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NYC Now Issuing Energy Efficiency Ratings for Buildings

Mitchell Marcus, CPA

11.16.20 | Industry Insights

Effective October 30, 2020, all commercial and residential buildings in New York City, 25,000 square feet or larger, are required by law to start posting energy efficiency letter grades at the entrance to their properties. The new regulation, part of the de Blasio administration’s push to decrease carbon emissions to fight climate change, will affect over 40,000 buildings across the five boroughs.

The letter grades, which are based on benchmarks set forth by the Environmental Protection Agency (EPA), are similar to the now ubiquitous restaurant letter grades that came into effect back in 2010.

The goal of this new letter grade campaign is to increase public transparency and encourage and incentivize large buildings to reduce their energy use as well as decrease their carbon emissions. As David Klatt, vice president of the energy management software platform Logical Buildings, told the Commercial Observer: “Nobody wants to put a ‘D’ on their building.”

Critics of the new program have noted that New York City’s letter grade system is too stringent. Some estimate that over half of the buildings eligible for letter grades will receive a “D” rating. “It’s not a helpful indicator and it is actually quite confusing for people,” said Durst Organization’s Jordan Barowitz to TheRealDeal.com. Properties such as the iconic Empire State Building (which has reduced its carbon emissions by 40 percent over the past decade), One Bryant Park and 50 Hudson Yards, which have also won plaudits for their innovative energy efficiency programs, have respectively received “B”, and “D”, and “C” ratings from the City. According to experts, part of the problem is that the City’s grading system focuses solely on energy consumption, which is different from the City’s stated goal of tracking and reducing carbon emissions. In addition, it will be interesting to see how landlords will implement these energy efficiency initiatives, which tend to be at odds with the healthy building improvements being made in so many buildings in response to the COVID-19 pandemic.

The Nuts and Bolts: What You Need to Know

The letter grades are based on the EPA’s online benchmarking tool that compares each building’s energy performance to similar buildings in similar climate areas.

According to the guidelines set out by the NYC Department of Buildings at NYC.gov:

An energy efficiency score is the Energy Star Rating that a building earns using the United States Environmental Protection Agency online benchmarking tool, Energy Star Portfolio Manager, to compare building energy performance to similar buildings in similar climates. As per Local Law 95 of 2019 grades based on Energy Star energy efficiency scores will be assigned as follows:

  • A – score is equal to or greater than 85;
  • B – score is equal to or greater than 70 but less than 85;
  • C – score is equal to or greater than 55 but less than 70;
  • D – score is less than 55;
  • F – for buildings that did not submit required benchmarking information;
  • N – for buildings exempted from benchmarking or not covered by the Energy Star program.

Low grades don’t carry any fines, but failure to post the assigned letter grade by October 30, 2020, could result in a $1,250 fine. At first glance, such a relatively light fine seems unlikely to incentivize large commercial and residential buildings into more environmentally-friendly behavior. But heftier penalties are on the horizon. In 2019, the City Council passed the Climate Mobilization Act which requires New York City’s 50,000 largest buildings to reduce their carbon emissions by 40% by 2030 and by 80% by 2050. Starting in 2024, owners of buildings that are noncompliant will face fines of $268 per ton of emissions above their designated caps.

In the meantime, the City has provided, via the NYC.gov web site, the procedures which spell out how a building can challenge violations.

For further assistance, the City has set up a Sustainability Help Center which is billed as a “one-stop-shop for information, assistance, and answers to your questions about the benchmarking process”. The Sustainability Help Center also offers a newsletter with information related to the Climate Mobilization Act and the forthcoming regulations. To be added to the email list, please send the request to Help@NYCsustainability.org.

Questions: Contact Mitchell Marcus at 212.331.7460 | mmarcus@BerdonLLP.com or your Berdon advisor.