The Maryland Senate is moving legislation that mandates an abrupt end to fossil fuel use on a schedule that will present immense financial and logistical challenges for owners and occupants of commercial, industrial and multifamily real estate.
NAIOP has consistently advocated for technically sound, cost-effective and orderly climate mitigation policies. Up until now, the state’s policies reflected those values. In 2020, the World Resources Institute, a climate think tank, recognized Maryland first of 41 states that had both reduced greenhouse gas emissions and grown their economies between 2005 and 2017. The 12-year, 38% reduction in emissions was accomplished by carefully choosing the most cost-effective strategies and resisting the impulse to either ignore the need for progress or to become indifferent to the economics.
This week the Senate of Maryland is moving Senate Bill 528, the Climate Solutions Now Act of 2022 which mandates an abrupt end to the use of natural gas, oil and propane without the financial or policy support necessary to overcome barriers and meet the accelerated deadlines in the bill. For commercial real estate, the most important parts of the bill require an all-electric building code for new construction and a rapid phase-out of all greenhouse gas emissions in existing buildings. The bill’s provisions include:
- Beginning in 2024 all new buildings are required to:
– meet heat and hot water loads without using fossil fuels; and
– preinstall solar, electric vehicle charging, and grid integration capabilities.
- Existing buildings 25,000 square feet and larger would be required to reduce all operational greenhouse gas emissions 20% by 2030, 40% by 2035 and reach net zero by 2040.
The state’s climate consultant estimated the building costs necessary to implement the high-electrification scenario that is the basis for Senate Bill 528 would be between $7.7 billion and $14 billion per year. The $7.7 billion low range cost estimate is roughly equivalent to the $7.9 billion that local real estate property taxes generated in 2020. The $14 billion annual cost at the high end of the range is slightly more than the $13.7 billion combined total of local property and income tax revenues in 2020.
Even though the Maryland Commission on Climate Change recommended that any retrofit program should include “commercial tax credits and direct subsidy payments … large enough to reduce the simple payback period to between three and seven years,” SB 528 imposes requirements without incentives to reduce costs or fill capital funding gaps.
A sentiment that the bill goes too far too fast is rising in the Senate of Maryland. It is not often that a bill favored by the elected leadership fails to pass, but pressure from the public and from the more moderate House of Delegates is increasing the call for changes to the bill.