This story was originally published by Canary Media.

One of California’s marquee programs for cleaning up transportation emissions is at a crossroads. Decisions made in the next few months could set the decade-and-a-half-old Low Carbon Fuel Standard on one of two very different paths.

One path, favored by fossil fuel and renewable natural gas interests, would lock in a market scheme that currently extracts billions of dollars per year from Californians at the pump and subsidizes crop-based and cow-manure-derived biofuels.

That would be a disaster, according to environmental advocates, who point to a growing body of scientific evidence showing that this approach, if extended until 2045 as proposed, would cause these biofuels to grow at a scale that would harm the climate and the environment.

The other path, proposed by environmental groups, transportation-decarbonization analysts and climate and energy researchers, would limit the scope of unsustainable biofuels in the program, and instead reorient it to support what experts agree should be California’s primary clean transportation pathway: electric vehicles.

To date, roughly 80 percent of LCFS funding has gone to combustion biofuels rather than electric vehicles. That’s simply incompatible with the state’s EV ambitions and needs, said Adrian Martinez, deputy managing attorney of nonprofit advocacy group Earthjustice — and the imperative to reduce emissions from transportation, which account for nearly 40 percent of the state’s greenhouse gas emissions.

“We’ve got to eliminate our reliance on combustion,” he said, but ​“the program as designed will continue to provide lucrative incentives for combustible fuels well into the future.”

The regulator in charge of the LCFS program — and this high-stakes decision — is the California Air Resources Board. CARB’s board, which comprises 14 voting members, 12 appointed by the governor and two by the state legislature, holds a host of responsibilities around California’s energy transition. Those include shaping the state’s nation-leading EV policy, as well as determining its broad plans for achieving long-term greenhouse-gas reduction goals.

Critics say the LCFS program’s increasing support for biofuels is in direct contrast to both the EV targets and the climate goals also overseen by CARB — and that the program has been captured by deep-pocketed industries trying to greenwash the continued use of combustion fuels.

CARB has a chance to reform the program with an upcoming vote, initially set for this month, but now postponed to an undetermined future date. But its pathway to fixing the problems that plague LCFS is murky and messy at best.

Right now, the staff managing the LCFS program hasn’t given CARB board members an opportunity to pick a climate- and EV-friendly alternative. Instead, a December staff proposal provides only one option for the board to vote on later this year: a set of policies that Earthjustice forecasts would direct $27 billion over the coming decade toward biofuels and worsen effects on the climate, the environment and the prices that Californians pay at the pump.

CARB does have another option, however — an alternative proposal laid out by CARB’s Environmental Justice Advisory Committee, created to advise the board on environmental-justice issues.

That proposal would cap the fast-growing share of crop-based renewable diesel flooding the state. It would also end the unusual structure that now allows biogas produced by dairy farm manure to offset a much higher amount of carbon emissions than any other source of alternative fuels.

And, importantly, it would make the core of the program — its carbon-offset marketplace — function in a much healthier way, proponents say. A torrent of cheap, polluting renewable diesel and dairy farm biogas credits have dragged down the price that LCFS credits can fetch for avoiding emissions, diluting the incentive to deploy new climate technologies and sapping what could be a key funding source for EV infrastructure in the state.

“The stakes are very, very high,” Martinez said. ​“That’s why you see so much attention focused on this — and a very broad and diverse coalition that is pushing for more systemic change to the program, versus more modest tweaks that will really just keep this market owned and dominated by fossil fuel interests.”

A history of the LCFS program

California’s Low Carbon Fuel Standard was born out of AB 32, the 2006 law that created the state’s carbon cap-and-trade market. Much like carbon markets, LCFS is meant to make companies pay for their carbon emissions by buying credits from technologies that reduce carbon emissions.

The program requires all fossil fuels refined and sold in California to meet increasingly stringent carbon-intensity targets. In practice, fossil fuel producers have to buy a bunch of LCFS credits from low-carbon transit sources operating in the state in order to comply. The goal is to create a system that taxes planet-warming fossil fuels to fund cleaner transportation alternatives.

But the LCFS has strayed from its initial focus on vehicle electrification and ​“advanced” non-crop-based biofuels to become ​“a swag bag for venture capitalists, big oil, big agriculture, and big gas, increasingly coming at the expense of low- and moderate-income Californians.” That’s how Jim Duffy, a 13-year veteran of the agency who served as branch chief of the LCFS program from 2019 to 2020 and retired in 2022, described the evolution of the program in comments filed with CARB.

Under the LCFS regulation adopted in 2009, dairy-manure-to-biogas projects did not receive special treatment compared to other sources of methane such as landfills and sewage treatment plants, Duffy wrote. Similarly, diesel fuels made from crops like soybeans were considered ​“only marginally better than fossil diesel.”

But in the years since, ​“the LCFS was revised to provide additional and unnecessary support to landfills and first-generation crop-based biofuels” and ​“to mitigate the methane problem created by the dairy industry itself,” Duffy wrote — despite the fact that evidence increasingly suggests that both sources harm the planet far more than they benefit it.

The result has been an increasing share of LCFS credits being supplied by renewable diesel and dairy-generated biogas. 

CARB has justified these shifts with analysis indicating they will yield net positive climate impacts.

“The proposed amendments now under consideration will directly increase the program benefits in the most burdened communities, by reducing the carbon across the supply chain for fuels sold in California, as well as improving public health for fuels sold in California,” CARB spokesperson Dave Clegern said in an email to Canary Media. He cited data from CARB staff’s analysis of its proposal indicating that, by 2045, its plan will reduce nitrogen oxide emissions by 25,586 tons, cut greenhouse gas emissions by 560 million metric tons and yield public-health cost savings of nearly $5 billion. 

But critics say the agency is failing to account for the full scope of climate harms that will be caused by its continued emphasis on biofuels.

They warn that the sheer scale of California’s program — totaling some $4 billion per year — is driving investment in the wrong transportation alternatives. The consequences are dire, they say — not just within the state, but across the country and around the world.

Why renewable diesel is threatening CARB’s climate and credit goals

Take renewable diesel, a fuel made from fats and oils processed to be identical to fossil diesel fuel. The U.S. increased production of the fuel by 400% between 2019 and 2022, and it is set to double it again this year, according to Jeremy Martin, senior scientist and director of fuels policy for the Union of Concerned Scientists.

Unlike ethanol and biodiesel, which can only partially replace gasoline and diesel, renewable diesel has ​“no limit on how much can be blended,” Martin said. It could theoretically completely replace diesel fuel for trucks, buses and other vehicles. And California’s LCFS offers credits on top of the federal incentives the fuel receives, making the state the primary target of renewable diesel producers across the country.

As a result, the share of renewable diesel as a percentage of total diesel fuel use has skyrocketed in California compared to the rest of the U.S., as the chart below shows.

In a September meeting, Steven Cliff, CARB’s executive officer, highlighted a milestone for the LCFS program: As of mid-2023, California had ​“more than half of our diesel demand being met by non-petroleum-based diesel alternatives. This is a direct result of the LCFS program, and it’s bringing real climate and air-quality benefits to the state.”

In Martin’s view, that milestone is not a win, but a warning. It indicates that renewable diesel is ​“flooding the LCFS, drowning the policy — and it doesn’t make sense” on climate or environmental terms.

Once the demand for renewable diesel outgrows the supply of waste oils and other non-crop feedstocks that can be used to make the fuel in genuinely climate-friendly ways, it becomes highly likely that it will cause more greenhouse gas emissions than it will displace. Critics like Martin argue that demand has now reached this point, though it’s a contested question.

This additional demand for crop oils could mostly serve ​“to expand the cultivation of palm oil to replace the soybean and other oils made into fuel,” the Union of Concerned Scientists argued in comments to CARB. That, in turn, is likely to lead to more rapid deforestation in nations that produce large amounts of these crops, such as Brazil and Indonesia — an outcome that would cause far greater climate harms than whatever emissions reductions result from replacing fossil diesel.

To stop this, the Union of Concerned Scientists and other groups want CARB to set a limit on how much renewable diesel can receive LCFS credits. CARB staff’s proposal declines to set such a cap, citing renewable diesel’s climate and health benefits.

But CARB’s methodology is out of step with the latest science, according to multiple groups studying these issues. The Union of Concerned Scientists, for its part, says CARB’s analysis is ​“based on inaccurate claims of climate and air-quality benefits and associated health outcomes.”

In a recent comparison of five different models for evaluating the climate impacts of crop-based biofuels, the U.S. Environmental Protection Agency found that only CARB’s own model shows a positive carbon-reduction impact.

And while the agency has a proposal to limit deforestation harms by setting ​“sustainability guidelines” for crops being used for renewable diesel, it applies only to feedstocks grown in the U.S., Martin noted. That’s a problem: California is on pace to consume 10 percent of global soybean oil supplies for renewable diesel, meaning a significant amount of the crop oil produced for the program will be grown under conditions CARB cannot police, he said.

Given that reality, Martin said, ​“If California declines to act — if they say, ​‘This is evidence of success; look how little fossil diesel we’re using’” by replacing it with renewable diesel, ​“then, in fact, California is giving its support to a fuel that we know is unsustainable at these volumes.”

California’s biofuel bias is hampering its EV future. Can that change? is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.

This story was originally published by Canary Media.

Last month, utilities in New York state submitted plans for 13 pilot projects meant to replace fossil-gas pipelines with infrastructure that can power clean, carbon-free heat pumps.

These underground thermal networks range from dense midtown Manhattan commercial centers to low-income housing, and from neighborhoods in the Hudson Valley to the upstate town of Ithaca.

But the projects, spurred by a 2022 state law that puts New York on the cutting edge of a decarbonization strategy now being explored by a growing number of states, share a common goal: to cut fossil fuels and carbon emissions out of the gas utility business, while still carving out a role for those utilities in the decades to come.

That work will still involve digging trenches, laying pipelines and installing equipment — the same kind of capital investments that earn gas utilities long and stable rates of return today. But instead of flammable and planet-warming gas, those pipes will carry water or other liquids that transfer heat from underground — or from other buildings and sources in the network — that can be used by heat pumps to keep buildings warm.

Heat pumps, which operate like reversible air conditioners, are much more energy-efficient than fossil-fired furnaces or boilers. They’re even more efficient when they can exchange heat and cold with fluid at a stable temperature, rather than from cold outside air, as the more common air-source heat pumps do.

The U.S. Department of Energy estimates that ground-source heat pumps reduce energy consumption and emissions by up to 44 percent compared to air-source heat pumps and 72 percent compared to standard air-conditioning equipment.

Capturing and sharing waste heat from thermal energy networks can increase efficiency even further. That, in turn, can cut the electricity bills of customers, which will rise as they switch from gas to electric heating.

But most building owners would struggle to afford the cost of drilling boreholes and installing pipes for their own geothermal heat pump systems, or to craft contracts with their neighbors to build and share underground networks. That’s why New York’s approach to adapting the gas utility infrastructure holds so much promise. Doing so will help all those individual homeowners and businesses share in the costs and reap the rewards, said Lisa Dix, New York director for the nonprofit Building Decarbonization Coalition.

Her team led an effort to rally utility labor unions, environmental groups and community organizations behind the 2022 law, called the Utility Thermal Energy Network and Jobs Act. These groups have since coalesced into a coalition called UpgradeNY that hopes to see these pilot projects serve as a model for a statewide conversion.

The newly proposed projects in New York are meant to offer a ​“clear understanding of neighborhood scale thermal energy networks,” she said, ​“so that as the transition happens, we can get to the scale we need to get to.”

The projects could also help serve as an early blueprint for the other half dozen or so states pursuing or exploring this method of decarbonization, she said. ​“We’re going to have to stop digging the hole, stop subsidizing the expansion of the fossil fuel system.”

New York’s pilot projects 

By design, the 13 pilot projects in New York cover a variety of different neighborhoods.

UpgradeNY has endorsed 11 of the projects but is asking the New York Public Service Commission to review the remaining two, one on Long Island and another in the city of Buffalo, that would continue to use fossil-gas-fired boilers for high-temperature heat.

Con Edison, the utility serving New York City and Westchester County, has proposed three projects taking on some of the most challenging urban settings, including the landmark Rockefeller Center.

For that project, Con Ed plans to convert three large commercial buildings from the utility’s district steam-heating network to heat pumps. These heat pumps would draw on water that’s warmed up by waste heat from sources including the sewers, data centers and adjoining buildings’ cooling systems. 

“There are some misconceptions out there — people think you have to drill a million boreholes” to capture underground heat, Dix said. ​“But you can get your heat from different [underground sources]. You can get it from the subway. You can get it from the sewer. And it’s going to help decarbonize Con Ed’s steam system if we do it right.”

Real estate company Tishman Speyer, the owner of 30 Rockefeller Center, is a key partner in the project, she noted. The firm has a strong incentive to participate because the project could lower the cost of complying with New York City’s Local Law 97, which requires all large buildings to reduce their carbon emissions by 40 percent from 2019 levels by 2030.

Hitting those targets will require an estimated $18.2 billion in investment in alternatives to fossil-gas-fired boilers and furnaces. Shared networks could significantly reduce the cost to individual buildings, but property owners ​“don’t want to deal privately with all that permitting — they want the utility to deal with all that,” Dix said.

Another Con Ed project in Manhattan’s Chelsea neighborhood plans to get 100 % of heating, cooling and hot-water needs for a low-income multifamily residential building from a nearby data center. ​“We can have a data center literally heating an entire multifamily building or a big skyscraper,” Dix said.

Other projects on the list will test how thermal energy networks can link residential and commercial buildings in less dense environments. Those include a project by utility NYSEG in the city of Norwich that will connect homes and buildings to underground networks and waste heat from a grocery store’s refrigeration system, and a project by utility Orange & Rockland in the town of Haverstraw that will build two networks — one serving new waterfront construction, and the other municipal and school district buildings — that are close enough to be linked together in future expansions.

Dix highlighted a project that utility NYSEG has proposed in Ithaca, which in 2021 became the first U.S. city to pledge to completely decarbonize its buildings by 2030. It’s also the home of Cornell University, which has a district heating, cooling and cogeneration system that now uses fossil gas, but which the university hopes to convert to geothermal power. 

How thermal energy networks could transform the gas utility business

New York is an early leader on this front, but thermal energy networks are gaining ground across the country.

Today, three other states — Colorado, Massachusetts and Minnesota — have passed laws that allow or mandate gas utilities to undertake thermal energy network pilot projects. In Massachusetts, the first utility-built network, covering 32 residential and five commercial buildings and 140 customers in the city of Framingham, is expected to be complete in the next few months.

Other states including Illinois, Maine, Vermont and Washington are exploring similar laws. And 13 gas utilities have created a Utility Networked Geothermal Collaborative to explore options.

To be clear, thermal energy networks, also called geothermal networks or geo-districts, aren’t a new idea. A number of cities, colleges and corporate campuses in Europe, Asia and North America use district energy systems — shared steam or hot water exchange networks — for heating and cooling needs, and many of them aim to switch from fossil fuels to zero-carbon electricity. In the U.S., geothermal networks that tap into underground heat, cool water from nearby lakes or waste heat from sewers and other buildings are proving the efficiency and cost benefits of the concept.

But gas utilities are an ideal party to carry out thermal energy networks at scale, said Audrey Schulman, co-executive director of the Home Energy Efficiency Team (HEET), a Cambridge, Massachusetts–based group that helped spur the state’s first such pilot projects by utilities Eversource and National Grid, including the project in Framingham.

First, gas utilities have the workforce, expertise and access to capital needed to build the sprawling and interconnected underground networks required, she said. Second, they’re already spending billions of dollars per year on fossil-gas pipeline expansions and repairs that will inevitably become ​“stranded assets” long before their costs are paid back by customers.

In Massachusetts, the state’s six investor-owned gas utilities plan to spend more than $40 billion on a Gas System Enhancement Program to replace the roughly 22 percent of gas lines in the state that are prone to leaks, she said. Customers pay the cost of those investments via increases on their bills that can persist for decades — far past the state’s deadline to reduce greenhouse gas emissions by 85 percent from 1990 levels by 2050.

The state’s push toward thermal energy networks will likely be accelerated by a December decision from the Massachusetts Department of Public Utilities to reject gas-utility decarbonization plans that relied too heavily on alternative fuels like hydrogen and renewable natural gas. Beyond that, the department’s ​“beyond gas” order calls for ​“minimizing additional investment in pipeline and distribution mains” and specifically calls out thermal energy networks as an alternative.

“The whole thing is about setting up the regulatory structure by which we get off gas and onto something else,” Schulman said.

New York faces similar choices as it works to implement its 2019 climate law that calls for cutting fossil gas use by at least one-third by 2030 and converting the ​“vast majority” of customers to electric heating by 2050, Dix said. Despite these imperatives, gas utilities in the state have spent $5 billion on infrastructure investments and identified $28 billion in pipeline replacement plans since the law’s passage.

This disconnect between climate imperatives isn’t limited to Massachusetts and New York. Consultancy Brattle Group found in a 2021 report that U.S. gas utilities may face $150 billion to $180 billion of ​“unrecovered” investment in pipelines over the coming decade. States including California and Colorado have set policies to limit expanding gas lines and to push gas utilities to transition customers to less-polluting alternatives.

Gas utilities across the country have largely fought such mandates or pushed proposals that rely on continuing to use their pipelines to carry carbon-neutral fuels such as biomethane or hydrogen. But a growing body of research indicates that these plans will likely falter due to the high cost and low availability of those alternative fuels.

At the same time, when looking for large-scale conversion of entire neighborhoods to low-carbon alternatives, ​“utilities make the most sense to do this,” Dix said. ​“They’ve got rights of way, they have the permitting authority, they have access to capital, and they have the workforce, which is already unionized.”

Like many other states with decarbonization mandates, New York has offered hundreds of millions of dollars in incentives for heat pumps and building electrification, and has imposed regulations limiting the expansion of fossil gas to new buildings.

But according to a 2023 report from the Building Decarbonization Coalition, this ​“house-by-house” approach could end up leaving gas utilities and regulators in a bind — being forced to maintain expensive gas distribution networks to supply fuel to a dwindling number of customers.

The customers that remain, meanwhile, will bear a greater and greater proportion of the cost of paying off those gas investments, leading to a vicious cycle of cost increases being imposed on people who can’t afford to make the switch to heat pumps on their own. These left-behind customers are more likely to be lower-income earners already struggling to afford increasingly expensive utility bills.

Thermal energy networks, by contrast, can be planned on a neighborhood-by-neighborhood basis, she said. That gives utilities and regulators an opportunity to target disadvantaged communities, areas with the most aged or leak-prone infrastructure, or other strategic approaches to shifting people from gas to electric heating and appliances en masse.

The efficiency benefits of these networks can also provide significant relief to power grids that will experience massive growth in demand from building heating and electric vehicles. Department of Energy research has found that installing geothermal heat pumps in nearly 80 percent of U.S. homes could reduce the costs of decarbonizing the grid by 30 percent and avoid the need for 24,500 miles of new transmission lines by 2050.

From pilot projects to statewide transformation 

Many steps remain for New York to bring these on-paper pilots into the real world, however.

First, each utility will have to negotiate with the customers involved in the pilots on how to share the costs of installing heat pumps and other new equipment. Then they’ll need to build the projects and get them up and running, track the performance of the equipment and underlying networks, and assess the cost-effectiveness of the projects.

Bringing down the cost of these projects will be an important first test. Heat pumps are more expensive than gas furnaces, and designing and constructing the pipes, boreholes and networked heat-exchange technologies involved will be more costly than standard gas infrastructure projects.

“There will be a marginal cost increase compared to business as usual,” said Matt Rusteika, Building Decarbonization Coalition’s director of market transformation. ​“But because you’re not buying the gas, and the gas is like half the bill, the cost for consumers would come down.”

Altering laws now on the books in New York, Massachusetts and other states to allow utilities to switch customers from gas to thermal energy network service without triggering ​“obligation to serve” objections will also be important, he said. Under those laws, ​“if the customer says ​‘I want gas,’ the utility has to give gas to them,” he said. That obligation is a core part of a utility’s mission, but its strict application could allow a single customer in a neighborhood slated for a thermal energy network to stymie the entire project.

In New York, the Utility Thermal Energy Network and Jobs Act suspends that law for the pilot projects now being considered, Dix said. But another law would need to be passed to extend that shift to the state at large. In Massachusetts, the Home Energy Efficiency Team and other environmental and community groups are endorsing a ​“Future of Clean Heat” bill that would make similar changes.

More complexities will emerge as utilities and regulators start to consider the methods for some members of a thermal energy network to exchange their waste heat with others, Rusteika said. ​“How you compensate people who provide it and those who use it is a more complicated question.”

For now, backers of thermal energy networks are waiting for the first pilot projects in Massachusetts and New York to provide the real-world testing grounds for answering these kinds of questions. Eversource’s first project in Framingham, Massachusetts is set to come online later this spring, he said. ​“We’re going to learn a lot about efficiency and functionality and comfort and cost from that pilot.” 

New York will replace gas pipelines to pump clean heat into buildings is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.

This article originally appeared in Canary Media.

Local Law 97, New York City’s groundbreaking, multistage effort to rein in carbon emissions from its big buildings, is facing its first major test — and it’s just a preview of the much steeper challenges to come.

Last week, New York City Mayor Eric Adams released proposed guidelines for how owners of the worst-performing buildings can comply with the law’s mandate to curb emissions by 2024. Next year, the city will begin imposing fines on buildings that haven’t reduced their emissions below certain thresholds, with even steeper cuts and rising fines to come in 2030 and 2040.

The response to the new compliance guidelines was swift. Real estate owners opposed to the law reiterated long-standing complaints that the mandates will force them to choose between paying steep fines or making efficiency investments that don’t make economic sense today.

Environmental activists countered with evidence that near-term compliance is not nearly as costly as opponents say it will be. They also worry that two parts of the proposed regulations, which would allow laggard buildings to postpone compliance for two years and use clean-energy purchases to offset continued building emissions after that date, amount to a surrender by the Adams administration to real estate interests at the expense of fighting climate change.

“Mayor Adams is proposing a gigantic giveaway to his real estate buddies that’s going to increase pollution and crush jobs,” said Pete Sikora, climate and inequality campaigns director of New York Communities for Change and a former member of the Local Law 97 advisory board.

That’s why Sikora’s group and a host of environmental and community activists are protesting what they describe as loopholes in the new proposed guidance. The conflict over these proposals underscores a key tension around the broad goal of decarbonizing buildings: how to balance the carrots with the sticks. If the cost of meeting the law’s emissions-reduction mandates is too high, building owners may simply choose to pay the fines instead, an outcome that does little to help the climate.

But building-efficiency experts agree that meeting the law’s 2024 targets should be relatively simple for the vast majority of commercial and multifamily residential buildings in New York City. As evidence, they point to the fact that 89 percent of buildings covered by the law are already in compliance with its requirements, including many older buildings that are harder to retrofit to become more energy-efficient. They also note that alternative compliance options have been established for more challenging buildings such as low-income housing.

“I do not believe there is a serious building professional in this city who would say that a building making a good-faith effort, absent very unusual circumstances, would not be able to get under the 2024 limit,” said Sikora. ​“In some buildings, they could do it almost immediately if they wanted by making some very basic changes — putting in LEDs [and] aerated shower heads, insulating exposed heating pipes, tuning the boiler correctly” and other such remedial actions.

What will be harder, he said, is meeting Local Law 97’s longer-term goals. Roughly 70 percent of the city’s buildings do not yet comply with the law’s tougher targets of cutting carbon emissions by 40 percent from 2019 levels by 2030.

Hitting that end-of-decade figure in particular will require far more extensive efforts to switch from the oil- and fossil-gas-fueled systems that heat the majority of buildings today to electric heat-pump systems or low-emissions steam heat systems. It will also require deeper building-efficiency retrofits to ease stress on the power grid.

Difficult as it may be to pull off, it’s crucial to meet these targets. Buildings contribute 70 percent of the carbon emissions in New York City, which means ​“we will not achieve our climate goals without addressing buildings,” said John Mandyck, CEO of the nonprofit Urban Green Council, which has played a key role in creating the law and monitoring its implementation. While building owners have been waiting for key guidelines on how the law will be enforced, with last week’s proposed guidance, ​“the compliance pathway is now evidently clear,” he said.

But the ongoing political fight over the law’s short-term targets could derail these longer-term efforts, Sikora said. New York City officials estimate the costs of hitting the law’s 2030 targets to range from $12 billion to $15 billion. If building owners don’t start making investments now, they run the risk of missing the law’s targets, which are designed to reduce the city’s carbon emissions in line with the Paris Agreement, he said.

“The law’s limits are achievable and affordable,” he added — a view backed by the Urban Green Council and other groups. The 2024 targets were meant to ​“get the most polluting buildings here to cut their pollution as a warmup to the 2030 requirements, which are quite a bit tougher.”

The ​“good-faith effort” pathway: A helping hand or a dodge? 

Environmental groups have two key complaints about the regulation proposed by the Adams administration last week.

The first is the proposal to allow the roughly 11 percent of buildings not yet hitting their targets to escape fines through 2026 if they make a ​“good-faith effort” to get on track. Some environmental groups argue that building owners have already had four years to prepare for 2024 targets and shouldn’t be rewarded for inaction.

“Responsible landlords are already doing that, not just to cut pollution but to save money on bills, too, and raise the property value,” Sikora said. ​“The mere fact that some landlords are incompetent doesn’t mean they should be let off the hook.”

But in Mandyck’s view, the good-faith exemption is a reasonable approach to forcing buildings that are behind schedule to meet the law’s mandates. Since Local Law 97 was passed in 2019, ​“we had Covid; we had supply-chain delays,” he noted. ​“It took the appropriate amount of time for regulations to unfold. And we’re now months away from compliance. So we have two options: We fine all those buildings and forfeit the carbon savings, or we find a pathway for compliance.”

The law’s fines — $268 per metric ton of carbon dioxide emissions that exceed an individual building’s cap — equate to ​“the highest price of carbon in the world,” he noted. ​“Do we tie up the administrative courts and start issuing fines? Then people are paying fines and not doing investments in the buildings. We need carbon savings — we don’t need fine revenue.”

Tristan Schwartzman, energy services director and principal at New York City–based building engineering consultancy firm Goldman Copeland Associates, agreed that a two-year extension could help a number of his clients that ​“do have a path that’s going to be arduous but feasible” to meet their compliance deadlines.

To qualify for the good-faith exemption, ​“you have to have a plan in place; you have to show that you’ve done something that’s been impactful,” he said. ​“There are a lot of hurdles you’re supposed to jump — but those are hurdles you’re supposed to be jumping anyway.”

But as Sikora and other environmental groups point out, it’s virtually impossible to discern whether owners of noncompliant buildings are indeed acting in good faith. These critics fear that the exemption will instead offer a two-year reprieve from fines for a subset of property owners who have been working to undermine the law.

Those efforts include a lawsuit filed last year by groups representing residential cooperative buildings in the borough of Queens demanding that the law be overturned. They also include millions of dollars of advertising and lobbying by the Real Estate Board of New York, a politically powerful group led by Douglas Durst, the owner of high-profile properties including some that are out of compliance with the law, such as the Bank of America Tower at 1 Bryant Park in Manhattan.

The group issued an analysis in January claiming that the fines from Local Law 97 could add up to $213 million for 3,780 buildings in 2024 and $902 million for 13,544 buildings in 2030, citing these findings as proof of ​“significant economic disruption that will occur if property owners are not provided adequate tools to reduce emissions.”

But Sikora noted that these figures misrepresent the financial impact on individual buildings and their tenants.

He cited the example of Bob Friedrich, the board president of Glen Oaks Village, a 2,900-unit co-op in Queens, who has been an outspoken opponent of Local Law 97 and a plaintiff in the lawsuit seeking to overturn the law. Friedrich has claimed that Glen Oaks would have to invest about $24.5 million to upgrade its gas and oil boilers to seek to comply with the law, and may still face an estimated $400,000 per year in fines from 2024 to 2030.

But divided among 2,900 units, that fine adds up to about $130 per unit per year through 2030, or ​“the equivalent of a parking ticket,” Sikora said. Similar economics apply to many other properties, making the law’s fines far from the death blow that many property owners have claimed they will be, he said.

Offering noncompliant buildings a route to avoid penalties for failing to achieve the relatively lax 2024 standards also risks setting a bad precedent for the much tougher 2030 targets, he added. That makes the good-faith exception a potential ​“signal to landlords and others that, well, maybe they’ll be delayed too.”

The battle over RECs 

It’s certainly true that the carbon-intensity of New York City’s electricity supply will influence the emissions impact of building electrification, Sikora said. But that doesn’t mean building owners should be able to use clean-energy accounting to avoid investing in fundamental efficiency improvements.

And that brings us to the second key criticism environmental groups have made against the Adams administration’s proposed regulations. This critique centers around the role of renewable energy credits (RECs) — contracts between building owners and clean-energy producers — in the Local Law 97 scoring regime.

Today, building owners can use RECs to procure clean electricity that can be delivered to the larger New York City grid to offset their building’s emissions from electricity usage. But environmental groups have been demanding that the Adams administration set a more stringent standard, one proposed by the Local Law 97 advisory board and supported by energy experts, to limit the use of RECs to offset no more than 30 percent of a building’s total emissions.

The problem with RECs, Sikora said, is that Local Law 97 doesn’t require that they be ​“additional,” or tied to paying for a renewable energy project that wouldn’t have been built without the money from their purchase. Instead, building owners can purchase RECs from already existing clean-energy projects and use them to comply with the law.

That’s a problem, because in New York state, as with many other parts of the country, these RECs are becoming so plentiful that they offer building owners a much cheaper path to compliance than investing in energy-efficiency upgrades to their properties.

Today, New York City gets most of its electricity from fossil-fueled power plants. But with new transmission lines capable of carrying massive amounts of zero-carbon energy into New York City now being built and expected to be complete by 2026, building owners will soon have access to plenty of RECs from clean-energy projects that have already been built.

The Real Estate Board of New York has pushed for expanding the opportunities to use RECs to offset not just building emissions associated with electricity consumption but all building emissions. The new proposed compliance guidelines did not take up that proposal — but it also declined to institute the 30 percent cap that environmental advocates are pushing for.

It’s important to note that buildings that take the good-faith alternative pathway will be barred from using RECs to meet their requirements. But Sikora said the real danger of the current REC policy is that it could be extended to 2030 and later, threatening the law’s more ambitious longer-term goals. The Urban Green Council has estimated that 40 percent of multifamily properties and 80 percent of office buildings could offset their emissions over their 2030 limits through the use of RECs alone.

That’s a problem because ​“in reality, it’s not possible for the city and the state to reduce pollution unless they reduce pollution at the source — at the buildings,” Sikora said. ​“And that means they have to get a lot more energy-efficient.”

Green groups including Sikora’s are calling for the Adams administration to put a REC cap into place and reconsider the good-faith exemption over the coming month of public comments and hearings on the proposed rules.

Where will the money come from? 

Sikora didn’t downplay the challenge of paying for the deep efficiency and electrification efforts that New York City buildings will need to undertake to meet Local Law 97’s longer-term mandates. But he sees a much larger role for public funding to close that gap — and while city and state agencies are providing money through a variety of programs, it isn’t yet enough, he said.

“We think the city and state should apply billions of dollars per year to decarbonize the building stock,” he said. That big one-time transition away from gas or oil to heat pumps is a big cost.” On the other hand, ​“we do not think the city needs to subsidize affluent [building] owners.”

That work must start with increased funding for the variety of affordable-housing units that are currently allowed to comply with the law via so-called ​“prescriptive pathways,” he said. The Urban Green Council estimates that rent-controlled apartments, public housing and other affordable-housing units make up one-third of all buildings covered by Local Law 97.

Mandyck noted that the new proposed guidance provides more clarity on how those buildings can comply via ​“commonsense” measures, such as insulation on water heaters and steam pipes and thermostats or temperature controls on radiators.

But Schwartzmann contended that many of these buildings ​“are really poorly maintained because they don’t have money to maintain them properly,” due to the challenging economics of financing improvements in rent-controlled buildings or tight budgets for public housing. ​“The city should be throwing money at that problem, not pushing it downstream.”

Last week’s proposed regulations also included a booster for buildings exploring the switch from fossil-fueled to electric heating, primarily via heat pumps — a new credit that increases the value of electrifying at least part of their heating demands.

The new credit system ​“not only gives you a zero-emissions equivalent for the electricity it uses, it gives you a negative” carbon score, said Jared Rodriguez, a principal with Emergent Urban Concepts and adviser to the New York State Energy Research and Development Authority. ​“It’s a very clear signal that they want you doing at least partial load electrification — and that you’ll get some credit for it.”

That’s an important boost for a technology that still costs more than fossil-fueled boilers and furnaces, both in terms of upfront equipment and installation costs and in ongoing utility costs, Schwartzman said. ​“There was a real hesitancy to move toward these electrified options because they’re not going to save you money at this point, because electricity costs more than gas,” he said.

Last year’s Inflation Reduction Act will help make efficiency and electrification more affordable via tax credits and incentives for equipment, installation and workforce training, Mandyck noted. City officials have said they will pursue funding from a variety of federal sources, such as ​“green bank” loans, to ease the cost burden.

The New York state government is also funding efforts to bring down the cost of novel decarbonization technologies, he added. Some examples include a $70 million initiative to develop window-mounted heat pumps that both cool and heat apartments and the $50 million Empire Building Challenge that’s targeting high-rise commercial and residential buildings for complex efficiency and electrification retrofits.

“Because of the scale of New York City and the state…we’re going to spur innovation that’s going to help the whole market,” he said. Local Law 97 is just the most ambitious of a number of similar mandatory building-performance standards already in place in cities including Boston, Denver and Washington, D.C. and in states including Colorado, Maryland and Washington, he noted.

Finally, it’s important to remember that the climate emergency requires building owners to think differently about the costs and benefits of efficiency and electrification, Mandyck said. ​“We need to think about payback differently. Climate is a life-safety issue now. Nobody asks what the payback is to put a sprinkler safety system in your building. There’s no payback there — if there isn’t a fire.”

NYC’s big building-decarbonization law faces its first major test is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.