New York Green New Deal Announcement

On January 15, 2019 New York State Governor Andrew M. Cuomo did his State of the State Address. His 2019 Justice Agenda included 12 proposals under part 4 “Launching the Green New Deal”:

  • Mandate 100 Percent Clean Power by 2040 – This will mandate that all electricity will be “carbon free by 2040.
  • New York’s Path to Carbon Neutrality – The heads of relevant state agencies and other workforce, environmental justice, and clean energy experts will develop a plan to make New York carbon neutral.
  • A Multibillion Dollar Investment in the Clean Tech Economy that will Reduce Greenhouse Gas Emissions – There will be $1.5 billion in competitive awards to support 20 large-scale solar, wind, and energy storage projects across upstate New York.
  • Expand NY Green Bank and Catalyze at Least $1 Billion in Private Capital – The NY Green Bank is a $1 billion investment fund designed to accelerate clean energy deployment and they will expand its charter.
  • Chart a Path to Making New York’s Statewide Building Stock Carbon Neutral – There are plans for more energy efficiency investments.
  • Direct State Agencies and Authorities to Pursue Strategies to Decarbonize their Investment Funds and Ramp Up Investment in Clean Energy – Commence a process to review and evaluate the feasibility and appropriateness of divesting from fossil fuels for agencies and authorities.
  • Increase Carbon Sequestration and Meet the U.S. Climate Alliance Natural and Working Lands Challenge – This will establish a carbon sequestration goal for our natural and working lands.
  • Create a Carbon-to-Value Innovation Agenda and Establish the CarbonWorks Foundry – This will create a Carbon-to-Value Innovation Agenda as a blueprint for the future of carbon-to-value technology as well as carbon capture, utilization and storage in New York.
  • Deliver Climate Justice for Underserved Communities – The Green New Deal will help historically underserved communities prepare for a clean energy future and adapt to climate change by codifying the Environmental Justice and Just Transition Working Group into law and incorporating it into the planning process for the Green New Deal’s transition.
  • Create a Fund to Help Communities Impacted by the Transition Dirty Power – This will provide funding to help communities that are directly affected by the transition away from conventional energy industries and toward the new clean energy economy
  • Develop Clean Tech Workforce and Protect Labor Rights – The Green New Deal will continue to require prevailing wage, and the State’s offshore wind projects will be supported by a requirement for a Project Labor Agreement.
  • Make New York the National Hub for Offshore Wind and Deploy 9,000 Megawatts by 2035 -The Green New Deal will accelerate offshore wind progress in three specific areas: port infrastructure, workforce development, and transmission infrastructure.

Not surprisingly there are no details other than the announcement, no mention of potential costs and no explanation how all this will affect any of the many impacts that he claims are caused by climate change. I will develop posts on specific components of the announcement in the future. In the meantime, the following is the Green New Deal section.

Part 4. Launching the Green New Deal

Recognizing the imperative to create healthy communities today while protecting the environment for generations to come, Governor Cuomo is consistently on the front lines of the battle against climate change. In addition to securing environmental protection and promoting sustainability, the Governor’s vision for a clean, resilient New York calls for the clean energy industry to be a significant engine of economic opportunity and growth.

The signs of a changing climate are indisputable. When Hurricane Irma and Hurricane Maria struck Puerto Rico in late 2017, Governor Cuomo and New Yorkers across the state leapt to action to deliver aid and support. In response to an official request from Governor Ricardo Rosselló, Governor Cuomo led a sweeping effort to provide emergency goods and services and deployed more than 1,000 personnel including hundreds of utility workers and power experts to help with electricity restoration. In stark contrast to the federal government, New York’s commitment to Puerto Rico remains unwavering, but without swift action to reduce the greenhouse gasses that drive climate change, devastating hurricanes like Maria—and Superstorm Sandy—will be the new normal.

During Governor Cuomo’s first two terms, New York banned fracking of natural gas, committed to phasing out coal power by 2020, and was among the first states to mandate 50 percent renewable power by 2030. Under the Reforming the Energy Vision (REV) agenda, renewable energy is growing rapidly across the state: solar has increased over 1,500 percent, New York has held the largest renewable energy procurements by a state in U.S. history, and offshore wind is poised to transform the state’s electricity supply to be cleaner and more sustainable. Governor Cuomo’s climate leadership is demonstrating that a transition to clean energy is more than technically feasible and cost-effective – it can be an engine of new economic opportunity.

Amidst the Trump Administration’s assault on the environment and in order to continue New York’s progress in the fight against climate change, Governor Cuomo is announcing New York’s Green New Deal, a nation-leading clean energy and jobs agenda that will put the state on a path to carbon neutrality across all sectors of New York’s economy. At the Governor’s direction, New York will move boldly to achieve this goal with specific near-term actions and long-term strategies to spur unparalleled innovation and transform the state’s electric, transportation, and building infrastructure while prioritizing the needs of low- and moderate-income New Yorkers. This landmark initiative will further drive the growth of New York’s clean energy economy, create tens of thousands of high-quality 21st century jobs, provide all New Yorkers with cleaner air and water by reducing harmful emissions, and set an example of climate leadership for the rest of the nation and world to follow.

 Proposal. Mandate 100 Percent Clean Power by 2040

As part of the Green New Deal, Governor Cuomo is proposing a mandate of 100 percent clean, carbon-free electricity in New York State by 2040, the most aggressive goal in the United States and five years sooner than the target recently adopted by California. The cornerstone of this new goal is an increase of New York’s successful Clean Energy Standard mandate from 50 percent to 70 percent renewable electricity by 2030. This globally unprecedented ramp-up of renewable energy will include:

  • Quadrupling New York’s offshore wind target to 9,000 megawatts by 2035, up from 2,400 megawatts by 2030
  • Doubling distributed solar deployment to 6,000 megawatts by 2025, up from 3,000 megawatts by 2023
  • More than doubling new large-scale land-based wind and solar resources through the Clean Energy Standard
  • Maximizing the contributions and potential of New York’s existing renewable resources
  • Deploying 3,000 megawatts of energy storage by 2030

Achieving 100 percent carbon-free electricity will require investments in resources capable of meeting diverse demands throughout the state, as well as a substantial increase in cost-effective energy efficiency. Harnessing a complementary set of carbon-free energy resources will assure reliability and affordability for all New Yorkers as the electricity system is both modernized and optimized. To ensure that clean energy opportunities are available for those that need it most, as part of this nation-leading commitment, Governor Cuomo is directing the New York State Energy Research and Development Authority (NYSERDA), in concert with the Department of Public Service (DPS), to expand and enhance their Solar For All program and couple it with energy savings opportunities, increasing access to affordable and clean energy for low-income, environmental justice and other underserved communities.

 Proposal. New York’s Path to Carbon Neutrality

The Green New Deal will create the State’s first statutory Climate Action Council, comprised of the heads of relevant state agencies and other workforce, environmental justice, and clean energy experts to develop a plan to make New York carbon neutral. The Climate Action Council will consider a range of possible options, including the feasibility of working with the U.S. Climate Alliance to create a new multistate emissions reduction program that covers all sectors of the economy including transportation and industry and exploring ways to leverage the successful Regional Greenhouse Gas Initiative to drive transformational investment in the clean energy economy and support a just transition.

The Climate Action Council will also identify and make recommendations on regulatory measures, clean energy programs, and other State actions and policies that will ensure the attainment of statewide emission reduction and carbon neutrality goals. The Council will consider programs and measures that can significantly and cost-effectively reduce emissions from all major sources, including electricity, transportation, buildings, industry, commercial activity, and agriculture. The Council will also explore opportunities for the beneficial electrification of transportation and heating of buildings as a means to drive substantial and deep emissions reductions. Finally, the Council will make recommendations to ensure a just transition to the clean energy economy for New York’s world-class workforce and most vulnerable citizens.

The Climate Action Council will commence its work immediately in order to support the development of the next State Energy Plan over the next two years and will provide meaningful opportunities for public comment as it develops New York’s first carbon neutrality roadmap.

 Proposal. A Multibillion Dollar Investment in the Clean Tech Economy that will Reduce Greenhouse Gas Emissions

Demonstrating New York’s real-time commitment to implementing the most ambitious clean energy agenda in the United States, Governor Cuomo is also announcing $1.5 billion in competitive awards to support 20 large-scale solar, wind, and energy storage projects across upstate New York. These projects will drive a total of $4 billion in direct investment in New York’s growing clean energy economy, as well as add over 1,650 megawatts of capacity and generate over 3,800,000 megawatt-hours of renewable energy annually – enough to power nearly 550,000 homes and create over 2,600 short-term and long-term jobs. Once all permitting and local requirements are met, several projects are expected to break ground as early as August 2019 and all projects are expected to be operational by 2022. The projects will reduce carbon emissions by more than 2 million metric tons, equivalent to taking nearly 437,000 cars off the road. Combined with the renewable energy projects previously announced under the Clean Energy Standard, New York has now awarded more than $2.9 billion to 46 projects, accelerating New York’s progress and commitment to Governor Cuomo’s Green New Deal.

 Proposal. Expand NY Green Bank and Catalyze at Least $1 Billion in Private Capital

In 2013, Governor Cuomo announced NY Green Bank, a $1 billion investment fund designed to accelerate clean energy deployment. Since then, NY Green Bank has become globally recognized as a leading sustainable infrastructure investor, committing nearly $640 million and mobilizing nearly $1.75 billion in private capital for clean energy projects across the state.

Building on NY Green Bank’s successful and self-sustaining track record, Governor Cuomo announced in the fall of 2017 that NY Green Bank would raise at least $1 billion of private capital and expand its clean energy investing activities nationally. To deliver on that commitment and further support the Green New Deal, Governor Cuomo is now calling for the development of terms for a public-private partnership to effectuate NY Green Bank’s third-party capital raise and national expansion.

 Proposal. Chart a Path to Making New York’s Statewide Building Stock Carbon Neutral

Buildings – and the fossil fuels traditionally used to heat and cool them – are a significant source of energy-related carbon pollution. As such, Governor Cuomo has made the improvement of energy efficiency in buildings a major priority. The Governor’s New Efficiency: New York agenda, released on Earth Day 2018, contains a comprehensive portfolio of proposals and strategies to meet an ambitious new target of reducing on-site energy consumption by 185 trillion BTUs by 2025. In addition, Governor Cuomo launched RetrofitNY in 2016 to stimulate the development of an energy efficiency industry that can tackle the challenge of deep building retrofits that will enhance building performance, reduce energy usage, and

Because buildings are one of the most significant sources of greenhouse gas emissions, Governor Cuomo is announcing a comprehensive strategy as part of the Green New Deal to move New York’s building stock to carbon neutrality. The agenda includes:

  • Advancing legislative changes to support energy efficiency including establishing appliance efficiency standards, strengthening building energy codes, requiring annual building energy benchmarking, disclosing energy efficiency in home sales, and expanding the ability of state facilities to utilize performance contracting.
  • Directing the Public Service Commission to ensure that New York’s electric and gas utilities achieve more in scale, innovation, and cost effectiveness to achieve the state’s 2025 energy efficiency target, especially through their energy efficiency activities and clean heating and cooling programs, and that a substantial portion of new energy efficiency activity benefits low- and moderate-income New Yorkers.
  • Directing State agencies to ensure that their facilities lead by example through energy master planning, net zero carbon construction, LED retrofits, annual benchmarking, and by meeting their electricity needs through clean and renewable sources of energy, specifically including the exploration of clean energy solutions at State Parks and at State facilities within the Adirondack Park to dramatically reduce emissions, create jobs, and increase resiliency.
  • Developing a Net Zero Roadmap to articulate policies and programs that will enable longer-term market transformation to a statewide carbon neutral building stock.
  • Together, these bold actions will establish New York as a global leader on environmentally sustainable buildings while catalyzing major economic development opportunities and helping to create good jobs.

Proposal. Direct State Agencies and Authorities to Pursue Strategies to Decarbonize their Investment Funds and Ramp Up Investment in Clean Energy

In 2018, Governor Cuomo called on the New York Common Fund, which manages over $200 billion in retirement assets for more than one million New Yorkers, to adopt a serious and responsible plan for decarbonizing its portfolio. Over the past year, the Governor has worked with the Office of the Comptroller to establish an advisory panel of experts to develop a decarbonization roadmap and guide the Common Fund toward investment opportunities that combat climate change.

As part of the Green New Deal, Governor Cuomo is taking the next step, by directing State authorities, public benefit corporations, and the State Insurance Fund, which collectively hold approximately $40 billion in investments, to commence a process to review and evaluate the feasibility and appropriateness of divesting from fossil fuels. To scale up investment in renewable energy, green infrastructure, and climate solutions, agencies and authorities will also work to educate plan administrators and investment consultants regarding investment opportunities in the clean energy sector.

 Proposal. Increase Carbon Sequestration and Meet the U.S. Climate Alliance Natural and Working Lands Challenge

In 2015, Governor Cuomo launched the Climate Resilient Farming Program to reduce greenhouse gas emissions from agriculture and to increase resiliency of New York State farms impacted by climate change. Just last year, New York accepted the U.S. Climate Alliance’s Natural and Working Lands challenge, ensuring that land stewardship and land sequestration efforts join energy reduction and adaptation activities as part of our collective climate solutions.

To meet our Natural and Working Lands commitment, Governor Cuomo will establish new research partnerships to incorporate forest and agricultural carbon into New York’s greenhouse gas inventory and climate strategy and to establish a carbon sequestration goal for our natural and working lands. To help achieve this goal, Governor Cuomo proposes doubling the State’s investment in the Climate Resilient Farming program and creating new forestry grant programs—enhancing the Healthy Soils NY program and enabling farmers, forest owners, and communities to achieve the economic and environmental co-benefits of sound management practices.

Proposal. Create a Carbon-to-Value Innovation Agenda and Establish the CarbonWorks Foundry

Avoiding the worst consequences of climate change will require not only reductions in emissions using existing technologies, but also innovation, particularly with respect to withdrawing CO2 from the Earth’s atmosphere. Innovative new technologies are emerging in response to this challenge that can capture CO2 from the atmosphere and either permanently sequester the carbon underground or transform it into valuable fuel or products, known as carbon-to-value. While many of these technologies are still in their infancy, they show promise in the collective fight to address climate change.

Accordingly, Governor Cuomo is announcing that in 2019, New York State, with the help of experts, environmental groups, academic institutions, and other stakeholders will create a Carbon-to-Value Innovation Agenda as a blueprint for the future of carbon-to-value technology as well as carbon capture, utilization and storage in New York. NYSERDA will provide $15 million to support multiple efforts to further New York’s Carbon-to-Value Innovation Agenda. This will include NYSERDA and SUNY working with academic institutions, experts, and philanthropic partners to establish the CarbonWorks Foundry, a new incubator and accelerator devoted to carbon-to-value technology development with a focus on carbon harvesting. Finally, NYSERDA will engage other State agencies to create a framework for a low-carbon procurement standard, which can create a market for low-carbon cement and concrete, building materials, and other valuable low-emissions products.

Proposal. Deliver Climate Justice for Underserved Communities

In 2016, the Governor introduced an ambitious environmental justice framework, establishing a statewide commitment to addressing the historic disparate environmental burdens suffered by communities of color and low-income communities. In 2017, he introduced an Environmental Justice and Just Transition Working Group to ensure that environmental justice and a just transition of New York’s workforce are an integral part of New York’s clean energy and climate agenda. In the past 3 years, New York State has invested more than $16 million through the Environmental Protection Fund in environmental justice initiatives. New York also currently has over 151,000 individuals employed by clean energy industries throughout the state and has committed $70 million in workforce training in the clean energy economy. As part of the Green New Deal, Governor Cuomo will build upon these important foundations for making environmental justice and just transition central to moving to a carbon neutral economy.

The Green New Deal will help historically underserved communities prepare for a clean energy future and adapt to climate change by codifying the Environmental Justice and Just Transition Working Group into law and incorporating it into the planning process for the Green New Deal’s transition. To increase the effect of funds and initiatives that target energy affordability, the Governor is directing the State’s low-income energy task force to identify reforms to achieve greater impact of the public energy funds expended each year. The Governor is also directing each of the State’s ten Regional Economic Development Councils to develop an environmental justice strategy for their region.

New York State currently directs more than $700 million in ratepayer and federal funds each year to combat energy poverty and increase access to clean energy solutions for the 2.3 million low-income households in the state. However, current programs only reach 1.4 million households each year with bill assistance programs, and less than 20,000 households each year with clean energy measures.

As part of the Green New Deal, Governor Cuomo will address energy poverty in New York State by directing the low-income energy task force, comprised of NYSERDA, DPS, OTDA, and HCR, to develop a roadmap and unified strategy to increase the impact of funds and initiatives that target energy affordability. Specifically, the Governor is directing the task force to assess policy, programmatic, and administrative reforms necessary to achieve greater impact of public funds expended each year.

 Proposal. Create a Fund to Help Communities Impacted by the Transition Dirty Power

Governor Cuomo is introducing legislation to provide funding to help communities that are directly affected by the transition away from conventional energy industries and toward the new clean energy economy. Specifically, this funding will protect communities impacted by the retirement of conventional power generation facilities. The Governor is also calling upon the Environmental and Just Transition Working Group to contribute to and advise on the development of a Just Transition Roadmap for the Green New Deal.

Proposal. Develop Clean Tech Workforce and Protect Labor Rights

To ensure creation of high-quality clean energy jobs, large-scale renewable energy projects supported by the Green New Deal will continue to require prevailing wage, and the State’s offshore wind projects will be supported by a requirement for a Project Labor Agreement. To prepare New York’s workforce for the transition, New York State will take new steps to support workforce development, including establishing a New York State Advisory Council on Offshore Wind Economic and Workforce Development, as well as investing in an offshore wind training center that will provide New Yorkers with the skills and safety training required to construct this clean energy technology in New York.

 Proposal. Make New York the National Hub for Offshore Wind and Deploy 9,000 Megawatts by 2035

New York is leading the nation on offshore wind, which, as an emerging clean energy industry in the U.S., has tremendous potential for both the energy sector and economic development in the state. Called for by Governor Cuomo and released in 2018, New York’s Offshore Wind Master Plan is the most comprehensive offshore wind strategy in the country and has charted the course for this energy resource to play a significant role in achieving a carbon-free electricity grid. In November 2018, New York issued its first major offshore wind solicitation for at least 800 megawatts, which will set the stage for large-scale development of this important resource and the economic advantages that come with it.

To ensure New York State is the focal point for offshore wind development and this growing industry, Governor Cuomo is proposing nearly quadrupling the State’s target for offshore wind deployment from 2,400 megawatts by 2030 to 9,000 megawatts by 2035, the most aggressive offshore wind goal in U.S. history. To complement this bold statement of national and global leadership, Governor Cuomo is directing new actions, as part of the Green New Deal, to accelerate offshore wind progress in three specific areas: port infrastructure, workforce development, and transmission infrastructure.

  • Ports: Invest $200 million in New York port infrastructure to unlock private supply chain capital and maximize the long-term economic benefits to the state from the regional development of offshore wind. This multi-location investment would represent the nation’s largest infrastructure commitment to offshore wind and would solidify New York’s position as the hub of the burgeoning U.S. offshore wind industry.
  • Workforce Development: Establish a New York State Advisory Council on Offshore Wind Economic and Workforce Development and invest in an offshore wind training center that will provide New Yorkers with the skills and safety training required to construct this clean energy technology right here in New York.
  • Transmission: Initiate a first of its kind effort to evaluate and facilitate the development of an offshore transmission grid that can benefit New York ratepayers by driving down offshore wind generation and integration costs.

The development and adoption of offshore wind is a critical component of the transition to a clean energy economy and presents a major economic opportunity for New Yorkers, including the creation of thousands of high-quality jobs. With these new commitments, the New York will continue to lead in this exciting and developing field.

NYS Energy Czar on the “Carbon Bubble”

Update: After I posted this today I found a relevant post: Does the IPCC say we have until 2030 to avoid catastrophic global warming? I encourage readers to check it out because provides extensive documentation that Kaufmann’s rationale for a carbon bubble is at best weak.

New York State Governor Andrew Cuomo’s energy czar Richard Kauffman wrote a recent column for The Hill (https://thehill.com/opinion/energy-environment/424784-will-a-market-crash-get-the-action-we-need-on-climate-change) about a “carbon bubble”. He claims that the imminent and inevitable climate catastrophe could force markets to acknowledge it and force society to act: “The end of denial by financial markets and government leaders is nearly at hand. For most investors, the risks of climate change loom beyond their investment horizon. It’s been easy for investors to operate in a speculative carbon bubble, acting as though there are no impending costs to earnings-per-share or to liabilities in their portfolios from the buildup of carbon in the atmosphere. But these costs may increasingly look real, and when investors start taking these costs into account, markets will revalue: not just oil and gas stock, but all stocks.”

I find it frightening that a New York State official like Kauffman warns that government intervention will be necessary if the market response is delayed too long. He states “If the bubble bursts late, governments will need to take on war and national emergency footing. This could mean government control over industry, restrictions of individual consumption, even military mobilization to protect and seize resources. Economic inefficiency. Less freedom. Lost asset value.”

It is astounding that there is such a disconnect between the science and a policy maker’s vision. Kaufmann repeats the mantra “Climate change is more severe and happening sooner than scientists had originally predicted. Droughts. Sea level rise. Floods. Fires.” All those impacts have happened before and will happen whether or not government takes control over industry, restricts individual consumption, and protects and seizes resources. Intuitively the majority of the public gets that and suspects that human impacts on the weather will more likely be a tweak than the control knob. The science says that we expect a range of possible impacts and outside of the media circus, politicians catering to their base, crony capitalists eying the trough and environmental activists crying “Wolf” everyone else gets that their vision of climate catastrophe is very unlikely.

Even if Kaufmann’s Administration goes ahead with their Reforming the Energy Vision plan to combat climate change it will fail simply because of the Iron Law of Climate. Roger Pielke’s law states that “While people are often willing to pay some price for achieving climate objectives, that willingness has its limits.” One has to look no farther than the “yellow vest” protests against French President Macron’s fuel tax to see the likely result of just increased prices much less government control over industry, restrictions of individual consumption, or military mobilization to protect and seize resources

New York State Environmental Regulatory Hypocrisy

I have admired those skeptics that would not stop until they had open access to the climatic data that was used for the hockey stick calculations. In my own way I try to emulate their tenacity attempting to get policy makers to use the best rationale for decisions. This is a story of a complete failure of an attempt of mine in that regard.

This post reflects my opinion as a private retired citizen. They do not reflect the position of any of my previous employers or any other company I have been associated with, these opinions are mine alone.

The Cross State Air Pollution Rule (CSAPR) is a regional cap-and-trade program that regulates emissions from large fossil fuel-fired electricity generating units (EGUs) that produce electricity for sale and have a nameplate capacity greater than 25 megawatts electrical. The New York State Department of Environmental Conservation (DEC) recently revised their Parts 243, 244, and 245 rules to ensure New York maintains authority to allocate federal CSAPR allowances to regulated in-state generators and the New York State Energy Research and Development Authority (NYSERDA).

CSAPR is a cap and trade program. In this approach a cap is set that limits the total amount that sources can emit. Allowances representing a ton of emissions are distributed equal to the level of the cap. Sources have flexibility to choose how to meet their limits by either reducing their own emissions or purchasing allowances from other sources. Sources measure and report emissions, and must have sufficient allowances to cover their emissions. If they fail to surrender an allowance for each ton of pollution emitted then there are significant automatic penalties. This approach has been very successful so far but as the caps are ratcheted down there are limits to how well it work in the future.

New York State has submitted comments to the Environmental Protection Agency complaining that the CSAPR emission caps in upwind states are insufficient to enable New York to meet the ozone National Ambient Air Quality Standard limits. They claim that those emissions create so much ozone in the State that it is impossible for in-state sources to reduce enough to meet the ozone limits. They have submitted comments that claim that the upwind sources are not running their existing control equipment enough to lower emissions.

This is a component of cap and trade that some claim is a weakness of the approach. If the cost of an allowance is cheaper than the cost to run control equipment to reduce a ton of pollution, then the source will choose to emit rather than run the control equipment. If you want emissions as low as possible then this frustrates lower emissions. Ultimately this is a problem related to the size of the cap. If the cap is too high then allowances are cheap and their costs will be low and this problem will arise.

Earlier this year the DEC proposed changes to their regulations for the cap and trade programs associated with CSAPR. Their process includes a stakeholder meeting where the proposed rule changes are presented and stakeholders get to ask questions. This is followed by a formal release of the proposed rules and a comment period. Comments are submitted and the final rule is promulgated after consideration of the comments.

My particular problem with the DEC revised rules is that it has an allocation methodology that rewards sources that do not run their control equipment to the full extent possible. In CSAPR, EPA allocates each state a fixed number of allowances. The states get to pick how they allocate those allowances to the affected sources. In earlier programs DEC allocated allowances based on operations and the state-wide emission rate that they determined would meet the cap. In that case, a source had an incentive to run their pollution control equipment more because it would generate extra allowances that could be sold beyond those needed for compliance. The recently promulgated rule awards allowances based on recent emissions. In this case a source that does not run its pollution control equipment gets more allowances!

Despite my comments pointing out this problem and simply recommending that they go back to the previous allowance allocation methodology DEC promulgated the rule with the emissions allowance allocation methodology. It seems hypocritical of DEC to demand that upwind states reduce their emissions when their own rules reward sources that do the same thing.

Layman’s Guide to My Rationale to Oppose the NYISO Carbon Pricing Concept Proposal

On December 7, 2018, the New York Independent System Operator (NYISO) released a draft for discussion purposes only for the Carbon Pricing Proposal Prepared for the Integrating Public Policy Task Force. I recently published a post that translated the overview of the proposal for those outside the process. This post describes the reasons I oppose the proposal.

New York Carbon Pricing Proposal History

On August 11, 2017, NYISO and the New York State Department of Public Service (DPS) jointly initiated a process to engage with stakeholders to examine the potential for carbon pricing in the wholesale energy market to further New York State’s energy policy goals. This initiative began in the fall of 2016 as a project commenced by the NYISO through its stakeholder process. The NYISO retained The Brattle Group to evaluate conceptual market design options for pricing carbon emissions in the competitive wholesale energy markets administered by the NYISO. The Integrating Public Policy Task Force (IPPTF) was created to solicit stakeholder feedback for the carbon pricing proposal. The IPPTF meeting materials page lists all the documents produced by NYISO and stakeholder comments.

Over the past year the involvement of the DPS has steadily declined so now it is primarily a NYISO process. Over this time the stakeholder process has considered a straw proposal, draft recommendations, and the latest document “continues to build on these prior documents and represents continued refinements of the market concepts based on additional input received from stakeholders, both during IPPTF meetings and in writing and the analytical information provided to the task force.” Note, however, that the NYISO stakeholder has no obligation to respond to every comment and that they have repeatedly failed to even respond to my direct questions. This was not an inclusive stakeholder process and frankly I believe that they ignored several issues that could significantly affect the viability of the program.

Reasons to Oppose the New York Carbon Pricing Proposal

Reason #1: My first reason to worry about this proposal is because of the organizations who are in favor of it. According to a letter filed on December 17, 2018 by the Independent Power Producers of New York “We appreciate that the NYISO and DPS staff have kept this process moving to the best of their abilities, and the overwhelming, and near unanimous, NYISO stakeholder support for continued work on carbon pricing in 2019 proves that this effort continues to have momentum.” The stakeholders that speak for the ratepayer have not been very vocal in this process. To me the impression that there is overwhelming support from stakeholders is proof positive that there is money to be made and reputations to be enhanced by its supporters. I oppose this because my analyses show consumers will end up paying a lot more for nothing more than signaling virtue and lining the pockets of crony capitalists.

Reason #2: The ultimate question for this program is whether carbon pricing can actually work in the wholesale electric market sector in New York State. I agree that the theory of a carbon price on the whole economy and all energy sectors that lets the market decide how best to reduce carbon is attractive. However, in this application it would only apply to one energy sector in one region of the economy. I oppose this because I am not optimistic that this will work as the theory predicts because of all the complications that arise trying to address the complications introduced limiting the scope of the program to such a constrained part of the economy.

Reason #3: I do not believe that this policy represents the most efficient way to make reductions. New York has ambitious goals for CO2 reductions and has participated in the Regional Greenhouse Gas Initiative (RGGI) since its inception. I have analyzed the effectiveness of the investments made from RGGI proceeds and found that in 2016 there were $436.4 million dollars invested from the proceeds and those investments reduced CO2 emissions by 382,266 tons. The resulting rate for CO2 reductions is $1,142 per ton for proceeds invested for a direct reduction signal. One problem that is ignored by NYISO and proponents for further reductions is the fact that New York has already made most of the “easy” reductions. Consequently any further reductions will be more difficult than historical reductions. As a result the carbon pricing proposal that relies on an indirect incentive for renewable energy will have a difficult time actually making any reducitons. I don’t believe the vague signal provided by the carbon price proposal could ever provide more timely and effective investments than the site-specific signals provided by RGGI and other existing programs. I opposed this proposal because there are existing programs that are more effective actually reducing CO2 emissions.

Reason #4: Clearly in order to have a carbon pricing program at some point the cost of carbon has to be established. In order to justify its CO2 reduction agenda the Obama Administration organized a working group to estimate the economic harm of CO2 emissions They developed a value for the Social Cost of Carbon (SCC) which is an estimate of the economic harm of a ton of CO2 emissions.   The NYISO carbon pricing proposal recommends that the DPS set the carbon price value and has suggested using the SCC as estimated by the U.S. Interagency Working Group (IWG) on the Social Cost of Carbon, starting at $43/ton CO2 today and rising to $65/ton by 2029[1].  My fundamental problem is that the IWG SCC value does not accurately reflect the current state of the science relative to the probability of temperature being highly sensitive to CO2. As a result that value over-estimates the potential benefit of New York emission reductions. Julian Morris critiqued the IWG SCC value and noted the effect of changing the following four assumptions:

  1. Change the emissions scenario to reflect more realistic assumptions regarding the relationship between emissions and economic growth;
  2. Change the time horizon from 2300 to 2100;
  3. Change the discount rate from 3% to 5%;
  4. Change the scope from global to U.S. only.

I want to avoid getting technical but two of these assumptions are simple to understand. Ultimately the SCC estimates rely on a complex causal chain from carbon dioxide emissions to social impacts that are alleged to result from those emissions. The Obama IWG considered impacts out to 2300, 282 years in the future. The idea that anyone could imagine what society will be like in 2300 and with a straight face claim their model reflects any social impacts from anything going on today strikes me as overwhelming hubris. Also note that the IWG claims impacts for the globe.   Richard Tol testified that the SCC connections are “long, complex and contingent on human decisions that are at least partly unrelated to climate policy. The social cost of carbon is, at least in part, also the social cost of underinvestment in infectious disease, the social cost of institutional failure in coastal countries, and so on.” I oppose this because as proposed New York State wants to price carbon to influence alleged impacts around the world that are well beyond the scope of any New York regulation. I also oppose this carbon pricing proposal because when these four changes to the SCC assumptions were combined, the effect was to reduce the SCC by 97%, from $43 to about $1.30. Obviously using a more realistic value for the SCC makes the program worthless.

Reason #5: One of the aspects of this process that I believe is not easily understood is the potential cost to consumer. In the first place, because the NYISO system prices work in terms of dollars per amount of energy (MWhr) all the costs are listed in those units. I have little grasp understanding what those values mean to the state as a whole so I present my costs in total dollars.

On November 7, 2018 NYISO posted a synthesis report entitled Brattle Group, Resources for the Future & Daymark Energy Advisors Analysis Synthesis that summarized the approach methodology, analyses and results for three independent studies of the proposed carbon pricing initiative. I have relied primarily on that report for data referenced in this post.

In Synthesis Report Table 1, Comparison of State-Wide Increase in Wholesale Energy Prices Due to Carbon Charge, the total wholesale energy cost ranges from $17.9 per MWh to $22.2 per MWh. In order to estimate the total increase wholesale energy prices due to the carbon charge I assumed 150,000,000 MWh so the expected cost will range between $2.7 billion and $3.3 billion in 2025. Remember this program will increase those prices every year going forward.

However, the Synthesis Report reports the following changes in consumer costs:

Brattle and RFF both find aggregate customer costs would increase slightly in 2025 due to a carbon charge, increasing $0.7/MWh and $0.8/MWh respectively. Brattle finds customer cost impacts fall over time. Daymark does not report changes in customer costs.

So how do billions eventually magically turn into no impact to the consumer?

The first component of the carbon price is the direct cost. In the carbon pricing plan each ton of CO2 emitted is charged the social cost of carbon. This depends on the total emissions but for this analysis let’s assume that would equal $1.5 billion leaving between $1.2 and $1.8 billion in 2025. I leave it to the reader to estimate how likely it is that the State of New York will actually return all the money collected without sneaking in transaction costs or some other politically driven fee but I assume, contrary to all previous NYS programs, that is the case.

It is important to understand that adding the cost of carbon drives up the overall wholesale electricity. I did my own static calculation using 2015 and 2016 load and marginal emission rate data to estimate the effect of the carbon charge. The carbon charge increases costs not only due to the carbon price itself but also increases generator net revenues. My analysis showed that in 2015 the total cost of the net revenues due to higher wholesale prices is $3.027 billion as compared to $1.321 billion calculated by applying the SCC to actual CO2 emissions. The increase in costs due to the change in market clearing price will not be returned to consumers. The impact of increases to energy costs as it relates to energy producers with costs lower than the clearing price has not been addressed. In particular, what portion of the increased wholesale price goes to the existing renewables, nukes, and all the fossil gens with costs lower than the clearing price? I cannot support this because I think those added costs will never offset consumer prices.

The NYISO synthesis report claims otherwise. One of the driving reasons for the carbon price proposal is that existing renewable subsidies are difficult to administer. The Synthesis report claims significant reductions in the cost of the Renewable Energy Credits and Zero Emission Credit subsidies will offset some of the wholesale electricity increase due to the carbon price. Frankly I think that there is regulatory agency support for this initiative simply because it will reduce their administrative responsibilities.

There are several other alleged consumer benefits. The NYISO analysis claims that the carbon price will induce renewable generation to be built where it is more profitable, that is to say in downstate New York. There is no consideration of increased siting difficulties downstate. However, if you believe in their hopeful assessment then they claim that there will be reduced transmission constraint costs.

Their cost analysis modeling also makes “market adjustments to the static analysis” and assumes that because this program is so successful that further renewable energy subsidies won’t be needed. Sum up all these modeling results and they claim there won’t be a significant consumer impact.

I don’t trust these modeling results. There are too many ways that input assumptions and modeling parameters can be tweaked to impact the final results. I do not support this proposal because no one has satisfactorily explained how all the increased costs of wholesale electricity that I calculated can be so easily offset. They did not do a sensitivity analysis to examine the impacts of a range of assumptions so we don’t know their impacts.

Reason #6: I think that all carbon reduction proposals should clearly state the potential impact of the proposed action on global warming. New York State has never provided an estimate of the effect of any of its clean energy programs or direct emissions control programs on global warming. In the absence of any official quantitative estimate of the impact on global warming from REV or any other New York State initiative related to climate change I did my own calculation. The Brattle analysis estimates that the change in CO2 estimates of reductions in system-wide CO2 emissions due to a New York carbon charge will be 1.5 million metric tons and Resources For the Future estimates 1.2 million metric tons. The impact of these reductions on projected global temperature rise would be at most a reduction, or a “savings,” of approximately 0.000022°C by the year 2050 and 0.000046°C by the year 2100. In order to give you an idea of how small this temperature change consider changes with elevation and latitude. Generally, temperature decreases three (3) degrees Fahrenheit for every 1,000 foot increase in elevation above sea level. The projected temperature difference is the same as going down less than half an inch. The general rule is that temperature changes three (3) degrees Fahrenheit for every 300 mile change in latitude at an elevation of sea level. The projected temperature change is the same as going south 44 feet. I oppose this because it clearly will have no effect on global warming.

[1] See New York Public Service Commission Order Adopting a Clean Energy Standard (2016) pp. 49, 51, and 131 http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId=%7B1A8C4DCAE2CC-449C-AA0D-7F9C3125F8A5%7D, and U.S. Government (2015) Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. May 2013, revised July 2015.

NYISO Carbon Pricing Concept Proposal Translation

On December 7, 2018, the New York Independent System Operator (NYISO) released a draft for discussion purposes only for the Carbon Pricing Proposal Prepared for the Integrating Public Policy Task Force. This post attempts to summarize this proposal. I have translated the text of the overview of the concept for those outside of the process to date.

New York Carbon Pricing Proposal History

On August 11, 2017, NYISO and the New York State Department of Public Service (DPS) jointly initiated a process to engage with stakeholders to examine the potential for carbon pricing in the wholesale energy market to further New York State’s energy policy goals. This initiative began in the fall of 2016 as a project commenced by the NYISO through its stakeholder process. The NYISO retained The Brattle Group to evaluate conceptual market design options for pricing carbon emissions in the competitive wholesale energy markets administered by the NYISO. The Integrating Public Policy Task Force (IPPTF) was created to solicit stakeholder feedback for the carbon pricing proposal. The IPPTF meeting materials page lists all the documents produced by NYISO and stakeholder comments.

Over the past year the involvement of the DPS has steadily declined so now it is primarily a NYISO process. Over this time the stakeholder process has considered a straw proposal, draft recommendations, and this latest document “continues to build on these prior documents and represents continued refinements of the market concepts based on additional input received from stakeholders, both during IPPTF meetings and in writing and the analytical information provided to the task force.”

Overview of Carbon Pricing Concept

Carbon Pricing Proposal Prepared for the Integrating Public Policy Task Force, Page 4

The NYISO would incorporate the social cost of carbon emissions into the NYISO-administered wholesale energy markets using a carbon price in dollars per ton of carbon dioxide emissions. The NYISO would apply the carbon price by debiting each energy supplier a charge for its carbon emissions at the specified price as part of its settlement. Suppliers would embed these additional carbon charges in their energy offers (referred to as the supplier’s carbon adder or adjustment in $/MWh) and thus incorporate the carbon price into the unit commitment, dispatch, and price formation through the NYISO’s existing processes. In addition to charging internal emitting generators, the NYISO would charge imports and credit exports the LBMP carbon impact to prevent the carbon charges on internal generation from causing emissions leakage and costly distortions.

Because the carbon charges on suppliers would increase the variable costs of carbon-emitting generation dispatched by the NYISO, a carbon charge would raise the energy market clearing prices whenever carbon-emitting resources are on the margin (referred to as the carbon pricing effect on LBMPs, or LBMPc). All suppliers, including clean energy resources, would receive the higher energy price, net of any carbon charges due on their emissions. A carbon charge would also provide incentives for innovative low carbon technologies that may not yet be developed. Low carbon dioxide emitting New York resources, including efficient carbon-emitting units, renewables, hydropower, and nuclear generators, would benefit from higher net revenues. Load Serving Entities (LSEs) would continue to be charged the LBMP for wholesale energy purchases, which would account for the carbon adder of the marginal units. The NYISO would return the carbon charge residuals (Carbon Residuals), collected from carbon dioxide emitting suppliers and net imports, to LSEs.

Translation of the Overview (Indents are the translations of the Overview text)

The NYISO would incorporate the social cost of carbon emissions into the NYISO-administered wholesale energy markets using a carbon price in dollars per ton of carbon dioxide emissions.

The fundamental idea behind carbon pricing is that when carbon dioxide emissions cost money society will produce less of them. The carbon price will be set at the social cost of carbon (SCC) which will be determined by the DPS “pursuant to the appropriate regulatory process”. The choice of the carbon price provides the entire basis for this approach and that issue has not been considered in this process. I have commented on that problem (for example my comments on the April 23, 2018 ). The SCC value proposed was developed by a working group established by an Obama Executive Order to estimate the economic harm of CO2 emissions. My fundamental problem with that SCC value is that it does not accurately reflect the current state of the science relative to the probability of temperature being highly sensitive to CO2. As a result that value over-estimates the potential benefit of New York emission reductions. Ultimately the SCC relies on a complex causal chain from carbon dioxide emissions to social impacts that are alleged to result from those emissions. Richard Tol testified that these connections are “long, complex and contingent on human decisions that are at least partly unrelated to climate policy. The social cost of carbon is, at least in part, also the social cost of underinvestment in infectious disease, the social cost of institutional failure in coastal countries, and so on.” In addition, the Trump Administration has proposed a different and far lower value for the SCC. For me the bottom line is that most of New York State ratepayers are aware of the ramifications of this value and the possibility that it could add a billion dollars per year to the rates of the state.

The NYISO would apply the carbon price by debiting each energy supplier a charge for its carbon emissions at the specified price as part of its settlement.

The carbon dioxide emissions from every energy supplier will be estimated for the same time period as the settlement prices by the NYISO.

Suppliers would embed these additional carbon charges in their energy offers (referred to as the supplier’s carbon adder or adjustment in $/MWh) and thus incorporate the carbon price into the unit commitment, dispatch, and price formation through the NYISO’s existing processes.

The carbon price will calculated as the SCC value times the tons emitted. It is very likely that the carbon price will set the clearing price for the settlements. New York is an unregulated electric market and the NYISO is the interface between the suppliers and load serving entities who provide the power to consumers. The price NYISO pays the suppliers is the Locational Based Marginal Price (LBMP). Each supplier submits a bid to provide power at a specific price. The NYISO keeps track of how much power is produced and who provides it. Suppliers get paid the highest price bid that provides power to the grid for each hour.

In addition to charging internal emitting generators, the NYISO would charge imports and credit exports the LBMP carbon impact to prevent the carbon charges on internal generation from causing emissions leakage and costly distortions.

This sentence suggest that this is simple but in reality this is much more complicated and could doom the entire plan. Not only does the NYISO have to estimate the carbon dioxide emissions from the sources in its control area where it has enough information to determine what was running and at what level now they have to make an estimate of the carbon emissions from imports where they do not have that information. This is outside my area of expertise but the experts who have commented on this do not seem impressed that the plan proposed will work. I am also uncomfortable because I suspect this complexity will lend itself to unintended gaming.

Because the carbon charges on suppliers would increase the variable costs of carbon-emitting generation dispatched by the NYISO, a carbon charge would raise the energy market clearing prices whenever carbon-emitting resources are on the margin (referred to as the carbon pricing effect on LBMPs, or LBMPc).

It is not unreasonable to assume that the increase in cost due to the carbon price will put CO2-emitting resources on the margin all the time because of the cost of fuel and CO2. I have estimated that if carbon pricing was in effect in 2015 the total cost to be $3.027 billion and in 2016 $2.985 billion which are both more than double the direct tax of Social Cost of Carbon (SCC) times the annual CO2 emissions ($1.321 billion in 2015 and $1.248 billion in 2016).

The NYISO analyses claim that there will not be any significant cost increase to the consumer. They assume that the actual carbon price costs will be completely returned to the consumers despite New York’s poor record in the past. Other cost increases are supposed to be balanced by decreases in other costs: lower subsidies to renewables from other state programs, lower subsidies to nuclear power from a state program, and an assumed shift of renewables to high load areas (Downstate NY) because of the price signal. The assumed shift of renewables is controversial because it ignores all the siting constraints that have so far reduced renewable development downstate.

All suppliers, including clean energy resources, would receive the higher energy price, net of any carbon charges due on their emissions.

One of the great ironies of this program is the fact that because different fossil-fired sources have different rates and the highest emitting rate sets the marginal price then all the fossil-fired sources with lower rates will get a windfall equal to the difference in the CO2 rates times the SCC. The NYISO has never quantified how the carbon prices monies will be allocated across source categories.

A carbon charge would also provide incentives for innovative low carbon technologies that may not yet be developed.

In theory this sounds possible but in practice this pricing signal will likely be so weak that development of new low carbon technologies due to this program is unlikely. There are so many incentives already in place the suggestion that this will drive development is implausible.

Low carbon dioxide emitting New York resources, including efficient carbon-emitting units, renewables, hydropower, and nuclear generators, would benefit from higher net revenues.

While this is true, as noted above the NYISO has never quantified how much of the higher net revenues would go to which of these categories. It is likely that it will significantly add to the revenues of carbon-emitting units.

Load Serving Entities (LSEs) would continue to be charged the LBMP for wholesale energy purchases, which would account for the carbon adder of the marginal units.

This is just noting that the existing revenue system will remain in place.

The NYISO would return the carbon charge residuals (Carbon Residuals), collected from carbon dioxide emitting suppliers and net imports, to LSEs.

All the cost estimates assume that all the carbon price money will be returned to the consumer. I think that it is unlikely that at least some of the money won’t be diverted to cover the cost of returning this money. In addition, New York does not have a good record investing proceeds from the Regional Greenhouse Gas Initiative (RGGI) as originally intended. New York lawmakers have twice diverted RGGI proceeds directly into the general fund. Moreover, as shown by the Environmental Advocates of New York, the Cuomo Administration has used RGGI funds to replace other funding sources for existing programs rather than funding the original intent which was for additional programs.

Conclusion

The ultimate question that must be resolved is whether carbon pricing can work in the wholesale electric market sector in New York State. I agree that the theory of a carbon price on the whole economy and all energy sectors lets the market decide how best to reduce carbon is attractive. However, in this application it would only apply to one energy sector in one region of the economy. I am not optimistic that this will work as advertised.

I attempted to translate the text for those outside the process. I also mentioned some of the issues with this policy in this post. The comments I submitted late last summer provide more details for my concerns. There are many implementation concerns that NYISO has glossed over that I believe are significant problems. Ultimately, I fear that this policy will be implemented with much hoopla and self-congratulations by the advocates of the program and the consumers of New York will be saddled with another program that increases costs without any tangible benefits to society.

My November 2018 Comment on NYS Carbon Pricing

New York’s energy planning process continues its efforts to meet the aggressive goals of a remodeled energy system that relies on renewable energy. The latest boondoggle in that effort is a plan to price carbon in the wholesale electric market. I have previously posted comments on this initiative and this post summarizes the latest comment I submitted at the end of the stakeholder process.

Introduction

I participated in the year-long stakeholder process for this initiative because I wanted at least one voice included from the unaffiliated public whose primary interest is an evidence-based balance between environmental goals and costs to ratepayers for New York State energy policy. I was the only active independent citizen involved with this process. I submitted my comments as a private retired citizen. They do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

The question I addressed in my comments is whether the proposed program to price CO2 in the wholesale electric market is an appropriate response for New York State policy. Since the August 10, 2017 release of Pricing Carbon into NYISO’s Wholesale Energy Market to Support New York’s Decarbonization Goals (hereinafter the “Brattle Report”) there has been an active stakeholder process to examine that proposal for using carbon pricing within wholesale markets to further New York’s energy goals. The documentation for this policy is available at the New York Independent System Operator (NYISO) web site. My comments are in there but are also available at the NYS Department of Public Service (DPS) website.

This whole process exemplifies my problem with many of the climate change policy initiatives. The majority of NYS ratepayers are unaware of the ramifications of this proceeding or have any idea of the potential cost of a price on carbon emissions in NYS wholesale electricity markets. On the other hand, every advocacy group that likes the concept and every special interest who could benefit from this is not only aware of it but actively participating. Consequently, within this little echo chamber everything sounds great. Moreover, the momentum within NYS agencies is for leading the way on climate policy initiatives and a carbon price is near the top of the list of “must have” climate initiatives. Finally, the majority of the stakeholders and the parties who will vote in the next phase of the NYISO implementation process do not represent the interests of ratepayers so I fear that this flawed proposal will eventually be implemented.

To cut to the simplest summary, the carbon pricing initiative proposes to add the Social Cost of Carbon (SCC) to CO2 emissions from electric generators that provide power to the wholesale electric market in NYS. I have reviewed documents and provided comments for over a year. Based on my review and analysis I conclude that the original criteria for success defined last year are not met. The small CO2 reduction benefits estimated do not support implementation given the potential for significant costs to consumers, considerable implementation issues and likelihood of unintended consequences.

My comments used the criteria listed in the Brattle Report preamble. The NYISO and DPS agreed in the preamble to the Brattle Report that in order to be successful, “Any carbon pricing proposal must contribute to achieving New York State’s public policies, while providing the greatest benefit at the least cost to consumers while also providing appropriate price signals to incentivize investment and maintain grid reliability.”

New York’s energy policies are driven by Reforming the Energy Vision (REV) which is Governor Cuomo’s plan to “rebuild, strengthen and modernize New York’s energy system” in order to” build a clean, more resilient, and affordable energy system”. The 2030 goals for REV are:

  • 40% reduction in greenhouse gas emissions from 1990 levels;
  • 50% of electricity must come from renewable sources; and
  • 600 trillion Btu increase in statewide energy efficiency.

The REV 2050 emission goal is an 80% reduction in greenhouse gas emissions from 1990 levels.

Summary

My criteria for evaluating the success of the carbon pricing initiative are:

  • Will its CO2 emission reductions effectively help meet the REV 40% reduction goal;
  • Does the program incentivize renewable energy?; and
  • Does the program provide the greatest benefit at the least cost to the consumer?

The ultimate goal of this program is to reduce CO2 emissions. In order to meet the REV 40% reduction goal I estimate that the electric sector must reduce its emissions by 676,599 tons per year. The emission reductions projected by Brattle (0.3 million tons) and RFF (0.2 million tons) as a result of this policy fall well short of that level and are well within normal annual variation. New York State cannot replace existing programs with this initiative and hope to meet the REV 2030 goal.

This carbon pricing initiative proposes to set a price on carbon for one sector in one state whereas the ideal approach is to cover all sectors globally. That major shortcoming reduces the effectiveness of this policy to increase renewable energy development. I believe that there are existing programs in place that will be more effective incentivizing renewable energy.

In order to provide the greatest benefit to the consumer the cost of carbon reductions must be less than the social cost of carbon. This program fails to meet that criterion. With regards to cost, the modeling analyses claim minor costs to the consumer but there are significant uncertainties that I think all would tend to increase the final cost. This program is only more effective than RGGI investments if the offsetting benefits modeling results come true. I don’t have as much faith in the prospective cost effectiveness rates as the observed RGGI rates. Therefore, I think the risks of substantial consumer impacts make this a less attractive option than existing programs that can target economically-disadvantaged ratepayers who stand to lose the most with this regressive carbon tax proposal.

The potential for implementation issues and unintended consequences should also be considered. Examples of implementation issues include: border treatments, determining the RGGI price used, calculating emissions for the program, and addressing double payments. Unintended consequences include negative impact on beneficial electrification, the potential to game the system, and decreased economic viability of new fossil-fired generation that is likely needed to maintain system reliability.

In conclusion, I believe that the results of the stakeholder process indicate that this is a risky approach that will have high costs and could have unintended consequences that might hurt consumers and businesses in New York. As a result I cannot recommend implementing the policy as proposed.

Consistency with REV 40% Goal

Although one would think that there would be some place where there is a roadmap for how the state plans to meet the 2030 REV 40% goal I have been unable to find it so I made my own estimate. The NYSERDA report New York State Greenhouse Gas Inventory: 1990-2015 provides the data needed to quantify the REV goals.

Table S-2. New York State GHG Emissions, 1990–2015 (MMtCO2e) in that document lists values for 1990 through 2015 based on historical data. Table 1 New York State CO2 Fuel Combustion Emissions lists the 1990, 2015 and 2030 fuel combustion CO2 emissions (1000 tons) converted from those values in Table S-2. For the purposes of this estimate I assume that the REV 40% goal applies only to CO2 from fuel combustion. I am not sure what to do about emissions from electricity imports so I included those values too.

The baseline for REV is the 1990 total CO2 emissions or 222.2 million tons. If those emissions are reduced 40% the REV target is 133.3 million tons. The 2015 data show the status of CO2 emissions and it shows that the reductions from 1990 to 2015 are only 12.2%. On the other hand, the electric generation sector has gone down over 53% so they have already met their share of the 40% goal. If we assume that in order for the state to meet the 40% target all sectors have to come down equally from the 2015 level to meet the 2030 goal, then another 10,148,981 ton reduction in CO2 is necessary from the electric sector. If that reduction is apportioned equally across the 15 years between 2015 and 2030 then the annual average reduction needs to be at least 676,599 tons per year.

There are three independent estimates of future CO2 reductions expected from the proposed policy to price CO2 in the wholesale electric market:

  • The Brattle Group provided their latest estimate on 10/12/2018;
  • The Daymark Energy Advisors provided their latest estimate for NY UIU on 10/29/2018; and
  • Resources for the Future (RFF) provided their latest estimate on 9/24/2018.

There were subsequent updates but I did not incorporate them into Table 2 2025 CO2 Emissions Reductions.

The ultimate goal of this program is to reduce CO2 emissions. Frankly, the emission reductions projected by Brattle and RFF as a result of this policy are well within normal annual variation so if they are correct this policy is ineffective. On the 11/9/18 IPPTF conference call Daymark said that they predicted “no material change in CO2”. None of these projections satisfy the annual average reduction of 676,599 tons per year necessary if all sectors reduce emissions equally to meet the REV 2030 goal. As a result, New York State cannot replace existing programs with this and hope to meet the REV 2030 goal.

Incentives for renewable energy

The theory for carbon dioxide taxation is that when the cost of fossil-fueled energy reflects the social cost of carbon then the market will produce alternatives. Unfortunately there is a large gap between this theory and the proposal to set a price on carbon in the New York wholesale electric market. The first problem is estimating the external cost of CO2 to establish the rate. The NYISO process ignores that problem by simply relying on the state value. I have shown previously (here, here, and here) that the fundamental problem is that the Integrated Working Group SCC value that has been proposed does not accurately reflect the current state of the science relative to the probability of temperature being highly sensitive to CO2. Secondly, while the theory might work for an entire economy covering all sectors and all regions, this proposal covers only the wholesale electric sector and just the New York region. The most likely outcome is that emissions will simply relocate.

The New York public policy has a 2030 target for CO2 reductions.  This approach relies on an indirect incentive for renewable energy. There is a lag between the necessary carbon price market signal for the private investments and the availability of the new infrastructure. The question is whether other programs might provide more timely and effective investment signals. For example, the National Grid System Data Portal includes a “collection of maps to help customers, contractors and developers identify potential project sites. Each map provides the location and specific information for selected electric distribution lines and associated substations within the National Grid NY electric service area.”   The Joint Utilities of New York are working together to provide the same sort of information for all service territories. I don’t believe the vague signal provided by the carbon price proposal could ever provide more timely and effective investments than the site-specific signals provided by the Joint Utilities. As a result, there are existing programs that are more effective meeting the REV goals.

Cost Benefit Comparison

In order to determine whether the carbon pricing proposal provides the greatest benefit at the least cost to the consumer we have to consider costs. The Synthesis Report reported costs in two ways: changes in consumer costs and changes in system production costs. All three analyses claim that there won’t be significant cost increases.

For the changes in consumer costs the Synthesis Report notes:

Brattle and RFF both find aggregate customer costs would increase slightly in 2025 due to a carbon charge, increasing $0.7/MWh and $0.8/MWh respectively. Brattle finds customer cost impacts fall over time. Daymark does not report changes in customer costs.

For changes in the system production costs the Synthesis Report notes:

The Brattle study finds negligible changes in annual system production costs (+/- $10 million) due to a carbon charge. The RFF estimate is within this range and finds that the policy would increase production costs by $7.2 million in the Eastern Interconnect in 2025. Daymark similarly finds system production costs change by +/- $30 million through 2025, increasing to $148 million by 2035.

The ultimate measure of success for any carbon dioxide emission reduction program is whether or not the cost per ton of CO2 reduced exceeds the Social Cost of Carbon. According to the NYISO power trends 2018 document the 2017 annual energy usage in New York was 156,370 GWh. In order to estimate the total increase wholesale energy prices due to the carbon charge I assume 150,000,000 MWh and so the expected cost to the consumer will range between $105 million and $120 million. The Brattle Group predicts a 0.3 million ton reduction at a cost of $105 million for a $350 per ton of CO2 reduced rate. RFF predicts a 0.2 million ton reduction at a cost of $120 million for a $600 per ton of CO2 reduced rate. The cost of a ton of CO2 reduced by this program approaches an order of magnitude higher value than the SCC proposed for this program.

In order to evaluate effectiveness of the carbon pricing initiative we should compare it to other similar regulatory programs. The RGGI Report: 2016 RGGI Investments Generate Environmental and Economic Benefits, provides information that can be used for a comparison. According to the Executive Summary in this report:

Proceeds from the Regional Greenhouse Gas Initiative (RGGI) have powered a major investment in the energy future of the New England and Mid-Atlantic states. This report reviews the benefits of programs funded in 2016 by $436.4 million in RGGI investments, which have reduced harmful carbon dioxide (CO2) pollution while spurring local economic growth and job creation.

For this analysis I have included data from both 2015 and 2016. Although the RGGI report includes lifetime benefits I only provide the annual benefits because the REV target is an annual target. This report says there were $436.4 million in RGGI investments funded programs in 2016 as compared to $410.2 million in 2015. In both Proceeds reports (2015 and 2016), Table 1 Benefits of RGGI Investments list the annual reported benefits for energy savings, electrical use and CO2 emissions reductions. In Table 3 Comparison of 2015 and 2016 RGGI Proceeds Funding and Benefits I list that data and calculate the CO2 emissions reductions cost per ton.

Compared to RGGI investments the carbon pricing initiative appears to be more efficient. If we could confidently rely on the carbon pricing initiative model estimates of cost then there might be evidence supporting this approach because of the relative effectiveness despite the minor CO2 reduction benefits projected.

In Synthesis Report Table 1, Comparison of State-Wide Increase in Wholesale Energy Prices Due to Carbon Charge, the total wholesale energy cost ranges from $17.9 per MWh to $22.2 per MWh. In order to estimate the total increase wholesale energy prices due to the carbon charge I assumed 150,000,000 MWh so the expected cost of the will range between $2.7 billion and $3.3 billion in 2025. Table 4 in the Synthesis Report lists the collected carbon revenue.

Table 4 2025 Total Energy Prices Due to the Carbon Charge lists the total energy price increase, the collected carbon revenue, the energy price difference which is a windfall for the generators, the projected change to the customer and the residual after the change to the customer is subtracted out. The energy price difference is due to the high LBMP prices. This is the crux of my concern. The generator windfall is $1-2 Billion or about $15/MWH on average! So we end up with a fleet where the average subsidy from carbon price is $15/MWH, existing RECs get $20/MWH, existing Nukes get $17-$25/MWH, and who knows what the subsidies will be for new RECs.

The plan is that the collected carbon revenue will be returned to the consumers. The modeling results claim that the final customer costs (change to customer) will only be between $105 and $120 million. That leaves between $988 million and $1.68 billion in energy prices that the analyses model away because there are “offsetting factors that provide customer benefits”.   The CO2 reduction costs (between $350 and $600 per ton) calculated previously are only that low when you assume that there will in fact be offsetting factors that reduce those costs. On the other hand the upper bound, assuming no effective offsets to reduce costs, has CO2 reduction costs of between $3,600 and $9000 per ton. That order of magnitude difference concerns me.

Unfortunately there are issues with all three analyses that make me skeptical that the offsetting factors will indeed provide the customer benefits necessary to lower consumer prices to an acceptable level. They all rely on dynamic production cost models to evaluate the effects on dispatch, emissions, and LBMPs. In my opinion this kind of model is not well-suited to handle a major change to the electric system like adding a price on CO2. All three analyses ran a “business as usual” scenario and then one or more scenarios where the carbon price was added with various assumptions. My experience is that these models necessarily rely on averaged input that invariably do not reflect the range of input values. That is a problem because there are normal situations that are missed. For example, in the late 1980’s and early 1990’s when natural gas was usually a little more expensive than residual oil and both were not that much higher than coal, production cost model operating projections for the large oil-fired units in the state always under-estimated how much they would run simply because there were variations in price and those variations on occasion made oil economic. I have no doubt that similar unforeseen situations will occur so I think these modeling results have to be viewed with caution.

Even if you have more faith than I on the ability of these models to predict the future outcome for such a drastic change in the system, there are significant differences in the assumptions between the three modeling analyses. For example, even the price of RGGI allowances differs significantly. In 2030, NYISO and Brattle assume that a RGGI price of $24 per ton whereas Daymark assumes $12. That assumption makes a big difference in the amount of money that is supposed to be returned to the customer. Consequently, my confidence in the results is lowered. Furthermore, it is not only the assumptions but also the post-processing analysis that can lead to erroneous conclusions.

This program is only more effective than RGGI investments if the offsetting benefits modeling results come true. I don’t have as much faith in the prospective cost effectiveness rates as the observed RGGI rates. I think the risks of substantial consumer impacts make this a less attractive option than existing programs that can target economically-disadvantaged ratepayers who stand to lose the most with this regressive carbon tax proposal. In addition, existing programs can provide support for the electric system exactly where needed. Moreover, all the cost estimates assume that all the carbon price money will be returned to the consumer. New York does not have a good record investing proceeds from RGGI as originally intended. New York lawmakers have twice diverted RGGI proceeds directly into the general fund. Moreover, as shown by the Environmental Advocates of New York, the Cuomo Administration has used RGGI funds to replace other funding sources for existing programs rather than funding the original intent which was for additional programs.

Another major issue with all three models is how to handle the border. As noted previously, while the theory for pricing carbon might work for an entire economy covering all sectors and all regions, this proposal covers only the wholesale electric sector and just the New York region. The most likely outcome is that emissions will simply re-locate and the proposal has to address this issue. While this issue is beyond my area of expertise it is clear from the discussions that amongst the people who do understand this issue there is wide disagreement.   Moreover, my modeling experience has been that it is extraordinarily difficult to anticipate all the nuances of actual implementation and correctly incorporate them into any model for the future. As a result I have no confidence that the models will correctly handle what actually happens and because this has so much of an increased impact on cost I believe that however it turns out will be more expensive than the models predict.

In order to provide the greatest benefit to the consumer the cost of carbon reductions must be less than the social cost of carbon. This program fails to meet that criterion for even the State of New York SCC values proposed which I believe the significantly over-value the impact of today’s CO2 emissions on future society. With regards to cost, the modeling analyses claim minor costs to the consumer but there are significant uncertainties that I think all would tend to increase the final cost. As a result, even though this program appears to be more cost effective than RGGI investments, I think the modeled values are speculative whereas the RGGI values are based on reality. Also, the risks of substantial consumer impacts make this a less attractive option than existing programs that can target economically-disadvantaged ratepayers and provide support for the electric system exactly where needed.

 

Recommended Read: Global Warming for the Two Cultures

I have the education, background and experience to independently evaluate the constant drum beat claiming imminent and inevitable climate catastrophe if we don’t immediately reduce our carbon footprint. I am a luke-warmer who believes that the sensitivity of climate to anthropogenic carbon dioxide emissions is at the bottom of the Intergovernmental Panel on Climate Change range. At that level, climate catastrophe is a very unlikely possibility and the effect is much more likely to be benign.

Unfortunately it is very frustrating to hold my position because the media, politicians and advocacy groups have convinced many that we have to use renewables as a “solution” to what I think is a non-existent problem. As a result I am always looking for a good summary of the issues that I have with the imminent climate catastrophe narrative. The 2018 Global Warming Policy Foundation Annual Lecture: “Global Warming for the Two Cultures” by Dr. Richard Lindzen is an excellent summary that I recommend to those who believe that we need to transform the energy system to do “something” about climate change so that they will have at least heard the other side of the story.

Lindzen begins his talk by describing two cultures in society and the implication of that on policy decisions. Basically the two cultures are those that understand the “science” in general and physics in particular and those that don’t. He explains why this understanding gap is a problem:

While some might maintain that ignorance of physics does not impact political ability, it most certainly impacts the ability of non-scientific politicians to deal with nominally science-based issues. The gap in understanding is also an invitation to malicious exploitation. Given the democratic necessity for non-scientists to take positions on scientific problems, belief and faith inevitably replace understanding, though trivially oversimplified false narratives serve to reassure the non-scientists that they are not totally without scientific ‘understanding.’ The issue of global warming offers numerous examples of all of this.

One of my problems with the media climate change story is that the greenhouse effect is simple. His lecture describes the complicated climate system in enough detail to support my contention that the inevitable climate catastrophe is imminent story is an over-exaggeration.

I particularly like his description of the popular narrative we hear from the media and politicians:

Now here is the currently popular narrative concerning this system. The climate, a complex multifactor system, can be summarized in just one variable, the globally averaged temperature change, and is primarily controlled by the 1-2% perturbation in the energy budget due to a single variable – carbon dioxide – among many variables of comparable importance.

This is an extraordinary pair of claims based on reasoning that borders on magical thinking. It is, however, the narrative that has been widely accepted, even among many sceptics.

He then goes on to describe how he believes the popular narrative originated and de-bunks the evidence we constantly reminded supports the catastrophic narrative.

I encourage you to read the entire lecture. I believe it supports his concluding summary of the situation:

An implausible conjecture backed by false evidence and repeated incessantly has become politically correct ‘knowledge,’ and is used to promote the overturn of industrial civilization.