Review of Costs in Green Scheme: The Climate Action Council’s Climate Transition Cost Analysis

The Empire Center paper Green Scheme: The Climate Action Council’s Climate Transition Cost Analysis (“Green Scheme”) by James E. Hanley looks at the costs and benefits of the Climate Leadership and Community Protection Act (Climate Act).  A recent interview with Hanley by North Country Public Radio summarizes the main points.  I have previously evaluated Climate Act costs and this article compares the cost, but not benefit, arguments in this paper to my work. 

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.   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

The Climate Action Council is responsible for preparing the Scoping Plan that will “achieve the State’s bold clean energy and climate agenda”.  Starting in the fall of 2020 seven advisory panels developed recommended policies to meet the targets that were presented to the Climate Action Council in the spring of 2021.  Their policies were converted into specific strategies by the New York State Energy Research & Development Authority over the summer of 2021.  The integration analysis implementation strategies will be incorporated into the draft Scoping Plan by the end of 2021. 

The integration analysis finds that the transition will cost $280-$340 billion, while producing $420-$430 billion in benefits, for a net benefit of $80 to $150 billion. The Green Scheme report looks at different aspects of the proposed costs and benefits.  The following quotes sections of the Green Scheme report comments on cost issues with my indented and italicized notes.

Megaproject

First, the scale of the Climate Act qualifies this transition as a megaproject (a project that costs billions of dollars and takes many years to complete).   Megaprojects typically come in 50 percent or more over budget while also overstating benefits by just as much[1].  Because of this, initial cost estimates should be seen only as down payments rather than the true full cost[2]. If that pattern holds for this analysis of the Climate Act, the costs may be as much as $420–$510 billion, and benefits as low as $210–$215 billion. If so, the net value of the Climate Act could be negative, resulting in a net cost to New Yorkers of $205–$300 billion (See chart). That would mean the net loss per New York resident over the next 29 years would be between $10,000 and $15,000.

I agree that large projects are usually over budget and overstate benefits but can offer no substantive comments.

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Biased Analysis

Second, the Council was not created to be a disinterested source of information but to plan the implementation of the Climate Act. A positive estimate of benefits to costs is necessary to the Council’s purposes, whatever the reality may be. This is true for all public agencies responsible for megaprojects, which is why they are so predictably wrong in their analyses. Finally, unlike past reports from its consultants, the Council has not yet made the transition cost analysis public so that independent analysts can review it. Instead, it has released a report that obscures some key assumptions of the analysis.

I agree with all these points.

Unrealistic Building Retrofit Target Assumptions

The analysis assumes that by 2050, 92 percent of building stock will have improved building shells to enhance energy efficiency. Neither the Council’s public report nor the previous reports by its consultants explains how extensive these improvements will have to be, nor whether this can really be accomplished in the desired time frame. New York City alone has more than 1 million buildings. To retrofit 92 percent of them in the next 29 years will require over 31,000 building shell retrofits annually, just in New York City. The analysis does not address whether there is even sufficient construction labor available to accomplish this while meeting other construction and building renovation needs.

This is a huge problem with the Climate Act integration analysis. The definition of the building shell improvements is unavailable and critical to determining the validity of the proposed numbers.   Clearly, the analysis has to define the building shell standards expected because the preferred heating technology is heat pumps.  There is an international standard for passive buildings that includes efficient heat generation aka heat pumps.  It includes the following measures:

• • • • improved thermal insulation
      • reduction of thermal bridges
      • considerably improved airtightness
      • use of high quality windows
      • ventilation with highly efficient heat recovery
      • efficient heat generation

Note, however, that even the passive house website notes that “Not all buildings can be renovated to the Passive House Standard without great difficulty and cost”.  Until the Integration Analysis explains their building shell improvements relative to these measures necessary for using heat pumps, we have no idea of the magnitude of this component of the plan.  That means we cannot check their cost estimates.

Unrealistic Heat Pump Sales Target Assumptions

The analysis further assumes 100 percent sales of heat pumps for heating and cooling by 2030. Although the report gives little detail, this appears to apply to all furnace replacements as well as to new home construction. While heat pumps can pay for themselves over time, their upfront costs are considerably more than a furnace and air conditioner combination. This target is only nine years out, and heat pump prices are unlikely to decline so quickly as to make them affordable for all New Yorkers. The only way to achieve this goal is to ban the sales of alternative heating and cooling systems.  Such a ban would either impose higher costs on consumers or require large public subsidies.

I believe that it is correct that all furnaces in New York will have to become heat pumps.  Another problem in addition to those listed is that a backup heat system is necessary unless a ground-source heat pump is used so there are additional costs.  There also is a safety issue because going all in for electric homes is an issue when there is a prolonged electric outage.  The bigger problem is that in order for any heat pump technology to work in New York’s winters the building shell has to be improved and those costs, as shown above, are not clearly defined.

A Zero-Emission Vehicle Fleet

In the transportation sector, the analysis assumes that 98 percent of new automobile and light-duty truck sales will be zero-emission vehicles (ZEVs) by 2030, only nine years from now. While the cost of electric vehicles is declining, only about 1 percent of sales are fully electric at this time.  New York has banned the sale of new fossil fuel vehicles starting in 2034, four years after the analysis’s target date. This ban will likely lead to a rush on buying new internal-combustion cars and light trucks before 2034, making the 98 percent ZEV sales by 2030 goal an implausible target.

The Integration Analysis Reference Scenario that just includes existing programs and not the additional mandates of the Climate Act projects that battery electric light duty vehicle sales will be 2% in 2022 and will rise to 7% in 2025.  The Climate Act scenarios increase those sales levels to greater than 13% by 2025.  I cannot see a scenario where there will be that many people switching in that short a time.  I agree that the targets for later years are implausible. 

Christian Twiste nails a huge overlooked problem in the Integration Analysis. He quotes a Washington Post article and then goes on to explain:

“In urban neighborhoods where residents lack driveways or garages and must rely on street parking, public chargers are a necessity to persuade consumers to buy electric cars. Yet without EVs in place, there is no commercial incentive to install them.”  Rarely has a single statement so successfully glossed over the albatross around the neck of widespread EV adoption, avoiding the simple truth that should have been obvious all along:  Electric Vehicles are only practical if you have a garage and your own (expensive) charging station in that garage.  This way you can plug in your car every night without fear of the weather or a lack of access, and then rely on public stations for road trips and other long drives.  The idea that owners are going to regularly plug their cars in on a busy inner city street is absurd on its face.  It’s hard enough to get a public parking spot in a big city as it is, just imagine what that would look like if everyone suddenly needed to charge up as well.  This assumes public charging stations are even accessible, as they would not be after a big snow storm or a cold winter where the snow doesn’t melt.

The analysis also assumes reductions in the total stock of fossil fuel vehicles so that 26 percent of all automobiles and light-duty trucks are ZEVs by 2030. The Council’s consultants stated that “Consumer decision-making is especially important in passenger vehicle turnover.” But in the transition cost analysis the reality of consumer decision-making is ignored. The average age of automobiles in the U.S. is 12 years, suggesting that at least half the cars bought since 2018 will still be on the road in 2030.

I agree.

Unless ZEVs are half of all light-duty vehicle sales over the next nine years, the state cannot meet this target. The analysis further calls for 95 percent of light-duty vehicle stock to be ZEV by 2050. Approximately 25 percent of cars are 16 or more years old. With only 16 years between the 2034 ZEV mandate and 2050, we can assume that far more than 5 percent of the cars bought in the years right before the mandate takes effect will still be on the road in 2050. In addition, as current low sales of ZEVs demonstrate, many people do not want an electric vehicle. Therefore, many auto owners may hold onto their gas-powered cars and trucks longer than they otherwise would, slowing the transition to an all-ZEV fleet.

I agree with these comments.  Another hidden cost not well defined in the integration analysis is the cost of the electric vehicle infrastructure.  I think that when the estimates include all the costs that the price will be much higher than in the analysis.

“Active Transportation”

Another unlikely target is the hoped-for increase in “active transportation” (walking and bicycling). The analysis assumes a combination of education and smart growth will suffice to achieve this goal. But people already know that exercise improves health, and a public education campaign is unlikely to change their behavior.  Smart growth will not solve the problem, either.  We cannot fundamentally transform the basic infrastructure of existing communities in a mere 29 years. Nor can we expect developers to build enough new smart communities in a state that is losing population.

This is an excellent description of a strategy that only an ideologue dedicated to changing the entire fabric of today’s communities, thinks is appropriate.  In order for active transportation to work the population density of the community has to be much greater than a typical suburb.  Great in theory, but in practice not so much.

 Offshore Wind Energy

Finally, the analysis assumes the building of 16–19 gigawatts (16-19 thousand megawatts) of offshore wind energy by 2050, as much as twice the nine gigawatts the Climate Act envisions by 2035. The state currently has no offshore wind capacity, but has approved 4.3 gigawatts of offshore wind projects. The earliest is scheduled to come on-line in 2024. That leaves 26 years for complete buildout. Assuming technology-leading 12-megawatt turbines, over 1,500 turbines will be required to achieve 19 gigawatts of capacity.  This will require the completion of more than one turbine a week between 2024 and 2050. The most efficient sites will have been the first selected, so the remaining 12-15 gigawatts of offshore turbines will be in increasingly less productive, and possibly more controversial, sites. These may be more environmentally sensitive or perhaps closer inshore where the turbines may be visible from land, in either case stirring up opposition.  The regulatory siting and approval process is unlikely to move fast enough to accommodate this buildout, and predictable legal challenges to at least some of the siting decisions will further slow their development.

All this is true.  Implied but not explicitly pointed out is that it is not only the turbines that have to be built, it is the entire infrastructure to install the turbines.  Harbors have to be upgraded and ships procured to do the necessary work.  All those considerations add to the costs.

Unconsidered Costs

The analysis considers only direct costs of transition and ignores real but indirect costs. Among these are the personal costs of active transportation and the higher cost of construction and home repairs due to increased demand for construction labor for building shell retrofitting. While indirect costs are challenging to measure or estimate, the Council should insist that its analysts not ignore them entirely.

The lack of detail in the documentation is a systemic problem.  I cannot find anything to dispute the assertion that indirect costs are not included. 

Based on the public report, the analysis also appears to ignore the additional cost of upgrading the grid to handle less reliable renewable power sources, as opposed to the lower cost of upgrading the grid for continued reliance on reliable sources such as hydropower, nuclear, and natural gas with carbon capture. While New York’s grid will require substantial investment in the coming decades regardless, a smart grid that can effectively distribute only intermittent renewable sources is more complex and more expensive to develop. The analysis should clearly address the additional cost of building this grid. If it already does account for this, the Council’s report should have clearly demonstrated that it does so.

The Integration Analysis is not a feasibility study.  The Analysis does not include an engineering evaluation to determine how the grid has to be upgraded to maintain current reliability standards much less how much it will cost.  One feasibility aspect that is included is a technology to cover the need for zero emissions, firm dispatchable resources.  The analysis proposes using hydrogen resources for this aspect of the system but that technology has not been proven at the scale necessary for New York’s requirements.  Any cost estimates of an unproven technology are wildly uncertain.  In addition, I cannot find any reference to necessary transmission ancillary services support so I agree that the grid issues raised have been overlooked.

Finally, the analysis does not address effects on the economy from transitioning to renewable energy. Previous studies have found substantial economic effects when states adopt renewable portfolio standards, with nearly 14 percent decreases in industrial electricity sales, significant declines in real personal income of over $4,000 per family, and a ten percent increase in the unemployment rate. The effective expansion of New York’s Renewable Portfolio Standards can likewise be expected to have a substantial negative macroeconomic effect, which the analysis does not appear to consider.

I agree.

Ratepayer Effects

The paper also discusses consumer impacts.  I recently addressed the discussion of consumer impacts on the Climate Action Council.  I include just one paragraph from Green Schemes on this subject here.

The analysis conducted for the Council was limited to determining net costs and benefits, leaving the question of how to pay for the decarbonization transition beyond the scope of the study. As NYSERDA’s Carl Mas said, “that comes in the articulation of the Scoping Plan.” Nonetheless, New York’s utility ratepayers, who already pay among the highest energy prices in the country, have an interest in knowing what the cost will be of transitioning to carbon-free electricity.

During the lengthy Climate Action Council discussion about the net costs and benefits several points were emphasized.  The costs presented to date are societal incremental costs without much specificity.   Carl Mas said “In order to determine the actual costs to society you need to have specificity to distribute those costs.  Is it going to be a ratepayer program?  It is going to be a tax credit or incentive?  How much is the Federal government going to weigh in to help buy down some of the cost.  Without those types of programmatic specifics, we can’t actually analyze how much individual parts of our society should pay.”  The final resolution offered by Sarah Osgood (at 22:25 of the meeting recording) was to make it clear that as any of the policies get more well-formed that every policy should have an assessment of ratepayer or of consumer impacts as early as possible. 

 Conclusion

The Green Scheme’s paper concludes:

The Climate Action Council’s public report on the Transition Cost Analysis is a missed opportunity to provide transparency in the implementation of the Climate Leadership and Community Protection Act. New Yorkers can justly be skeptical of the findings. New Yorkers may support the reduction of carbon emissions without supporting the vague terms of the Climate Act or the still-to-be-produced Scoping Plan of the Climate Action Council. Or they may find the cost of transition to a carbon-neutral economy too high. If New York is going to follow a legislatively-mandated timeline to transition to carbon-free electrical production and a carbon-neutral economy, the state’s citizens have a right to know the true costs and benefits of that transition and how they are expected to pay for it.

As Mr. Hanley points out the Climate Act information provided to date does not provide sufficient information to evaluate cost claims directly. Given that affordability is a primary concern for all New Yorkers this is unacceptable.

[1] Flyvbjerg, Bent. 2017. “Introduction: The Iron Law of Megaproject Management.” The Oxford Handbook of Megaproject Manage­ment. Oxford University Press. Pp.1-18.

[2] Flkbjerg, Bent. 2017. “MegaProjects: Over Budget, Over Time, Over and Over.” Cato Institute Policy Report, January/February.