If you’ve ever been to New York City, you’ve probably seen the health inspection letter grades in restaurant windows. More recently, though, you may also have seen letter grades posted on large residential and office buildings. These grades are a new addition to the city, and they provide a snapshot of large buildings’ energy efficiency. So why did the city decide to start requiring these grades, and how have they affected the city’s sustainability goals?
In 2014, New York City committed to an ambitious goal: to reduce all greenhouse gas emissions by 80% by 2050. The shorthand for this plan is 80 x 50, and since this commitment, the city has taken many concrete steps toward this goal. In their “Roadmap to 80 x 50,” NYC estimated that a whopping 68% of total emissions in the city come from buildings. Reducing overall emissions from buildings is a huge part of reaching the 80 x 50 goal.
The city began collecting data on building emissions in 2009 when it passed a benchmarking law that requires buildings over 25,000 square feet to report energy and water usage information to the city. This benchmarking is designed to provide a snapshot of a building’s relative efficiency against other similar buildings. While this information was technically publicly available through the Department of Finance, it was hard to find, and the reports were quite technical.
So, enter Local Law 33. This law created a simple, easy-to-understand scoring system for building efficiency. The energy and water usage information from buildings is used to generate a yearly 0-100 score for efficiency based on federal ENERGY STAR guidelines for building efficiency. This rating is called the ENERGY STAR score. The idea here was to create a scale for property owners and citizens to easily understand a building’s relative efficiency, without digging through city records.
In 2020, the city went a little further. Now, the buildings that fall under the benchmarking laws are given a simple letter grade based on their ENERGY STAR score. So, much like restaurants have to post their health inspection grade in the window, large buildings in NYC now need to post their annual efficiency grade in the window. Here’s the breakdown of how the score translates to a grade:
Initial data on these grades painted a somewhat bleak picture. In 2020, half of NYC buildings earned a D or F rating from the city, showcasing some serious problems with the aging infrastructure of the city. But perhaps surprisingly, building owners seem to be taking these grades seriously. Between 2020 and 2021, the number of A ratings increased 4%, and the number of D’s dropped by 5%. The Department of Buildings credits this to the publicly posted letter grades—landlords are invested in having a good grade posted, both for perception and increasingly for property value. It appears that landlords are actually making improvements on their buildings to increase their rating.
However, for building owners that didn’t necessarily care about the grade on its own, these grading laws had no teeth other than penalties for not submitting data on time or posting the letter grade visibly. But that’s about to change in a big way.
Starting in 2024, there will be limitations for emissions for benchmarked buildings that come with actual monetary penalties for exceeding the limits. This new addition, called Local Law 97, is designed to heavily incentivize buildings to become more efficient. 60% of NYC buildings fall under the benchmarking laws, and next year, all of these will be required to stay under emissions limitations or face fines.
These emissions limitations are designed to become more stringent over time to allow property owners time to make upgrades. But even in the first year, the city expects up to 20% of buildings to fail. Emission fines have the potential to reach multi-million dollar levels, so this law is not just a slap on the wrist. Building owners now have a great incentive to spend money on efficiency updates, and failure to do so will really start to cost them.
Interestingly, the city’s energy grades have conflicted with long-established LEED certifications, often giving LEED-certified buildings lower grades than you might expect. LEED certification is voluntary and, once granted, it is for life. So, buildings are not required to submit information every year, and more importantly, they are not required to make updates to ensure efficiency over time. So for example, Hudson Yards, which earned Gold certification from LEED and promised to be one of the most energy-efficient neighborhoods in the US, scored very low on the city grading system. Fewer than half of the buildings in the neighborhood exceeded a C rating. This is raising questions of what sustainability really means, and how we move forward with evaluations and ratings.
The NYC energy grading system, much like any large bureaucratic system, isn’t without its problems. In 2022, Con Edison had an issue with their data reporting, which resulted in hundreds of buildings receiving unwarranted F ratings from the city. And in 2023, the New York City Housing Authority (NYCHA) had to take down all posted scores because somehow, it reported that 89 of its buildings received an A rating, while in reality, only 1 did. NYCHA claims it was an error committed by one employee, but it’s still unclear exactly what happened. These kinds of errors can cast a shadow on the value of the rating system overall, but so far, they seem to be the exception, not the rule.
It's only been a few years, and the financial penalties haven’t even kicked in yet, but so far, the results of the NYC energy grading program are very promising. With this new transparency about building efficiency, property owners have been given knowledge and incentives to reduce building emissions and do their part to get the city closer to the 80 x 50 goal. Hopefully, the success of this program will inspire other cities to follow suit!
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