In June 2023, the New York State Department of Environmental Conservation (DEC) and New York State Energy Research & Development Authority hosted a series of webinars addressing Governor Hochul announced plan to use a market-based program to raise funds for the Climate Leadership & Community Protection Act (Climate Act). The webinars posed a number of questions for stakeholder comment. This post describes my comments.
I submitted personal comments on the Climate Act implementation plan and have written over 320 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good. I also follow and write about the Regional Greenhouse Gas Initiative (RGGI) market-based CO2 pollution control program for electric generating units in the NE United States. Over the last three decades I have had extensive experience with air pollution control theory, implementation, and evaluation having worked on every cap-and-trade program affecting electric generating facilities in New York including the Acid Rain Program, RGGI, and several Nitrogen Oxide programs. 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 established a New York “Net Zero” target (85% reduction and 15% offset of emissions from a 1990 baseline) by 2050 and an interim 2030 target of a 40% reduction by 2030. The Climate Action Council is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.” In brief, that plan is to electrify everything possible and power the electric grid with zero-emissions generating resources by 2040. The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies. That material was used to write a Draft Scoping Plan. After a year-long review the Scoping Plan recommendations were finalized at the end of 2022. In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation and legislation. One of these initiatives is the cap and invest program.
According to the New York Cap and Invest (NYCI) website:
An economywide Cap-and-Invest Program will establish a declining cap on greenhouse gas emissions, limit potential costs to New Yorkers, invest proceeds in programs that drive emission reductions in an equitable manner, and maintain the competitiveness of New York businesses and industries. Cap-and-Invest will ensure the state meets the greenhouse gas emission reduction requirements set forth in the Climate Leadership and Community Protection Act (Climate Act).
NYCI Webinars
In June 2023 a series of webinars was hosted by DEC and NYSERDA “to gather feedback on the program as we develop regulations to implement the Cap-and-Invest Program.” They asked for responses to questions posed (compiled here) during the webinars by July 1. However, that is not a hard deadline and they still are accepting comments. I submitted comments that addressed the major topics but did not attempt to respond to individual questions.
In a departure from the public comment process for the Draft Scoping Plan the invitation to provide comments on the development of the regulations is much more structured. DEC and NYSERDA developed a template document [PDF] to “assist commenters in providing feedback on these topics”. Actually, this approach is being used to categorize responses from the public to assist the agencies documenting the comments received. The comments go to a third-party vendor, Comment Management. In my opinion, the submittal methodology also includes extensive requests for location, constituencies, and interests which I worry could be used to prioritize attention to the comments. For example, in response to the question: Which of the following constituencies do you most closely identify with, the first three options are: Environmental justice or underserved communities, Labor unions/union training centers and Environment or conservation advocates. Consumer advocacy is not even mentioned and the three categories correspond to political constituencies that are a key demographic to Governor Hochul. It is disappointing that there aren’t any questions related to experience and background. As a result, I fear that even though the approach is different, the Hochul Administration is again merely going through the motions for public comment. The answer is in the back of the book and no comments that run contrary to the pre-conceived notion of the Administration will be considered seriously.
I think this is a mistake. The industry people I work with in the electric generating sector have more experience with emission marketing programs than anyone at the state agencies. I know my colleagues had hoped that we could have some frank discussions about our experiences and concerns. That has not happened and our requests for meetings have been ignored. As part of the implementation and program review for the Regional Greenhouse Gas Initiative a series of technical meetings were held that I believe led to a better product. There is no sign that similar meetings are planned. Personally, given what appears to be happening, there is very little incentive to provide detailed and referenced comments because I think they will simply be counting responses to specific questions by constituency and not by quality of the comments themselves.
The following sections summarize my comments at a high level. I submitted overarching comments and will follow up with more detail on my arguments in later posts. This summary does not address my technical comments on the analysis inputs and methods.
NYCI Goals
I submitted overarching comments because I think that the Hochul Administration is not paying sufficient attention to what made previous emissions marketing programs work. As a result, they are rushing ahead with implementation without considering fundamental issues.
The NYCI implementation plan is to “Advance an economywide Cap-and-Invest Program that establishes a declining cap on greenhouse gas emissions, limits potential costs to economically vulnerable New Yorkers, invests proceeds in programs that drive emission reductions in an equitable manner, and maintains the competitiveness of New York industries.” These are political talking points and there will be significant consequences if the dynamics between these stated goals are not resolved. In order to fund the control strategies necessary to reduce emissions on the schedule required by the Climate Act investments will be required. The Hochul Administration has not admitted how much money will be needed but I believe that it is so large that the likely cost to “economically vulnerable New Yorkers” is incompatible with the idea that they will not be adversely impacted. However, the Administration could pick a revenue target that is politically palatable but insufficient to fund the reductions needed. If the emphasis is on equity rather than effective reductions then it is also possible that insufficient reductions will occur and the targets will not be met. They can include all the politically correct language they want but in order to reduce the emissions necessary to meet the targets, then the costs will make New York industries uncompetitive with jurisdictions that do not have those requirements. There is no indication that tradeoffs between these goals are even being considered.
There also is a scheduling problem. Implementation of this sophisticated and complicated economy-wide program is handicapped by the aspirational legislative schedule constraints. I understand that it took California five years with many more staff dedicated to the effort to implement their program. New York is supposed to get this program in place by the end of the year and that is simply absurd.
If the influential book Making Climate Policy Work had been considered by the Climate Action Council or Governor’s Office I believe that there would have been substantive changes to the plan. Authors Danny Cullenward and David Victor show how the politics of creating and maintaining market-based policies render them ineffective nearly everywhere they have been applied. They recognize the enormity of the challenge to transform industry and energy use on the scale necessary for deep decarbonization. They write that the “requirements for profound industrial change are difficult to initiate, sustain, and run to completion.” Because this is hard, they call for “realism about solutions.”
I evaluated the Making Climate Policy Work analysis of RGGI. I agree with the authors that the results of RGGI and other programs suggest that programs like the NYCI proposal will generate revenues. However, we also agree that the amount of money needed for decarbonization is likely more than any such market can bear. The problem confronting the Administration is that in order to make the emission reductions needed I estimate they have to invest between $15.5 and $46.4 billion per year. The first fundamental issue that NYCI implementation must address is the revenue target relative to what is needed for investments to meet the Climate Leadership & Community Protection Act (Climate Act) 2030 GHG emission reduction target. Without that information it is impossible to plan to implement the control strategies necessary to decarbonize New York.
The use of NYCI as a compliance mechanism is another problem. The NYCI webinars have not acknowledged or figured out that the emission reduction ambition of the Climate Act targets is inconsistent with technological reality of the Climate Act schedule. Because GHG emissions are equivalent to energy use, limiting GHG emissions before there are technological solutions that provide zero-emissions energy means that compliance will only be possible by restricting energy use. It is essential that compliance enforcement consider this problem. The second fundamental issue that NYCI implementation must address is a feasibility analysis whether there will be sufficient reductions to avoid limits on power plant operations, gasoline availability, and natural gas for residential use for the 2030 Climate Act 40% GHG emission reduction target.
My comments also argued that there is no excuse to not consider changes to the schedule. While the NYCI webinars have not acknowledged that there are relevant conditions relative to meeting the Climate Act targets, New York Public Service Law § 66-p. “Establishment of a renewable energy program” has safety valve conditions for affordability and reliability that are directly related to the two issues described above. § 66-p (4) states: “The commission may temporarily suspend or modify the obligations under such program provided that the commission, after conducting a hearing as provided in section twenty of this chapter, makes a finding that the program impedes the provision of safe and adequate electric service; the program is likely to impair existing obligations and agreements; and/or that there is a significant increase in arrears or service disconnections that the commission determines is related to the program”.
Applicability and Thresholds
The webinars requested comments related to affected sources and what emissions thresholds sources should be covered by the regulations, who must report emissions and which entities must obtain and surrender allowances equal to their GHG emissions. I made the point that regulatory obligations should be based on the potential for realistic and meaningful emission reductions. For example, there is no realistic opportunity to replace aviation fuel for long-distance flights so the only option to reduce emissions is restricting flights. I suggested excluding those emissions. To their credit, the webinars did broach the subject of excluding various sectors. The whole-economy target mandate of the Climate Act is inconsistent with the reality that there are limited financial resources such that it might be appropriate to phase in allowance obligations for sources based on the relative magnitude of emissions and the cost per ton reduced.
Allowance Allocations
The webinars asked how allowances should be allocated. I commented that the Regional Greenhouse Gas Initiative (RGGI) provided most of the allowances through an auction system and concluded that because this aspect of RGGI works the NYCI proposal should be consistent with this aspect and any variations or exceptions to the RGGI allocation process should be avoided.
The webinars also asked for recommendations for rules in market and trading of allowances. I am particularly concerned about comments made by environmental justice activists and environmental advocates on this topic. This economy-wide strategy is supposed to be a market-based program but the suggestions that limitations on trading and site-specific constraints in the Climate Action Council recommendations are incompatible with a market-based program. To on one hand claim the benefits of existing cap-and-invest programs but on the other hand to exclude the components that provided those benefits is a mistake.
The first component is trading. The ability for market participants to buy, sell, or trade allowances is a prerequisite. The RGGI Secondary Market Reports (e.g., Q1 2023) explain how the trading of physical allowances and financial derivatives, such as futures, forward, and option contracts, enable affected sources to manage risks and reduce costs to their customers. If there is no trading then this is not an emissions market program, it is simply a tax.
My second concern are the requests for site-specific constraints. A prerequisite for a trading program is that it is designed to control pollutants that have regional or global impacts not local impacts. The Climate Action Council and Climate Act emphasis on environmental justice in disadvantaged communities has raised the idea that NYCI can also be used to address local impacts. In the first place there is no obvious way to limit allowance use for a particular area. Allowances are not labelled for specific areas. Excess allowance surrender proposals ignore the fact that air quality impacts are not solely based on emissions but also local transport and diffusion. The poster child for this particular problem is a peaker power plant, but I have shown that the alleged peaker power plant problems are based on selective choice of metrics, poor understanding of air quality health impacts, and ignorance of air quality trends. Power plants are not the only sources affecting dis-advantaged communities and it is not clear how, for example, transportation sector allowance requirements could be traced to any location. I stated that there should be no site-specific constraints on allowances in NYCI.
This issue is most concerning in the context of the apparent approach for stakeholder comments. I am convinced that there will be many comments from environmental justice activists and environmental advocates demanding limits on trading and requiring site-specific allowance constraints. However strong the emotional attachment to those demands, the fact is that those constraints are incompatible with an emissions trading system. If ten people argue the facts and thousands argue the emotions, it is likely that the Hochul Administration will simply use the numbers to establish the policy.
Program Ambition
The webinars requested input on the cap and the allowance budget for how many allowances will be available year-by-year to reach the Climate Act GHG limits. As noted in my discussion of the goals, I commented that NYCI implementation must should include a feasibility analysis to inform the allowance cap ambitions. I also suggested that NYCI follow the approach used by RGGI wherever possible because that system has worked. I made the point that the California Air Resources Board 2022 Scoping Plan for Achieving Carbon Neutrality (2022 Scoping Plan) that “lays out a path to achieve targets for carbon neutrality and reduce included an Uncertainty Analysis that addressed the feasibility issues I believe should be considered.
My primary interest is the electric energy system. Because of its importance, I recommended that DEC and NYSERDA convene a panel to review electric grid reliability that includes the New York State Independent System Operator, New York State Reliability Council, Public Service Commission, and representatives from the generation and transmission industry.
Program Stability Mechanisms
The webinars asked for comments on automatic and planned program adjustments to moderate costs and sustain program ambition if emissions are higher or lower than anticipated. RGGI has developed program adjustments and I recommended that similar adjustments be included in NYCI.
Compliance, Enforcement and Penalties
The webinars also asked for comments on compliance periods and types of enforcement mechanisms. I suggested using a three-year compliance period because it addresses inter-annual variability.
There is an important consideration related to compliance mechanisms. My analysis of the current state of emissions relative to the 2030 Climate Act goals leads me to believe that compliance with the arbitrary schedule is impossible. The ultimate compliance strategy for any GHG emission limitation program is stop using fossil fuels. If there is no replacement energy available that means that compliance will lead to an artificial energy shortage unless there is a safety valve or affected sources pay a penalty.
If no safety valve is included then in order to prevent artificial energy shortages, the other option is for affected sources to pay penalties. I recommended a penalty of two times the average cost of allowances over the compliance period. That provides an incentive to meet the Climate Act target as opposed to creating an artificial energy shortage. I said that any allowance surrender options will only exacerbate the allowance shortage so they should not be included.
Use of Proceeds
As noted in the first section, there is an unacknowledged dynamic between the use of proceeds for political goals and funding the control strategies necessary to make the required reductions. The New York Independent System Operator has stated that the Climate Act net-zero transition is “driving the need for unprecedented levels of investment in new generation to achieve decarbonization and maintain system reliability”. The first step for determining the use of the auction proceeds should be to provide an estimate of how much these investments will cost in order determine how much money must be raised by the Cap-and-Invest program. If the investments are insufficient then the energy system will fail to meet the cap limits.
Dedicating auction proceeds to the limiting potential costs to New Yorkers is a politically expedient goal. However not only does it divert funding needed to reduce GHG emissions it also perversely discourages emissions reductions. Higher energy costs are supposed to make changes to behavior that reduce emissions but rebates do not encourage those changes.
The Climate Act focus on environmental justice in disadvantaged communities’ mandates at least 35% of the proceeds be dedicated to those areas. While this is entirely appropriate because the inevitable increased costs of the energy transition will have regressive impacts, it is also necessary to prioritize the investments to provide emission reductions. Energy conservation and energy efficiency investments that reduce energy burdens for low- and middle- income citizens should be the priority for the disadvantaged community revenues.
Emission reductions must be a priority or the oft-touted compliance certainty feature could cause artificial energy shortages
Conclusion
The allure of a source of revenues and compliance certainty using climate policies that apparently have worked in the past led the Council and Governor to put the cart before the horse. The Cap-and-Invest Program recommended by the Climate Action Council’s final Scoping Plan and proposed in Governor Kathy Hochul’s 2023 State of the State Address and Executive Budget has not paid adequate attention to what made previous policies work and whether there are significant differences between the Climate Act requirements and previous policy goals in those other programs that might impact NYCI. If the tradeoffs are not resolved then this program will do more harm than good.
Pragmatic Environmentalist of New York 