Understanding Maryland’s Building Energy Performance Standard

4/19/2024

The recently passed Climate Solutions Now Act is intended to reduce greenhouse gas emissions in a variety of ways. One of those ways is through Building Energy Performance Standards.  

For facility managers in Maryland, any person or entity that owns a building in the state in excess of 35,000 square feet needs to be aware of the following: 

• You could have emissions reporting requirements under the Statute and Proposed Regulations and should become familiar with the EPA’s Energy Star Portfolio Manager tool.  
• You should understand what’s in your lease(s) and consider amending the same to allow collection of building energy consumption data in connection with the reporting requirement.  
• If you are selling your building, you may have certain disclosure obligations to the purchaser.  

According to the Maryland Department of the Environment, it’s expected that more than 9,000 buildings in the state will be covered by the Statute and Proposed Regulations explained below. 

The Statute 

The Statute applies to “covered buildings” which includes (subject to some exceptions) commercial facilities with a gross floor area of 35,000 square feet or more, excluding the parking garage area.” The Statute directs the Maryland Department of the Environment to develop building energy performance standards for covered buildings that achieve:  

• a 20 percent reduction in net direct greenhouse gas emissions on or before January 1, 2030, as compared with 2025 levels for average buildings of similar construction; and  
• net-zero direct greenhouse gas emissions on or before January 1, 2040.  

To facilitate meeting this standard, the Statute mandates the Department to “require the owners of covered buildings to measure and report direct emissions data to the Department annually beginning in 2025.” To further facilitate meeting this standard, the Statute requires electric and gas companies to “provide energy data, including whole-building and aggregate data, to the owners of covered buildings for benchmarking purposes.” 

The Proposed Regulations 

The Proposed Regulations require “covered building owners meet specific net direct GHG emissions and energy use intensity (EUI) standards” to “promote efficient electrification to enable Maryland’s clean energy transition, minimize electricity grid impacts, and achieve Maryland’s goal of net-zero GHG emissions by 2045.” To achieve these goals, covered building owners need to use the EPA’s Energy Star Portfolio Manager tool.

Below are some key definitions in the Proposed Regulations that are important to understand, some of which have been pared down here for simplicity:  

• “Benchmarking information” means descriptive information about a building, its operating characteristics, and information generated by the benchmarking tool regarding the building’s energy consumption, efficiency, and performance and includes but is not limited to the building identification number, address, gross floor area, and separate energy consumption totals for each fuel type. 
• “Benchmarking tool” refers to ENERGY STAR Portfolio Manager, or any successor system, approved by the EPA. 
• “Covered Building” generally means a building that is a commercial or multifamily residential building in the State of Maryland or is owned by the State of Maryland and has a gross floor area of 35,000 square feet or more, excluding the parking garage area. 

Reporting Requirements  

Some of the key items in the reporting requirements, which are to begin in 2025, are set forth below:  

• you are to collect and enter all required ‘benchmarking information’ for the previous calendar year into the ‘benchmarking tool’ and submit the “benchmarking report” to the Department by June 1 of each year (beginning in 2025), meaning that for most buildings, you should start collecting 2024 “benchmarking information” now for reporting in 2025; 
• certain energy consumption data can be excluded from the “benchmarking report” such as energy consumption data from food service facilities engaging in commercial cooking and water heating and electric vehicle charging; 
• if the building is a mixed-use covered building, then the gross floor area of all property types needs to be entered into the benchmarking tool;  
• there is a third-party verification of benchmarking reports requirement starting in calendar year 2025 and then every five years thereafter; and 
• you are to maintain records demonstrating compliance with these regulations, including, but not limited to, energy bills, reports, forms, and records received from tenants or utilities, shall preserve those records for no less than 5 years, and shall make those records available to the Department upon request of the Department. 

If facility managers have tenants at their building, they can obtain the reporting information in a variety of ways:  

• Request the tenant provide any benchmarking information that cannot otherwise be acquired. 
• If there are five or more tenants, electric and gas companies shall deliver to you the monthly whole building energy consumption data capturing total consumption by fuel type of all relevant fuel or fuels across all meters at the building.  
• If there are fewer than five tenants, electric and gas companies shall deliver whole building energy consumption data to you if the building tenants provide written or electronic consent for the delivery of the tenant’s energy data to you, which consent can be in the form of a lease agreement provision. You may run into issues obtaining energy consumption data if your lease does not require the tenant to disclose that information to you. 

If buildings owners are selling the covered building, the Proposed Regulations require owners to:  

• disclose that the building is subject to the Proposed Regulations;  
• deliver certain records to the prospective buyer; and  
• provide certain other performance information to the buyer.  

If you are selling a covered building in (or after) 2030, you should take into account that, starting in 2030, the owner of the covered building on December 31 of the calendar year when the closing occurs is responsible for compliance with the Proposed Regulations (and any payment due under the same). 

Performance Standards 

The Proposed Regulations include performance standards for emissions and energy use intensity (“EUI”), each of which is adjusted based on property type. Industry groups have raised concerns about whether buildings can achieve the emission and EUI standards currently set forth in the Proposed Regulations and argue that the Proposed Regulations do not follow the Statute. Stakeholders raised similar concerns when the Proposed Regulations were undergoing public comment.  

Related Content: What Are Building Performance Standards?

Covered building owners are concerned about the large capital expenditures needed to meet (or exceed) the performance standards. According to the Estimate of Economic Impact section of the Proposed Regulations, this program will be expensive and the expectation is there will be mixed results from property to property, albeit with an overall positive savings in the long run: “On average, over the 2025-2050 time horizon, covered buildings save $4.47 per square foot in energy costs. However, there is significant variation with 25 percent of covered buildings modeled to save more than $9.29 per square foot and 25 percent of covered buildings modeled to lose more than $4.43 per square foot.” 

Alternative Compliance 

Instead of meeting the emissions standards set forth in the Proposed Regulations, building owners may comply with the emissions standards by paying a fee for the greenhouse gas emissions in excess of the emissions standards.  

Conclusion 

The Proposed Regulations place the responsibility on building owners and/or facility managers to both report and reduce energy use at a covered building. While the Proposed Regulations are not effective right now, facility managers should start thinking about how the Proposed Regulations are going to impact their building in the future and planning accordingly.  

Kelly Shubic Weiner is co-chair of Venable LLP's Commercial Real Estate Practice Group, and based in the firm’s Baltimore office. She offers strategic business solutions for owners, developers, operators, investors, and lenders engaged in complex real estate and commercial transactions in the United States and abroad. Kelly can be reached at ksweiner@Venable.com. 

Venable associate Alexander M. Belman focuses his practice on commercial real estate matters, including acquisitions, dispositions, leasing, and development. He has experience drafting and negotiating purchase and sale agreements and other documents incidental to real estate transactions. Alex can be reached at ambelman@Venable.com. 

Venable associate Abigail A.F. Rose focuses her practice on commercial real estate matters, including property acquisition, leasing, and financing. She can be reached at AARose@Venable.com.