Beginning in 2024, New York City (NYC) real estate will be subject to a fine (“carbon tax”) known as Local Law 97. Like all taxes, proper planning can save affected individuals a significant amount of money.

In 2019, the NYC Climate Mobilization Act (The Act) was passed by the New York City Council. The Act includes Local Law 97, which sets carbon (CO2e) reduction targets of 40% by 2030, and 80% by 2050, for NYC real estate. To achieve these goals, Local Law 97 sets building CO2e emissions limits and a building that exceeds these limits after 2023 will be subject to a $268 per metric ton (MT) tax.

2024-29 Limit
(kg of COe per ft²)
2030-34 Limit
(kg of COe per ft²)
Occupancy Group R-2 (includes apartments) 6.75 4.07
Occupancy Group B (includes offices) 8.46 4.53
Occupancy Group R-1 (includes hotels) 9.87 5.26

Local Law 97 applies to most buildings greater than 25,000 square feet (ft²) and dovetails with the NYC Benchmarking Law (Local Law 84) which requires all buildings greater than 25,000 ft² to report their annual energy and water usage. Based on information reported under Local Law 84, covered buildings receive an ENERGY STAR grade and their CO2e per square foot intensity. The NYC Benchmarking Law is the source of the building grades you see in lobbies of most NYC offices and the basis for the carbon tax.

YE 2024 YE 2030
Actual kg of CO2 per ft² 10.00 kg 10.00 kg
Occupancy Group B Limit (offices) 8.46 kg 4.563 kg
Difference 1.54 kg 5.437 kg
Building Square Footage 1,000,000 ft² 1,000,000 ft²
Total MT of CO2e above threshold 1,540 MT 5,437 MT
Tax per MT $268 $268
Local Law 97 Tax $412,720 $1,457,116

Under Local Law 97, buildings that exceed a square foot CO2e intensity limit will have to pay a tax equal to $268 per metric ton (MT). For example, a one million square foot Group B building with a CO2e intensity of 10.0 kg would owe an annual carbon tax of $412,720 in 2024, going to $1,457,116 beginning in 2030.

Naturally, there are exceptions:

  • Buildings with “Excessive Emissions Due to a Special Circumstance”: Examples include 24-hour operations, operations critical to human health and safety, high-density occupancy, energy-intensive communications technologies/operations and energy-intensive industrial processes.
  • Owners of nonprofit hospitals and healthcare facilities can apply for a percent reduction requirement rather than a cap.
  • Income-restricted buildings owned by qualifying limited-profit housing companies are exempt from annual emissions limits until 2035.
  • Buildings with more than 35 percent rent-regulated units, Housing Development Fund Company (HDFC) cooperatives and buildings that participate in project-based federal housing programs are not subject to emissions limits but must institute certain energy savings programs.
  • Energy used to charge plug-in electric vehicles will not be included in emissions calculation.
  • Other exceptions for reasons such as financial hardship and practical constraints (e.g., lack of access to building systems due to existing leases).

What Can You Do If You Go Over the Local Law 97 Limit and Are Subject To Tax?

  • Reduce energy usage by making low-cost operational changes.
  • Replace or upgrade the building’s heating, cooling and lighting systems. Improvements can be financed using low-interest loans available through a new Property Assessed Clean Energy (PACE).
  • Purchase renewable energy credits (RECs) to offset 100% of building emissions. However, RECs are limited to energy generated or sinking into the NYC grid (Loading Zone J).
  • Buy greenhouse gas offsets (like credits for planting trees) which have no express geographic limitation, though they are capped at 10 percent of a building’s annual emissions limit.

Carbon Trading

The concept of carbon trading was introduced as a possible way to lower the carbon tax. Carbon trading in its simplest form is when a building with emissions above the cap buys credits from a building below the cap. In November 2021, the Guarini Center released a study mandated under the law discussing the viability of several carbon trading options. To date, there has been no additional discussion on this matter.

Conclusion

In less than 17 months, the Local Law 97 carbon tax goes into effect. For buildings over the 2024 limit, the time to act is now. And by acting now, not only may you reduce your carbon tax, but you can also save on energy costs. And given the meteoric rise in energy costs, reducing energy usage makes more financial sense than ever.

Violation Type Maximum Fine
Failure to file a report $0.50 per building square foot, per month
Exceeding emissions limit $268 for each metric ton over the building’s limit
False statement (misdemeanor) $500,000

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