Category: Climate Act Cap & Invest

After spending most of my time dealing with the December rush of comments submitted for various Climate Leadership & Community Protection Act (Climate Act) initiatives, I finally have time for issues that I would like to see resolved in 2025.  At the top of the list are concerns associated with the New York Cap-and-Invest Program (NYCI).

I am convinced that implementation of the New York Climate Act net-zero mandates will do more harm than good if the future electric system relies only on wind, solar, and energy storage because of reliability and affordability risks.  I have followed the Climate Act since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 490 articles about New York’s net-zero transition.  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.  It includes an interim 2030 reduction target of a 40% GHG reduction by 2030. Two targets address the electric sector: 70% of the electricity must come from renewable energy by 2030 and all electricity must be generated by “zero-emissions” resources by 2040. 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.” The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantified 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.  Since then, the State has been trying to implement the Scoping Plan recommendations through regulations, proceedings, and legislation. 

There are many issues that remain unresolved even while the Hochul Administration rushes ahead to build as much solar, wind, and energy storage as possible as quickly as possible.  This post poses questions related to NYCI;

The CAC’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 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.  

New York Cap-and-Invest Concerns

The draft cap-and-invest rule was originally slated for release in summer 2024 after the last public comment period ended in March 2024.  The first question is when are the regulations going to come out?  At the August 2024 Update on the New York Cap-and-Invest Plan  the following slide was included that states that the “Allocation of funds will be finalized through State Budget Process.“   Consequently, I believe that the NYCI regulations will be released in conjunction with the State Budget process that will consume everyone’s attention in Albany for the next couple of months.

There are many questions related to how NYCI fund allocation would be done.  At the top of that list is the revenue goals.  I don’t see any way to include something in the budget unless they estimate costs.  Do not ever forget that these climate initiatives are primarily about scoring political points.  Governor Hochul appears to have figured out that the costs of implementing the Climate Act are enormous.  I am sure that packaging the costs of NYCI as a benefit and not just another tax is a major reason why the regulations have been delayed.  The resulting question is how much will this cost?

Two years ago, the Hochul Administration floated the idea of changing the GHG emissions accounting to the one used by nearly every jurisdiction in the world. That would enable New York to participate in trading programs with other jurisdictions, eliminate the need to develop an entirely new accounting framework, and would reduce the number of allowances in the auction.  The last reason was the primary driver because it was alleged that it would reduce costs.  There was immediate and intense blowback from environmental organizations and the proposal was dropped.  I would not be shocked if it reappears.  It is fair to ask how New York will ever be able to participate with other jurisdictions as long as New York insists on a unique accounting system.

The Regional Greenhouse Gas Initiative (RGGI) is often cited as a model for the NYCI program, but last month I showed that RGGI electric sector performance and New York State Energy Research & Development Authority (NYSERDA) investment effectiveness raise concerns.  I question whether NYCI can improve on the results shown in NYSERDA reports that indicate RGGI has not been a very effective emission reduction mechanism.

• I evaluated Environmental Protection Agency (EPA) emission data and NYSERDA documentation.  The figure below shows that electric sector economic fuel switching from oil and coal to natural gas is the primary reason for the observed reduction in emissions.  It also shows that there are no more fuel switching emission reductions possible.
• On a regular basis NYSERDA publishes a status update of the progress of their program activities, implementation, and evaluation.   According to the latest update, the total cumulative annual emission savings due to NYSERDA program investments of RGGI proceeds through the end of 2023 is 1,976,101 tons.  That means that emissions from RGGI sources in New York would have been only 4.2% higher if the NYSERDA program investments did not occur.  I showed that according to the report, cumulative combined costs for those programs was $1,149 million which means that the cost per ton reduced is $582.
• I also showed that the results in the Funding status reports show that since the start of the program NYSERDA has allocated 10% of its investments to programs that directly reduce utility emissions by 199,733 tons, 58% to programs that indirectly reduce utility emissions by 1,205,780 tons, and 32% to programs that will increase utility emissions by 678,804 tons.  When those savings that do not affect RGGI source emissions are removed, total savings are 1,297,297 and the emissions from RGGI sources in New York would have been only 2.8% higher if the NYSERDA program investments did not occur.
• The proposed NYSERDA Amendment to the RGGI Operating Plan allocates only 22% to programs that directly, indirectly, or could potentially decrease RGGI-affected source emissions.  Programs that will add load that could potentially increase RGGI source emissions total 37% of the investments.  Programs that do not affect emissions are funded with 29% of the proceeds and administrative costs total another 8%. 

The proposed Amendment to the RGGI Operating Plan indicates that NYSERDA has not incorporated the need to fund RGGI emission reduction programs now that fuel switching is no longer an effective option.  Before we start implementing NYCI it is appropriate to check on implementation plans for RGGI.  Where does NYSERDA expect the emission reductions necessary for RGGI compliance to come from?

With respect to NYCI and the non-electric sector economy, there are no fuel switching opportunities that will save fuel costs.  Has NYSERDA determined how much auction revenue is needed to fund the emission reduction strategies necessary to meet the Climate Act mandates?  When that amount is combined with the mandates c to fund benefits to disadvantaged communities and Hochul Administration promises for rebates what is the expected starting cost for the allowance auctions? According to the latest GHG emission inventory, the 2022 GHG emissions were 371.08 MMT CO₂e and need to reach 245.47 by 2040 which means that NYS must reduce emissions by 33.8% over 18 years.  Will NYCI target auction prices increase to make up for the reduced number of allowances?

In addition to these relatively broad issues there are numerous technical concerns.  NYCI is supposed to be an economy-wide program.  Does that mean every sector will participate?  The electric sector is already covered by RGGI.  Will the electric sector be exempt from NYCI or will there be some accounting mechanism to ensure that ratepayer don’t pay twice. 

There are technical issues associated with timing for the start of the program.  The 2024 Statewide GHG Emission Report released at the end of December covers data from 1990 to 2022.  RGGI emissions are reported by the end of the following January and compliance determined 30 days later.  Will NYCI mandate reporting similar to that schedule or one compatible with the official inventory.  I spent more time than I care to remember dealing with emission inventories during my career and a major concern was compatibility.  How will that be resolved in NYCI considering the report timing?

Discussion

California was the first in the nation legislate a “solution” to climate change with its AB32 Global Warming Solutions Act of 2006.  I recently posted an article describing the Breakthrough Journal article by Jennifer Hernandez and Lauren Teixeira entitled Time to reset California’s climate leadership.  After fourteen years the inevitable effects of reality are getting the attention of the politicians that supported the law.  The authors explained:  

California’s Democratic Assembly leader Richard Rivas opened the new Legislative session signalling a strong focus on meeting voter concerns about housing and the state’s extraordinarily high cost of living, specifically calling out the state’s climate policies: “California has always led the way on climate. And we will continue to lead on climate,” he told his Assembly colleagues. “But not on the backs of poor and working people, not with taxes or fees for programs that don’t work, and not by blocking housing and critical infrastructure projects. It’s why we must be outcome driven. We can’t blindly defend the institutions contributing to these issues.”

I think it is incumbent upon the Hochul Administration to consider whether the Climate Act will have similar impacts to New York.  My analysis of the RGGI program indicates that RGGI is a hidden tax that is not working as advertised.  My overarching concern is that any increase in costs is regressive and affects those least able to afford them the most.  The Hochul Administration has included promises to reduce those impacts, but the reality is that it is easier said than done.  For example, rebates to those adversely affected will lag payments and there is the danger that many in need will not get rebates. 

New York’s stakeholder process is another hinderance to effective policy.  Comments submitted go off into the bureaucracy and there is no indication which comments are addressed and how.  When the regulations come out agencies are not allowed to discuss issues.  Revolving issues requires dialogue, and the New York process effectively shuts that down. 

There is another stakeholder issue.  The desire for inclusivity is a laudable goal and the State has committed to encouraging participation by constituencies that claim that past practices have ignored their concerns.  In theory that is great.  In practice, if those aggrieved parties demand zero impacts and are unwilling to consider compromises or the existing structure of environmental protections, then the stakeholder process gets mired down, off track, and becomes ineffective.  The Hochul Administration has yet to resolve that problem.

Conclusion

The premise for NYCI was that it would be an effective policy that would provide funding and ensure compliance because existing programs worked.  The RGGI program results show that cap-and-invest programs can raise money but have not shown success in reducing emissions.  My biggest concern is that NYCI has not acknowledged this problem.  Past results are no guarantee of future success, especially when past results are not triumphs.  This is another instance where I believe that the Climate Act implementation will do more harm than good.

The Citizen’s Budget Commission (CBC) new brief, Improving NYS Cap-and-Invest Design: Recommendations for Ambitious, Affordable, Market-Driven Emissions Reductions (CBC Report), finds that the New York Cap-and-Invest (NYCI) pre-proposal includes “some promising design choices” but has limitations.  The report recommends that “the State overhaul its pre-proposal design and fully explain the impacts”.  Based on my experience with market-based programs I agree with many of the findings of the report but believe that the CBC has misplaced faith in the effectiveness of market-based GHG emission reduction programs.

I have followed the Climate Act since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 470 articles about New York’s net-zero transition.  I worked on every market-based program from the start 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 so my background is particularly suited for NYCI.   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.  It includes an interim 2030 reduction target of a 40% reduction by 2030. Two targets address the electric sector: 70% of the electricity must come from renewable energy by 2030 and all electricity must be generated by “zero-emissions” resources by 2040. 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.” The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantified 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.  Since then, the State has been trying to implement the Scoping Plan recommendations through regulations, proceedings, and legislation.  NYCI is one such implementation initiative.

Cap-and-Invest

The CAC’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 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.         

My experience with market-based emission reduction programs is from the compliance side.  I have tracked New York emissions trends for decades and used that experience to develop comments on the NYCI pre-proposal outline of issues.   My comments showed that New York’s impressive GHG emission reductions to date have come primarily from fuel switching in the electric sector.  That was spurred by lower costs of natural gas that made fuel switching from coal and oil to natural gas economic.  There are very few opportunities for similar economic reductions.  In the future, existing sources of GHG emissions must be displaced by alternative zero-emissions resources.  New York’s experience in the effectiveness of Regional Greenhouse Gas Initiative auction revenues to reduce emissions has not been 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.  The difficulty of future emission reductions and cost ineffectiveness of auction revenues will impact NYCI implementation.

There also are issues with the theory behind the NYCI approach.  A Practical Guide to the Economics of Carbon Pricing by Ross McKitrick is at odds with NYCI.  He explains that “First and foremost, carbon pricing only works in the absence of any other emission regulations”, but NYCI is in addition to the emission regulations proposed. This is particularly important because McKitrick is arguing that market-based programs should not be expected to provide reductions on an arbitrary schedule.  He 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”. NYCI does not recognize the importance of this aspect of carbon pricing.  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.”  Substitute New York economy for Canada’s and I believe this describes the likely outcome for NYCI.

Danny Cullenward and David Victor’s book Making Climate Policy Work describe an unacknowledged NYCI problem.  There are political thresholds that limit how much money can be raised by NYCI before the electorate rebels, but investments must be sufficient to fund emission reduction projects to achieve the aspirational Climate Act schedule.  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”.  That observation and the conclusion that future New York emission reductions will come primarily from the deployment of alternative technologies means that emission reduction investments should be a priority for NYCI revenues.  However, there are competing priorities for funds including investments to advance equity and climate justice, funding for programs to reduce costs for those least able to afford higher energy prices, and funding to develop the new technology necessary for the zero-emissions electric grid.

Comments on CBC Report

In this section I will address the CBC brief, Improving NYS Cap-and-Invest Design: Recommendations for Ambitious, Affordable, Market-Driven Emissions Reductions.   I have annotated the Executive Summary with my comments.  The introductory paragraphs outline the goals of the CBC Report:

The Citizens Budget Commission (CBC) has long advocated for New York State to establish an economy-wide carbon pricing system, a market-based policy to incentivize cost-effective greenhouse gas (GHG) emissions reductions. New York Cap-and-Invest (NYCI) has the potential to be such a program. However, to do so, NYCI must be well designed and implemented, or it risks shifting emissions out of state, causing unnecessary harm to the state’s economy, and/or unduly increasing New Yorkers’ cost of living.

CBC continues to strongly support New York implementing a cap-and-invest program. However, the State’s pre-proposal program design falls short by considering some questionable design choices and not presenting sufficient information to assess the range of effects, which may include significant fiscal and economic impacts on New York’s residents and businesses.

Therefore, the State should modify the proposal in rulemaking to ensure it balances emissions reductions with economic vitality, and present more comprehensive impact information. CBC identifies additional analysis that should be released prior to or along with the NYCI draft rules and recommends specific changes to the program design.

I do not think that the CBC understands the fundamental issues associated with GHG market-based emission reduction programs that I outlined above.   Their recommendations will improve the chances that NYCI will not be a failure, but I think it is a hopeless quest. I endorse their request for additional information.  The CBC Report describes two “fundamental flaws”:

First, the materials do not include estimates of the program’s full fiscal and economic impacts—how much residents and businesses will pay for the new emissions charges and how the new costs will affect jobs and economic growth. They also do not fully explain the methods and assumptions that yield the findings. Absent these, there is no way to know how well the proposed NYCI design would drive down emissions while preserving economic growth or whether it would shift emissions, residents, and/or jobs to other states.

I agree with the concern that the lack of cost estimates and documentation for methods and assumptions makes it impossible to determine whether this will work.  I am not sure whether the CBC Report authors fully understand the Cullenward and Victor argument that the funds needed to drive emissions are so large that it is unlikely the money will be sufficient and my observation that the record of past emission reductions is irrelevant going forward because fuel switching does not reduce emissions to zero.  The CBC Report implication that NYCI has a chance to force emission reductions sufficient to meet the Climate Act goals is my major issue with this report. 

The program as presented would levy a massive new charge, economically akin to a new tax—potentially reaching $12 billion annually by 2030—which will have significant impacts on consumers and the State’s economy. This new cost is in addition to costs already passed on to utility ratepayers to fund climate-related investments and Local Law 97 compliance costs that will be paid by large building owners in New York City. Excessive costs could unduly burden businesses and families and push some to leave, especially as New York State and its localities collect more taxes per person than any other state

I agree with the authors that NYCI is essentially a new tax and a large one at that.  Their concerns that NYCI is only one component of the many costs of Climate Act implementation is important and must be addressed because of the consequences they describe.

Second, since the State’s extremely ambitious 2030 emissions reduction target would drive too-costly emissions charges, the State proposes a NYCI design in which emissions reductions ultimately are uncertain. Meeting the 2030 target would have required producers to pay prohibitive costs for the right to emit, so instead of allowing the market to set the price, the State proposes to set a lower, artificially suppressed price for the right to emit GHGs, and then allow businesses to purchase emissions allowances at that lower price, beyond what the program’s emissions cap would otherwise permit, should they choose. Ultimately, this design does not let the State determine how much emissions are reduced and makes balancing environmental benefits with program affordability and economic growth harder.

In my opinion, this paragraph makes the right point but for the wrong reason.  The CBC Report subscribes to the market theory that higher prices will drive emissions down and does not recognize that there are other factors affecting the cost of allowances.  The CBC Report is appropriately concerned about the schedule.  All the market-based programs that I have followed had an initial period of high allowance prices due to the uncertainty of the program that will mask the theoretical link between market price and emission reductions.  Based on my observations I believe the practicality of emission reductions must also be considered.  Affected source emissions must be displaced by alternative sources which NYCI advocates argue will be funded by the proceeds from the NYCI auctions. This means that there is a lag between the time proceeds are collected and invested to displace existing source emissions.  I suspect that the pace of emission reductions will also result in higher prices.  Given all these reasons NYCI is including provisions to limit prices that I think are appropriate.

Importantly, without regard to NYCI, the State already has acknowledged that it will not meet 2030 renewable electricity generation goals. This sharpens the point that NYCI’s design should not be constrained by the requirement to meet current interim goals.

I agree that the schedule is problematic.  It is not clear whether CBC understands the ramifications of the NYCI allowance reduction trajectory.  The only practical compliance option for affected sources on the Climate Act schedule is to limit operations and this leads to unintended consequences.  For example, if fuel suppliers do not have sufficient allowances, they will stop selling gasoline, creating an artificial energy shortage.  NYCI’s design must not be constrained by the current interim goals.

Reducing New York’s GHG emissions is very important; it should be done wisely by carefully balancing trade-offs to avoid damaging the State’s economy and competitiveness, and ensuring emissions are actually lowered, not just relocated out of state.

I agree that NYCI should not damage the State’s economy and competitiveness.  Those tradeoffs should keep in mind that New York’s GHG emissions are less than half a percent of global emissions and global emissions have been increasing by more than a half a percent per year for a long time.  Insisting on strict adherence to an arbitrary reduction schedule that will have a minimal effect on global emissions is not in the best interests of New York.

The CBC Report makes some reasonable recommendations that I endorse.  They argue that New York should:

• Conduct and publicly release, before or with the draft rules, a more robust assessment of NYCI’s potential fiscal and economic impacts that details:
  • The portion of the cost borne by businesses with a direct compliance obligation and how much is passed on to other businesses and households;
• • NYCI’s costs and their impacts on various types of businesses;
• • NYCI’s impact on the economy overall, specific sectors, and by location;
  • NYCI’s impacts on households, by income and geography

I agree and would expand on this to insist on documented comprehensive numbers.  The Hochul Administration has previously provided misleading numbers that compare costs relative to alleged benefits and only cover certain cost components.  New Yorkers deserve to know the costs of all components of the entire Climate Act transition including NYCI.

• Recalibrate the 2030 emissions reduction goal to be ambitious but feasible, so New York can leverage market-driven, cost-effective emissions reductions that are balanced with economic growth; and
  • Consider switching to the conventional emissions accounting methodology;

I agree with both these recommendations.  Note that the suggestion to switch to conventional emissions accounting is necessary to link NYCI to similar programs in other jurisdictions.

• Proceed with rulemaking only when comprehensive assessments are public and based on recalibrated targets; and
  • Periodically evaluate and adjust the program based on experience.

I agree with both these recommendations.

Furthermore, the State should present a detailed plan to use the program’s revenue—which could exceed $30 billion over the next 5 years. Ideally, this would be part of a comprehensive State plan, incorporating the other available funds that will support the transition away from carbon-emitting energy sources.

This is a good point.  There has been very little planning for the Climate Act implementation.  Given the breadth of the proposed changes to the energy system this is unacceptable.  A comprehensive proof of concept that shows that they have enough money available to make the reductions necessary is a rational approach.

However, the State should modify several parameters to improve the pre-proposal. These include:

• Permitting banking of allowances from the start, instead of after the first compliance period;
• Allowing limited use of rigorously verified offsets; and
• Modifying design elements to facilitate linkage with other systems and broaden coverage.

All these recommendations are appropriate.

Lastly, to address concerns about local health impacts, the Department of Environmental Conservation could consider regulating co-pollutants separately from NYCI, rather than including firm-specific emissions caps or limitations on emissions trading, as these could have unintended effects on program compliance costs.

I agree with this too.

Conclusion

I agree with many of the findings of the CBC Report.  It is unacceptable that the Hochul Administration has not been forthcoming on the costs of Climate Act implementation.  NYCI will add an immediate direct cost to all New Yorkers, so the documentation recommendations are appropriate.  The CBC Report recognizes that the emission reduction schedule is important and that it could have ramifications relative to NYCI.  I think that they underestimate the potential for disastrous impacts.   I applaud the CBC for supporting necessary parameters for any market-based program that have somehow become debatable.  If the allowance trading, banking, and site-specific limitations up for consideration are incorporated then the program would have no link whatsoever to previous programs. 

I do have one significant difference in opinion. Unlike the CBC Report I do not think that any GHG emissions reduction market-based programs like NYCI are likely to succeed.  The differences between emission control options and the inclusion of a zero-emissions target are too different from previous market-based programs to expect that past performance is any indication of future success.

The most important finding of my work and the CBC analysis is that we agree that the Hochul Administration rollout of NYCI has been incomplete.  Given the potential cost ramifications, we think a comprehensive State plan describing expected revenues relative to projected emission reduction costs is needed to determine if this approach is feasible.

The Scoping Plan outline of implementation options for the Climate Leadership & Community Protection Act (Climate Act) suggested a market-based program as an economy-wide strategy.  This effort is known as the New York Cap-and-Invest (NYCI) program.  Last month I published an article describing the New York State Department of Environmental Conservation (DEC) and the New York Energy Research & Development Authority (NYSERDA) “proposed framework for guiding the allocation of these funds and identification of potential areas that could receive investments.” DEC and NYSERDA also posed a series of questions seeking public feedback. This article describes the comments I submitted in response.

I have followed the Climate Act since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 450 articles about New York’s net-zero transition.  I worked on every market-based program from the start 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 so my background is particularly suited for tNYCI.   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.  It includes an interim 2030 reduction target of a 40% reduction by 2030. Two targets address the electric sector: 70% of the electricity must come from renewable energy by 2030 and all electricity must be generated by “zero-emissions” resources by 2040. 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.” 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.  Since then, the State has been trying to implement the Scoping Plan recommendations through regulations, proceedings, and legislation.

Cap-and-Invest

The CAC’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 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.  That is the theory, but I have doubts whether it will work and others do too.

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 were “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.”  In a post describing my comments I provided additional background information and my concerns.  In late June I described my letter to the editor of the Syracuse Post Standard that argued that the delays were primarily due to staffing issues.  There has not been any substantive response to any comments submitted to date.

Comments

The request for comments asked for thoughts about how the auction proceeds should be invested.  I think that they are putting the cart before the horse because no vetted path to zero emissions has been identified.  In my comments I described the following tradeoff challenges that must be resolved if NYCI is to succeed. 

Fundamentally, there are political thresholds that limit how much money can be raised by NYCI before the electorate rebels, but investments must be sufficient to fund emission reduction projects to achieve the aspirational Climate Act schedule.  This has not been acknowledged in the NYCI implementation process.  Danny Cullenward and David Victor’s book Making Climate Policy Work describe this problem.  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”.  That observation and the conclusion that New York is going to have to fund alternative technologies means that emission reduction investments should be a priority for NYCI revenues.  However, there are competing priorities for funds including investments to advance equity and climate justice, funding for programs to reduce costs for those least able to afford higher energy prices, and funding to develop the new technology necessary for the zero-emissions electric grid.

These tradeoffs can only be resolved if there is a plan in place that is based on feasibility studies.  Unfortunately, there is nothing in place that will provide that information in a timely manner. The sources that are responsible for compliance with NYCI have very few options for on-site control so must rely on somebody else to make the investments for zero-carbon emitting resources to displace their operations for emission reductions.  The costs for those investments and market mechanisms for the required investments are unknown. In addition, it is acknowledged that to reach zero-emissions new technology must be developed and deployed.  All these issues should be addressed before NYCI implementation continues.

Proponents of the cap-and-invest approach admire the NYCI feature that “ensures annual emissions are reduced”.  However, the technological challenges of the transition must be resolved and adequate investments for the transition must be provided to achieve emission reductions.  Furthermore, the NYCI allowance cap trajectory means that resolution of those issues is further constrained.   If the displacement technologies are not deployed in a timely fashion, then the only compliance option left for the affected sources is to reduce or stop operations or cease sales of fossil fuels.  That could result in an artificial energy shortage.

Conclusion

The Climate Act and the implementation programs thus far proposed are risky.  I identified problems and tradeoffs that must be resolved before NYCI implementation continues.  While there are some hints that the ramifications of an unreasonable and unachievable energy transition are becoming so evident that they cannot be ignored, those issues should be resolved before NYCI implementation continues.  The NYCI program has a long way to go before New Yorkers can be assured that implementation will not do more harm than good.

Ultimately, any market-based program intended to reduce GHG emissions is a tax on CO2 emissions. Ron Clutz found a relevant political cartoon for a similar program in Canada that applies to NYCI.

In the first two months of 2024 the New York State Department of Environmental Conservation (DEC) and the New York Energy Research & Development Authority (NYSERDA) worked on the  New York Cap-and-Invest (NYCI) Program stakeholder engagement process requesting comments on the pre-proposal outline of the regulations.  Since then, nothing much has happened until a webinar was held on August 15, 2024, where DEC and NYSERDA presented “a draft proposed framework for guiding the allocation of these funds and identification of potential areas that could receive investments.” DEC and NYSERDA also posed a series of questions seeking public feedback. The webinar presentation and recording are now available.

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 450 articles about New York’s net-zero transition. I have extensive experience with air pollution control theory, implementation, and evaluation of results having worked on every cap-and-trade program affecting electric generating facilities in New York including the Acid Rain Program, Regional Greenhouse Gas Initiative (RGGI) and several nitrogen oxide programs.  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.  It includes an interim 2030 reduction target of a 40% reduction by 2030. Two targets address the electric sector: 70% of the electricity must come from renewable energy by 2030 and all electricity has to be generated be “zero-emissions” resources by 2040. 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.” 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.  Since then, the State has been trying to implement the Scoping Plan recommendations through regulations, proceedings, and legislation.

Cap-and-Invest

The Climate Action Council’s Scoping Plan recommended a market-based economywide cap-and-invest program.  Since my last post on this subject, I have read a couple of relevant articles that provide background information on this approach.  Dr. Lars Schernikau is an energy economist who explained why an emissions market solution for CO2 is not likely to succeed.  He explained that CO2 pricing (also falsely called “carbon pricing”) is a terrible idea fit only for discarding in  The Dilemma of Pricing CO2.  Ron Klutz summarized the article with emphasis and added images.  The other article noted explained that the label  cap-and-invest is a political marketing term “to boost their appeal and reflect the growing use of funds for climate protection.”  In brief, cap-and-invest is a marketing cover for the politically toxic carbon tax.

The program recommended by the CAC 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.

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 were “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.”  In a post describing my comments I provided additional background information and my concerns.  In late June I described my letter to the editor of the Syracuse Post Standard that argued that the delays were primarily due to staffing issues.  In my submittals I have expressed two primary concerns.  The first is that the sources that are responsible for compliance with NYCI have very few options for on-site control so must rely on somebody else to make the investments for zero-carbon emitting resources to displace their operations.  The second concern is that the NYCI feature that “ensures annual emissions are reduced” must be integrated with the investments needed for those zero-carbon emitting resources.  If there are inadequate investments, then the only option for the affected sources is to reduce or stop operations.  If the affected source is an electric generating station, there could be reliability implications.

Public Webinar August 15, 2024

The meeting description said:

The New York State Department of Environmental Conservation (DEC) and New York State Energy Research and Development Authority (NYSERDA) are seeking public input as they develop a framework for the use of New York Cap-and-Invest (NYCI) proceeds from the Climate Investment Account. The Climate Investment Account is a critical component in supporting New York’s transition to a less carbon-intensive economy by directing NYCI auction proceeds to projects that benefit New Yorkers, prioritizing frontline disadvantaged communities that historically suffered from pollution and environmental injustice. In the Fiscal Year 2024 State Budget, Governor Kathy Hochul laid out the structure of the Climate Action Fund for NYCI proceeds. The Climate Investment Account is one component of the fund and will be used to direct two-thirds of future NYCI proceeds. The remaining proceeds will go to an account to directly mitigate consumer costs, guided by the Climate Affordability Study, and a third account will support energy affordability for small businesses.

The agenda included the following items:

• Climate Leadership & Community Protection Act Overview
• Introduction to New York Cap-and-Invest (NYCI)
• Use of Proceeds from the Climate Investment Account
• Request for Public Input
• Questions and Answers
• How to Submit Comments and Stay Involved

Nothing new was provided in the first two agenda items.  If you are interested in this background information I have linked the start of the video description for each section to the following links: overview of the Climate Act and introduction to NYCI. 

The focus of the webinar was on Investment of Proceeds.  Maureen Leddy, Director of the Office of Climate Change, described the investments plan.  In the first slide she explained that the proceeds from the NYCI auction are distributed to the Climate Action Fund.  The Fiscal Year 2021 Budget established this Fund and how the proceeds would be invested and then allocated.  There are three parts:

• Consumer Climate Action Account: At least 30% of future NYCI proceeds to New Yorkers every year to mitigate consumer costs.
• Industrial Small Business Climate Action Account: Directs 3% of future NYCI proceeds benefits to help mitigate cost.
• Climate Investment Account: Directs two-thirds of future NYCI proceeds to support the transition to a less carbon-intensive economy

Readers should keep in mind that the ostensible purpose of the Climate Act is to address the existential threat of climate change.  To make the reductions necessary to mitigate this threat only two thirds of the proceeds are directed to the “less-carbon-intensive” economy.  The other two carveouts appease consumers and small businesses that will be impacted by the increase in energy costs caused by NYCI.

The Consumer Climate Action Account is supposed to mitigate consumer costs.  As has been the case throughout the Climate Act implementation, the Climate Affordability Study that recommends how the funds will be delivered is just a list of options with no discernible plan to implement them.  The proceeds to small businesses are nothing other than a bribe to try to appease that constituency.  The Climate Investment Account is supposed to support the necessary investments in zero-emissions resources necessary for compliance.

The focus of the webinar is the Climate Investment Account.  Even though 67% is supposed to support the emission reductions for the transition, the New York legislators mandated how it will be allocated further diluting the amount targeted for transition investments:

• Purposes consistent with the findings of the Scoping Plan.
• Measures which prioritize Disadvantaged Communities (DACs) by supporting actions consistent with the requirements to maximize net reductions of greenhouse gas emissions and co-pollutants in DACs and investing 35% with a goal of 40% in DACs, identified through community decision-making and stakeholder input, including early action to reduce GHG emissions in DACs.
• Administrative and implementation costs, including auction support, program design, and evaluation.

These allocation requirements reduce the potential effectiveness of the investments to make emission reductions.  I find it troubling that this legislative mandate and the webinar presentation made no mention of cost-effective investments to reduce emissions.  In a recent post I evaluated the State’s investments from the Regional Greenhouse Gas Initiative.  The good news is that investments in energy efficiency were relatively effective investments.  As a result, I think the emphasis on DAC investments should be on energy efficiency improvements, but the legislative mandate states that community decision-making and stakeholder input will decide. 

The final statement that the “Allocation of funds will be finalized through the State Budget process” is important.  In my opinion, taxes must be levied by the legislature and not through a regulatory proceeding.  It may be that the process outlined here is intended to fulfill that mandate.  As we shall see, the questions posed in the webinar provide a basis for how the revenues (aka the tax) will be allocated.

The next slide outlined the timeline and is consistent with my impression that this is intended to fulfill the legislative mandate.  The presentation noted that they “laid out our process for seeking public input on the use of NYCI proceeds under the climate account.”  It went on to say that “today we’ll share a draft framework for the investment and start this comment intake to connect, collect initial public input on the use of proceeds.” 

Leddy went on to describe the comments received earlier this year.  They claimed that “As part of extensive stakeholder engagement since 2023, DEC and NYSERDA received thousands of comments about Cap and Invest implementation.”  Previously the comments focused on regulatory program design but 128 organizations and institutions “submitted comments addressing the use of proceeds, equity, and/or affordability.”  The presentation claimed that it is a good thing that 39 advocacy organizations,

37 trade associations & 3 labor unions, 35 businesses & 7 utilities, 11 governmental bodies/authorities,

3 think tanks responded with comments about the use of proceeds. 

.

The first summary slide describing the comments received listed three main themes.  The first is to “advance the deployment of decarbonization technologies in key sectors & enable emissions reductions”.  Leddy just read the slide so there was no indication of the necessity to deploy technologies so that the emission reduction trajectories can be met.  The second theme was “Support the clean energy workforce & prioritize labor protections”.  There is no question that worker training is necessary, but I have two concerns.  The first is that the necessary training does not lead to direct emission reductions, and I doubt very much that those costs were included in the Hochul Administration’s estimates of the costs and benefits, so I suspect that those projections underestimate costs.  The second point is that emphasizing labor projections is an appeal to a specific constituency not necessarily incorporating the most cost-effective reductions.  The final theme was “Prioritize affordability & lower the cost of the energy transition”. The examples are for low-income New Yorkers and business & industry.  I worry the average ratepayer will be overlooked.

One of the primary topics emphasized is climate justice as it relates to equity and affordability.  The next slide described two themes.  The first theme was the specific challenges facing disadvantaged

communities (DACs): air quality impacts, vulnerability to energy price increases, and structural and financial barriers to implementing control strategies.  I worry that addressing these concerns make take precedence over strategies that actually reduce emissions.  The climate justice aspect of the Climate Act has focused on disadvantaged communities (DACs) and, in my opinion, could be overlooking rural concerns.  For example, deployment of clean energy technologies in DACs included transportation concerns: “public transit; electric vehicles (including buses and heavy-duty vehicles); and public chargers/fast charging networks.”  All those are primarily urban concerns.

The next item on the agenda was the framework and areas for investment for the proposal.  Vanessa Olmer (?) went through the draft proposal to guide the use of NYCI proceeds.  Make no mistake that the Climate Act is all about politics and the NYCI proposed plan to use the proceeds is no exception.  The draft proposal is “designed to be consistent with the five core principles that the Governor set forth for the cap and invest program”.  My comments on the pre-proposal draft addressed these principles.  My comments noted that The Hochul Administration has never clearly admitted the expected costs of the Climate Act net-zero transition because the costs are politically toxic.  This principle is an attempt to suggest the costs are under control.  The climate leadership slogan is inconsistent with the Climate Act unique emissions accounting approach that prevents other states from joining New York or linking programs with New York.  Creating jobs is a much-repeated tenet of the Climate Act but I do not believe it is possible to create more jobs than lost due to the increased costs inherent in a net-zero transition.  While there is no question that Climate Justice investments in DACs are appropriate it is not clear that those investments will make those least able to afford higher energy prices whole when the full costs of the transition hit the economy.  The final principle is funding a sustainable future.  My comments emphasized the need for investment in zero-emissions technologies that can displace greenhouse gas emitting technologies.

The presentation went on to describe a framework for the investment of NYCI proceeds. “This framework would inform the identification of draft investment areas that NYCI proceeds will be directed toward.”  The agencies asked for public input to “refine the framework and to help identify and prioritize investment areas for the Climate Investment Account.”

As shown in the next slide the description of the proposed investment framework is linked to the guiding principles.  It is encouraging that the framework places funding for the sustainable future at the top.  Funding investments that reduce greenhouse gas emissions and sequester carbon are necessary to meet the Climate Act mandates.  Sadly, the speaker again just read the slide and failed to emphasize the link between effective emission reductions and the NYCI limits to emit.   The last framework item is to “Support policy-relevant research and program evaluation tied to emissions reducing projects”.  In this instance the presentation noted the importance to use “some NYCI proceeds to conduct policy relevant research and program evaluation tied to emission reducing projects” While this is necessary, NYSERDA has not been a good steward of the proceeds from the similar Regional Greenhouse Gas Initiative.  Considerable funding has been diverted away from the original intent of the program to fund peripherally related tasks more appropriately funded by other sources.  I fear that this will be an issue with NYCI proceeds.  Also note that buried in the administrative costs is the Cost Recovery Fee which is assessed on public authorities by New York State for an allocable share of state governmental costs attributable to the provision of services pursuant to Section 2975 of the Public Authorities Law.  This takes a percentage of the funds off the top for bureaucratic administration.

The next four slides gave examples of proposed investment areas. Think of it as a menu for special interest lobbying to get a place at the trough.

The final section of the presentation presented specific requests for public input.  The first request was related to the investment framework: in reference to the last slide shown in this summary “Do you have feedback on the proposed draft NYCI investment framework for guiding the use of NYCI proceeds from the Climate Investment Account?”  NYSERDA asked specific questions about the proposed investment areas – priorities and other potential projects that could benefit from NYCI-funded investments. 

The third question, feedback on appropriate interventions, piqued my interest.  It asked, “what interventions do you see as critical to receive investment of NYCI proceeds through the Climate Investment Account?”  It included these follow-on prompts:

• What funding needs do you see existing today that seem appropriate for NYCI?
• How should NYS consider costs relative to associated impacts and benefits? For example, should NYS orient investments towards lower-cost opportunities that produce faster emissions reductions or more difficult and/or expensive areas where emissions reductions might otherwise not be achieved or achieved more slowly?
• How should NYS balance funding for mass deployment of market-ready clean energy technologies vs. innovation to address the costs, feasibility, and access barriers for emerging solutions?

My response to the first question about funding needs is simple.  The state investments must fund the deployment of emission reduction strategies that provide emission reductions consistent with the availability of NYCI permits to emit GHG emissions.  If this is not done correctly, emitters will have no choice but to shut down or limit operations with bad consequences.  It is impossible to answer the other two questions because the Scoping Plan documentation is inadequate.  There is no indication that there is a plan for investments to achieve the necessary emission reductions that I maintain should have been included in the Scoping Plan.  These are all valid questions but other than saying these tradeoffs must be considered I don’t see how anyone can respond meaningfully.

The final question is “How should we approach the process for planning for the programming of NYCI

proceeds through the Climate Investment Account?”  The follow-on prompts shown in the following slide raise an important question in my mind.  What is more important: emission reductions consistent with the Climate Act mandated schedule or appeasing the community-directed investment requests from the DACs.  Will emission reduction effectiveness be considered?

Submitting Comments

If you are interested in submitting comments, then you should check out these instructions and the following slide.  They asked for feedback preferably by September 30, 2024:

online at:www.capandinvest.ny.gov

by mail to:New York State Energy Research and Development Authority

Attn: NYCI Investment Planning

17 Columbia Circle

Albany, NY 12203-6399

Discussion

Leddy described the Consumer Climate Action Account noting it states: “At least 30% of future NYCI proceeds to New Yorkers every year to mitigate potential consumer costs.”  She says “potential” in relation to consumer costs either because the narrative is to downplay costs or because she thinks the costs are not concerning.  Either way I think it reflects the mindset of agency staff that are totally invested in the Climate Act cause.  Outside of that bubble costs are going to be an issue.

In response to questions the webinar claimed that draft rules would be out later this year and that appropriations and spending of NYCI proceeds would begin in the next fiscal year beginning April 2025.  In the stakeholder engagement process earlier this year DEC and NYSERDA claimed they would propose regulations by summer and the final rules would be in place by the end of the year.  This update suggests that the regulations will be pushed back.  Although I believe that staffing issues are part of the reason for the delays, the political underpinning of the Climate Act should not be forgotten.

The Hochul Administration is certainly cognizant of costs for environmental initiatives.  On June 7, Governor Hochul explained that she reversed the decision to proceed with the New York City congestion pricing plan because of costs. At the Energy Access and Equity Research webinar sponsored by the NYU Institute for Policy Integrity on May 13, 2024 Jonathan Binder stated that the New York Cap and Invest Program would generate proceeds of “between $6 and $12 billion per year” by 2030.  Note that the current NYCI proposal outline analyzed allowance prices starting at $23 in 2025 with 5% escalation for 2026, and an increase to $54 in 2027, escalating by 6% annually thereafter.  Note that the cost increase comes after the next gubernatorial election year.  The New York State legislature elections are coming up in November.  I am now convinced that a major reason for the NYCI regulation delays is related to those elections. 

The stakeholder process for this framework for guiding the allocation of NYCI funds and identification of potential areas that could receive investments is entirely appropriate.  It will guide the legislative process to allocate at least $6 billion per year.  Leddy said that the intention of the engagement process is to provide the Governor and the legislature to have the benefit of public input as they develop next year’s budget. 

Unfortunately, see no recognition of the challenges of funding the transition.  There also is no indication that there is a plan to consider the funding requirements of the Scoping Plan strategies with the mandated emission reduction trajectories.  Those two issues are concerning.

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.  Past performance does not guarantee future success.  Given the differences between past successful programs and the one proposed I am convinced that NYCI will fail to deliver as advertised.

My other concern is that I believe that funding ambitious clean energy investments is more difficult than acknowledged.  My analysis of the Regional Greenhouse Gas Initiative proceeds shows that the investments were not cost efficient averaging $565 per ton reduced. As noted, the investments to reduce emissions are diluted by other mandates.  There is no acknowledgment that NYCI funding priorities should consider observed cost effectiveness results and be consistent with the NYCI allowance allocation reduction trajectory.

Conclusion

The NYCI process is behind schedule, and I think that is primarily because the enormous costs of the transition cannot be hidden when the regulations are proposed.  It is getting increasingly difficult to continue to hide the costs.  The New York State Comptroller Office audit of the NYSERDA and PSC  implementation efforts for the Climate Act found that: “The costs of transitioning to renewable energy are not known, nor have they been reasonably estimated”.   The Regulatory Impact Statement for the NYCI regulations must provide costs.  Delaying the release of the proposed regulations is very likely politically motivated to continue hiding the costs.

While I agree that a framework for investing the NYCI proceeds is necessary it does not appear that the proposed framework is going to prioritize funding emission reduction strategies consistent with the allowance reduction trajectories consistent with the Climate Act mandates.  That could lead to bad outcomes, but the apparent emphasis is on providing funding for favored political constituencies.  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.