Last month, Colorado adopted new energy performance standards for large buildings. The new rules were established by Colorado’s Air Quality Control Commission in an effort to reduce greenhouse gas emissions as well as cut costs for both owners and tenants. Regulation 28, as the new standard is called, will apply to around 8,000 buildings in the state, including most commercial, multifamily, and public buildings 50,000 square feet or larger. The new rule was created to help Colorado meet its goal of cutting greenhouse gas emissions in half by 2030.
The new law is the latest building emissions standard to be implemented in the U.S., at a time when decarbonization is becoming a top priority on a city, state, and federal level. Like New York City’s Local Law 97, one of the most stringent carbon emissions reduction laws in the country, Regulation 28 has already generated a lot of criticism from the real estate industry, much of which is directed at the cost to upgrade and retrofit buildings in order to be in compliance.
Regulation 28 was passed in August following days of heated talks between property managers, who strongly opposed the new rules, and officials with the state’s Air Quality Control Commission. Property owners’ concerns surrounded deadlines for compliance being too soon and that the cost to comply was too high. In the end, the commission approved a plan that requires building owners in Colorado that fall under the rule to cut carbon emissions 7 percent by 2026 and 20 percent by 2030. The impetus for the new standards came from state legislation passed in 2021 that called for the commercial real estate industry to take a role in the decarbonization that was being demanded from industries, including transportation, utilities, and oil and gas drilling. Large buildings rank among the five top categories of commerce that contribute to Colorado’s greenhouse gas emissions, which will need to be halved by 2030.
While owners and property managers of large buildings already conduct energy use audits and greenhouse gas emission inventories and file them with the state of Colorado, they will now need to plan for upgrades to their properties that will lower emissions from the previous benchmarks set. Some of the ways owners can reduce emissions include insulated windows, thickening walls, and replacing furnaces and other appliances with more efficient models that run on clean electricity.
Colorado’s real estate industry voiced its concerns over timing in a rebuttal to the commission. “A 2026 target of any level will be difficult to attain,” the Colorado Real Estate Alliance said. “The final rule likely will not become effective much before the end of calendar year 2023. That will leave building owners with less than two years to secure and carry out audits to identify potential compliance pathways, raise capital, secure contractors, and acquire equipment in an economy still suffering from supply chain disruptions.”
Colorado’s Regulation 28 and New York City’s Local Law 97 have a lot of similarities. Both standards require owners of large office and multifamily buildings to cut their carbon emissions by a certain percentage over the next several decades, by increasingly larger amounts at each step. The rules are part of New York City’s and Colorado’s overarching greenhouse gas emissions decarbonization plans that they are aiming to reach by 2050. In Colorado’s case, the state is committed to reducing overall greenhouse gas emissions by 90 percent below 2005 levels by 2050, while NYC is committed to reducing greenhouse gas emissions by 85 percent by 2050, compared to 1990 levels, and become net zero through carbon offsets.
While similar, Colorado’s law stands out in that it is statewide, while Local Law 97 only covers New York City. Colorado is one of just a few states to enact building performance standards, along with Maryland and Washington State. Regulation 28 also applies to fewer buildings than Local Law 97 since the threshold for falling under the regulations is 50,000 square feet or larger, while the Big Apple’s starts at 25,000 square feet. About 8,000 buildings in Colorado will be required to meet the standard, compared to 50,000 in NYC. It should be noted, though, that NYC has far and away the most buildings of any city in the U.S., with an estimated 1 million buildings across the five boroughs.
Officials in Colorado have touted the flexibility of Regulation 28 in that owners are able to use various pathways in order to reduce their energy consumption and slash their emissions. For building owners who can’t find a way to meet the standard or have older buildings that aren’t reasonably able to do so, they can ask for help in complying, more time, or a target adjustment. NYC recently updated its guidance on LL97 to clarify that as long as owners show “good faith” efforts to reduce emissions and comply with the law, they can avoid costly penalties and delay their compliance deadline by up to two years. Building owners in Colorado could face fines between $500 to $5,000, while in New York City, it’s been estimated that more than 3,700 properties could face $200 million each year in penalties collectively for being out of compliance.
Colorado’s law, while not as comprehensive as New York’s, has ambitious standards over the next few decades. Property owners’ concerns over the cost to upgrade in order to be in compliance and getting it done in time are something that will continue to be watched closely. It’s been estimated that the total cost of compliance could reach more than $2.5 billion for owners in Colorado by 2030. In New York City, the uproar from co-op and condo boards seems to have made an impact: new guidance from the city released within the past few weeks gives owners more time and blocks them from being penalized as long as they are making “good faith” efforts to comply. It’s still early on in the process for Colorado, where Regulation 28 was just passed last month. The state has also offered options to help owners get in compliance, like tax credits for heat pumps and below-market interest rate financing for things like LED upgrades. But considering the level of concerns from the state’s commercial real estate community, it wouldn’t be surprising to see additional guidance released that echoes NYC’s recent update.