How could renewable energy credits impact Local Law 97?
Published November 30, 2022
With significant stakeholder input, the NYC Department of Buildings (DOB) recently released proposed rules for Local Law 97 that are practical, comprehensive and forward-looking. They set strong targets to 2050, help unlock electrification, and align the law with state climate policy and the global shift to net zero (see our blog for an overview).
Along with the proposed rules, questions about renewable energy credits (RECs) are growing. From recent press to rallies and a letter from Council Members, many are asking about the role of RECs and how they might impact the goals of Local Law 97. In the last two weeks alone, Urban Green has fielded inquiries from advocates, real estate, unions, City Council Members and more.
So to provide more clarity, we’re offering what Urban Green does best: data-driven analysis to inform policy discussions.
What are RECs and how can the be used in LL97?
A REC is a certificate representing one megawatt-hour of renewable energy delivered to the electricity grid. Buying RECs helps support clean energy generators like wind turbines and solar farms.
Local Law 97 allows building owners to deduct or offset annual building emissions by buying local RECs – green power generated in or flowing directly into New York City. Few, if any, RECs that meet the law’s criteria exist today. But with the Public Service Commission’s April 2022 approval of two new “Tier 4” projects to bring large amounts of clean energy into NYC, many LL97-eligible RECs are now on the horizon.
The proposed rules clarify that deductions for RECs are limited to emissions from building electricity use. In other words, credits for green electricity can’t be used to offset fossil fuels burned onsite for heat and hot water. The rules also include proposals that affect RECs: a cleaner electricity carbon coefficient for 2030 to 2034 means each REC will offset less carbon, and adjusted GHG limits across 60 property types from Energy Star Portfolio Manager will affect the demand for RECs.
RECs have the potential to be a major compliance path for 2030
With these new criteria, Urban Green used 2019 benchmarking data to analyze the potential outcome if all covered buildings purchase as many RECs as possible to comply with 2030 carbon caps.
Based on current emissions, we estimate that if sufficient RECs are available more than one quarter of multifamily properties currently above their 2030 caps and two-thirds of office properties currently above their 2030 caps could comply with the 2030 limits through RECs alone (without undertaking any building improvements).
We also estimate that:
- Approximately 50 percent of the emissions over the 2030 limits—the emissions the law is aiming to eliminate—could be offset using RECs.
- More than 40 percent of the emissions over the 2030 limits from multifamily properties could be offset using RECs.
- More than 85 percent of the emissions over the 2030 limits from office properties could be offset using RECs.
The data is not perfect: the benchmarking dataset doesn’t break out square footage for some subordinate property types, and there is no comprehensive public data to exclude rent-regulated buildings that aren’t subject to carbon caps (we used best available data).
But the potential is clear: as currently proposed, RECs could become a very significant part of LL97 compliance.
Hover over the graphic to learn more
REC supply is likely to be plentiful by 2030
But will that many RECs be available come 2030? The state estimates that the two approved Tier 4 projects will deliver 18 million megawatt-hours of clean energy into New York City by 2027—that’s 18 million RECs and more than one-third of today’s annual citywide electricity use. And there may be additional RECs from other local resources, including offshore wind energy.
Even after subtracting RECs that New York City government has contracted to purchase to power city operations with 100 percent clean energy, our analysis suggests there will likely be enough RECs by 2030 to nearly meet or even exceed the maximum demand under LL97.
Of course, possibility is not prediction. LL97-eligible RECs are bound to be expensive and many owners may prefer to invest in their own buildings. And some companies may buy more RECs than necessary for LL97 because of corporate social responsibility commitments, reducing supply in the market.
Still, the issue warrants attention—and we were glad to hear at our recent public program that DOB is partnering with NYSERDA to explore the potential need for and impact of further limits on RECs.
RECs are beneficial but LL97 must mobilize building retrofits
An influx of RECs is great news: enormous amounts of clean energy for New York City. But if that influx substantially undermines work in NYC buildings, it’s cause for concern. While LL97 RECs will play a role in driving grid decarbonization, we need the law to drive energy efficiency and electrification in buildings because there is no other major policy to spur retrofits. State and city climate planning—including the renewable energy targets—depend on significant improvements in building efficiency. Otherwise, our energy demand will not match our renewable power supply. That’s why it’s so important for LL97 to maintain the market signal for energy efficiency.
Without in-building work, we won’t see the local air pollution benefits that come from reducing and eliminating fossil fuels burned for heating and hot water—and that’s 40 percent of NYC’s total GHG emissions. And money spent on LL97 compliance outside of building upgrades won’t support local jobs, including the NYC architects, engineers, contractors, electricians, plumbers and other trades professionals carrying out retrofits.
A reasonable REC limit paired with an equitable buildings fund is a win-win
Reasonable minds can differ on how to address this complex issue. Some are calling for strict limits on REC-based compliance in LL97. Others are focused on the need for flexibility over time, so building owners can plan more cost-effective work when equipment needs to be replaced or tenants vacate. Still others note that without flexibility some may—or are already planning to—choose penalties as a compliance path, particularly given the very significant energy savings required for some buildings to meet their 2030 caps. Policy discussions around potential REC limits must seek an equitable, comprehensive and data-based answer.
We would offer a balanced approach: pair a reasonable limit on REC-based compliance with a new option to make an alternate compliance payment into an Equitable Buildings Fund. Then direct that fund to approved and additional efficiency and electrification upgrades in designated affordable housing in New York City. The legal mechanism to do so may entail City Council—and possibly state—action.
With proper pricing and guardrails, this dual approach would keep more alternate compliance dollars—and potential penalty dollars—in NYC buildings, while helping those most in need of support. It would also afford building owners flexibility to plan work over time, including for the early years of LL97 when there will be no RECs on the market at all. Perhaps most importantly, this approach would ensure LL97 drives the building improvements—and related jobs and health and comfort benefits—New York City needs.
Boston’s version of LL97 includes just such a fund, called an Equitable Emissions Investment Fund. It’s time for New York City to follow suit.