building will be brought into compliance with the Act’s 2030 emissions cap by 2030 seems inconsistent with the Act’s provision for an extension of the adjustment allowing buildings to achieve a 50% reduction from 2018 emissions by 2035.

The application and all of the required supporting data, worksheets, reports and plans must be uploaded to the DOB’s DOB NOW online system. The applicant and the filing representative must be registered with DOB, and applications may only be submitted by a registered design professional. Applications started in the online portal, but not completed/submitted before the June 30th deadline, will not be considered.

In sum, the guidance released by DOB is extensive and will require applicants to develop and produce very detailed analyses and reports. These reports will, in most cases, need to be prepared by outside engineering and energy consultants and signed off by a registered design professional. Building owners expecting to apply for a high energy use building adjustment should be working now to retain the necessary experts, assess the application requirements, and compile the necessary information. Our team of CMA attorneys at Stroock has developed a multi-disciplinary approach to assist clients with all aspects of the CMA -- assessment, compliance, adjustments, PACE financing, leasing, and diligence issues. Please contact any of the below attorneys for assistance.

For More Information:

Raymond "Rusty" Pomeroy II

Karen Scanna

Brian Diamond

Ross F. Moskowitz

Joseph B. Giminaro

Trevor T. Adler

Elsa A. Ben Shimon

Jeff Keitelman

Joshua Sohn

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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