We all get the point of LL97 and BERDO. They set the lines and put a price on missing them. What we’re seeing, though, is a lot of teams penciling in the penalties and waiting because on paper that still looks cheaper than getting the work done right now.

That choice carries risk as numerous Decarb Summits members have pointed out at our monthly summits. The caps tighten by 2030, and soft costs keep inching up while interconnection queues are also longer. Lenders, insurers, and tenants are already discounting buildings that do not have a plan, and aiting can turn a manageable scope into a bigger bill and a weaker asset.

The groups making real progress start simple. They chase the incentives first so real money is in the stack before design gets too far. They make thermal choices at concept instead of pushing it to late-stage value engineering. They build steady grid revenue with demand response so the pro forma is not doing all the heavy lifting, and they plan work in stages so floors stay occupied and cash flow keeps moving.

Do those things, and compliance stops being a spreadsheet debate, it becomes a plan you can execute. Each step makes the next step easier, not harder.

What the Rules Actually Charge

New York City (LL97)
Buildings that exceed their annual emissions limit pay $268 per metric ton of CO₂e over the cap. First reports for 2024 emissions were due May 1st, 2025, but then the deadline was extended to the end of December 2025. In early years, certain good faith pathways and adjustments can temper immediate penalties.

Boston (BERDO 2.0)
Owners may use an Alternative Compliance Payment (ACP) initially set at $234 per metric ton of CO₂e over the standard, with dollars flowing to the City’s Equitable Emissions Investment Fund. The City also offers resources like the Retrofit Resource Hub and individualized schedules.

These prices are transparent and annual, which makes them easy to forecast. In finance terms, they function like an option to emit above the cap for a known amount each year. If that option price is below a firm’s risk adjusted abatement cost, spreadsheets favor paying. It’s just math.

Evidence Owners Are Budgeting the Fines

Various business publications report that dozens of landlords intend to pay LL97 fines rather than undertake immediate retrofits, citing cost and timing. Coverage from Crain’s New York Business, The Real Deal, and Habitat Magazine point to a pattern of treating penalties as a cost of doing business. Industry analysts add that well capitalized landlords can absorb penalties or pass portions of the cost to tenants while they wait for technology costs to fall or incentives to improve.

Against that backdrop, our monthly Decarb Summits bring together owners, operators, financiers, utilities, and solution providers to unpack how policy design, capital constraints, and delivery risks are driving these market responses, including among smaller owners.

One role we play is to translate mandates into executable projects by convening the right stakeholders, surfacing data and case studies, and enabling partner introductions. Our members are committed to practical pathways to compliance and grid resilience, and they collaborate to help the broader ecosystem move from planning to contracted scopes and commissioned systems.

As we get into below, it’s a complex issue to solve, but there are pathways forward.

Why the Math Favors Paying the Fine (For Now)

• ‍Predictable, annualized costs: A portfolio that expects to exceed caps by 5,000 tCO₂e can model the penalty precisely using a known per ton rate. Against multi building NOI and with possible pass throughs, that can look tractable, especially if disposition is on the horizon.

• ‍Capex timing and hurdle rates: Deep retrofits require multi year projects, tenant coordination, downtime risk, and management bandwidth. If discounted cash flow on predictable penalties for several years beats a large capital outlay today, delay is rational.

• ‍Regulatory flexibility and ACPs: Early year flexibilities in NYC and ACPs in Boston create sanctioned off ramps that blunt the near term bite of noncompliance.

• ‍Technology and pricing uncertainty: Owners may wait for lower heat pump costs, a cleaner grid, or richer incentives. With a fixed and visible penalty, option value accrues to waiting.

Why That is a Problem for Outcomes

• Penalties below abatement cost: If the risk adjusted cost to abate a marginal ton is higher than about $268 in NYC or $234 in Boston, rational actors will not abate that ton this year.

• Uneven competitive dynamics: Owners with cheaper capital can pay now and upgrade later. Smaller owners face harder trade offs. Some costs may hit tenants through operating expense structures.

• 2030 tightening risk: If many owners ride the fines through 2025 to 2029, the late cycle retrofit surge becomes larger and more disruptive, increasing noncompliance risk just as caps bite hardest.

What Actually Moves Markets

Two things reliably change behavior at scale:

• Credible enforcement with penalties that remove the economic benefit of noncompliance.
• Simple, predictable incentives that reduce up front cost and execution risk.

Below is how those elements work in practice, and how to design them so they actually convert intent into contracted scopes and commissioned systems.

1. Enforcement that is certain, timely, and proportionate

• Firms respond most when penalties are visible, audited, and collected on a reliable calendar. A smaller penalty that is certain will usually outperform a larger penalty that is rarely enforced.
• Set penalties so that paying the fine is more expensive than abating the ton, after accounting for project risk and internal hurdle rates.
• Annual reporting, spot checks, and targeted audits shorten the time between violation and consequence, which strengthens deterrence.

2. Incentives that are simple and predictable

• One page eligibility, standard measure lists, and clear timelines reduce friction.
• Multiyear funding and transparent step downs help owners schedule projects with confidence.
• Pay for verified savings or verified capacity where feasible. This channels funds to deeper work and reduces free rider risk.

3. Technical assistance that removes execution risk

• Pre scoped templates, vendor shortlists, and owner’s rep services help teams that do not have in house energy expertise.
• Assistance should cover audits, design, permitting, procurement, construction, and verification. Gaps at any point can stall a project.

4. Finance that meets the project where it is

• Pair incentives with low-cost loans, on bill repayment, green leases, and tools like C PACE where available.
• Bridge products that fund early design and deposit costs keep projects moving until incentives are paid at completion.

‍5. Faster processes that reduce soft costs

• Create marked queues for qualified decarbonization scopes.
• Early load letters, transformer planning, and interconnection scheduling reduce timeline risk that otherwise kills deals.

6. Market signals that reward leaders

• Public performance dashboards by submarket and asset class help capital reprice laggards and reward early movers.
• Verified leaderboards, not pay to play badges, motivate portfolio scale action without new mandates.

7. Portfolio strategy that fits owner realities

• Tie upgrades to known capital events like tenant turnover, roof cycles, or chiller end of life.
• Offer multiple compliant routes, such as electrification ready plus interim efficiency, so owners can sequence work across several budget years.

8. Fair cost allocation that keeps tenants on board

• Limit pure penalty pass throughs, while allowing recovery for documented, code compliant upgrades that cut operating costs.
• Clear communication on comfort, resilience, and bill impacts can reduce pushback and speed approvals.

9. Measurement, verification, and data access

• Use accepted protocols and simple templates so results are trusted and repeatable.
• Easy access to interval data and whole building usage shortens audits and improves accuracy in savings estimates.

10. Program governance that learns and adapts

• Publish what works and what does not, so owners and vendors can align roadmaps to the policy signal.
• Track uptake, cost per ton, and equity metrics. Adjust incentive levels, measure lists, or eligibility rules quickly when outcomes drift.

Put together, these elements turn a penalty that is easy to model into a program that is easy to act on. The stick prices delay correctly, the carrots reduce risk at the decision point, and the delivery system clears bottlenecks that normally stall scopes. That is when compliance stops being a spreadsheet exercise and becomes a capital plan.

Policy and Market Fixes

1. Escalate penalty and ACP price paths

Increase annually so the expected cost of delay rises faster than construction inflation and matches marginal abatement costs. Publish the step up schedule in advance, align it with 2030 tightening, and index it to typical owner hurdle rates so paying to wait no longer wins on a discounted cash flow basis.

2. Shorten early year flexibility windows and tighten criteria

Require verified, contracted scopes rather than plans to qualify for relief. Set clear milestones with dates, use third party verification, and sunset flexibility quickly so relief acts as a bridge to execution rather than a standing alternative.

3. Cap ACP and REC use

Apply declining portfolio and asset level limits to ensure physical upgrades occur in market. Prioritize ACP spending for equity and reliability outcomes, and limit offsets to a narrow, transparent list with strict additionality.

4. Limit pass throughs of noncompliance costs in new leases where feasible

Discourage pure penalty pass throughs while allowing recovery for documented, code compliant upgrades that deliver measured savings or resilience benefits. This shifts incentives toward investment rather than deferral.

5. Pair sticks with fast carrots‍

Create priority permitting lanes for qualified scopes, offer early interconnection planning with utilities, and preapprove incentive packages. Shorter timelines and lower soft costs reduce project risk and help owners move from audit to contract.

6. Publish aggregate compliance dashboards

Create priority permitting lanes for qualified scopes, offer early interconnection planning with utilities, and preapprove incentive packages. Shorter timelines and lower soft costs reduce project risk and help owners move from audit to contract.

Which Incentives Work Best in Buildings?

Evidence from federal, state, and nonprofit evaluations points to three design features, plus two delivery boosters that raise uptake:

• Simplicity and predictability: Keep eligibility to one page, standardize measure lists, and maintain multiyear funding with known step downs. Predictable rules let owners schedule work and lock in contractors.

• Measured performance where feasible: Tie incentives to verified savings or verified capacity so deeper projects earn more. Use accepted M and V protocols and simple templates to reduce administrative burden.

• Integration with financing and assistance: Stack incentives with low cost loans, on bill repayment, green leases, and C PACE where available. Provide owner side technical support from audit through commissioning to prevent stalls between stages.

• Delivery booster, faster processes: Priority permit queues, early transformer planning, and interconnection scheduling remove timeline uncertainty that kills deals.

• Delivery booster, market signals: Recognition based on verified results and open performance data helps owners justify investment to boards and investors.

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Bottom Line

LL97 and BERDO are essential, and they are working in parts of the market, but current per ton prices let well capitalized owners rationally defer action. NYC sets a penalty of $268 per tCO₂e and Boston’s ACP starts at $234 per tCO₂e. Reporting shows some owners already plan to pay. Unless penalties escalate faster, flexibility windows shrink, and pass throughs are curbed, penalties will remain a modeled expense rather than a catalyst.

The goal is to price delay correctly and pair that price with simple incentives, technical assistance, faster permitting, and early utility coordination so decarbonization beats the spreadsheet every single year.

Ready to turn plans into projects that get built on time and on budget? Join us. Members get monthly networking, vetted introductions, and real stage time to share wins and find partners. Send a note and we will plug you into the next session.

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