My New York Cap and Invest Pre-Proposal Outline Comments

For the first two months of the year the New York State Department of Environmental Conservation (DEC) and the New York Energy Research & Development Authority (NYSERDA) have been working on the  New York Cap-and-Invest (NYCI) Program stakeholder engagement process.  Although I have not posted on this process since I discussed the cost projections, I have been evaluating the pre-proposal outline of issues.  This post summarizes the comments I submitted.

I have followed the Climate Leadership & Community Protection Act (Climate Act)  since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 400 articles about New York’s net-zero transition. The opinions expressed in this post do not reflect the position of any of my previous employers or any other organization I have been associated with, these comments are mine alone.

Overview

The Climate Act established a New York “Net Zero” target (85% reduction in GHG emissions and 15% offset of emissions) by 2050.  It includes an interim 2030 reduction target of a 40% reduction by 2030 and a requirement that all electricity generated be “zero-emissions” by 2040. The Climate Action Council (CAC) 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 using zero-emissions electricity. 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 develop the Draft Scoping Plan outline of strategies.  After a year-long review, the Scoping Plan was finalized at the end of 2022.  In 2023 the Scoping Plan recommendations were supposed to be implemented through regulation, PSC orders, and legislation.  Not surprisingly, the aspirational schedule of the Climate Act has proven to be more difficult to implement than planned.  Many aspects of the transition are falling behind, and the magnitude of the necessary costs is coming into focus.

Cap-and-Invest

The Climate Action Council’s Scoping Plan recommended a market-based economywide cap-and-invest program.  The program works by setting an annual cap on the amount of greenhouse gas pollution that is permitted to be emitted in New York: “The declining cap ensures annual emissions are reduced, setting the state on a trajectory to meet our greenhouse gas emission reduction requirements of 40% by 2030, and at least 85% from 1990 levels by 2050, as mandated by the Climate Leadership & Community Protection Act (Climate Act).”  In addition to the declining cap, it is supposed to 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. The stakeholder engagement process is supposed to refine the proposal over the next several months, DEC will and NYSERDA will propose regulations by summer, and the final rules are supposed to be in place by the end of the year.

Late last year DEC and NYSERDA released the pre-proposal outline of issues that included a long list of topics.  The Agencies said that they are “seeking and appreciate any feedback provided on these pre-proposal program leanings to inform final decisions in the State’s stakeholder-driven process to develop these programs.”  The Pre-Proposal Outline topic list follows:

• The Mandatory Greenhouse Gas Reporting       Program (forthcoming 6 NYCRR Part 253)
  • Types of GHG Emission Sources 
    • Minor Modifications      
    • Major Modifications      
  • Threshold Categories     
  • Data Collection 
  • Verification       
• The Cap-and-lnvest Program             
  • Obligated Sectors and Entities    
  • Demonstrating Compliance        
    • Compliance Periods       
    • Allowance Retirement Obligations        
  • Establishing a GHG Emissions Cap and Allowance Budget          
    • Setting the 2025 GHG Emissions Cap   
    • GHG Emissions Cap Trajectory             
    • Establishing Annual Allowance Budgets        
    • Implementation of Non-Obligated Adjustment   
    • Banking Adjustments     
  • Emissions-lntensive and Trade-Exposed Industries         
    • Identification of EITEs    
    • Emissions Intensity        
    • Trade Exposure 
    • Threshold for EITE Designation       
    • EITE Emissions Allowances             
    • Application and Annual Reporting
    • Consignment of EITE Allowances        
  • Increasing Affordability via Potential Electric Utility Consignment
  • Program Stability Measures and Cost Containment     
    • Price Floor        
    • Cost Containment Reserve (CCR)    
    • Emissions Containment Reserve (ECR)   
    • Price Ceiling      
    • Allowance Banking        
  • NYCI Program Considerations to Ensure No Disproportionate Impacts in Disadvantaged Communities  
    • No Offsets in NYCI          
    • Other Potential Regulatory Mechanisms     
    • Complementary Programs and Requirements         
  • Auction Logistics and Mechanics             
    • Implementation of Auctions             
    • Registration Requirements             
    • Auction Format
    • Simplified Bidding Option             
    • Publication of Results    
    • Initial Auction Period     
  • Market Integrity and Market Manipulation Prevention            
    • Prohibition of Collusion 
    • Auction Purchase Limits
    • Holding Limits  
    • Minimum Hold Times    
    • Associations      
    • Market Monitoring        

Responding to each of these items is an enormous effort and the agencies requested comments by March 1.  Providing substantive comments is very difficult because of a lack of documentation.  There were three second-stage engagement webinars in late January and the session recording and a slide deck is available for each which is the primary source of information.   The agencies promised to provide more documentation but a spreadsheet with some of the data used in the presentations was not available in a usable format until February 29.  The documentation provided does not include narrative descriptions of the analyses.

This perfunctory stakeholder process is consistent with all previous Climate Act stakeholder processes.  The Climate Action Council’s Scoping Plan has been described as a  “true masterpiece in how to hide what is important under an avalanche of words designed to make people never want to read it.”  Similarly, the modeling analyses for the NYCI proposal use an avalanche of technical jargon and impressive sounding phrases to suggest credibility and discourage questions.  They do not provide adequate information for detailed review. 

One of the key questions to be addressed is the limits on emissions set by the allowance auctions.  The modeling analysis must determine the expected emissions starting in 2025 to set the auction limits.  As far as I can tell the analyses used for NYCI projections are updates of the Integration Analysis for the Scoping Plan completed in early 2022.  A lot has changed since that time as inflation, supply chain, and other issues have increased prices and delayed implementation, but it is not clear if those problems were used to modify the analysis.  The Integration Analysis projections have never been reconciled with electric system projections by the New York Independent System Operator.  There has been no acknowledgement of the comments made on the Integration Analysis much less any attempt to incorporate issues raised.  My point is that I do not believe that there is any reason to bother providing detailed comments because past history indicates they will not be considered. 

Core Principles of Cap-and-Invest Program

Instead of wasting my timeaddressing specific technical issues, the comments I submitted only addressed general issues.  I focused my comments on the NYCI principles.  According to the NYCI website, Governor Hochul laid out five core principles for the Cap-and-Invest Program:

Affordability – Governor Hochul’s Consumer Climate Action Account will deliver at least 30 percent in future Cap-and-Invest proceeds to New Yorkers every year to mitigate consumer costs.

Funding a sustainable future – the Climate Investment Account established in the FY24 Budget will direct two-thirds of future Cap-and-Invest proceeds to support the transition to a less carbon-intensive economy.

Climate leadership – The program will be designed with the capacity to link with other current or future programs to further catalyze a nationwide movement towards carbon pricing, which can lower the price of the transition overall.

Creating jobs and preserving competitiveness – The program will launch new investment in industries that will create tens of thousands of good paying, family sustaining jobs of the future that can lift up entire communities.

Investing in disadvantaged communities – Cap-and-Invest will prioritize the frontline disadvantaged communities in our state that for far too long have suffered from pollution and environmental injustice.

The remainder of this article describes my comments on these principles and one overarching concern.

New York Auction Proceed Investment Effectiveness

There is an overarching issue with NYCI planning.  I believe that supporting ambitious clean energy investments is more difficult than acknowledged.  In my comments on the 2024 New York State Energy Research & Development Authority (NYSERDA) Regional Greenhouse Gas Initiative (RGGI) Operating Plan Amendment I explained that I had reviewed the historical investment results of RGGI auction proceeds and found that  RGGI has not been very effective at making emission reductions.  This is the template for NYCI, and the results are not encouraging.  According to Table 2 in Semi-Annual Status Report through December 31, 2022, the cumulative annual net greenhouse gas emission committed savings are 1,725,544 tons through the end of 2022.  That is 9.5% of the observed reduction of 16,196,531 tons since the three-year baseline before the start of RGGI in 2009. I conclude that the primary reason for the observed electric sector emission reductions in New York was due to fuel switching due to low natural gas prices and not RGGI investments. 

These observations are relevant for the future of electric sector emission reductions required for NYCI. In the electric sector, fuel switching is no longer an option in New York.  Coal is no longer used and oil emissions from NYCI affected sources are as low as they are going to get without retirement of oil-fired sources.  The average CO2 emissions reduction per year from RGGI investments has been 95,716 tons since 2013.  New York Part 242 CO2 Budget Trading Program specifies an annual reduction of RGGI allowances of 880,493 per year starting in 2022 and continuing to 2030.  That reduction is nearly ten times more than the reductions from RGGI auction proceed investments.  The Climate Act is going to require even more emission reductions.  Electric generating unit owners and operators have no options available for additional emission reductions other than reducing their operating times.  It is incumbent upon NYCI to invest auction revenues to effectively incentivize and subsidize carbon-free generation and reduce energy use so that the affected sources can reduce operations and not jeopardize system reliability.  The same issues are present for all other energy sectors.  There are no low-hanging options for emission reductions in New York.  If the sources are unable to reduce operations safely, then the Climate Act targets will be jeopardized.

My RGGI Operating Plan Amendment comments determined the cost effectiveness of RGGI investments for reducing emissions.  I found that the cumulative annual net greenhouse gas emission committed savings are 1,923.951 tons and that cumulative total investments are $945,900,000.  That equates to $492 per ton removed.  The 2023 Update to the NYS Value of Carbon Guidance lists the social cost of carbon dioxide, at a 2% discount rate, as $120 per short ton and $391 at a 1% discount rate.  This indicates that the investments are not producing emission reductions at a rate that is less than the societal benefits which suggests a fundamental problem with the NYSERDA investment strategies.  It also indicates that providing sufficient funds for NYCI emission reductions will be a challenge.

In my comments related to this issue I compared the allowance trajectory needed to meet the Climate Act mandates with the proposed allowance prices.  I found that the proposed allowance prices and allowance reduction trajectories are incompatible with the observed RGGI investment results such that the mandates will not be met

Affordability

The Hochul Administration has never clearly admitted the expected costs of the Climate Act net-zero transition.  I believe this is deliberate because the costs are politically toxic.  The first principle “Craft a program to deliver money back to New Yorkers to ensure energy affordability” is an attempt to claim the costs are under control.

My comments raised the point that there is an important tradeoff ignored in this principle. A fundamental component of a greenhouse gas emissions market control program is raising energy prices to incentivize the adoption of zero-emissions technologies.  If costs do not increase, then the public does not have any reason to invest in the more expensive zero-emissions technologies necessary to reduce emissions.

Another issue with any carbon cost scheme is that it is regressive affecting those least able to afford to pay more for energy the most.  I commented that delivering money back to New Yorkers should prioritize low- and middle-income consumers least able to afford regressive energy price increases with investments in programs that reduce their energy use.  This should cut their energy costs and will reduce emissions.

Funding a Sustainable Future

Another bit of missing documentation concerns the funding necessary to make the emission reductions necessary to meet the Climate Act mandates.  The primary Climate Act emission reduction strategy is to displace fossil fuel energy use by building wind and solar while electrifying buildings and transportation.  This principle acknowledges that this needs to be addressed: “Support ambitious clean energy investment”.

My comments emphasized the need for investment in zero-emissions technologies that can displace greenhouse gas emitting technologies.  NYCI allowance allocations must be consistent with Climate Act mandates.  No documentation of a feasibility analysis of the costs and deployment schedule for the proposed control strategies has been mentioned, much less provided.  Ideally, the Integration Analysis projections should be compared to the observed results so that the analysis can be updated.  In my Scoping Plan comments I evaluated bits and pieces but could only nibble around the edges.  Importantly I found issues even at that level that were never acknowledged,

Climate Leadership

The political slogan to “Catalyze other states to join New York and allows linkage to other jurisdictions” has little value.  I do not believe that it is possible to link to other jurisdictions as long as New York GHG emission accounting is different.  Incompatible features with the states of California and Washington and the Province of Quebec include the use of Global Warming Potential based on a 20-year period, the inclusion of upstream and downstream emissions, and the use of offsets.  My comments said that the State must make its accounting compatible or abandon this principle.

Creating Jobs and Preserving Competitiveness

One of the favored Hochul constituencies is labor so the “Protect existing jobs and support new and existing industries in New York” principles was included.  My comments argued that results in Europe suggest that the idea that transitioning away from fossil fuels and maintaining existing Emissions-Intensive and Trade-Exposedindustries is impossible. Robert Bryce explains:

The headline on a February 9 Bloomberg article concisely sums up Europe’s unfolding disaster: “Germany’s days as an industrial superpower are coming to an end.” The article says, “Manufacturing output in Europe’s biggest economy has been trending downward since 2017, and the decline is accelerating as competitiveness erodes.”  All across Europe, industrial capacity is shrinking. Last month, Tata Steel announced it would close its last two blast furnaces in Britain by the end of this year, a move that will result “in the loss of up to 2,800 jobs at its Port Talbot steelworks in Wales.”

These slides and the ongoing destruction of European heavy industry bring to mind the trenchant lines that John Constable of Britain’s Renewable Energy Foundation delivers in our new five-part docuseries, Juice: Power, Politics & The Grid.  Constable, who is also the energy editor at the Global Warming Policy Foundation, delivers a stark warning., he says, “I tell decision-makers in the United States to study the European example very, very carefully. I mean, you have no excuse for not looking at Europe and learning. We’ve tested this for you.”

I do not believe it is possible to create more jobs than lost due to the increased costs inherent in a net-zero transition.  My comments stated that this principle cannot be achieved unless there are triggers to pause implementation when established differences in energy costs are exceeded.

Investing in Disadvantaged Communities

I do not think that the general public understands that the Climate Act includes a strong emphasis on climate justice “to ensure that frontline and otherwise underserved communities benefit from the state’s historic transition to cleaner, greener sources of energy, reduced pollution and cleaner air, and economic opportunities”.  The relevant principle “Ensure 35%+ of investments benefit Disadvantaged Communities” is a direct response the Climate Act requirement to “invest or direct resources in a manner designed to ensure that disadvantaged communities receive at least 35 percent, with the goal of at least 40 percent, of overall benefits of spending.”

New York’s climate justice community organizers have the misplaced belief that peaking power plants in New York City are “perhaps the most egregious energy-related example of what environmental injustice means today”  and are demanding that they be shut down as soon as possible.  However, in the “Role of Cap-and-Invest” webinar the following slide describes the sources that create inhalable air pollution burdens in New York.  It points out that:

• Individually controlled (permitted) stationary sources yield a minority of the air pollution emissions in New York.
• In 2020, electric generation units represented 8.5% of non-wood fuel combustion PM25 emissions in NY, and other permitted sources represented approximately 3.5%.
• Area and mobile sources dominate, which means that individual stationary source-focused policy is important but doesn’t address the bulk of sources.

My comments noted that NYCI should focus on Disadvantaged Community investments that address the emissions from the buildings and transportation sectors that the NYCI analysis shows are the primary contributors to air quality impacts in those communities. 

The same activists have also latched on to outlier analyses that claim that market-based programs lead to disproportionate impacts in disadvantaged communities and are lobbying for market restrictions.   Emission trading programs are an effective solution for emissions like greenhouse gases that have regional or global impacts but are not designed to address local impacts of specific sources.  The Pre-Proposal Outline described the regulatory programs that address local issues.  My comments argued that those programs should be used to address local issues and NYCI should not be modified to try to address co-pollutant emissions with local impacts.

Discussion

One of the characteristics of the proposed net-zero Climate Act transition is over-reliance on the presumption that control strategies that have worked elsewhere will work in this application.  NYCI is a prime example.  However, past performance does not guarantee future success.  This is especially true if fundamental design components change.  Previous successful Environmental Protection Agency allowance caps have been based on feasibility whereas the Climate Act caps are aspirational political limits that have not been tested for practicability.  Options of limits on trading and banking allowances have been proposed that are incompatible to any emissions trading program.  An overarching issue is that control options for SO2 and NOx control are different than for GHG which has unacknowledged implications. 

My submittal included comments on the proposed additional limits on the distribution of allowances intended to address real and imagined issues with past programs.  I did not describe them here because there are too technical.  My comments noted that all these patches overly complicate the program and may or may not have the desired effect while risking unintended consequences.

Conclusion

Hochul’s NYCI principles are political slogans destined to fail.  Claiming affordability is possible is unlikely because NYCI is going to markedly increase prices.  Politicians have glommed on to the auction proceeds and dictated how they should be distributed without consideration of the need to fund effective GHG emission reduction programs.  The goal to link with other current or future programs to further catalyze a nationwide movement towards carbon pricing is impossible with New York’s current GHG emission accounting requirements.  Creating jobs and preserving competitiveness ignores the observed effects of net-zero in Europe.  It is appropriate to invest in disadvantaged communities, but no proof has been offered that those least able to afford increased energy prices will not be adversely impacted even with this principle.

I believe that the political calculus driving NYCI implementation is perverting the effectiveness of this market-based program to the point that it will not work.  I do not think that New York’s leadership understands how best to make climate policy work.  Last year I described the book Making Climate Policy Work.  The authors recommend clear thinking and strategy as opposed to “Efforts spent tilting at ephemeral, magical policy solutions waste scarce resources that should instead be invested in things that work.”  The goal of their book is to explain how market-oriented climate policies have fallen far short and how they might be modified so that they work.  NYCI is just such a magical policy solution that has been modified so it will not work.  I believe NYCI will flounder on the shoals of reality.