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The new Biden administration is rolling out rigorous climate plans that call for carbon reductions from commercial buildings. Concurrently, many cities are following suit or have already been developing their own local policies to cap carbon emissions from local buildings. For example, in New York City, the largest real estate market in the U.S., Local Law 97 (LL97) sets carbon emission caps for energy use per square foot based on a building's classification group. In its first phase, starting in 2024 around 20% of the city’s most carbon-intensive buildings will have to meet a lowered emission threshold, facing fines administered as early as 2025. In its second phase starting in 2030, emission limits are reduced again, which will impact closer to 80% of buildings in NYC.
Overall, LL97 impacts over 3 billion square feet of real estate, leaving Manhattan’s landlords with an urgent need to bring down energy consumption.
At this stage, most landlords have addressed energy efficiency opportunities in the common areas of their buildings, recognizing the ROI of low-hanging fruit such as lighting retrofits, or more impactful efforts like optimizing the central heating, ventilation, air conditioning (HVAC) system. Now CRE landlords face a choice of pursuing construction intensive decarbonization efforts such as replacing equipment that uses fossil fuel and all the supporting building infrastructure with electric-driven equipment or attempting to extract more efficiency from existing equipment. More comprehensive decarbonization comes at a higher cost and will do little to address the elephant in the room of large commercial building energy use - tenant-managed energy consumption. The US Department of Energy (DOE) released a study attributing 50% of a building’s energy to tenant-owned spaces (though Carbon Lighthouse engineers have seen closer to 70% while on-site). The DOE cites complex lease language with a lack of true understanding of what drives tenant energy consumption as to why it’s so difficult to reduce this large source of carbon emissions. Without providing tenants with a pathway for reduced consumption, landlords will be hard-pressed to meet regulations such as LL97. Importantly, “penalties” assessed to buildings are not eligible to be passed through to tenants as part of a building's expenses in NY state, yet fines could reach millions of dollars per year due to carbon emissions out of the landlord’s control.
Until now, there has yet to be a cost-effective way to understand tenant energy use in more detail beyond just the monthly consumption and provide actionable steps for reduction Fortunately, new solutions are emerging.
By gathering a comprehensive data stream of a building or tenant spaces’ energy footprint, thermodynamic properties, and usage, Carbon Lighthouse uses AI to create an energy and carbon model for a tenant space, a base building, or the entire building, determining opportunities for efficiency in any space. Carbon Lighthouse recently worked with one of the largest privately-held real estate investment firms in the US, which holds more than 20 million sq. ft. of real estate in its portfolio. Working in two of the client’s key commercial assets, our Efficiency Production service optimized energy use throughout each building’s main systems and later went into tenant spaces to uncover further savings opportunities using sensors to pull more accurate and dynamic data on tenant energy use. We then worked with the property team to make the necessary adjustments to the building management system (BMS) including:
Implementing these measures positioned our client well for a more competitive leasing market due to COVID and LL97 compliance. By addressing that hard-to-reach 50-70% of a building’s energy use (tenant-driven demand), we allowed owners and tenants to take action and reduce energy use. Finally, our Efficiency Production service significantly lowered emission outputs in the client’s properties, while simultaneously cutting $150K in energy costs.For building owners with assets in NY State, the opportunity to implement efficiency programs sweetens with NYSERDA’s cost-sharing program for real-time energy management (RTEM) solutions. Currently, NYSERDA will cover 30% of all eligible costs accrued from implementing an RTEM program, including hardware, installation, and five years of ongoing support from energy experts. Carbon Lighthouse is a NYSERDA partner and has already helped secure millions of dollars of RTEM incentives for our clients. As LL97 nears, we hope NYSERDA will release an additional round of funding specifically geared towards reducing tenant-driven energy demand. Landlords should move swiftly to equip themselves with partners who can get their buildings prepped for local legislation and drive value back to their portfolio.