The Climate Leadership and Community Protection Act (Climate Act) has a legal mandate for New York State greenhouse gas emissions to meet the ambitious net-zero goal by 2050. This article describes the comments I submitted to the Climate Action Council on Chapter 17: Economy-Wide Strategies. I am not sure why they did not refer to these as policies that effectively price GHG emissions because that is what they are talking about.
Everyone wants to do right by the environment to the extent that they can afford to and not be unduly burdened by the effects of environmental policies. I have written extensively on implementation of New York’s response to that risk because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that it will adversely affect reliability, impact affordability, risk safety, affect lifestyles, and will have worse impacts on the environment than the purported effects of climate change in New York. New York’s Greenhouse Gas (GHG) emissions are less than one half one percent of global emissions and since 1990 global GHG emissions have increased by more than one half a percent per year. Moreover, the reductions cannot measurably affect global warming when implemented. This page documents all the comments that I submitted as part of the Climate Leadership and Community Protection Act implementation process. 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.
Climate Act Background
The Climate Act establishes a “Net Zero” target (85% reduction and 15% offset of emissions) by 2050. The Climate Action Council is responsible for preparing the Scoping Plan that will “achieve the State’s bold clean energy and climate agenda”. They were assisted by Advisory Panels who developed and presented strategies to the meet the goals to the Council. Those strategies were used to develop the integration analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants that quantified the impact of the strategies. That material was used to write Draft Scoping Plan that was released for public comment at the end of 2021. The Climate Action Council will revise the Draft Scoping Plan based on comments and other expert input in 2022 with the goal to finalize the Scoping Plan by the end of the year.
I prepared this comment because my extensive experience with the Regional Greenhouse Gas Initiative has shown that there is a major disconnect between the theory of a carbon pricing program and reality. This disconnect is also evident in the NYISO carbon pricing initiative and the Draft Scoping Plan carbon pricing initiatives.
Based on the format of Section 17, it was written to address specific issues raised by the Climate Action Council. As a result, it gets bogged down into details about specific issues raised by council members rather than looking at the big picture. In theory, a price on carbon is a great idea. The Council has not considered the theory relative to their perceptions.
My overview comments explain why I believe carbon pricing will always be a regressive tax based on a post I did on carbon pricing. I also think that there are a number of practical reasons that carbon pricing will not work as theorized. Because a global program is impractical, leakage is always going to be a problem. All carbon pricing proposals need to address the problem that as carbon emissions go down revenues go down relative to the fact that reductions get more difficult and expensive as control efficiency increases. The Council members who support carbon pricing seem to be blissfully unaware of the realities of the energy market that are at odds to their theories. Based on observed results I think that indirect market signals are going to lead to less cost-effective reductions in the time frame necessary for the aggressive reduction rules. To date, carbon pricing for the electric sector only considers generation costs which leads to cost shifting the additional costs to supply electricity when and where it is needed to be covered outside the carbon pricing framework. Supporters under-estimate the very real problems of implementation logistics. My concerns about carbon pricing are supported by the recently completed a relevant study done by Regulatory Analysis Project (RAP): Economic Benefits and Energy Savings through Low-Cost Carbon Management for Vermont.
In addition to my practical concerns “A Practical Guide to the Economics of Carbon Pricing by Ross McKitrick defines how carbon pricing is supposed to work in theory. He explains that “First and foremost, carbon pricing only works in the absence of any other emission regulations.” The Guide goes to note “another important rule for creating a proper carbon-pricing system is to be as careful as possible in estimating the social cost of carbon”. He argues that “whatever the social cost of carbon is determined to be, the carbon price must be discounted below it by the marginal cost of public funds (MCPF) — that is, the economic cost of the government raising an additional dollar of tax, on top of what is already being raised”. The Draft Scoping Plan does not even recognize the importance of this aspect of carbon pricing. Finally, he notes that: “it needs to be remembered that carbon pricing works because it is a market-based policy: it works with market forces, not against them. He concludes: “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.”
I think the Climate Action Council has to define affordable. In the absence of any numbers in the Draft Scoping Plan related to potential revenues I calculated my own estimates. The total New York State GHG emissions in 2019 are 379.43 million metric tons of CO2 equivalent. If the carbon price was set at the 2022 New York State Value of Carbon Guidance value of $129, then the economy wide cost would be $48.9 billion. I submit that is not affordable for any New Yorkers and could not possibly be designed to avoid regressive impacts.
Clearly, setting a carbon price for all New York emissions is unaffordable so the Climate Action Council should consider setting a price on different sectors. Table ES.2: 2019 New York State GHG Emissions is from the 2021 Statewide GHG Emissions Report and lists the emissions by sector.
I used this GHG emissions information and the 2022 value of carbon of $129 to look at several emission scenarios in the next table. Using the IA-Tech Supplement Annex 2 Emissions Key Drivers spreadsheet 2022 Gross State Product and population each scenario estimates the cost per month for each NYS resident and the cost as a fraction of the GSP. If all the emissions were included in the carbon pricing scheme the cost per resident would be $262.50 and the costs are 3.36% of the GSP. The Candidate scenario only includes the Energy and Industrial Processes and Product Use sectors reduces the costs slightly. The Combustion scenario only includes in-state combustion emissions and drops the total revenues by more than half. Finally, I excluded everything except the electric power sector. Those costs are still pretty high: $12.05 per person per month and 0.15% of the GSP.
The estimates of current (2019) emissions coupled with the New York value of carbon yield very high revenues. On October 26, 2021, the AP-NORC Center and the Energy Policy Institute at the University of Chicago (EPIC) released the results of a survey that claimed that a majority of Americans regard climate change as a problem of “high importance”. It also included survey questions asking whether respondents would support, oppose, or neither support or oppose a law that imposed “a fee on carbon to combat climate change”. The survey question asked “If the law passed, it would increase the average amount your household pays each month for energy, including electricity, heating gas, and gasoline or diesel for your car by a total of X dollars per month” where respondents were randomly assigned a $1, $10, $20, $40, $75, or $100 cost increase. For a $1 per month increase, 45% would support, 30% would oppose, and 25% would neither support or oppose. For a $100 per month increase, 20% would support, 62% would oppose, and 18% would neither support or oppose. Only 45% support $1 per month per household and $1 per month per person only provides revenues of $237 million. All of the projections in Table 2 estimate costs far higher than that level so I do not think the public perception of affordable will be met by any carbon pricing scheme that uses the New York value of carbon.
Another way to look at affordable costs is to set the costs per month per person and the costs relative to the GSP and see what revenues would be generated. The following table provides that information. All of the projected costs exceed the AP-NORC Center and EPIC survey category where 45% support $1 per month per household.
The Draft Scoping Plan provides no details to recommend what is affordable. Rather than getting bogged down in implementation issues, the Climate Action Council and the Climate Justice Working Group should address what is affordable. That recommendation is going to drive the specifications for all three of these carbon pricing approaches.
The theory of carbon pricing is embraced by leading economists. However, advocates for such a scheme in New York do not understand that the plans proposed are not like the theory. My comments showed that there are implementation issues and that the Draft Scoping Plan proposed pricing schemes do not match the theory. Ross McKitrick sums it up: “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.” Substitute New York for Canada and it describes the likely effect of the carbon pricing plans proposed.