New York Cap and Invest Litigation

Last March environmental activists sued the State of New York because the Department of Environmental Conservation (DEC) was not promulgating the regulations for the  New York Cap and Invest (NYCI) Program on schedule.  Last Friday, an Ulster County judge heard arguments from the activists and the DEC.  A report suggests that the judge “will likely rule that New York is breaking its climate law.”

I have followed the Climate Act since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 550 articles about New York’s net-zero transition.  My background is particularly suited for NYCI evaluation.  I have worked on every market-based program that affected electric generating facilities in New York including the Acid Rain Program, Regional Greenhouse Gas Initiative (RGGI), and several Nitrogen Oxide programs. I follow and write about the RGGI and New York carbon pricing initiatives. The opinions expressed in this article 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.  The Climate Action Council (CAC) was responsible for preparing the Scoping Plan that outlined how to “achieve the State’s bold clean energy and climate agenda.”  After a year-long review, the Scoping Plan that outlines how to achieve the targets was finalized at the end of 2022.  Since then, the State has been trying to implement the Scoping Plan recommendations through regulations, proceedings, and legislation.  NYCI is but one example of that effort.

Cap-and-Invest

The CAC’s Scoping Plan recommended a market-based economywide cap-and-invest program.  NYCI is supposed to work 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 Act.”  Affected sources purchase permits to emit a ton (also known as allowances) and then surrender them at the end of the year to comply with the rule.  Colin Kinniburgh’s description at New York Focus describes the activist’s theory of a cap-and-invest program as a program that will kill two birds with one stone.  “It simultaneously puts a limit on the tons of pollution companies can emit — ‘cap’ — while making them pay for each ton, funding projects to help move the state away from polluting energy sources — ‘invest.'” 

As is the case with all aspects of the Climate Act, this approach is not simple and is riddled with complications that make it unlikely that it will work as advocates expect.  I have summarized my concerns on my Carbon Pricing Initiatives page.  Furthermore, the implementation timetable promulgated by politicians mandated a schedule at odds to the scope and challenge of an economy-wide market-based program.  Even if a direct charge on fossil emissions was not a politically charged issue, it is no surprise that DEC implementation is late.

NYCI Lawsuit

Colin Kinniburgh, writing at NY Focus, published a series of articles describing the background of this issue.  After Governor Hochul’s State of the State address in January he explained that Hochul promised to release NYCI regulations but back-tracked on that promise.

In March he summarized the lawsuit:

Four environmental and climate justice groups filed a lawsuit Monday in a state court, claiming that New York is “stonewalling necessary climate action in outright violation” of its legal obligations. By not releasing economy-wide emissions rules, the suit alleges, the state Department of Environmental Conservation, or DEC, is “defying the Legislature’s clear directive” and “prolonging New Yorkers’ exposure to air pollution … especially in disadvantaged communities.”

It’s the first lawsuit to charge the state with failing to enforce the core mandate of its 2019 Climate Leadership and Community Protection Act, or CLCPA: eliminating nearly all of New York’s greenhouse gas emissions by 2050. The law tasks DEC with crafting rules to get there and to reach an interim target of 40 percent emissions cuts by 2030.

The state’s deadline to release those rules was Jan. 1, 2024 — a date the agency blew past. More than a year later, New York has yet to issue even draft rules, and it’s becoming less and less clear that it intends to do so, even though, throughout last year, Governor Kathy Hochul’s administration promised that it was working on them as quickly as possible.

Kinniburgh described the hearing as follows:

Ulster County Supreme Court Justice Julian Schreibman on Friday skewered a lawyer for the state Department of Environmental Conservation (DEC) who argued that the state could not issue required regulations to cut greenhouse gases any time soon.

“It seems to me that the core of your argument is that we’re living in a time of change and uncertainty, and DEC needs to be given some leeway to accommodate that,” Schreibman said.

“That’s correct, your honor,” replied Meredith Lee-Clark, of the New York State Attorney General’s office, who was representing DEC.

“I don’t know that I’ve ever lived in a time that wasn’t one of change and uncertainty, so I don’t know how that is a governable standard,” the judge continued.

Schreibman went on to say that the most relevant cases in the record “almost compel” him to side with the plaintiffs: four climate justice groups who sued the state for violating its climate law by failing to issue regulations needed to meet it.

However, he suggested that he is unlikely to force the state to take action on the kind of timeline the plaintiffs’ lawyer suggested in the hearing — as little as 30 days to issue draft regulations and 100 days to finalize them.

I am no lawyer, but it does not seem that the DEC has much of an argument.  They are not meeting the timetable.  Whether that is a “governable standard” is another issue because there have never been a demonstration that the schedule and ambition of the Climate Act has never been shown to be feasible.  It is not clear if that issue can be addressed in this case.

NYCI Implications

In my most recent post discussing NYCI I addressed the first of the three implanting regulations for NYCI.  The regulation establishes reporting requirements necessary to determine how much affected sources will have to pay for the right to emit carbon dioxide emissions.  I made a general point for the uninitiated, that implementing a rule like others already in place elsewhere seemingly should be simple and straightforward.  The reasoning goes something like this: California has a similar program in place, so all New York needs to do is to convert their rules for use in New York.  It is not that easy.  For starters, California took upwards of ten years with a large staff to develop their rules.  NYCI implementation started in early January 2023 and DEC has many fewer staff.  Furthermore, the Climate Act has unique emissions definitions which makes simple substitution impossible. Finally, there are significant differences between the energy system nomenclature in the states.  In my opinion, DEC did a remarkable job getting something out.  Unfortunately, the proposed rule shows signs of haste and lack of understanding of the nuances of emission reporting.

The “30 days to issue draft regulations and 100 days to finalize them” timeline suggested by the plaintiffs’ lawyer is absurd.  It is inconsistent with the New York Administrative Procedure Act timing requirements for starters.  They could argue that it should be subject to an emergency rulemaking, but the implementation regulations are all complex and there is very weak rationale for this as an emergency.   

Unfortunately, there will likely be pressure now on DEC to accelerate a process that already shows signs of poor rulemaking.  Poorly designed regulations will have unintended consequences that will further weaken what I believe is a doomed policy.

Discussion

I have made this point before, but it bears repeating.  I am convinced that no GHG emission reduction cap-and-invest program like NYCI can successfully put a constraining limit on the tons of pollution companies can emit while making them pay to fund projects to help move the state away from polluting energy sources.  Danny Cullenward and David Victor’s book Making Climate Policy Work explains why.    They note that the level of expenditures needed to implement the net-zero transition vastly exceeds the “funds that can be readily appropriated from market mechanisms”. 

The indications are that NYCI regulations will be based on political considerations.  The prices for allowances will be based on what the Hochul Administration expects will be politically feasible not what is needed to fund needed reductions.  In any event, the plan for allocating the proceeds does not set a priority on funding emission reduction programs and includes several set asides to politically connected constituencies.  The politically designed reduction targets are inconsistent with the observed deployment of the control strategies.  NYCI will set a cap that will inevitably be too difficult to achieve, triggering an artificial energy shortage.  This will also exacerbate the designed increase in energy costs.  The end result will be increased costs and increased reliability risks.

Conclusion

I don’t think this lawsuit will have much of an impact on NYCI.  You cannot speed up implementation by issuing an order.  Throw in the political reluctance to speed up the process and I see minimal schedule changes.  In the meantime, the impending energy affordability crisis hopefully will trigger reconsideration of the whole transition.

This lawsuit is the first of many.  When the politicians set emission reduction targets without considering feasibility it was inevitable that they could not be achieved.  Political will is a great slogan but a poor driver for energy policy.