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LL97’s new game-changing electrification credit

A little electrification now goes a long way! And buildings that act soon stand to benefit the most.

Published April 3, 2023

Heat pumps are getting a major boost in new Local Law 97 rules finalized in December 2023. The rules created a beneficial electrification credit (“BE Credit”) that handsomely rewards building owners who replace fossil fuel systems—in whole or in part—with highly efficient electric heating, cooling and hot water equipment that is appropriate for NYC’s climate.[1]The NYC Department of Buildings specifies minimum efficiency thresholds, outdoor temperature conditions and test procedures for the equipment that can qualify for the BE Credit. While building owners can use this credit to comply with 2024-2029 LL97 limits, the biggest opportunity is for the 65 percent of covered buildings that need to reduce emissions to meet the more stringent 2030-2034 limits.

Let’s unpack the nuts and bolts of the credit and walk through what it means for LL97 compliance!

  • Big heat pump bonus: The largest city-provided incentive for electrification to meet LL97 targets.
  • Closing the cost gap: The credit makes electrification more cost-effective and feasible.
  • The sooner, the better: Equipment must be installed before 2030, but equipment installed before 2027 will get double the credit.
  • Save it for future use: Electrification today creates a credit that can be applied to later years for LL97 compliance.
  • Getting electrification going: Many buildings can now comply through 2035 by electrifying their hot water system alone.

Nuts and bolts of the BE Credit

Electrifying heating, cooling and hot water systems with heat pumps reduces local pollution and increases the energy efficiency of buildings. Replacing fossil fuel-burning equipment with electric heat pumps also drives reductions in GHG emissions which will grow over time as heat pumps tap into new clean power on NYC’s grid.

Most GHG emissions from buildings covered under LL97 come from two sources: on-site fossil fuel combustion and the electricity used in the building. The BE Credit adds a new piece to the LL97 equation so that building owners can cut some or all of their emissions overage if they install heat pumps.

LL97 Emissions[2]A building’s total GHG emissions under LL97 can also include other less common sources like district steam use, renewable energy credit purchases, etc. = Fossil Fuel Emissions + Electric Emissions – BE Credit[3]The GHG coefficients for beneficial electrification defined in the law are negative values, and therefore in reality the BE Credit should be added to the rest of a building’s emissions rather than … Continue reading

The BE Credit has two main features:

  1. A negative coefficient: The LL97 rules set coefficients[4]The LL97 rules define two different GHG coefficients for beneficial electrification depending on when the applicable equipment is installed and operational. Equipment installed and operating between … Continue reading—or multipliers—that determine the size of the emissions credit based on the energy used by eligible heat pump equipment (the more energy used, the larger the credit). Equipment installed before 2027 earns double the credit.
  1. An electricity-use deduction: Building owners can also deduct the energy used by the new heat pump from their building’s total electricity use while the credit is applicable (zeroing out any emissions attributable to the heat pump).

Both of these benefits are layered on top of the major efficiency gains inherent in installing heat pumps in the first place:

Here’s an example that shows how this credit can help a relatively inefficient[5]This building is representative of a building in the 75th percentile of energy performance of all multifamily buildings than need to comply with LL97. multifamily building—one that already complies with LL97 for the 2024-2029 period—comply with its more stringent 2030 limit.  

Example building: 

Figure 1 shows the GHG value of incremental electrification for this example building. It’s broken down into the three components presented above, based on heat pump installation before 2027, when the credit is worth double. The GHG value of the BE Credit is larger than the GHG value of the efficiency gains from heat pumps. This allows buildings to reach their 2030 LL97 limits by replacing less of their fossil fuel use with heat pumps than they would need to without the credit, which unlocks feasible early electrification opportunities that might not otherwise be seized. In this example, the building complies after replacing just 17 percent of its fossil fuel use, compared to needing to replace over 55 percent without the credit. The BE Credit makes electrification a more attractive option in the many cases where owners would instead invest in optimizing the existing fossil fuel system alone.

Figure 1

The impact of the BE Credit can also be understood as decreasing the potential annual penalty a building might face. In this example, if the building installs heat pumps to replace 15 percent of its current fossil fuel use, its potential annual penalty from 2030-2034 will be:

How will the BE Credit impact the LL97 retrofit market? 

The BE Credit is meant to address a major barrier in the current market for electrification retrofits. Currently, the high cost and lack of market experience for large or full electrification retrofits can make these projects challenging for many building owners looking to comply with LL97 in 2030. If the NYC market only has a limited number of successful electrification projects to point to, then this work may continue to be inaccessible to most building owners well into the 2030s or beyond. At that point, the strictest LL97 caps will require significant electrification.

The BE Credit helps enable incremental electrification because replacing 5 to 30 percent of a building’s fossil fuel use with heat pumps is more financially and logistically feasible between now and 2030. For example, domestic hot water heating represents 15-20 percent of total energy use in a typical multifamily building. The BE Credit will help owners comply with LL97 in 2030 through electrification of domestic hot water systems without worrying that this important early electrification step might not be enough to get them to their LL97 limits. 

The BE Credit will also help any owners replacing equipment between now and 2030 to choose heat pumps rather than lock in new fossil fuel equipment for decades to come. That’s particularly important for buildings that have to upgrade equipment to eliminate carbon-intensive fuel oil #4 by 2027 in compliance with LL32 of 2023.

Figure 2 shows the impact of the BE Credit on buildings that have varying amounts of GHG to cut before 2030 based on current energy use. The BE Credit incentivizes electrification for each of these building performance profiles, but more inefficient buildings have the most to gain from using the credit. 

Figure 2

The credit can also be used by building typologies, like offices, that already primarily use electricity to power their building systems. These buildings might not have as much flexibility to choose which systems to electrify, but targeted electrification projects—like replacing absorption chillers with heat pumps—could be an attractive LL97 compliance strategy.

Applying the credit: double reward for early movers

The final component of the BE Credit is duration: determining how long a building can apply the credit to its LL97 emissions calculation. In general, the sooner the work is done, the longer a building owner can use their annual credit. That means early movers get a double-sized credit and the ability to apply the annual credit across more years. But any annual credit value beyond what is needed for compliance in a given year cannot be carried over to another year. The building would need to use another available annual credit value.

The table below shows the number of years a building owner can apply the credit based on when the new heat pump systems become operational. 

Year equipment was operationalYears eligible for application of GHG savings
2024 or prior Any 6 calendar years between 2024 and 2036
2025Any 5 years between 2025-2035
2026Any 4 years between 2026-2034
2027Any 3 years between 2027 – 2034
2028Any 2 years between 2028 – 2034
2029Any 1 year between 2029 – 2034

There are two important dates to call out in this table:

  1. Systems operational by 2025 enable a BE Credit that can be used throughout the entire 2030-2034 LL97 compliance period.
  1. For systems operational after January 1, 2027, the value of the BE Credit portion of a building’s GHG savings is cut in half, so building owners would need to do more electrification to receive the same credit value.

Overall, the BE Credit heavily favors building owners who act early to greenlight these projects.

You can find detailed documentation on how to define, calculate and apply the BE Credit to your building in the latest round of LL97 rules released by the NYC Department of Buildings.


Thank you to the Energy Foundation

Energy Foundation

References

References
1 The NYC Department of Buildings specifies minimum efficiency thresholds, outdoor temperature conditions and test procedures for the equipment that can qualify for the BE Credit.
2 A building’s total GHG emissions under LL97 can also include other less common sources like district steam use, renewable energy credit purchases, etc.
3 The GHG coefficients for beneficial electrification defined in the law are negative values, and therefore in reality the BE Credit should be added to the rest of a building’s emissions rather than subtracted. We decided to show the BE Credit being subtracted because it is more straightforward at this level of approximation.
4 The LL97 rules define two different GHG coefficients for beneficial electrification depending on when the applicable equipment is installed and operational. Equipment installed and operating between January 1, 2027, and December 31, 2029, shall be -0.00065 tCO2e/kWh. Whereas, equipment installed and operating prior to January 1, 2027, shall be -0.0013 tCO2e/kWh.
5 This building is representative of a building in the 75th percentile of energy performance of all multifamily buildings than need to comply with LL97.