Climate Leadership & Community Protection Act GHG Emissions and the Value of Carbon

On July 18, 2019 New York Governor Andrew Cuomo signed the Climate Leadership and Community Protection Act (CLCPA), which establishes targets for decreasing greenhouse gas emissions, increasing renewable electricity production, and improving energy efficiency. This post documents issues with the benefits calculations methodology that I expect will be used to show that the “benefits” outweigh the costs.

I have written extensively on implementation of the CLCPA because I believe the solutions proposed will adversely affect reliability and affordability, will have worse impacts on the environment than the purported effects of climate change, and cannot measurably affect global warming when implemented.   I briefly summarized the schedule and implementation: CLCPA Summary Implementation Requirements.  I have described the law in general, evaluated its feasibility, estimated costs, described supporting regulations,  summarized some of the meetings and complained that its advocates constantly confuse weather and climate in other articles.  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.

Background

According to a New York State Department of Environmental Conservation (DEC) bulletin dated May 10, 2021, the Advisory Panels to the Climate Action Council have all submitted recommendations for consideration in the Scoping Plan to achieve greenhouse gas (GHG) emissions reductions economy-wide. All these recommendations will be incorporated into the integration analysis which is a modeling effort by the State.  They will develop the scoping plan that outlines what is needed to meet the law’s requirements.  Once the scoping plan is accepted State agencies will implement codes and regulations.     My posts describing and commenting on the strategies are all available here.

Although no costs have been provided there have been discussions at Climate Action Council meetings that indicate that the Council is positioning itself to prove that their investments are “cost-effective”.

I will outline how the benefits analysis should be calculated and how the state is doing it.

Emissions

The first step is to define the emissions. The 1990 emissions were defined in the Department of Environmental Conservation’s Part 496 regulations.  GHG emission inventories have been developed for many years.  Prior to the CLCPA New York State followed the Inter-governmental Panel on Climate Change guidelines.  It makes a lot of sense to use those guidelines for consistency and inter-comparability.  However, the authors of the CLCPA chose to do things differently

According to the Revised Regulatory Impact Statement (RIS):

Under the CLCPA, statewide greenhouse gas emissions include both greenhouse gas emissions from all sources located within the state and certain sources that are located outside of the state that are associated with in-state energy consumption. In particular, the statute requires that statewide greenhouse emissions include both: (1) “the total annual emissions of greenhouse gases produced within the state from anthropogenic sources,” and (2) “greenhouse gases produced outside of the state that are associated with [a] the generation of electricity imported into the state and [b] the extraction and transmission of fossil fuels imported into the state.” ECL § 75-0101(13). Moreover, the CLCPA defines “carbon dioxide equivalent” as a measurement of global warming potential based on a twenty-year timeframe. ECL § 75-0101(2).

The RIS goes on to explain:

The Energy sector includes five (5) main categories: (a) Fuel Combustion, (b) Fugitive Emissions, (c) Electricity Transmission, (d) Imported Fuels, and (e) Imported Electricity. The latter two categories are not included in IPCC protocol or other governmental greenhouse gas inventories, but as described above are two key distinct requirements of the CLCPA for this rulemaking. These two categories represent an estimate of what may be referred to as the lifecycle, fuel cycle, or out-of-state upstream emissions associated with in-state energy demand and consumption.

The RIS explains the inclusion of a category for imported fuels:

The most significant difference between the 1990 baseline, as set forth in the CLCPA and developed for the proposed rule, and other governmental greenhouse gas inventories is the inclusion of emissions associated with “the extraction and transmission” of imported fossil fuels. Because of the novel nature of this CLCPA requirement, as compared to other standard governmental inventories following the IPCC protocol, the Department undertook an analysis of these emissions in collaboration with NYSERDA. This analysis considered emissions from extraction and processing (production) through transmission or transportation to the New York border, but did not include emissions from infrastructure construction and maintenance outside of the state or from the manufacture of equipment or facilities outside of the state. The fuels included are the same as those addressed in the in-state analysis, or coal, natural gas, distillate, diesel, residual fuel, jet fuel, kerosene, LPG, motor gasoline, and other petroleum fuels (lubricants, petroleum coke, and unspecified napthas).

The inclusion of these two categories adds to the baseline and any reduction benefits are increased.  Importantly, note that the lifecycle, fuel cycle, or out-of-state upstream emissions associated with wind and solar energy development are not included in any state analysis.

Value of Carbon

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 total monetary estimate of not emitting NY’s 1990 emissions is shown here for different years.  We don’t know when the emissions occurred or will occur so we need to consider a range.   If every ton is reduced in 2021, the value of carbon benefits at a 2% discount rate is $681,266 million.  If every ton is reduced in 2050, the value of carbon benefits at a 2% discount rate is $1,115,104 million.

Games New York Plays

In late February, 2021 I wrote to DEC and Climate Action Council about a problem with the New York State guidance document Establishing a Value of Carbon, Guidelines for Use by State Agencies (the “Guidance”). In particular the Guidance includes a recommendation how to estimate emission reduction benefits for a plan or goal.  I believe that the guidance approach is wrong because it applies the social cost multiple times for an emission reduction.  I recommended that the Guidance be revised.

In the Guidance section entitled “Estimating the emission reduction benefits of a plan or goal” an example is included:

The net present value of the plan is equal to the cumulative benefit of the emission reductions that happened each year (adjusted for the discount rate). In other words, the value of carbon is applied to each year, based on the reduction from the no action case, 100,000 tons in this case. The Appendix provides the value of carbon for each year. For example, the social cost of carbon dioxide in 2021 at a 2% discount rate is $127 per metric ton. The value of the reductions in 2021 are equal to $127 times 5,000 metric tons, or $635,000; in 2022 $129 times 10,000 tons, etc. This calculation would be carried out for each year and for each discount rate of interest.

The Integrated Working Group (IWG) damages approach value is the net present benefit of reducing carbon dioxide emissions by one ton.  The calculation methodology determines that value from the year of the reduction out to 2300.  It is inappropriate to claim the benefits of the annual reduction over any lifetime.  Consider that in this example, if the reductions were all made in the first year the value would be 50,000 times $127 or $6,350,000, but the guidance approach estimates a value of $37,715,000 using this methodology. 

I also argued that if 1990 emissions were reduced in 2021 the benefits of completely eliminating those emissions equals $681 billion.  If we assume that the emissions are reduced to zero in 2050 by reducing emissions each year by the same amount, the annual reduction times that year’s social cost sums to $886 billion. However, if the social costs are multiplied by the cumulative reductions the costs sum to $15,373 billion, nearly twice as much as summing the annual reduction values.  Furthermore, the cumulative reduction approach is over 23 times higher than if the reductions were all achieved in one year.  My final argument that it is inappropriate is: if the social costs were calculated out to 2300, then when do you stop calculating cumulative reductions for the social cost benefits for permanently retiring a source of greenhouse gas emissions?

New York’s record using this approach goes back to 2020.  The 2010 Climate Action Plan interim report calculated the cost per avoided emissions using cumulative emission reductions.  The Regional Greenhouse Gas Initiative (RGGI) and the New York State Energy Research & Development Authority (NYSERDA) reports on the investment proceeds from the RGGI tax both improperly use cumulative emission reductions.  The NYSERDA Clean Energy Dashboard also highlights values using cumulative emission reductions.  By the way I have submitted comments regarding this issue to RGGI and NYSERDA and no changes have been made to the reports. 

Conclusion

The use of cumulative emission reductions to claim more benefits is a common New York practice.  New York should include annual reductions in all its GHG emission reduction reports but does not. All emission reduction targets are set based on emissions at a certain time and never include cumulative values.  Social cost of carbon or other carbon reduction valuation schemes also consider reductions at a certain time and exclude cumulative values.  I have raised this issue with New York State agencies and aside from a “thank you we will look into it” from DEC there has been no response.

When the inevitable high costs of CLCPA implementation are released to the public, they will no doubt be couched in some sort of value of carbon benefit comparison.  Obviously, the fundamental problem is that the costs will be real and the benefits will be made up.  This post shows that even the contrived value of carbon arguments are insufficient, that the CLCPA mandates emission categories contrived to increase emissions, and that the state has systematically over-estimated GHG emission reduction benefits in this context for years.