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Driving Energy Efficiency in NYC Buildings

by Alan Masinter

New York City has ambitious goals to reduce its greenhouse gas emissions1 See New York City Mayor’s Office of Sustainability,New York City’s Roadmap to 80 x 50, at 5 (Sept. 2016), available at https://www1.nyc.gov/site/sustainability/codes/80×50.page (outlining target GHG reductions of 40% by 2030, and 80% by 2050 relative to a 2005 baseline). and to thereby become the “most sustainable big city in the world and a global leader in the fight against climate change.”2 Id. at 5. One important component of the city’s energy policy may be adopted soon: energy efficiency requirements for existing buildings. Members of the City Council have recently introduced a bill promulgating such requirements.3N.Y.C. Local Law Int 1253-2018 (Nov. 28, 2018), available at https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=3761078&GUID=B938F26C-E9B9-4B9F-B981-1BB2BB52A486; see also Alexander C. Kaufman, Huffington Post, New York City Just Unveiled A Historic Bill To Cut Its Biggest Source Of Climate Pollution (Nov. 20, 2018), https://www.huffingtonpost.com/entry/nyc-climate-bill_us_5bf4214ae4b0d9e7283d6355; Joe Anuta, Crain’s New York Business, Council bill would force large buildings to cut emissions (Nov. 20, 2018), https://www.crainsnewyork.com/real-estate/council-bill-would-force-large-buildings-cut-emissions.The Council would do well to pass the bill, or something like it, and continue the city’s record of leadership in this area.

The effort is certainly worthwhile: energy efficiency is a key pillar of an energy system transformation needed to limit and prevent the worst consequences of climate change.4The other pillars of this transformation are (1) the move to a cleaner electricity grid and (2) the electrification of transportation and heating. See generally Deep Decarbonization Pathways Project, Pathways to Deep Decarbonization 8 (2015), available at http://deepdecarbonization.org/ddpp-reports/; Kit Kennedy, The Role of Energy Efficiency in Deep Decarbonization, 48 Envtl. L. Rep. News & Analysis 10030 (2018). Efficiency is often the cheapest, fastest, and most effective way to reduce greenhouse gas emissions – the “low-hanging fruit” of greenhouse gas reductions.5See, e.g., Steven Nadel & Garrett Herndon, Am. Council for an Energy-Efficient Econ., The Future of the Utility Industry and the Role of Energy Efficiency 3 (2014), available at https://aceee.org/research-report/u1404; Anne Bergmann et al., Hang the low-hanging fruit even lower – Evidence that energy efficiency matters for corporate financial performance, 147 J. Cleaner Production 66 (2017).Given likely absence of major federal action on climate change in the near future,6The federal government’s recent report on the current and likely future impacts of climate change described the major impacts of climate change that are already being felt and getting worse. U.S. Global Change Research Program, Fourth National Climate Assessment (Nov. 23, 2018), available at https://nca2018.globalchange.gov/. Despite this, the Trump administration does not appear to be taking it very seriously. See Dino Grandoni, Trump’s EPA chief said there was ‘no political review’ of climate report, Wash. Post (Nov. 29, 2018, 8:58 am), https://www.washingtonpost.com/news/powerpost/paloma/the-energy-202/2018/11/29/the-energy-202-trump-s-epa-chief-said-there-was-no-political-review-of-climate-report/5bfef3a61b326b60d1280085/. it is especially important today that states and municipalities take the lead.7See, e.g., Abigail Dillen, As Scientists Sound Climate Change Alarm, States Lead on Solutions, Earthjustice (Oct. 15, 2018), https://earthjustice.org/blog/2018-october/as-scientists-sound-climate-change-alarm-states-lead-on-solutions.

New York City has been doing just that. The largest component of the city’s emissions is from buildings’ combustion of fossil fuels and electricity use.8See City of New York Mayor’s Office of Sustainability, Inventory of New York City Greenhouse Gas Emissions in 2015, at 7, 20 (2017), available at https://www.dec.ny.gov/docs/administration_pdf/nycghg.pdf (NYC buildings were responsible for 67% of citywide greenhouse gas emissions in 2015). In addition to its city-wide GHG reduction goals, the city also aims to reduce emissions from buildings by 30% by 2030.9See New York City Mayor’s Office of Long-Term Planning and Sustainability, One City Built to Last: Transforming New York City’s Buildings for a Low-Carbon Future (2014), available at https://www1.nyc.gov/site/builttolast/the-plan/the-plan.page. As part of these efforts, the Mayor’s Office has touted the benefits of energy efficiency retrofits, including improved quality of housing and long-term cost savings.10Id. at 6.

Energy efficiency upgrades generally pay for themselves over enough time, but additional government support for these upgrades is necessary for a few reasons. First, the prices of heating and electricity don’t reflect the external costs associated with greenhouse gases or other pollutants; without additional incentives, individuals will invest less in efficiency than is optimal.11This is the well-understood problem of environmental externalities. Such costs include both the long-term costs associated with climate change from greenhouse gas pollution as well as associated costs from other pollutants that result from combustion of fossil fuels. See, e.g., Lance Noel et al., Cost minimization of generation, storage, and new loads, comparing costs with and without externalities, 189 Applied Energy 110 (2017) (estimating costs of energy resources with and without externalities); see generally Joel B. Eisen et al., Energy, Economics and the Environment 15–17 (4th ed., 2015). Second, improving energy efficiency can serve as an alternative to expensive grid upgrades by reducing peak electricity consumption,12See Shelley Welton, Non-Transmission Alternatives, 39 Harv. Envtl. L. Rev. 457, 460 (2015) (discussing how energy efficiency or other alternatives may be cheaper than building new transmission).  The cost of any new transmission would normally be passed on to consumers. See id. at 496. and has a number of other secondary public benefits.13See generally Intl. Energy Agency, Capturing the Multiple Benefits of Energy Efficiency (2014) (discussing energy security, macroeconomic development, public budgets, and several other public benefits that may result from greater energy efficiency). But many of these benefits are dispersed across many consumers, rather than being concentrated on those who make the upgrades. Third, there is a “split incentive” issue for efficiency investments where the person making the investment (e.g., the landlord) often isn’t the same person who would benefit from a reduced electricity bill (e.g., the tenant).14See Stephen Bird & Diana Hernández, Policy options for the split incentive: Increasing energy efficiency for low-income renters, 48 Energy Policy 506 (2012). Ongoing complementary efforts to submeter more apartments in NYC will make it possible for tenants to pay for their own energy and thus to benefit more from energy efficiency. However, existing requirements are limited to non-residential (i.e., commercial or industrial) tenants. See N.Y.C. Local Law 88 (2009) (requiring submetering for large non-residential tenants in large buildings to install submetering by 2025); N.Y.C. Local Law 132 (2016) (expanding the requirement to mid-size buildings). In those cases, there’s reason to believe efficiency upgrades won’t be made, at least not in the short term.15In the long term, the cost savings from energy efficiency may be incorporated into rental prices. See Adam B. Jaffe & Robert N. Stavins, The Energy Paradox and the Diffusion of Conservation Technology, 16 Resource & Energy Econ. 91, 98 (1994) (explaining how problems of observability of energy efficiency benefits may lead to this kind of principal-agent problem); but see George M. Padis, Overcoming the “Energy Paradox” in the Built Environment, 42 Tex. Envtl. L.J. 85, 94–95 (2011) (criticizing the argument).

NYC already has numerous efficiency initiatives in place, though none are as comprehensive as this latest proposal. The city has updated its building code and instituted requirements for efficient lighting, though these policies are relatively limited in scope.16Specifically, the updated building code does not apply absent a renovation or alteration project (as defined by the code), and that lighting is only a fraction of a building’s energy use. See N.Y.C. Local Law No. 85 (2009) (requiring buildings to meet the most current energy code for any renovation or alteration project); N.Y.C. Local Law No. 88 (2009) (requiring compliance with new lighting code by 2025); N.Y.C. Local Law No. 134 (2016) (amending the requirement). Other policies require gathering information about energy efficiency opportunities through consumption monitoring17N.Y.C. Local Law No. 84 (2009) (requiring annual measurement of energy and water consumption in large buildings); N.Y.C. Local Law No. 133 (2016) (expanding the requirement). and energy audits,18N.Y.C. Local Law No. 87 (2009) (amending the New York City charter and administrative code to require energy audits and retrofits every ten years for buildings over 50,000 square feet). or facilitate taking advantage of such opportunities through free technical support for energy efficiency upgrades.19See Press Release, City of New York, Mayor de Blasio Launches Retrofit Accelerator, Providing Key Support for Buildings to go Green as NYC Works Toward 80×50 (Sept. 28, 2015), https://www1.nyc.gov/office-of-the-mayor/news/651-15/mayor-de-blasio-launches-retrofit-accelerator-providing-key-support-buildings-go-green-as. A law passed in early 2018 requires owners of buildings over 25,000 square feet to post a grade (A to F) for the building’s energy efficiency.20N.Y.C. Local Law 33 (2018). As with other “green building” certification programs, this might incentivize some commercial tenants to seek efficiency improvements in their buildings to preserve or improve their public image as a “green” business.21See Sarah Fox, A Climate of Change: Shifting Environmental Concerns and Property Law Norms Through the Lens of LEED Building Standards, 28 Va. Envtl. L.J. 299, 326 (2010) (arguing that a failure to challenge LEED program standards is due in part to the value of a business’s environmental reputation). Additionally, several state and utility programs provide financial and technical assistance for implementing energy efficiency, and these programs are critical for making it easier to install energy efficiency upgrades.22See, e.g., New York State Energy Research and Development Authority, Home Energy Efficiency Programs, https://www.nyserda.ny.gov/All-Programs/Programs/Home-Energy-Efficiency-Upgrades (last visited Dec. 1, 2018); Consolidated Edison, Energy Saving Programs, https://www.coned.com/en/save-money/energy-saving-programs (last visited Dec. 1, 2018). But what’s missing from all these—and what the City Council’s proposed legislation would provide—is a substantive requirement to reduce overall energy use or emissions from existing buildings.

The proposed bill requires a study on carbon trading schemes that could be incorporated into the design of the program.23See N.Y.C. Local Law Int 1253-2018 (Nov. 28, 2018) (containing a provision to institute a study on the feasibility a carbon trading scheme), available at https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=3761078&GUID=B938F26C-E9B9-4B9F-B981-1BB2BB52A486. Such schemes could provide helpful flexibility while also ensuring that the city’s climate and other goals are achieved. New York City could take inspiration from other programs like the Tokyo Cap and Trade Program,24See Tokyo Metropolitan Government Bureau of the Environment, Tokyo Cap-and-Trade Program: Japan’s first mandatory emissions trading scheme (2010), http://www.kankyo.metro.tokyo.jp/en/climate/cap_and_trade/index.files/Tokyo-cap_and_trade_program-march_2010_T.pdf. a policy instituted in 2010 that has successfully and inexpensively achieved energy efficiency reductions, and has received several awards for its innovative design.25Tokyo Metropolitan Government, Tokyo Cap-and-Trade Program (last visited Nov. 30, 2018), http://www.metro.tokyo.jp/english/topics/2016/161116_01.html (noting the receipt of the COP 17 Government Leadership Award in 2011 and the C40 & Siemens City Climate Leadership Award in 2013); see also Willow Aliento, Eco-Business, Tokyo’s cap and trade scheme goes beyond hitting the bullseye (May 30, 2016), https://www.eco-business.com/news/tokyos-cap-and-trade-scheme-goes-beyond-hitting-the-bullseye/. Like the City Council’s proposal, Tokyo’s program requires emissions reductions from existing buildings, but also permits building owners to trade efficiency credits, bank them between compliance periods, and purchase emissions reduction offsets by reducing emissions from outside the group of regulated buildings.26See Yuko Nishida et al., Alternative building emission-reduction measure: outcomes from the Tokyo Cap-and-Trade Program, 44 Building Res. & Info. 644 (2016), https://doi.org/10.1080/09613218.2016.1169475. Policies like Tokyo’s provide monetary incentives to improve energy efficiency when and where it is cheapest to do so. Insofar as the objective of the policy is to reduce greenhouse gas emissions, it does not matter where these reductions occur.27Of course, there are also important local benefits of energy efficiency, including improvements grid reliability, reductions in local pollutant emissions, creation of local jobs, and bill savings. The ability to trade in emissions reductions will affect the distribution of such local benefits, but whether such trading is good or ill—and what can or should be done about it—is subject to much debate. See, e.g., Raul P. Lejano & Rei Hirose, Testing the Assumptions Behind Emissions Trading in Non-Market Goods: The RECLAIM Program in Southern California, 8 Envtl. Sci. & Pol’y 367, 374-75 (2005); Noga Morag-Levine, The Problem of Pollution Hotspots: Pollution Markets, Coase, and Common Law, 17 Cornell J. L. & Pub. Pol’y 161 (2007); Jonathan Remy Nash & Richard L. Revesz, Markets and Geography: Designing Marketable Permit Schemes to Control Local and Regional Pollutants, 28 Ecology L.Q. 569 (2001). New York City’s approach could also be designed so that landlords are both rewarded for additional efficiency gains beyond the mandatory cap and penalized for falling short.

Regardless, a new policy is necessary if the city is to ensure better building efficiency. A building efficiency requirement would better help the city to reach its emission reduction goals, would have several secondary benefits, and would serve as a model for other municipalities.

Alan Masinter is a Quorum Editor & J.D. Candidate, Class of 2019, N.Y.U. School of Law. The author would like to thank Soli Shin for providing helpful comments for this article.