Do you own property in a jurisdiction subject to a building performance standard (BPS)? The answer may be no today, but that could change soon. These policies, which require buildings to abide by limits on energy usage and/or carbon emissions, are spreading rapidly.
A Sunday morning session at the 2024 BOMA International Conference & Expo, “Leveraging Building Performance Standards to Reinvest vs. Paying Government Fines,” will bring together an experienced panel to explain what building owners and management teams can expect when a building performance standard comes to your local jurisdiction. The panel will include insights from:
- Adam Slackman, managing director and head of ESG for JP Morgan Asset Management
- Hannah Tillman, vice president of sustainability for Berkshire Residential Investments
- Keely Felton, chief sustainability officer for Nova Group, GBC
“These are jurisdiction-level policies happening nationally, but every jurisdiction has a different combination of the metrics being used to calculate the fine,” explained panel moderator Colin Curzi, head of Building Policy Advisory for RE Tech Advisors. “When I say the buildings have an emission limit, is that in energy use intensity per square foot? Is it the carbon emissions as calculated by the electricity bill? Is it kBTUs of power? All of the metrics are different and all of the timelines are different.”
Currently eight jurisdictions have a fully fleshed out BPS with substantial fee structures, Curzi explained. These jurisdictions are Boston; Cambridge, Massachusetts; the state of Colorado; Denver; New York City; Seattle; Washington State; and Washington, D.C. Overlapping policies in Washington and Colorado require property professionals to keep track of and comply with two sets of standards at once.
“It’s best to get informed about what exists in the marketplace today so you have some inkling of what standard and metrics will be applied to your jurisdiction when a BPS does come to your jurisdiction,” Curzi said. “It won’t be unprecedented by the time it hits new jurisdictions.”
How Did Building Performance Standards Evolve?
Building performance standards are “the terminus of the progression of the last 20 years of city and state governments’ goals on building decarbonization,” Curzi explained. This goal setting started in the 2000s with the United Nations’ eight Millennium Development Goals, one of which was to ensure environmental sustainability. Following the release of these goals, cities and states looked at the emissions coming from buildings and put forth climate goals pledging to reduce building-related carbon emissions, Curzi said.
Next came benchmarking requirements, where buildings of a certain size were required to report their energy usage to their jurisdiction every year. “There were minimal fines, but they tried to push compliance to say, ‘Let’s get a better sense of what every building’s doing to contribute to the jurisdiction’s carbon footprint,’” Curzi explained. “They find out that tracking the energy usage in that way only leads to about a 3 to 6% reduction in emissions across the board.”
The first BPS emerged in Washington, D.C. in 2018 after more than a decade of policy development and goal -setting. As of 2024, another 40-plus mayors, governors and city councils have signed on to the White House’s National Building Performance Standard Coalition, formed in 2022. These jurisdictions are actively pursuing their own building performance standards, underscoring the importance of understanding and preparing for a BPS to come to a jurisdiction near you.
What Are the Risks of Not Complying with Building Performance Standards?
The potential risks of non-compliance are significant—and, like the reporting requirements, the potential financial penalty varies widely between jurisdictions. Washington, D.C.’s BPS, for example, sets a $7.5 million cap on the amount of compliance payments that one building can receive for a BPS violation—a significant amount for any building owner.
Calculation of fees is also different in the various jurisdictions, Curzi said. For example, New York City charges $268 per metric ton of carbon dioxide emissions over the allowable threshold for your building type and size. Denver’s penalty is 30 cents per kBTU of energy consumption over the target. In Washington state, it’s $5,000, plus a continuing violation of $1 per square foot of floor area for the building that has gone over the threshold. “RE Tech has seen clients facing fines of up to $25 million on a single property, which is a huge decision point,” Curzi said.
The fees can even follow you if you try to sell the building, Curzi explained—in many jurisdictions, the penalties live on forever as a lien against the property. “That building I mentioned with the $25 million fine hanging over its head? It’s tied to the building,” Curzi said. “Keep it, dispose of it, fix it—that money is owed to somebody. Better to spend it on fixing the building.”
These compliance payments won’t go away—but knowing they’re out there presents an opportunity. The cost of inaction—having a large fine levied against your building—is known. If you can retrofit the building so that it meets the emissions requirements, and the cost of the retrofits is less than the potential fine, you’ve saved money over the long haul.
“The opportunity cost of inaction is money out the door if I do nothing. Guaranteed, I’m going to owe the city—let’s say $3 million,” Curzi said. “Then, it’s a question for the asset manager and the sustainability team to say, ‘Am I willing to spend $3 million and give to the city to retain the asset, or do I go to my investment committee and my design firms and say, ‘I have $3 million guaranteed to invest in the energy efficiency of this property. What can you do with that?’ If you’re facing a $3 million fine, and it's $5 million to repair your building so it’s protected from compliance payments for the next 20 years, do that. It’s a risk avoidance plan.”
The BOMA 2024 panel Curzi is moderating will arm attendees with actionable information about building ownership and management in a jurisdiction with a BPS, including how to prioritize investments in the face of potential payments owed and how to deal with an equipment-level decarbonization plan to protect properties from penalties.
“Engage early and earnestly with this risk,” Curzi urged. “You can’t rely on renewable energy credits. You can’t sell the property to get out of it. These policies are stuck to the title of the property forever. So, what are you going to do?”
