Unpacking carbon transition costs for real estate

The energy that powers residential and commercial buildings accounts for roughly 40% of energy consumption and 35% of overall carbon emissions in the United States.1 The federal government has taken notice. In a 2024 report, the U.S. Department of Energy called for a 65% reduction in the emissions of American buildings by 2035. As of 2024, building performance standards (BPS) exist at the state level in California, Colorado, Washington, and Maryland, as well as in dozens of cities scattered across the country. At a more local level, many city and local governments have joined the National Building Performance Standards Coalition and are starting to enact policies aimed at limiting building energy use or emissions.

Of all the local building standards policies enacted to date, New York City's Local Law 97 has received some of the most widespread media attention. It was passed by the New York City Council in April of 2019 and officially came into effect on January 1, 2024, as one of the most ambitious pieces of building emissions-related legislation enacted by any U.S. city to date. The law requires most New York buildings over 25,000 square feet (some 27,000 buildings across the city2) to meet new greenhouse gas emissions limits or face penalties. Stricter emissions limits on these large buildings will come into effect in 2030.3 Buildings account for more than two-thirds of New York City's greenhouse gas emissions, so the law represents an important component in the city's plan to reduce overall building emissions by 40% in 2030 relative to 2005.4 The goal: net zero by 2050.

As the city begins to grapple with enforcing the legislation, both environmental activists and property-owners have voiced critiques.5 Some activists have criticized supposed loopholes, including the option for non-compliant building owners to purchase renewable energy credits (RECs) to offset excess emissions starting in 20266 and the option for non-compliant building owners to pursue a "mediated resolution" with the city. According to activists, the mediated resolution process could essentially allow building owners to avoid fines for up to two years in exchange for the promise of future compliance.7 On the flip side, property owners have voiced concerns over what they perceive to be disproportionate costs to residents who own smaller multi-family properties like co-ops and condominiums, arguing that the law does not do enough to differentiate between these types of buildings and luxury high-rise complexes owned by institutional real estate entities.8 In fact, several local Queens politicians have gone as far as introducing counter legislation that aims to ease some of the cost impacts on condominium and co-op owners.9

The controversy over Local Law 97 highlights the importance of mapping and understanding the law's potential impacts at a granular level. Renters, condominium and building owners, taxpayers, and real estate investors alike are all likely to be affected by efforts to reduce building emissions, with average penalties and carbon mitigation costs varying by building age, building type, and neighborhood. Because older buildings may tend to be less energy efficient, these kinds of disparate impacts are not likely to be unique to Local Law 97. Depending on the specific characteristics of their buildings, owners are likely to experience varying degrees of impact from any sort of regulation, ordinance, or federal incentive program aimed at reducing building emissions.

To illuminate the potential costs and impacts of carbon mitigation efforts in the building sector, ICE Climate has developed energy usage and emissions estimates for more than 150 million individual residential and commercial properties across the country. (For details on our methodology, please see the end of this article, as well as a related series.) We demonstrate below how these estimates can be used to look at compliance patterns with Local Law 97 across New York City buildings, as well as the potential costs that building owners may face at the borough, neighborhood, block, and individual building level. We then extend a hypothetical "federal" version of Local Law 97 to large buildings (those greater than 25,000 square feet) across the country to understand the potential impacts of larger-scale carbon mitigation efforts in the future.