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. On December 30, 2020 New York’s Department of Environmental Conservation (DEC) announced finalization of this guidance. This post summarizes the final guidance and describes the response to comments on the draft guidance document. In general, the guidance document and the responses all are consistent with the CLCPA narrative that climate change is an imminent, inevitable disaster that can only be averted by reducing greenhouse gas emissions.
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 guidance for a value of carbon for use by State agencies. According to the DEC press release:
“The guidance is different than a regulation and does not propose a carbon price, fee, or compliance obligation. It is a metric that will be broadly applicable to all State agencies and authorities to demonstrate the global societal value of actions to reduce greenhouse gas emissions. The guidance establishes a value of carbon focused on the federal social cost of carbon and incorporates public comments DEC received when the draft guidance was proposed earlier this year, including recommending a lower central discount rate of two percent, which should be reported alongside a one and three percent discount rate for informational purposes. In some decision-making contexts, particularly those that have a history of valuing carbon, such as the New York electric industry, the guidance suggests that alternative approaches to valuing carbon may be more appropriate for both resource valuation and benefit-cost analyses. Use of the lower central discount rate translates into a 2020 central value of carbon dioxide of $125 per ton; methane of $2,782 per ton; and nitrous oxide of $44,727 per ton.”
The 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. Four 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.”
Response to Comments
In general, a major point in my comments was that I believe the focus of the guidance is wrong. According to the document:
“The purpose of this guidance is to aid State entities in decision making by establishing a monetary value of greenhouse gas emission reductions or increases that reflects global societal impacts. This guidance does not itself establish a price or fee on emissions, and the value of carbon presented here is not the only value that may be used by the State. Alternative methods for establishing a value of carbon may be used by State entities, including the Department, as needed to achieve the goals and requirements of the CLCPA as well as other State goals, such as to protect public safety, welfare, and the environment.”
The guidance does not recognize that the CLCPA has specific targets so the proper way to address social costs is through a cost efficiency approach. The damages approach recommended in the guidance is an efficiency concept inappropriate when developing control measures. The emphasis of the guidance is on state agency use and not for supporting the Climate Action Council scoping plan mandate.
DEC’s responses to comments are listed below with my italicized reply below each paragraph.
“The Department received comments from individuals, elected officials, municipal officials, environmental advocacy groups, community groups, academic and other nonprofit research institutions, and private businesses particularly those related to the electricity sector. Most commenters responded to DEC’s specific request for input on the selection of a central discount rate or commented on three other areas: the use of a range of discount rates, the application of other approaches such as marginal abatement, or technical details of the damages-based or marginal abatement approaches. As discussed in the Guidance, DEC is providing guidelines regarding the use of the damages-based approach to enable New York State agencies to use this tool, where needed. DEC is not seeking to develop guidelines for the use of other approaches, such as marginal abatement, at this time.”
My comments explained that there are other metrics that describe ‘equivalences’ between climate-changing species used to determine contributions to climate impacts. Tol et al (2012) present a unifying framework that clarifies the relationships among four metrics establishing ‘equivalences’ among emissions of various species. Importantly, the framework distinguishes between cost benefits and cost effectiveness. This paper explains that once a cap is set, you should not use 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. Instead, the cap requires that emissions are valued to the shadow price of the cap. There was no response to this argument.
“The majority of commenters who responded to DEC’s request for feedback on the selection of a central discount rate support the lower of the two suggested values, i.e., 2% rather than the 2.5% that was previously established as the lower bound of discount rates by the federal government. Some of these commenters suggested that the central rate should be no higher than 2%. Other commenters requested a rate that is lower, such as zero or 1%, or suggested that the DEC should adopt higher rates that would be consistent with that previously used by other New York State agencies and the federal government.”
A lower discount rate produces higher values which supports the narrative of the CLCPA and likely the majority of the commenters who have a vested interest in climate change catastrophes. My argument that on a global basis using lower discount rates memorializes the status quo for the world’s poor was ignored.
“While DEC maintains that the public is best informed by reporting a range of discount rates, given the responses received, DEC has revised the Guidance to apply a central 2% discount rate. However, as many commenters pointed out, the damages-based approach is continually refined and improved and DEC will continue to consider incorporating new research. DEC will also consider additional ways to address uncertainty and intergenerational equity issues raised by the commenters, such as through a declining discount rate or the incorporation of a 95th percentile on the central discount rate, as the research continues to improve. While not specifically raised in the public comments, one issue with applying a non-standard discount rate, such as 2%, is that this affects the applicability of published analyses, because the analyses are unlikely to apply the same discount rate.”
I raised problems with damages-based approaches in my comments but one would not know that from this response.
“Several commenters took issue with the use of a range of discount rates and stated a preference that DEC require all State entities to use one discount rate. DEC has revised the Guidance to clarify the initial intent of the Guidance. Namely, DEC’s guidance follows the federal government’s approach to using the damages-based value of carbon, under which agencies use the central rate, but also report the results for a higher and lower rate. DEC did not intend to suggest that State entities use any discount rate within the range. Instead, DEC suggests that, if State agencies apply a damages-based value of carbon as a part of their decision-making, they should use the 2% discount rate to estimate the value (as opposed to the federal government’s central rate of 3%) and also report the values estimated using the 1% and 3% discount rates. This enables the public to see the effect of the discount rate and, in the case of the 3% rate, compare their assessment to federal actions and previous State policies.”
I agree with the DEC response that the public should be able to see the effect of the discount rate. The suggestion in my comments that the public should also be able to see the effect of the time horizon, the location of impacts, and equilibrium climate sensitivity was ignored. I also argued that the one reference used to justify using a lower discount rate was inadequate and that additional justification was needed. There were no changes to the document to respond to that.
“The remaining comments covered a diverse set of topics, including topics beyond the scope of the Guidance. DEC will use all relevant feedback in refining the Guidance and in developing future guidance. An example is to provide additional guidance on how to consider public health impacts and the social costs for co-pollutants. The CLCPA specifically refers to the social cost of emitting greenhouse gases into the atmosphere, but the Guidance does discuss how the damages-based approach can be used to assess other impacts and other pollutants. The Guidance is a complement to other, more standard methods used.”
Topics beyond the scope of the Guidance are ignored if they don’t fit the narrative. I raised fundamental issues raised about the mis-use of the value of carbon when emission targets have been chosen and no response. Instead, they highlight comments that claim the values are too low. Honestly, if they want to provide New York’s citizens information rather than just propaganda they should describe both sides of the valuation issues, explain why they chose what that chose, and explain why only the negative externalities of fossil fuels are considered without any consideration of the benefits.
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, do not represent the latest climate sensitivity science, and that no consensus exists on what approach or rate to use for discounting uncertain climate impacts over long time horizons. Instead, the basis is buried in a technical document that does not even acknowledge that there are uncertainties and issues with basis for cost savings based on these values of carbon.
Furthermore, there are fundamental technical considerations overlooked or ignored by the guidance and response to comments. 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. A value of carbon approach that addressed that concern as its primary goal would be great support to address this problem.