The Role of Energy Storage in Reducing Building Emissions: New York City’s Local Law 97

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Executive Summary

The New York City Council passed the Climate Mobilization Act in April of 2019, charting a path forward to net-zero greenhouse gas emissions by 2050. Central to the Act is Local Law 97 (LL97), which places a declining cap on emissions from the city’s largest buildings and is considered “the most ambitious building emissions legislation enacted by any city in the world.” The building sector accounts for two-thirds of emissions in New York City, and given the law’s high penalty—$268 per metric ton of CO2-equivalent (tCO2e)—LL97 is expected to dramatically reduce those emissions over time. Buildings can pursue a variety of pathways to reduce their emissions below the cap, including changing fuels, upgrading appliances, retrofitting, reducing use, and installing distributed solar generation.

LL97 also includes specific language authorizing a deduction in emissions for energy storage based on the size of the storage system and its “ability to reduce greenhouse gas emissions during designated peak periods.” However, the law does not define the size or manner of the deduction that building owners will receive. Determining avoided emissions from storage proves challenging since it operates on the electric grid both as a load, potentially increasing emissions when it charges, and as a generator, potentially offsetting emissions when it discharges. Under the law, a Climate Advisory Board and its eight working groups are conducting analysis on storage emissions and other undefined aspects of the law in order to provide recommendations to the Department of Buildings (DOB) by January 1, 2023. The DOB, in conjunction with the Mayor’s Office of Sustainability, will promulgate final rules in advance of the beginning of the first compliance period in 2024.

This report is designed to support the DOB as it seeks to appropriately value the avoided emissions from energy storage and encourage its deployment, helping to achieve the goals set forth in the Climate Mobilization Act and securing a renewable, reliable, and inexpensive energy future for New Yorkers.

Due to the intermittent nature of wind and solar generation, increasing energy storage deployment will be a critical element of successfully maintaining reliability while decarbonizing the electric grid. Using least-cost modeling of a future decarbonized grid, New York City and State have forecasted “astronomical” I evaluate several policy options based on the quality of information they provide to building owners, the significance and reliability of their incentives for storage, and their short and long-term emissions impact. Based on this analysis, I make the following recommendations to the DOB:

1. By January 2022, establish a capacity-based deduction using reasonable assessments of the combined dispatch and investment effects of storage installed in New York City.
2. By June 2023, establish a transparent system for time-of-use deductions and regularly publish marginal emission factors for electricity.

Recommendation 1 has the advantage of quickly providing practical, easily understood information to building owners so that they consider energy storage as they make compliance decisions. This deduction includes both the estimated short-run dispatch effects and the long-run investment effects of price- maximizing storage on the generation fleet. I estimate this capacity-based deduction as 425 to 850 tCO2e/MW, reducing annual compliance payments for buildings above the cap by $11,500 to $23,000 for a 100kW battery. However, as noted in the report, there is reason to suspect that these numbers may actually be higher upon further analysis. Recommendation 2 provides a pathway for sophisticated storage operators to reduce emissions further by responding to real-time market signals. By providing optionality, building managers can choose the pathway that better fits their needs.

I also consider, but do not recommend three other policy options: a “Clean Peak” approach—which provides deductions for predetermined daily “peak” periods—creates undue complication while failing to drive deeper reductions in emissions; an “Average Dispatch Effects” approach—which considers only the short-run impacts of price-maximizing storage—fails to reward storage for its full emission reductions; and a blanket “Energy Use Exemption” for storage—which exempts electricity that passes through storage from the cap—creates a perverse incentivize to overutilize storage as buildings seek to direct maximum electricity through storage in order to take advantage of the exemption.

Beyond establishing storage deductions, my research suggests that the DOB should also consider these approaches to implementation:

3. Pursue an adaptive approach to the capacity-based deduction, tracking and learning from the impact of storage on the grid.
4. Include energy storage in a carbon trading scheme.
5. Include energy storage when providing technical consultations to building owners.

LL97 is a remarkably ambitious attempt to limit New York City’s emissions and will likely serve as a model for other jurisdictions’ similar attempts. Creating a framework to fairly value the short- and long-term emissions reductions from storage will help to drive deployment of a critical energy resource for our decarbonized future.