Building Owners in 5 U.S. Cities May Soon Face Fines for Carbon Emissions

New York City’s Local Law 97 has garnered most of the attention when it comes to rules that aim to reduce building carbon emissions, but several other cities are also preparing to fine real estate owners, according to a report from Moody’s Investor Service. San Francisco, Washington, D.C., Boston, and St. Louis are four other cities with new regulations that limit larger properties’ carbon emissions and, in many cases, come with hefty penalties for those that don’t comply.

San Francisco’s law goes into effect this month, as the city aims for zero carbon emissions from large properties by 2035. San Francisco buildings that don’t comply will be fined $100 daily for a maximum of 25 days in 12 months. The fines in New York and D.C. will be more punitive. For example, in D.C., privately owned buildings larger than 50,000 square feet must meet new emissions and energy efficiency standards by the end of 2026 or face a fine of $10 per square foot, not to exceed $7.5 million.

These five cities aren’t the only ones with new emissions rules for buildings, either. Nationwide, a total of 30 municipalities are phasing in stricter standards for commercial real estate carbon emissions and energy usage. The cities span nearly every region of the U.S. including Miami, Houston, and Chicago.

The regulations vary, but the penalties could quickly become a significant new line expense for building owners and possibly even tenants of all property types, from offices to hotels to data centers. Meeting these standards will be costly, whether through expensive capital upgrades or paying fines. And as Moody’s noted in the report, fines may qualify as billable expenses in some cases (like in net leases), so it could create “interesting discussions” about whether landlords will charge these costs back to tenants.