NYC Could Soften Local Law 97's Controversial Fine Structure

New York City may be about to create additional flexibility for buildings unable to comply with Local Law 97’s requirements before the 2024 deadline.

Testifying before members of the New York City Council, New York City Department of Environmental Protection Commissioner Rohit Aggarwala said that the city is considering “flexibility in terms of fines” for buildings that are not compliant by the law's deadlines.

Buildings 25K SF and up must curb their greenhouse gas emissions starting in 2024 under Local Law 97, which passed as part of the city's 2019 Climate Mobilization Act. Under the current legislation, any buildings failing to comply will face fines of $286 for every ton of carbon dioxide emitted over the buildings' cap. 

Buildings remain the biggest source of greenhouse gas emissions in the city, and how Mayor Eric Adams implements Local Law 97 will be a test of his commitment to environmental issues. But the Adams administration hinted that it may soften the law’s regulatory approach as early as January this year, when a spokesperson for the mayor told Bloomberg Law that the city needed to reduce retrofit costs and avoid “overly punitive fines.”

While the law already has options for buildings able to demonstrate their efforts toward compliance, Aggarwala said it may be tweaked to allow for greater flexibility on penalties and compliance mechanisms.

“Buildings acting in good faith may have their applicable annual building emissions limits adjusted for their penalties for noncompliance reasons,” he said. “The alternative compliance mechanism concept and the idea of flexibility in terms of fines are things that I think are really important.”

Aggarwala said that the advisory committees hadn't yet fleshed out details of what penalty flexibility or alternative compliance mechanisms may look like, but said that the committee was exploring options. A spokesperson for the Adams administration declined to provide further details of plans for alternative compliance mechanisms or flexibility on fines.

Many in the real estate industry have been highly critical of the law, including Durst Organization Chairman Douglas Durst, who said at a Bisnow webinar last year that the law punishes owners who have already designed their buildings with sustainability in mind, highlighting One Bryant Park as a property that exceeds most green building standards but would be subject to heavy fines if the law stands as written.

“The Local Law 97 punishes people like us who have spent years making our buildings efficient by insisting we pay fines if we don't make them more efficient, and every year we spend money to make them as efficient as possible," Durst said a year ago. "The idea that somehow those of us who have made our buildings efficient can make them even more efficient is beyond me."

YuhTyng Patka, partner and co-chair of Duval & Stachenfeld LLP’s NYC Climate Mobilization Act Task Force, praised the city’s move toward flexibility to reward building owners making efforts but unable to meet the 2024 deadline.

Many building owners have struggled during the pandemic to collect enough rents to cover expenses and continue to face inflation-related difficulties in the post-vaccine era, Patka told Bisnow, leaving many unsure how to foot the bill for required retrofits. 

“Currently, Local Law 97 does not provide any flexibility or in-between approach. You either comply, meaning you're under your cap by January 2024, or you’re not and you have to pay a penalty,” Patka said. “It's very black and white.”

Aggarwala also said that the city is considering using fines collected from noncompliant buildings beginning in 2024 to fund retrofit efforts to bring NYC’s affordable housing stock into compliance. 

“There are emerging ideas under discussion about how the city could create an alternative mechanism to traditional civil penalties that would also help retrofits in affordable housing,” Aggarwala said. “We are enthusiastic about this concept, but we have not yet figured out whether, and if so how, we would achieve this under current law.”

The proposal has support from across the city government. Louise Yeung, chief climate officer at the NYC Office of the Comptroller, said that fines collected should be directed toward affordable housing retrofits, but should ultimately serve as an incentive to get buildings to meet climate goals.

“The goal is 100% compliance, not fines for failure,” Yeung said in testimony before the city council. 

Although affordable housing providers will not have to comply with emissions caps until 2030, the additional flexibility will likely provide much-needed relief, Patka said.

“I think it's a good thing that the city is looking for a way to accommodate the unique financial situation that affordable housing owners find themselves in,” she said. “Affordable housing will likely find difficulty in complying with Local Law 97, as far as being able to afford the retrofits or the fines that result from not being able to put in to afford the retrofits.”

But even with flexibility in place, the city could find itself collecting more fines than it hopes. Speaking at a Bisnow event last month, Rosenberg & Estis Managing Member Michael Lefkowitz said that some buildings may opt to pay fines rather than complete upgrades, on the basis of the cost of retrofits.

Aggarwala also said that the advisory committee is “not pursuing a cap-and-trade system at this time,” following a feasibility study released in November conducted by New York University Law School’s Guarini Center on Environmental, Energy and Land Use Law. While the study found that a carefully designed carbon trading program could help the city toward its goals, the study also described the program as complicated.

City council members from the Bronx and Brooklyn, who represent residents of communities that have waged long fights for environmental justice, praised the city for avoiding a cap-and-trade system.

“I'm very, very glad to hear the administration is not pursuing a cap-and-trade mechanism,” Council Member Pierina Ana Sanchez, who represents District 14 in the Bronx, said at the hearing. “We've seen time and again, research shows that cap-and-trade mechanisms create hot spots that exacerbate harms to environmental justice communities.”