Energy Letter Grades Do NOT Measure Carbon Emissions

When New York City began requiring building owners to post letter grades to denote their buildings’ energy efficiency in 2020, the idea was to spur owners, including co-op and condo boards, to cut waste. The grades are based on required annual benchmarking data on water and energy usage. The thinking was that any potential buyer who saw an F grade in the lobby would make a quick U-turn.

While there is no shortage of criticism of the letter grades, there is also a widespread misperception about them. With fines looming in 2024 for buildings that fail to meet carbon-emission goals under the Climate Mobilization Act, many boards with A and B letter grades are operating under the assumption that they won’t face fines. Conversely, many boards with D grades — more than half of the buildings that fall under the law — assume they’re facing crippling fines. 

Not necessarily so, says Ben Milbank, a senior project development engineer at Ecosystem Energy Services, an engineering and construction company. “There’s not really a correlation between energy-efficiency letter grades and fine risk,” he says. “You can be burning #2 oil and still get an A grade — and yet face a fine in 2024.”

How is that possible? “Because bigger buildings with more square footage per person — less density — tend to get good letter grades,” Milbank says. “They may be burning oil, and they’re probably going to take a hit on fines.”

Put another way: benchmarking data compares a building’s energy and water usage with similar buildings nationwide; the resulting letter grade does not take into account how that energy is produced, which is a prime determinant of carbon emissions.

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Ecosystem is now running a $7.7 million project at a 172-unit prewar co-op near Union Square that illustrates the flip side of the disconnect. This 13-story building suffered from chronic heat imbalances, thanks to aging boilers and absorption chillers that operated in either heating or cooling mode, never both. Ecosystem is removing the massive cooling tower from the roof and installing nine air-source heat pumps that are powered by electricity — until the outdoor temperature dips below 40 degrees, when a natural-gas boiler will provide supplemental power. This “hybrid” system reduced the required number of heat pumps by two-thirds while making maximum use of limited roof space. As a bonus, Ecosystem helped the co-op secure a $1.4 million incentive from the state’s Clean Heat Program and $250,000 from the New York State Energy Research and Development Authority (NYSERDA).

Now comes the disconnect. “The building has a low D energy-efficiency grade,” Milbank says. “And even though this project will cut the building’s natural gas consumption by more than 80% and make it fully compliant with the Climate Mobilization Act beyond 2050, we might optimistically get it up to a C grade. That’s because of the disconnect between letter grades — how much energy and water you use per square foot — and the building’s carbon emissions. But this co-op is going to be a very efficient, low-carbon building.” His conclusion: “The letter grade is semi-irrelevant.”

Referring to the Union Square co-op, Milbank adds, “They’ll have a C grade out front, and nobody will appreciate the things they’ve done to reduce carbon emissions.”