The Climate Leadership and Community Protection Act (CLCPA) mandates that the state establish a value of carbon for use in the implementation of the law. This post describes my comments on the draft guidance document “Establishing a Value of Carbon, Guidelines for Use by State Agencies” document released on October 29, 2020. I submitted comments because this law will affect the affordability and reliability of New York’s energy.
I am a retired electric generation utility meteorologist with nearly 40-years of experience analyzing the effects of environmental regulations on electric and gas operations. I have written a series of posts on the feasibility, implications and consequences of this aspect of the law and another series of posts on carbon pricing initiatives. The opinions expressed in this post 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.
On July 18, 2019 New York Governor Andrew Cuomo signed CLCPA, which establishes targets for decreasing greenhouse gas emissions, increasing renewable electricity production, and improving energy efficiency. It was described as the most ambitious and comprehensive climate and clean energy legislation in the country when Cuomo signed the legislation. I have summarized the schedule, implementation components, and provide links to the legislation itself at CLCPA Summary Implementation Requirements.
The CLCPA requires the New York State Department of Environmental Conservation (DEC), in consultation with the New York State Energy Research and Development Authority (NYSERDA), to establish a value of carbon for use by State agencies. The Draft Value of Carbon Guidance provides values for carbon dioxide, methane, and nitrous oxide for use by State agencies along with recommended guidelines for the use of these and other values by State entities. Three documents were made available:
In section §75-0113, Value of Carbon the CLCPA states that the “social cost of carbon shall serve as a monetary estimate of the value of not emitting a ton of greenhouse gas emissions” and that “As determined by the department, the social cost of carbon may be based on marginal greenhouse gas abatement costs or on the global economic, environmental, and social impacts of emitting a marginal ton of greenhouse gas emissions into the atmosphere, utilizing a range of appropriate discount rates, including a rate of zero.” The law states that DEC “shall consider prior or existing estimates of the social cost of carbon issued or adopted by the federal government, appropriate international bodies, or other appropriate and reputable scientific organizations.”
My comments explain why I think the focus of the guidance is wrong. The guidance does not recognize that when the CLCPA chose specific targets that the proper way to address social costs is through a cost efficiency approach. The damages approach recommended in the guidance is an efficiency concept. DEC emphasized use of their proposed values “that can be used by State entities to aid decision- making and used as a tool for the State to demonstrate the global societal value of actions to reduce greenhouse gas emissions.” The emphasis was clearly on state agency use and not for meeting the CLCPA targets and less on providing guidelines for state agencies.
An overview of the Value of Carbon Guidance was presented Maureen Leddy at the 24 November 2020 Climate Action Council Meeting. I will annotate the Value of Carbon Guidance slides below with excerpts from the comments I submitted.
The first slide is titled “Value of Carbon Reduction” and notes that the “CLCPA requires DEC, in coordination with NYSERDA, to establish a Value of Carbon as an evaluation tool for agency decision making”. The lists the following requirements:
- Describe damages and marginal abatement cost approaches
- Consider a range of discount rates, including zero
- Consider the social cost of carbon in other jurisdictions
- Provide values for non-C02 greenhouse gases
I think the guidance ultimately provides cost effectiveness justification for the CLCPA. As a result, I believe that the document should explain the concept of the social cost approach targeted for the general public. Blastland et al. (2020) describe an approach for evidence communication that I suggested would be an appropriate template for the public primer. The authors suggest that communications should offer “balance, not false balance”. I argued that this is a major short-coming in the guidance and supporting memo documents because the full range of opinions on social cost methodologies was not included.
My comments addressed technical aspects of the damages and marginal abatement cost approaches. The biggest problem with their description and the recommendation to use the damages approach is that they ignored the concept that once a cap is set, you should not use the damages approach exemplified by the social cost of carbon. The social cost of carbon is an efficiency concept. Establishing a price incentivizes society to develop the most efficient response to that price but does not guarantee specific emission levels. Once a specific target is established in a cap that violates the efficiency principle inherent in the social cost of carbon. I pointed out that in its recent review of the federal IWG social cost of carbon, the U.S. Government Accountability Office referred to the marginal abatement cost approach as a type of “target-consistent approach” to valuing emissions, which reflects the fact that this approach establishes a value that depends in part on the relevant emission reduction target.
Also included in the first slide was the target timeline of milestones to meet CLCPA deadline
|Stakeholder conference||July 2020|
|Public comment period ends||November 27, 2020|
|Final released (CLCPA requirement)||January 1,2021|
I pointed out that the time between the end of the public comment period and the final release date was very short given the importance of the document. Importantly the implication that the document was required by the CLCPA is based on a mis-reading of the law that states it was supposed to be released “No later than one year after the effective date of this article”. The law was signed in July 2019 so this should have been released back in July 2020. Because the date has been missed delaying release long enough for full evaluation and response is appropriate.
The second slide, “Draft Value of Carbon Guidance” stated that the proposed guidance:
- Provides background on different ways to value greenhouse gas emissions reductions
- Damages approach and marginal abatement cost
- Recommends the U.S. Interagency Working Group’s (IWG) damages-based value of carbon, also referred to as the social cost of carbon, as appropriate for most agency decision making
- Considers a range of discount rates, including zero
- Recommends 1%-3% ($421-$53per ton of C02 in 2020 dollars)
- Seeking comment on central value of 2% or 2.5% ($125 or $79 per ton of CO2 in 2020 dollars)
- Discusses how to value non-CO2 greenhouse gases
- Values are provided for CO2, N02 and CH4, as per IWG
- Values for other gases will be added as the research evolves
- CLCPA20-yr GWP does not change these values
- Details specific considerations for State agencies on how to use a damages-based approach
- Provides background on different ways to value greenhouse gas emissions reductions
I think part of the rationale is that the IWG damages-based value of carbon is a more established concept and that more information would have to be developed to use the marginal abatement approach. The guidance touts the IWG as the best approach but then goes on to ignore the recommendations of the IWG when it comes to the choice of the discount value. I argued that they did not provide sufficient justification to recommend the changes proposed.
The guidance document recommends that the non-CO2 greenhouse gases be valued individually. I agree with that approach but I pointed out that there are ramifications to that relative to methane. Carbon dioxide is long-lived and accumulates over time because it stays in the atmosphere. Methane is a short-lived (10 to 12 years) pollutant that lasts in the atmosphere less. Because the CLCPA targets set a hard cap on methane emissions twelve years after the cap limit is reached the impact of methane on warming is done. It stands to reason that the economic impact on aspects of the economy, such as energy use, health, and agriculture, projected from these climatic changes is also done. I suggested that the social cost impacts needed to be revised to reflect that reality.
There is a basic problem with the way the guidance document is framed. While it is valuable that State agencies have guidance on how to use a damages approach, it is even more important to provide support for the CLCPA implementation process. The use of the damages approach over the marginal abatement cost approach handicaps CLCPA implementation of the most cost-effective strategies.
The second slide also stated that “This guidance is not a regulation and does not set a carbon price nor impose any fees.” This caveat has been included in every DEC document on the value of carbon but the reality is that the guidance will be used to set a carbon price for the imposition of fees if the New York Independent System Operator Carbon Price proposal is implemented. I would expect that it would be also used if New York joins the Transportation Climate Initiative.
The third slide, DEC Draft Value of Carbon Guidance, basically repeated all the points made in previous slides. Two points do need to be addressed:
- State agencies may utilize the Value of Carbon to aid many forms of decision-making related to permitting, environmental review, rulemakings, funding, procurement, etc.
- Guidance does not create a price, fee, or compliance obligation.
It is not clear that if the value of carbon is used in decision-making related to permitting how that cannot be considered a compliance obligation. Maybe it is just intended to “prove” that the actions can be justified because the costs may be less than the social costs calculated using the recommended values. That may also explain why the IWG recommended values which yield lower social costs are not recommended.
I specifically suggested that the guidance document incorporate the Blastland et al., (2020) simple tip to display information in a table rather than stating them in the text to address the implications of the assumptions used to develop the recommended values of carbon. I suggested that a table be included that lists the effects of assumptions on the social cost values. My comments addressed the effects of location of benefits (guidance benefits are primarily global and not New York specific), time horizon (the benefits extend out to 2300), the sensitivity of the climate to greenhouse gases (IWG estimates do not use the most recent modeled estimates of the sensitivity), and the discount rate. Of those parameters only the differences in discount rates were discussed. However, the underlying ramifications of the discount rate choice were not explained.
Finally, I recommended that the evaluation of carbon pricing policies in Canada by McKitrick (2016) be considered. He explains that “there may be many reasons to recommend carbon pricing as climate policy, but if it is implemented without diligently abiding by the principles that make it work, it will not work as planned, and the harm to the Canadian economy could well outweigh the benefits created by reducing our country’s already negligible level of global CO2 emissions”. Clearly this is entirely relevant to New York. Importantly he notes:
“However, a beneficial outcome is not guaranteed: certain rules must be observed in order for carbon pricing to have its intended effect of achieving the optimal balance between emission reduction and economic growth. First and foremost, carbon pricing only works in the absence of any other emission regulations. If pricing is layered on top of an emission-regulating regime already in place (such as emission caps or feed-in-tariff programs), it will not only fail to produce the desired effects in terms of emission rationing, it will have distortionary effects that cause disproportionate damage in the economy. Carbon taxes are meant to replace all other climate-related regulation, while the revenue from the taxes should not be funnelled into substitute goods, like renewable power (pricing lets the market decide which of those substitutes are worth funding) but returned directly to taxpayers.”
Because it appears that a primary goal of this process is to memorialize a value of carbon to justify agency actions, the public deserves to know how the real costs are balanced against the theorized cost benefits. When CLCPA strategies are announced and cost savings are claimed the public deserves to know that the savings are based on global not New York benefits, savings out to 2300, and do not represent the latest climate sensitivity science. If the total costs are close to the purported benefits this may be acceptable but I have no doubt that the total costs per ton will far exceed even these conjured values.
Furthermore, there are fundamental technical considerations overlooked or ignored by the guidance. New York State CLCPA implementation is trying to choose between many expensive policy options while at the same time attempting to understand which one (or what mix) will be the least expensive and have the fewest negative impacts on the existing system. If good picks are made then state ratepayers will spend the least amount of a lot of money, but if they are wrong, we will be left with lots of negative outcomes and even higher costs for a long time. Picking the correct value of carbon metric and values is critical to doing this right. A comprehensive response to comments justifying the choices made is an integral part of doing this right.