Net-Zero Policies Are Here To Stay. How Can Building Owners Comply And Capitalize On Incentives?
There is a growing call for businesses to reduce their carbon footprints, and with real estate responsible for 40% of global greenhouse gas emissions, municipalities across the country are introducing penalties and incentives to encourage building owners to limit emissions.
Beyond corporate environmental goals or the innate cost savings of energy-efficiency solutions, there are penalties for properties that don’t meet timelines. While each jurisdiction is at different implementation stages and policies vary, building owners should understand the trends in carbon regulation to avoid penalties. For example, several cities have implemented regulations requiring buildings to cut their emissions, including New York’s Local Law 97, which can impose fines in the millions for buildings that emit carbon above set targets by 2024.
Real estate firms and owners are taking significant action in areas where regulations are enforced. By using the best practices of those who have worked to address their emissions before them, property owners can prepare for expanding penalties.
“The only way to get everyone to cut 10 years off their target is regulation,” Orchard Street Investment Management Head of Sustainability Lora Brill told Bisnow. “You have to make holding high-carbon properties unviable or reward holding low-carbon properties.”
To avoid costly fines and attract top tenants, the time to focus on sustainability is now. The good news is building owners can not only reduce their emissions but also protect their bottom lines.
“The cheapest energy is the energy owners don’t use," Ecosave CEO and founder Marcelo Rouco said. "The key to both saving money and avoiding penalties is finding ways to permanently reduce consumption."
Fortunately, there are incentive programs that provide capital to fund efficiency projects. But accessing them isn’t always simple.
Many of the incentives come through utility rebates and incentive programs or at the state level. For new construction, there are more tax-level incentives, but the process is more rigid. For example, an existing building using gas will be allowed to continue to do so for years to come, but a new-construction building won’t be able to set up a gas connection in many cities and will be forced to go electric.
The incentives for both asset types vary greatly from state to state, and even city to city. Building owners need to educate themselves on what is available for their particular project.
But owners themselves are likely not experts in whether a city incentive is greater than the electric utility's or how to access savings. On the federal level, owners have to contend with 179D tax incentives, investment tax credits and incentives from the new Inflation Reduction Act.
Building owners might also be required to show engineering calculations, utility bills, software platforms tracking usage and emission levels, and an overall high level of automation to avoid penalties and qualify for incentives.
Even if this information is readily available, owners often don’t get their incentives until long after a project is completed, Rouco said. Owners are forced to shoulder the cost of new equipment, automation systems and monitoring tools. Paying for these upgrades through their own corporate balance sheets is often not ideal, and tools like Commercial Property Assessed Clean Energy financing put a lien on their building and take priority over their mortgage.
Fortunately, owners can access necessary and financially beneficial energy upgrades by working with an energy as a service provider like Ecosave, Rouco said. These providers fund, design and implement energy-efficiency projects, and their fee is covered by a portion of the contractually guaranteed energy savings.
Some companies are willing to give discounts on those costs for emissions incentives, and then they take on the burden of providing calculations and chasing down those incentives themselves so that building owners benefit from them from day one.
“We act as a partner to our clients, offering them discounts based on the incentives we expect the project to qualify for upfront,” Rouco said. “Without putting up any money, our clients can install new equipment and see their emissions and utility expenses drop. Then we work with the utility companies and state organizations to collect them.”
In this scenario, the building owner gets a capital expenditure avoidance for the new equipment that went into their building and gets an operating expense reduction from the lower utility bill.
- In Boston, 2 in 3 buildings will need to make alternative compliance payments.
- Compliance payments can total $1M annually and are set to increase annually.
- Unless they engage with an EaaS provider, owners will bear the cost of building compliance upfront.
As regulations continue to be implemented across the U.S., more building owners will need to achieve their goals and compete in an increasingly environmentally conscious environment.
“Net-zero policies are becoming increasingly less optional from a financial, compliance and social customer standpoint,” Rouco said. “To comply with regulations and maintain strong relationships with their tenants, building owners must start now. Thankfully, there are substantial benefits for building owners as well, and energy as a service can help building owners make the most of everything net zero can offer.”
This article was produced in collaboration between Ecosave and Studio B. Bisnow news staff was not involved in the production of this content.
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