In recent months, federal energy and climate policy has shifted sharply. The Reconciliation Law, signed into effect this summer, phases out most federal investments in energy efficiency and decarbonization initiatives. At the same time, however, Congress signaled continued bipartisan support for the EPA’s ENERGY STAR program, approving funding levels above previous years.
These developments mark a turning point in where the pivotal work towards climate and energy goals will occur. Across the country, leadership is moving closer to where emissions, buildings, and communities actually exist: the state and local level.
A Change in the Federal Landscape
The Reconciliation Law eliminates or winds down several major federal mechanisms that previously supported clean energy and efficiency projects. Incentives such as the Energy Efficient Commercial Buildings Deduction (179D), the Energy Efficient Home Improvement Credit (25C), and the New Energy Efficient Home Credit (45L) will sunset by 2026. Unobligated funds from the Inflation Reduction Act, including allocations for the Greenhouse Gas Reduction Fund, will be rescinded.
The Department of Energy’s Loan Programs Office has been directed to reprioritize its portfolio toward critical minerals and “energy dominance,” while scaling back support for greenhouse gas reduction initiatives. Together, these changes reflect a realignment of federal focus away from direct decarbonization of investments and toward energy security and resource development.
Why Local and State Regulation Is Gaining Ground
1. Laboratories of Innovation
State and local governments have always been the testing grounds for new energy and sustainability policies. According to the Center for Climate and Energy Solutions (C2ES), at least 24 states and the District of Columbia have established formal greenhouse gas reduction targets, many of which extend through 2050. States like California, New York, Massachusetts, and Washington are implementing comprehensive climate action plans that include renewable mandates, clean heat standards, and zero-emission vehicle programs.
Municipalities are equally active. The Sabin Center for Climate Change Law and Climate XChange track a growing list of city-level building performance standards, solar ordinances, and electrification mandates, ranging from Chicago to Denver to Boston. Some jurisdictions have adopted community choice aggregation programs that give local governments direct control over their energy mix, allowing them to source higher percentages of renewable power even if federal or state requirements stall.
For building owners and operators, this means tracking regulation no longer stops at the federal level. Compliance now depends on local city councils, utility commissions, and state energy offices, each with its own metrics and enforcement timelines.
2. Jurisdictional Speed and Specificity
Local governments can legislate faster than Washington. Federal code updates may take years, while cities can approve new disclosure or building-performance ordinances in months. This speed allows for more place-based climate action targeting regional risks like wildfire zones in the West, coastal flooding in the East, or heat islands in cities.
The Sabin Center notes that hundreds of U.S. municipalities now regulate discrete emissions sources such as natural-gas use, building electrification, and commercial lighting efficiency. For multi-state portfolios, this patchwork requires robust systems capable of monitoring and integrating dozens of evolving rules simultaneously.
3. Filling Regulatory Gaps
As federal programs wind down, states and cities are stepping in to maintain market stability and policy continuity. Building energy codes, renewable standards, and benchmarking laws preserve the economic logic of efficiency even without national mandates. This dynamic where subnational actors sustain progress when federal momentum slows has defined U.S. climate governance for decades.
We can view this as a redistribution of responsibility across levels of government and the private sector rather than a marker of uncertainty.
Local Governments Step into the Lead
Cities such as New York, Washington, D.C., Denver, and Boston have enacted Building Performance Standards (BPS) requiring continuous reductions in energy use or carbon intensity for large buildings. These frameworks typically include:
- Annual or multi-year reduction targets tied to ENERGY STAR scores or emissions intensity metrics.
- Transparent public disclosure and third-party verification.
- Penalties or remediation plans for non-compliance.
In parallel, green lease frameworks are gaining traction as landlords and tenants collaborate to share energy data, efficiency costs, and sustainability goals. Many jurisdictions, and especially those with benchmarking laws, implicitly encourage green lease language to ensure both parties can meet local reporting requirements. (IMT Green Lease Library)
At the state level, Renewable Portfolio Standards (RPS) remain a central driver. Dozens of states mandate that a defined percentage of electricity comes from renewable sources, and several are expanding those requirements. Electrification mandates are also emerging, phasing out fossil fuel systems in new construction and incentivizing electric HVAC and water heating systems.
California has also introduced two landmark climate-disclosure laws. SB 253 (the “Climate Corporate Data Accountability Act”) requires companies with over US $1 billion in annual global revenue that do business in California to publicly disclose their Scope 1 and Scope 2 greenhouse-gas emissions beginning in 2026, followed by Scope 3 emissions in 2027. Meanwhile, SB 261 (the “Climate-Related Financial Risk Act”) mandates that entities with over US $500 million in revenue doing business in California publish a biennial climate-related financial-risk report, aligned with frameworks such as the Task Force on Climate‑related Financial Disclosures (TCFD), starting January 1, 2026. These laws underscore how states are implementing rigorous disclosure and reporting regimes that go beyond traditional compliance.
These trends directly influence utility costs, procurement decisions, and carbon accounting for property owners. For businesses, this means compliance expectations will continue to grow, but the rules will increasingly vary by jurisdiction.
The Private and Nonprofit Sectors Are Maintaining Momentum
Local governments are not acting alone. Coalitions of nonprofits, community organizations, and private companies continue to advance energy efficiency and sustainability initiatives through market mechanisms, voluntary reporting, and local partnerships.
Programs such as GRESB, CDP, and the Science Based Targets initiative (SBTi) maintain strong participation, reinforcing that investor and stakeholder expectations are stable, even as federal incentives change. Similarly, philanthropic organizations and regional collaboratives are funding community resilience projects, renewable installations, and retrofit programs that address local needs directly.
The underlying reality is that the economic rationale for energy efficiency and climate resilience has not changed. Lower operating costs, reduced risk, and regulatory certainty still continue to drive corporate action in 2026 and beyond, regardless of federal policy cycles.
ENERGY STAR: A Case Study in Durability
The continued bipartisan support for the ENERGY STAR program demonstrates how some elements of federal climate and energy policy have achieved institutional stability. Both the House and Senate Appropriations Committees recently approved budget allocations above the previous fiscal year’s levels, signaling long-term confidence in ENERGY STAR’s value for consumers, businesses, and industry alike.
These votes suggest broad recognition of the program’s cost-effectiveness and measurable outcomes. ENERGY STAR’s endurance highlights how data-driven, performance-based programs can maintain relevance across administrations.
Managing the New Compliance Landscape
For organizations with multi-state portfolios, the decentralization of climate policy brings risk and opportunity.
Challenges include:
- Regulatory fragmentation: hundreds of overlapping disclosure rules, BPS deadlines, and performance metrics.
- Data complexity: utilities, building systems, and lease structures all feed different formats and timeframes.
Technology platforms like Tango’s Energy and Sustainability provide the infrastructure to:
- Aggregate and normalize energy and emissions data across jurisdictions.
- Comply with evolving local and state compliance requirements.
- Generate finance-grade sustainability reports and validate progress against internal and external targets.
In short, robust data management is now indispensable for navigating the local-regulation era.
