Category: Climate Act Cap & Invest

The New York State Department of Environmental Conservation (DEC) and New York State Energy Research and Development Authority (NYSERDA)  are hosting webinars designed “to inform the public and encourage written feedback during the initial phase of outreach” for New York’s proposed cap and invest program.  When I get around to submitting my feedback one of my major themes will be the need to do a feasibility analysis to ensure that the resources necessary to enable the reductions required to meet the net-zero transition can be deployed as necessary.  This post addresses this concern.

I have been following the Climate Leadership & Community Protection Act (Climate Act) since it was first proposed. I submitted comments on the Climate Act implementation plan and have written over 300 articles about New York’s net-zero transition.  I have extensive experience with air pollution control theory, implementation, and evaluation having worked on every cap-and-trade program affecting electric generating facilities in New York including the Acid Rain Program, RGGI, and several Nitrogen Oxide programs since the inception of those programs. I follow and write about the RGGI cap and invest CO2 pollution control program so my background is particularly suited for this proposal.   I have devoted a lot of time to the Climate Act because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Climate Act Background

The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050 and an interim 2030 target of a 40% reduction by 2030. The Climate Action Council is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.”  In brief, that plan is to electrify everything possible and power the electric grid with zero-emissions generating resources by 2040.  The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies.  That material was used to write a Draft Scoping Plan.  After a year-long review the Scoping Plan recommendations were finalized at the end of 2022.  In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation and legislation.  The cap and invest initiative is one of those recommendations.

DEC and NYSERDA have developed an official website for cap and invest.  It states:

An economywide Cap-and-Invest Program will establish a declining cap on greenhouse gas emissions, limit potential costs to New Yorkers, invest proceeds in programs that drive emission reductions in an equitable manner, and maintain the competitiveness of New York businesses and industries. Cap-and-Invest will ensure the state meets the greenhouse gas emission reduction requirements set forth in the Climate Leadership and Community Protection Act (Climate Act).

I have written other articles that provide background on NYCI.  I recently posted a Commentary overview for the New York Cap & Invest (NYCI) program that was written for a non-technical audience. In late March I summarized my previous articles on the New York cap and invest proposal in a post designed to brief politicians about the proposal if you want more technical information.  There also is a page that describes all my carbon pricing initiatives articles that includes a section listing articles about the New York Cap and Invest (NYCI) proceeding.

The Need for a Safety Valve

The NYCI implementation plan is to “Advance an economywide Cap-and-Invest Program that establishes a declining cap on greenhouse gas emissions, limits potential costs to economically vulnerable New Yorkers, invests proceeds in programs that drive emission reductions in an equitable manner, and maintains the competitiveness of New York industries.”  In my opinion, the State has not considered that there will be significant consequences if the dynamics between these stated goals are not resolved.  There is no indication that tradeoffs between these goals are even being considered.  Furthermore, implementation of this sophisticated and complicated economy-wide program is handicapped by the aspirational legislative constraints on timing and targets.

If the influential book Making Climate Policy Work  had been considered by the Climate Action Council or Governor’s Office I believe that there would be substantive changes to the plan.  Authors Danny Cullenward and David Victor explain how the politics of creating and maintaining market-based policies render them ineffective nearly everywhere they have been applied.  They recognize the enormity of the challenge to transform industry and energy use on the scale necessary for deep decarbonization.  They write that the “requirements for profound industrial change are difficult to initiate, sustain, and run to completion.”  Because this is hard, they call for “realism about solutions.” 

NYCI proponents point to the “success” of the Regional Greenhouse Gas Initiative (RGGI) and presume that their proposed program will work as well.  I evaluated the Making Climate Policy Work analysis of RGGI.  I agree with the authors that the results of RGGI and other programs suggest that programs like the NYCI proposal will generate revenues.  However, we also agree that the amount of money needed for decarbonization is likely more than any such market can bear.  The problem confronting the Administration is that in order to make the emission reductions needed I estimate they have to invest between $15.5 and $46.4 billion per year.  The first issue that NYCI implementation must address is the revenue target relative to what is needed for investments to meet the Climate Act 2030 GHG emission reduction target.

The use of NYCI as a compliance mechanism is also a problem.  The NYCI webinars have not acknowledged or figured out that the emission reduction ambition of the Climate Act targets is inconsistent with the technological reality of the Climate Act schedule.  Because GHG emissions are equivalent to energy use, limiting GHG emissions before there are technological solutions that provide sufficient zero-emissions energy means that compliance will only be possible by restricting energy use.  The second issue that NYCI implementation must address is a feasibility analysis whether there will be sufficient allowances to avoid limits on power plant operations, gasoline availability, and natural gas for residential use for the 2030 Climate Act 40% GHG emission reduction target.  This issue is the focus of this post.

There is no excuse to not include a safety valve that could make changes to the schedule based on the results of a feasibility analysis.  The NYCI webinars have not acknowledged that there are conditions relative to meeting the Climate Act targets, but there is one available.  New York Public Service Law  § 66-p. “Establishment of a renewable energy program” has safety valve conditions for affordability and reliability that are directly related to the two issues described above.   § 66-p (4) states: “The commission may temporarily suspend or modify the obligations under such program provided that the commission, after conducting a hearing as provided in section twenty of this chapter, makes a finding that the program impedes the provision of safe and adequate electric service; the program is likely to impair existing obligations and agreements; and/or that there is a significant increase in arrears or service disconnections that the commission determines is related to the program”.   If the feasibility analysis finds that reliability or affordability issues are likely due to implementation issues, then this could be used to modify the schedule.

California Uncertainty Analysis

One of the principles of NYCI is Climate Leadership which is defined as: “Catalyze other states to join New York, and allows linkage to other jurisdictions”.  In order to link to other jurisdictions, it is necessary to be consistent with their cap and invest programs.  The California Air Resources Board (CARB) has a GHG emissions cap-and-trade program that has been in place since 2019.  Even though the Climate Act differs from the California plan because the Climate Act requires that all GHG emissions must be accounted for rather offering some exemptions, I am disappointed that there does not seem to be much sign that New York is considering using the methodological approaches used by California. 

Last year CARB prepared a 2022 Scoping Plan for Achieving Carbon Neutrality (2022 Scoping Plan) that “lays out a path to achieve targets for carbon neutrality and reduce anthropogenic greenhouse gas (GHG) emissions by 85 percent below 1990 levels no later than 2045, as directed by Assembly Bill 1279.”  This is one example where New York’s efforts could be informed by the California process and it addresses my feasibility concern.  The California Air Resources Board 2022 Scoping Plan issued in November 2022 included a 2030 Uncertainty Analysis.  The report explains that the implementation effort requires additional efforts beyond those already in place but notes:

There is also uncertainty that the current mix of policies (regulations, incentives, and carbon pricing) will be sufficient to achieve California’s 2030 target, at least 40% below 1990 greenhouse gas (GHG) emissions. Uncertainty is an inherent part of emissions forecasting and modeling – there is no model capable of predicting the future with perfect accuracy. As the on-going global COVID-19 pandemic and recovery has demonstrated, unexpected events can dramatically impact human welfare, economic activity, and GHG emissions.

In this analysis, we identify the drivers of uncertainty and analyze the potential impact of implementation delays on GHG emissions in 2030. That is, what if delayed implementation of actions as defined in the Scoping Plan Reference Scenario fail to achieve anticipated GHG reductions by 2030? This uncertainty analysis focuses on progress in achieving the 2030 target of at least 40% below 1990 levels by 2030 and does not include an assessment of the uncertainty faced in implementing the Scoping Plan scenario for achieving carbon neutrality by 2045.

We construct two scenarios that capture the largest emissions impact in 2030 from delays in implementation under the Scoping Plan Reference Scenario: delayed renewable capacity and delayed transportation electrification. We quantify the magnitude of the emissions impact under these two scenarios, highlighting the importance of these two actions in achieving the reductions outlined in the Scoping Plan Reference Scenario to hit California’s 2030 climate target.

This is exactly what I believe is necessary for NYCI.  The report notes that:

The main drivers of future GHG emissions – technology costs, energy prices, macroeconomic conditions, and policy implementation – are not known with perfect certainty. Modelers make informed assumptions about these drivers and estimate a range of GHG emissions based on historic, current, and potential future trends.

Unanticipated changes in these variables impact GHG emissions, however they are largely outside the control of policy makers. In just the past few years, we have seen global geopolitical and macroeconomic events dramatically alter energy prices, technology costs, and GHG emissions in California. The impacts of these events are still being felt and will continue to impact California’s economy and emissions – but are largely outside the control of the State.

The uncertainty analysis considered two scenarios: one for delayed renewable development and another for delayed transportation electrification.  The delayed renewable capacity scenario description notes:

In the Scoping Plan Reference Scenario, California has a 38 MMT GHG constraint in the power sector and achieves a 60% Renewable Portfolio Standard (RPS) by 2030 as required in SB 100. Under the delayed renewable capacity scenario, we construct an emissions trajectory from 2022 to 2030 under a 5-year delay in renewable capacity including infrastructure for existing renewable facilities as well as delays in permitting and construction for new renewable generation and transmission.

The delayed transportation electrification scenario description explains:

In the transportation sector, there are two assumptions driving emissions in 2030 in the Scoping Plan Reference Scenario- per-capita vehicle miles travelled (VMT) are reduced 4% below 2019 levels by 2045 and 40% of light-duty vehicle (LDV) sales are zero emission vehicles (ZEV) by 2030 (with minimal medium-duty and heavy-duty vehicle decarbonization) aligned with California Institute for Transportation Studies (ITS) BAU scenario. In California, per-capita VMT increased from 2017 to 2019. Therefore, the assumption that VMT decreases, even marginally, without additional action is a risk to achieving the 2030 emissions under the Scoping Plan Reference Scenario. However, the overall emissions impact in 2030 of failing to achieve the 4% per capita VMT reduction is relatively small under the Scoping Plan Reference Scenario as compared to the emissions impact of near-term transportation electrification.

The analysis concludes:

California’s path to carbon neutrality by 2045 is predicated on achieving the emission reductions outlined in the Scoping Plan Reference Scenario. We find that delaying renewable capacity by 5 years will increase California emissions by 8% in 2030 while delaying vehicle electrification will increase emissions by 6% in 2030. While the magnitude of these values may seem small, the risks are high. 2030 is just over seven years away and the gap to achieving the sector targets in the Scoping Plan Reference Scenario are large.

These emission reductions outlined in the Scoping Plan Reference Scenario are not guaranteed and while some of the risk and uncertainty is global and largely exogenous, there are risks associated with implementation. These risks can potentially be reduced or eliminated with targeted policy interventions. While in this analysis we have highlighted the impact of delayed renewable capacity and transportation electrification, there are uncertainties in each implementation assumption across California’s economic sectors. The magnitude of the emissions impact will vary as will any potential policy or regulatory intervention.

This analysis has focused on the risks associated with California achieving the GHG emissions outlined in the Scoping Plan Reference Scenario. Any increase in emissions on the pathway to 2030 will impact California’s ability to achieve carbon neutrality by 2045. In addition, the technologies and fuels needed to achieve carbon neutrality will also face significant uncertainties in the future. While outside the scope of this analysis, the same implementation risks discussed in relation to renewable capacity may be relevant to emerging technologies like carbon dioxide removal or carbon capture and renewable hydrogen production.

Discussion

The California analysis found that delays in renewable energy deployment would increase emissions 8% (~ 28 million metric tons) and vehicle electrification would increase emissions by 6% (~21 million metric tons).  These are significant emission increases.  If there are similar issues relative to the New York implementation plans, then it would threaten the compliance with the cap.

The NYCI implementation plan includes a goal for a declining cap on greenhouse gas emissions that provides compliance certainty.  In my opinion, the State has not considered that there will be significant consequences related to the use of NYCI as a compliance mechanism if the deployment of zero-emissions resources necessary to make the reductions is delayed.  The Hochul Administration has not acknowledged or figured out that the emission reduction ambition of their Climate Act targets is inconsistent with technology reality.  Because GHG emissions are equivalent to energy use, limiting GHG emissions before there are technological solutions that provide zero-emissions energy means that compliance will only be possible by restricting energy use. 

I do not understand why Climate Act proponents don’t acknowledge that restrictions on energy use because there are insufficient allowances available would catastrophically impact their ambitions.  It is indisputable that New York GHG emissions are less than one half of one percent of global emissions and global emissions have been increasing on average by more than one half of one percent per year since 1990.  I would not want to argue to the public that they cannot have gasoline for their cars or fossil fuels for their homes because the allowances ran out attempting to reduce New York emissions a fraction of the total when the total emissions are globally irrelevant.  It is not necessarily inappropriate to do something but disallowing changes to the schedule based on feasibility or the reality that emissions are greater than the aspirational targets leading to artificial energy shortages will surely cause massive pushback by most New Yorkers.

Conclusion

The allure of a source of revenues and compliance certainty using climate policies that apparently have worked in the past led the Council and Governor to put the cart before the horse with their NYCI recommendations.  The Cap-and-Invest Program recommended by the Climate Action Council’s final Scoping Plan and proposed in Governor Kathy Hochul’s 2023 State of the State Address and Executive Budget has not paid adequate attention to what made previous policies work and whether there are significant differences between the Climate Act requirements and previous policy goals in those other programs that might impact NYCI.   There are provisions for a safety valve that enable adjustments to the schedule.  The recent announcements that there are delays in the offshore wind projects suggests that there are potential issues. Failing to plan and incorporate a feasibility analysis to determine the reasonableness of the deployment of wind and solar resources necessary to meet the targets relative to the Climate Act schedule will likely lead to serious problems in the future. 

On June 1, 2023 the Department of Environmental Conservation (DEC) and New York State Energy Research and Development Authority (NYSERDA)  hosted the first webinar in a series “to inform the public and encourage written feedback during the initial phase of outreach” for New York’s proposed cap and invest program.  At the time of this writing the only documentation available for the webinar are the slides so this article only addresses one question.  Where does the state stand relative to the 2030 transition target of a 40% reduction of GHG emissions from the 1990 baseline.

I have been following the Climate Leadership & Community Protection Act (Climate Act) since it was first proposed. I submitted comments on the Climate Act implementation plan and have written over 300 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Climate Act Background

The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050 and an interim 2030 target of a 40% reduction by 2030. The Climate Action Council is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.”  In brief, that plan is to electrify everything possible and power the electric grid with zero-emissions generating resources by 2040.  The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies.  That material was used to write a Draft Scoping Plan.  After a year-long review the Scoping Plan recommendations were finalized at the end of 2022.  In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation and legislation.  The cap and invest initiative is one of those recommendations.

DEC and NYSERDA have developed an official website for cap and invest.  It claims:

An economywide Cap-and-Invest Program will establish a declining cap on greenhouse gas emissions, limit potential costs to New Yorkers, invest proceeds in programs that drive emission reductions in an equitable manner, and maintain the competitiveness of New York businesses and industries. Cap-and-Invest will ensure the state meets the greenhouse gas emission reduction requirements set forth in the Climate Leadership and Community Protection Act (Climate Act).

I recently posted my All Otsego Commentary overview on cap and invest published in early May that was written for a non-technical audience. In late March I summarized my previous articles on the New York cap and invest proposal in a post designed to brief politicians about the proposal if you want more technical information.  There also is a page that describes all my carbon pricing initiatives articles that includes a section about the New York Cap and Invest (NYCI) proceeding.

NYS GHG Emissions

One of the fundamental issues relative to NYCI is the status of New York State GHG emissions.  The DEC is required to prepare an annual report for statewide greenhouse gas emissions, pursuant to Section 75-0105 of the Environmental Conservation Law.  The DEC website described the report issued at the end of 2022:

This current report covers the years 1990 through 2020. The emission information will also be made available for download from Open Data NY (leaves DEC website).

• Summary Report (PDF)
• Sectoral Report 1: Energy (PDF)
• Sectoral Report 2: Industrial Processes and Product Use (PDF)
• Sectoral Report 3: Agriculture, Forestry, and Land Use (PDF)
• Sectoral Report 4: Waste (PDF)
• Appendix: CLCPA Emission Factors (PDF)

Supplemental Information

• The 2022 report includes the results of analyses that are described in more detail in supplemental reports available through the New York State Energy Research and Development Authority (NYSERDA) Greenhouse Gas Emissions Studies (leaves DEC website).
• Instructions for Accessing Statewide GHG Information from Open NY (PDF)

According to the Environmental Protection Agency, one of the necessary components for an effectively designed emissions trading program is “accountability for reducing, tracking and reporting emissions”.  While on the face of it the DEC annual GHG emissions report might seem to fulfill that condition, it does not.  The DEC annual report takes two years to develop so it is unusable for the proposed program.  The data provided are not detailed enough to breakdown emissions by potential NYCI sectors.  Finally, there are insufficient supporting data to document the accuracy of the reported emissions.

The impetus for this article is slide 7, GHG Emissions Reduction Requirements, in the presentation.  The slide includes two figures: current emissions by sector and New York State GHG emissions.  My concern is the numbers used for the figures. 

The New York State GHG emissions figure includes three numbers from Part 496 the statewide GHG emission limits for the Climate Act.  In 2030 the statewide greenhouse gas emission limit (in million metric tons of carbon dioxide equivalent or MMT CO₂e) is 245.87 and in 2050 it is 61.47.  Those limits are 60% and 15% respectively of the 1990 baseline emissions which works out to 410 MMT CO₂e.  The 2019 emissions (376.18 MMT CO₂e are from the 2022 GHG emissions inventory.  Note that the State uses 2019 instead of 2020 for trends analysis because 2020 values are anomalous due to the pandemic shutdowns.

My concern is that the numbers used to derive the graph “Current estimated GHG emissions by sector are not publicly available.  The DEC annual report does not break out emissions from the different sectors by the categories shown.  For example, for the buildings sector there is no table that lists space heating, water heating, other, and cooking sub-category emissions.  The emission information available from Open Data NY does not include those categories either.  The DEC 2022 report references  supplemental reports available through the NYSERDA Greenhouse Gas Emissions Studies website.  There are no relevant references to emissions from those categories in those reports.

Emissions Reporting

I have been dealing with emissions reporting for cap-and-trade programs for three decades starting with  the Acid Rain Program in the early 1990’s.  The Environmental Protection Agency standard for the accountability for tracking and reporting emissions is very high.  Developing the infrastructure to record, report, and comply with their standards took enormous effort but the data are completely transparent and verifiable to national standards.  Note, however, that this high level is only possible because the emissions are measured directly.  That approach is not possible for many sectors covered by the Climate Act but it does not mean that there should not be accountability for the emissions.

Instead of directly measuring the pollution emissions at the source, many sectors must rely on emission  factors.  EPA describes emissions factors as follows:

An emissions factor is a representative value that attempts to relate the quantity of a pollutant released to the atmosphere with an activity associated with the release of that pollutant. These factors are usually expressed as the weight of pollutant divided by a unit weight, volume, distance, or duration of the activity emitting the pollutant (e.g., kilograms of particulate emitted per megagram of coal burned). Such factors facilitate estimation of emissions from various sources of air pollution. In most cases, these factors are simply averages of all available data of acceptable quality, and are generally assumed to be representative of long-term averages for all facilities in the source category (i.e., a population average).

In order to calculate emissions using an emission factor the following equation is used:

E = A x EF x (1-ER/100)

where:

• E = emissions;
• A = activity rate;
• EF = emission factor, and
• ER =overall emission reduction efficiency, %

In order for the NYCI emissions to be accountable, all four of those values should be documented and available to the public.  Unfortunately, the state has net even provided the data used to generate the graphics used much less this supporting information.

There is another important difference between the emissions reported based on direct measurements at the source and emissions derived from emission factors.  The measured values cannot change but if there are refinements to the emission factors or activity rate measurements the values can change.  For example, the 2022 Sectoral Report 1: Energy  report has a chapter entitled Planned Improvements that lists known issues where improved estimates are desired.  In my opinion, there are numerous examples where the DEC emission factors used are questionable and I expect that affected sources will likely make the investments to improve the emission factors for more realistic emission estimates.  There have already been changes such that the Part 496 1990 baseline value of 410 MMT is different than the 2022 GHG emission inventory estimated 1990 emissions of 404.26 MMT.

Where Do We Stand?

In the absence of data from the DEC and NYSERDA that can be used to determine where the sectors stand relative to the 2030 Climate Act targets,  I used the Data NY and the Statewide GHG Emissions dataset available there to breakdown the differences between the 1990 baseline and the 2019 and 2020 emissions for various sub-sectors and fuels.  The caveat is that these are only estimates and not the official sub-sector emissions.  The following tables present data by the agriculture, buildings, electricity, industry, transportation, and waste economic sectors. 

The first table summarizes the emissions using the New York State global warming potential accounting approach for 20 years and the Intergovernmental Panel on Climate Change accounting for 100 years for each of the sectors and the overall totals.  It is not clear exactly which components of each sector will be subject to NYCI obligations but the totals suggest that the aspirational goals will be a challenge to meet.  The agriculture, buildings, transportation, and waste sectors all need to reduce emissions over 40% between 2019 and 2030.  While the electricity sector seems to be in good shape relative to the target the 2019 data does not reflect the shutdown of 2,000 MW of zero-emissions nuclear generation at Indian Point which raised the sector emissions by over 20%. 

Statewide Greenhouse Gas Emissions (MMT) by Sector Relative to 2030 Target

The following tables list data for unique combinations within each sector for the category, and sub-category labels   For example, within the agriculture economic sector there were two categories: livestock and soil management.  Within those categories there were five additional sub-categories. I listed data for the entire agriculture sector in the first row of the table.  The baseline 1990 emissions were 15.3 million metric tons CO2e using the global warming potential 20 year approach.  The 2030 limit is 9.2 MMT CO2e 20yr.  In 2019 the emissions were 21.3 MMT CO2e 20yr which represents a 6.0 MMT CO2e 20yr 39%) increase from the 1990 baseline.  In order to get to the 2030 limit a reduction of 12.1 MMT CO2e 20yr -57% is needed.  Note that DEC has mentioned that due to the pandemic that 2020 is not a representative year so I only show 2019 data.  .  Within the agriculture sector I list the livestock 1990 emissions (13.6 MMT CO2e 20yr) and the soil management 1990 emissions (1.7 MMT CO2e 20yr).  Note that the sum of these categories equals the total of the sector.  The data for the sub-categories is also presented.  In the agriculture sector I believe some of the categories will be exempt.  Nonetheless it is obvious that there is a long way to go to meet the 2030 target.

Agriculture Sector GHG Emissions Trends Relative to 2030 Target

The buildings sector has the largest emissions of any sector.  Note that the Climate Act mandates that emissions from upstream sources as well as direct emissions.  This places an emphasis on eliminating the use of fossil fuels because New York sources have no way to reduce emissions from upstream sources other than to stop importing the fuel.  I doubt very much that the proposed goals can be met by displacing the use of fossil fuels with electrification.  The compliance certainty feature associated with the cap means that the ultimate compliance strategy will be to limit fossil fuel use even if the replacement electrification technologies are not available.

Building Sector GHG Emissions Trends Relative to 2030 Target

The inherent biases in the Climate Act GHG emissions accounting approach is evident in the electricity sector trends.  Note that in 2019 the New York accounting claims that direct GHG emissions are only slightly more than the upstream imported fossil fuel emissions.  Those numbers are not credible and I predict that there will be concerted efforts to refine the emission factors used to generate them.

Electricity Sector GHG Emissions Trends Relative to 2030 Target

The industry sector also appears to be relatively close to the 2030 target.  However, it is not clear if this is due to decarbonization efforts or New York’s de-industrialization since 1990.  More importantly is the question whether the 10% overall reduction necessary to get to the 2030 target is feasible for the remaining industrial operations.

Industry Sector GHG Emissions Trends Relative to 2030 Target

It is not clear how the Hochul Administration plans to decarbonize the transportation sector to the extent necessary in the next seven years.  Transportation emissions went up 10% from 1990 to 2019 and need to decrease 49% by 2030.  According to the webinar “Large-scale GHG emitters and distributors of heating and transportation fuels will be required to purchase allowances for the emissions associated with their activities”.  For the transportation sector that means when the allowances for transportation fuels run out, suppliers will not provide gasoline and diesel fuel to the retailers.  The resulting fuel shortage will be entirely due to the non-existent feasibility planning by the state.

Transportation Sector GHG Emissions Trends Relative to 2030 Target

I am glad I am not associated with the waste sector.  It is my impression that there are very few options available for solid waste management.  So what did the Scoping Plan suggest.  Increased recycling and waste minimization to reduce the waste stream.  In this case the only option I can think of when the allowances run out is to stop accepting waste.

Waste Sector GHG Emissions Trends Relative to 2030 Target

Conclusion

There are many questions about the NYCI proposal that must be addressed this year.  Frankly I think the Hochul Administration is going down the wrong path in its implementation plan because they are already mired in details but have not addressed fundamental issues. 

Before proceeding it is necessary to determine what has to be done to meet the 2030 target and whether it is feasible to make the reductions on the required schedule.  If it is feasible that is one thing but given these numbers that appears to be a high hurdle.  The compliance certainty “feature” of NYCI is great as long as the targets are achievable but if they are not met, then the draconian compliance alternatives are going to cause a backlash of monumental proportions.

The other thing that should be done before proceeding any further is to determine the costs of the technologies necessary to achieve the goals using the compliance strategies in the feasibility analysis.  Even if the technologies are deemed feasible, if investments are insufficient to deploy the technologies as needed then the targets won’t be met.  If it turns out that the revenues necessary for successful  investments are politically unpalatable, then it is time to reconsider the implementation plan.

I am not optimistic that this could possibly end well.  Watch this space for more information as this unfolds.

On May 19, 2023 the Department of Environmental Conservation (DEC) and New York State Energy Research and Development Authority (NYSERDA)  announced that they are hosting a pre-proposal webinar series to provide the public an opportunity to learn about the rulemakings under development for the Cap-and-Invest Program in New York State.   This post is an overview of the initiative and the webinar series.

I have been following the Climate Leadership & Community Protection Act (Climate Act) since it was first proposed. I submitted comments on the Climate Act implementation plan and have written over 300 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Climate Act Background

The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050 and an interim 2030 target of a 40% reduction by 2030. The Climate Action Council is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.”  In brief, that plan is to electrify everything possible and power the electric grid with zero-emissions generating resources by 2040.  The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies.  That material was used to write a Draft Scoping Plan.  After a year-long review the Scoping Plan recommendations were finalized at the end of 2022.  In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation and legislation.  The cap and invest initiative is one of those recommendations.

I recently posted my All Otsego Commentary overview on cap and invest that was published in early May that was written for a non-technical audience. In late March I summarized my previous articles on the New York cap and invest proposal in a post designed to brief politicians about the proposal if you want more technical information.  There also is a page that describes all my carbon pricing initiatives articles that includes a section about the New York Cap and Invest (NYIC, Their acronym not mine) proceeding.

New York Cap and Invest

DEC and NYSERDA have developed an official website for cap and invest.  It claims:

An economywide Cap-and-Invest Program will establish a declining cap on greenhouse gas emissions, limit potential costs to New Yorkers, invest proceeds in programs that drive emission reductions in an equitable manner, and maintain the competitiveness of New York businesses and industries. Cap-and-Invest will ensure the state meets the greenhouse gas emission reduction requirements set forth in the Climate Leadership and Community Protection Act (Climate Act).

According to the DEC announcement of the webinars:

This is the first set in a series of webinars to inform the public and encourage written feedback during the initial phase of outreach. Additional information will be provided as it becomes available at www.capandinvest.ny.gov. If you wish to continue receiving updates on the development of the Cap-and-Invest Program, please join the Climate Act mailing list at https://climate.ny.gov/email-list/.

Below is the full list of scheduled webinars for this first round. For more information on how to join the webinars, please visit www.capandinvest.ny.gov/meetings-and-events.

1. June 1, 1 to 3 p.m. – Cap-and-Invest Overview
2. June 6, 11 a.m. to 1 p.m. – Natural Gas focused webinar
3. June 8, 1 to 3 p.m. – Liquid Fuels focused webinar
4. June 13, 11 a.m. to 1 p.m. – Energy Intensive and Trade Exposed Industries focused webinar
5. June 15, 1 to 3 p.m. – Waste focused webinar
6. June 20, 11 a.m. to 1 p.m. – Cap-and-Invest Analysis Inputs and Methods
7. June 22, 1 to 3 p.m. – Electricity focused webinar

As New York begins drafting regulations, we are considering California’s existing economywide programs, as well as those operating in Quebec and Washington State. This webinar series will provide the public with a series of questions on topics that DEC and NYSERDA are seeking input. DEC and NYSERDA are interested in hearing what elements of other jurisdictions’ regulations would work well in New York, and what improvements or changes may best serve New York.

For more information, including instructions on how to provide comment, please visit www.capandinvest.ny.gov.

Stakeholder Process

The ostensible purpose of the webinars and workshops is to enable DEC and NYSERDA to gather feedback on the program as they “develop regulations to implement the Cap-and-Invest Program”.  There are three program design elements:

• Cap-and-Invest Rulemaking
• Auction Rulemaking
• Greenhouse Gas (GHG) Reporting Rulemaking

It appears to me that the State is worried that there will be an overwhelming response to the request for comments.  The request for comments includes specific questions  for each of the design elements that should enable them to categorize the comments.  The description notes:

DEC and NYSERDA have developed a template document [PDF] to assist commenters in providing feedback on these topics. 

SUBMIT COMMENTS

DEC and NYSERDA will review comments and further develop pre-proposal materials to define New York’s program. Notices will be sent to the distribution list when the second round of pre-proposal materials are posted. To inform the development of the pre-proposal, DEC and NYSERDA request first round feedback no later than July 1, 2023.

The template document requests comments for the following topics:

• Applicability and Thresholds – Defines which sources and at what emissions thresholds sources are covered by the regulations, who must report emissions, and who must obtain and surrender allowances equal to their GHG emissions. Establishes obligated and non-obligated sources.
• Allowance Allocation – Defines how allowances are made available: auctions, set asides and free allocations.
• Auction Rules – Defines structure and mechanics of allowance auctions
• Market Rules – Defines rules for participation in market and trading of allowances.
• Program Ambition – Defines the cap and the allowance budget for how many allowances will be available year by year to reach the Climate Act greenhouse gas limits.
• Program Stability Mechanisms – Defines the automatic and planned program adjustments to moderate costs and sustain program ambition if emissions are higher or lower than anticipated.
• Compliance, Enforcement and Penalties – Defines compliance periods and types of enforcement mechanisms.
• Reporting and Verification – Defines what sources must report, when reporting will begin and how often, how reporting should be verified, and how to leverage existing reporting programs.
• Use of Proceeds – Defines the process for how auction proceeds are invested.
• Other – You can submit questions or letters or any comments that didn’t fit into the above in this box

Processing Comments

In order to handle the expected volume of comments they are trying something I have never seen before.  The comments go to a third party vendor, Comment Management:

Our software suite is an enterprise level web-based application that assists you throughout the entire Comment Management and Response process of Public Involvement projects. Our Public Involvement application offers unsurpassed value, saving you a tremendous amount of time. It’s inexpensive, and you get unlimited user accounts, comments, and disk space! Our application was built from the ground-up using enterprise level software, servers, and security.

Here at CommentManagement.com, we specialize in aiding companies and government organizations efficiently manage the comment and response process in public involvement projects, being the integral piece of the public participation puzzle. We pride ourselves on being the bridge between the client, and their desired target audience. No matter how small or large your project may be, we’re up to the task!

TURNING COMMENTS INTO INFORMATION

At CommentManagement.com, our application contains features designed to bring consistency, integrity, and enjoyment to the online comment and response management process. This digital public involvement process helps discover issues raised by the public and turns this data into usable information that can then be used to make better decisions, improve processes, and improve quality.

INTUITIVE & ROBUST

Easy to use, yet extremely powerful! Its integrated work flow ensures items are allocated, processed, reviewed, and finalized. This allows your team to focus their time on what’s important, and not on the minutia of tracking items throughout the life cycle of the project.

CONVENIENT & INEXPENSIVE

No need for servers or IT staff! You only need a computer with internet access and CommentManagement.com. And since it’s 100% web-based, your team can be geographically dispersed and still operate like a team. Our application is available 24 hours a day, 7 days a week, 365 days of the year whether you’re at home, work, or on the road.

The SUBMIT COMMENTS link goes to a comment form that includes extensive descriptive information:

If commenting on behalf of a group:

• * Are you commenting on behalf of a group (any kind of organization, company, association, union, tribe, etc.)?
• Please share the name of the group
• What is your title or role within the group?
• * What geographical area does the group represent?
  • National
  • Regional (e.g., Mid-Atlantic)
  • New York State
  • New York Region (e.g., the Hudson Valley)
  • County, Town, Municipality in New York
  • Community in New York (eg, neighborhood assoc., classroom, congregation)
  • Not applicable
  • Other, please specify below:
  • Other Geographic Area:
• * Which of the following interests (if any) does the group represent?
  • Environmental justice or underserved communities
  • Labor unions/union training centers
  • Consumers
  • Transportation (e.g., biking, public transit)
  • Environment or conservation
  • Public health
  • Education
  • Agriculture
  • Rural areas
  • Energy
  • Housing or smart growth (e.g., land use, community boards)
  • Economic development (e.g., Regional Economic Development Councils, or other community-based economic development)
  • Local government
  • Tribal government
  • Regional government
  • Not applicable
  • Other, please specify below:
  • Other Interests:
• * Which of the following commercial interests (if any) does the group represent?
  • Petroleum fuel producers, distributors, and trade associations (includes transportation and heating fuels)
  • Industrial process facility owners within emissions-intensive industries (such as cement, aluminum, and steel)
  • Waste operations (including municipal and private landfills, incinerators, and wastewater treatment facilities)
  • Utilities (includes non-utility electricity power producers and importers)
  • Carbon market traders
  • Automakers and dealers
  • Alternative fuel providers
  • Clean energy investment or development
  • Infrastructure development
  • Transportation (e.g., freight carriers)
  • Not applicable
  • Other, please specify below:
  • Other Commercial Interests:
• * Where is your place of residence?
  • Western New York
  • Finger Lakes
  • Southern Tier
  • Central New York
  • North County
  • Mohawk Valley
  • Capital District
  • Hudson Valley
  • New York City
  • Long Island
  • Outside New York State
  • Prefer not to specify
  • Other, please specify below:
  • Other Place of Residence:
• *Which of the following constituencies do you most closely identify with?
  • Environmental justice or underserved communities
  • Labor unions/union training centers
  • Environment or conservation advocates
  • Public health professionals
  • Education (teachers, professors, etc.)
  • Agricultural workers and farmers
  • Transportation professionals (e.g., public transit, truckers, rail workers, etc.)
  • Energy (utility/renewable energy workers, etc.)
  • Government staff or elected official
  • Economic development (e.g., Regional Economic Development Councils, other community-based economic developers, etc.
  • Smart growth (e.g., land use planners, community boards)
  • Housing (homeowners, housing developers, affordable housing advocates, renters, etc.)
  • Business (e.g., small business owner or employee)
  • Rural communities
  • Suburban communities
  • Urban communities
  • Other, please specify below:
  • Other Constituency:
• *Does your comment provide feedback on any of the following themes?
  • Applicability & Thresholds: Which sources are covered by the regulations, and at what emissions thresholds.
  • Allowance Allocation: How allowances are made available.
  • Auction Rules: The structure and mechanics of allowance auctions
  • Market Rules: The rules for market participation, and the trading of allowances
  • Ambition: The economywide emissions cap, and allowance budget.
  • Program Stability: The automatic and planned program adjustments to moderate costs and sustain program ambition if emissions are higher or lower than anticipated.
  • Compliance, Enforcement and Penalties: Compliance periods and types of enforcement mechanisms.
  • Reporting and Verification: The start and frequency of reporting, how reporting should be verified, and how to leverage existing reporting programs.
  • Use of Proceeds: The process for how auction proceeds are invested.
  • N/A: Not Applicable

If not commenting on behalf of a group:

• Where is your place of residence?
• Western New York
• Finger Lakes
• Southern Tier
• Central New York
• North County
• Mohawk Valley
• Capital District
• Hudson Valley
• New York City
• Long Island
• Outside New York State
• Prefer not to specify
• Other, please specify below:
• Other Place of Residence:
• Which of the following constituencies do you most closely identify with?
• Environmental justice or underserved communities
• Labor unions/union training centers
• Environment or conservation advocates
• Public health professionals
• Education (teachers, professors, etc.)
• Agricultural workers and farmers
• Transportation professionals (e.g., public transit, truckers, rail workers, etc.)
• Energy (utility/renewable energy workers, etc.)
• Government staff or elected official
• Economic development (e.g., Regional Economic Development Councils, other community-based economic developers, etc.
• Smart growth (e.g., land use planners, community boards)
• Housing (homeowners, housing developers, affordable housing advocates, renters, etc.)
• Business (e.g., small business owner or employee)
• Rural communities
• Suburban communities
• Urban communities
• Other, please specify below:
• Other Constituency:
• Does your comment provide feedback on any of the following themes?
• Applicability & Thresholds: Which sources are covered by the regulations, and at what emissions thresholds.
• Allowance Allocation: How allowances are made available.
• Auction Rules: The structure and mechanics of allowance auctions
• Market Rules: The rules for market participation, and the trading of allowances
• Ambition: The economywide emissions cap, and allowance budget.
• Program Stability: The automatic and planned program adjustments to moderate costs and sustain program ambition if emissions are higher or lower than anticipated.
• Compliance, Enforcement and Penalties: Compliance periods and types of enforcement mechanisms.
• Reporting and Verification: The start and frequency of reporting, how reporting should be verified, and how to leverage existing reporting programs.
• Use of Proceeds: The process for how auction proceeds are invested.
• N/A: Not Applicable

Note that items with an asterix are required fields. 

Discussion

I wonder how this information will be used.  Cynically I suspect that some comments will be favored over others based on the constituency identified.  As far as I am concerned this is exactly what happened with the comments submitted on the Draft Scoping Plan so now the Hochul Administration’s appeasement of favored constituencies is made easier.

In my opinion, the public comment process associated with the Draft Scoping Plan was only used to fulfill a legislative mandate.  As far as the Hochul Administration was concerned the only thing that mattered was the number of comments supporting their narrative.  In that regard form letters constituted most of the comments received.  I am no expert on this kind of thing but I wonder how the organizations that set up systems to generate and submit form letter comments will deal with this system. 

It is not clear to me whether this public stakeholder process will be another obligation or a sincere attempt to garner information from subject matter experts.  The quality of comments should be a consideration.  If the comment is simply a statement without justification or documentation supporting the position of the comment then it should be treated differently than a quality comment statement that does provide supporting information.  It was very disappointing to me that there was never any response to the technical issues I raised and questions I posed in my draft scoping plan comments that did include documentation and analysis.

There is another aspect to this that is unclear.  There are some topics that are so complicated that dialogue via written comments is ineffective.  NYIC has many different topics and each one I have looked at in any detail has turned out to be more complicated than I initially thought.  In order to reconcile issues raised by subject matter experts there must be a dialogue.  I haven’t seen any indication that those meetings are being considered.

Conclusion

I have dealt with every emissions marketing control program that affected New York electric generating units over my career.  In addition, I took the time to do research and prepared analyses of the effectiveness of those programs with an emphasis on the Regional Greenhouse Gas Initiative.  There is a gap between the theory of these programs and how they are treated by affected entities that needs to be considered during this implementation.  I am not confident that my comments and those of my colleagues with similar experience will be heard and considered.

Darla Youngs from the All Otsego website asked me to prepare a guest column on the Hochul Administration’s plan to implement the Climate Leadership & Community Protection Act (Climate Act).  I prepared a commentary that I thought would be too long and too technical on the market-based pollution control program called ‘’cap and invest”. This post presents the commentary after my introductory boilerplate.

I have been following the Climate Act since it was first proposed. I submitted comments on the Climate Act implementation plan and have written over 300 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Climate Act Background

The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050 and an interim 2030 target of a 40% reduction by 2030. The Climate Action Council is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.”  In brief, that plan is to electrify everything possible and power the electric gride with zero-emissions generating resources by 2040.  The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies.  That material was used to write a Draft Scoping Plan.  After a year-long review the Scoping Plan recommendations were finalized at the end of 2022.  In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation and legislation.

The impetus for the program is a recommendation in the Final Scoping Plan.  The following is the commentary that tries to cover the basics of this complicated proposal for a general audience.  In late March I summarized my previous articles on the New York cap and invest proposal in a post designed to brief politicians about the proposal if you want more technical information.  I really appreciate the opportunity to educate the All Otsego readers on this topic that will affect all New Yorkers.

All Otsego Commentary

As part of the Hochul Administration’s plan to implement the Climate Leadership & Community Protection Act (Climate Act), a market-based pollution control program called ‘’cap and invest” was proposed earlier this year in legislation associated with the budget. It was not included in the final budget bill but it will be considered later this year. This is an overview of this complicated proposal that has affordability and energy use implications.

The Climate Act Scoping Plan identified the need for a “comprehensive policy that supports the achievement of the requirements and goals of the Climate Act, including ensuring that the Climate Act’s emission limits are met.” It claimed that the policy would “support clean technology market development and send a consistent market signal across all economic sectors that yields the necessary emission reductions as individuals and businesses make decisions that reduce their emissions” and provide an additional source of funding. The authors of the Scoping Plan based these statements on the success of similar programs but did not account for the differences between their proposal and previous programs.

The cap and invest proposal is a variation of a pollution control program called cap and trade. In theory, placing a limit on pollutant emissions that declines over time will incentivize companies to invest in clean alternatives that efficiently meet the targets. These programs establish a cap, or limit, on total emissions.  For each ton in the cap an allowance is issued.  The only difference between these two programs is how the allowances are allocated.  The Hochul Administration proposes to auction the allowances and invest the proceeds but, in a cap-and-trade program, the allowances are allocated for free. The intent is to reduce the total allowed emissions over time consistent with the mandates of the Climate Act and raise money to invest in further reductions. 

The Environmental Protection Agency administers cap and trade programs for sulfur dioxide (SO₂) and nitrogen oxides (NOx) that have reduced electric sector emissions faster, deeper, and at costs less than originally predicted.  In the EPA programs, affected sources that can make efficient reductions can sell excess allocated allowances to facilities that do not have effective options available such that total emissions meet the cap. Also note that EPA emission caps were based on the feasibility of expected reductions from addition of pollution control equipment and a schedule based on realistic construction times.

However, there are significant differences between those pollutants and greenhouse gas pollutants that affect the design of the proposed cap and invest program.  The most important difference is that both SO₂ and NOx can be controlled by adding pollution control equipment or fuel switching.  Fuel switching to a lower emitting fuel is also an option for carbon dioxide (CO₂) emissions but there are no cost-effective control equipment options.  Consequentially, CO₂ emissions are primarily reduced by substitution of alternative zero-emissions resources.  For example, in the electric sector replacing fossil-fired units with wind and solar resources.  The ultimate compliance approach if there are insufficient allowances available is to limit operations.

New York State is already in a cap and invest program with an auction for CO₂ emissions from the electric generating sector. Although significant revenues have been raised, emission reductions due to the program have been small. Since the Regional Greenhouse Gas Initiative started in 2009, emissions in nine participating states in the Northeast have gone down about 50 percent, but the primary reason was fuel switching from coal and residual oil to natural gas enabled by reduced cost of natural gas due to fracking. Emissions due to the investments from the auction proceeds have only been responsible for around 15 percent of the total observed reductions.

The Hochul Administration has not addressed the differences between existing market-based programs and the proposed cap and invest program. Although RGGI has provided revenues, the poor emission reduction performance has been ignored despite the need for more stringent reductions on a tighter schedule to meet the arbitrary Climate Act limits. The Hochul Administration has not done a feasibility analysis to determine how fast the wind and solar resources must be deployed to displace existing electric generation to make the mandated emission reductions. Worse yet, the Climate Act requires emission reductions across the entire economy and the primary strategy for other sectors is electrification, so electric load is likely to increase in the future.

In late March, the Hochul Administration proposed a modification to the Climate Act to change the emissions accounting methodology to reduce the expected costs of the cap and invest program.  New York climate activists claimed that the change would eviscerate the Climate Act and convinced the Hochul Administration to delay discussion of the cap and invest proposal. This cost issue will have to be resolved in the upcoming debate. 

In addition, the Hochul Administration has proposed a rebate to consumers that will alleviate consumer costs. This raises a couple of issues. The market-based control program intends to raise costs to influence energy choices, so if all the costs are offset there will not be any incentive to reduce consumer emissions by changing behavior. The other issue is that the auction proceeds are supposed to be invested to reduce emissions. If insufficient investments are made to renewable resources, then deployment of zero-emission resources to offset emissions from fossil generating units will not occur.

The final issue related to the cap and invest proposal is that it provides compliance certainty. The plan is to match the allowance cap with the Climate Act emission reduction mandates. As noted previously, there are limited options available to reduce CO₂ emissions. The primary strategy will be developing zero-emissions resources that can displace emissions from existing sources. That implementation is subject to delays due to supply chain issues, permitting delays, and costs as well as other reasons that the state’s transition plan has ignored. Once all the other compliance alternatives are exhausted, the only remaining option is to reduce the availability of fossil fuel and its use.

The cap and invest proposal is a well-meaning but dangerous plan. It necessarily will increase the cost of energy in the state. If the costs are set such that the investments will produce the necessary emission reductions to meet the Climate Act targets, it is likely that the costs will be politically toxic. If the investments do not effectively produce emission reductions, then the compliance certainty feature will necessarily result in artificial energy shortage. Given that this is a disguised tax, it probably is better to just establish a tax so that the compliance certainty does not arbitrarily limit fossil fuel use to produce electricity, heat our homes, or drive our cars.

On January 10, 2023 New York Governor Kathy Hochul delivered her 2022 State of the State Address and provided legislation in her Budget Bill that proposed market-based Cap and Invest program.  Since then legislative amendments (Senate Bill 4008-B) to the Hochul Administration bill have been proposed.  I developed this briefing for politicians that provides specific comments about the proposed legislation and background information about market-based pollution control programs.  This article consolidates information from previous articles on Cap and Invest programs so there is a lot of repetitive information.

I submitted comments on the Climate Act implementation plan including one that specifically addressed the economy-wide strategy that recommended a Cap and Invest approach.  I have written over 300 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  I also follow and write about the Regional Greenhouse Gas Initiative (RGGI) market-based CO2 pollution control program for electric generating units in the NE United States.    I have extensive experience with air pollution control theory, implementation, and evaluation having worked on every cap-and-trade program affecting electric generating facilities in New York including the Acid Rain Program, RGGI, and several Nitrogen Oxide programs. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

I want to publicly thank my Senator, John Mannion (D 50^th Senate District), for giving his time to Ken Pokalsky, (VP New York Business Council) and myself for a briefing on this topic.  Ken and I both have spent a lot of time recently trying to understand the implications of the proposed Cap and Invest program but it seems like no one is listening.  Ken described the general issues facing the state’s business community and his concerns (summarized here)  I covered the technical side of the plan.  The slides used are available and the following material was submitted as backup.  Both the slides and the documentation are boiled down to the key points in the summary that was all we had time to address.

Overview Issues Summary

Market-based pollution control programs are a well-established strategy but past success does not guarantee future results.  The most common market approach is to use emissions trading whereby a limit is set on pollution levels and tradable allowances equal to the cap limit are issued to affected sources.  The Federal Acid Rain cap and trade program lowered sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions more than expected at far lower costs.  The Regional Greenhouse Gas Initiative has generated over $1.7 billion in revenues for New York.  There are differences between the goals and results of those programs relative to the New York Cap and Invest proposal that cast doubt on the optimistic projections of its proponents.  More importantly, there are components in the proposed legislation that will work against future success.

There are multiple challenges for a New York only Cap and Invest program.  Greenhouse gases (GHG) are difficult to reduce because there are limited control options available.  There are no viable add-on controls for most GHG emissions so switching fuels has been the primary driver of recent observed emission decreases.  The only remaining options are to displace the use of fossil fuels with zero-emissions resources or to run less.  That raises the threat of an artificial energy shortage if there are insufficient allowances for sources to run.

This documentation describes the current status of emissions relative to the Climate Act 2030 limit of a 40% reduction in GHG  emissions from the 1990 baseline.  In order to meet that mandate an unprecedented buildout of wind and solar are necessary to provide the energy needed to displace fossil-fired electric generation.  At the same time, electrification is the primary emission reduction strategy for buildings and transportation which is going to increase load.  The Scoping Plan recommendations for changes to New York’s Energy Plan did not include a feasibility analysis casting doubts on the viability of this effort.

Of particular concern is that there are features in the legislation that undermine aspects of previous market-based pollution control programs.  Climate Act § 75-0109, Promulgation of regulations to achieve statewide greenhouse  gas emissions reductions (1) lays out a public stakeholder process to promulgate rules and regulations to ensure compliance with the statewide emissions reduction limits that should be allowed to play out before any new legislation is promulgated.  There are numerous technical and logistical issues that must be addressed so that a Cap and Invest market-based program can be successfully implemented.  Naïve legislation could thwart an effective program.

Background

Emission market-based pollution control programs have proven to be an efficient approach if implemented correctly.  The reasons that such a program is being considered in New York were laid out in the Final Scoping Plan:

The Climate Action Council (Council) has identified the need for a comprehensive policy that supports the achievement of the requirements and goals of the Climate Act, including ensuring that the Climate Act’s emission limits are met . A well-designed policy would support clean technology market development and send a consistent market signal across all economic sectors that yields the necessary emission reductions as individuals and businesses make decisions that reduce their emissions. It would provide an additional source of funding, alongside federal programs, and other funding sources, to implement policies identified in this Scoping Plan, particularly policies that require State investment or State funding of incentive programs, including investments to benefit Disadvantaged Communities.  Equity should be integrated into the design of any economywide strategy, prioritizing air quality improvement in Disadvantaged Communities and accounting for costs realized by low- and moderate income (LMI) New Yorkers. Pursuant to the Climate Act, a policy would be designed to mitigate emissions leakage. Finally, an economywide strategy would be implemented as a complement to, not as a replacement for, other strategies in the Scoping Plan. A well-designed economywide program will bring about change in the market and promote equity in a way that does not unduly burden New Yorkers or with the global economy.

In general, emission reductions based on market signals rather than explicit directives offers flexibility which should reduce costs and encourages innovation.  The most common market approach is to use emissions trading whereby a limit is set on pollution levels and tradable allowances equal to the cap limit are issued to affected sources.  In order to comply, the sources must surrender one allowance for each ton of pollution emitted.  In order for such a program to succeed there has to be a realistic cap and reduction trajectory, the pollutant has to be have regional or global impacts, and the implementation schedule has to provide time for the market to react.

New York has participated in successful emissions trading programs.  It is unfortunate that the important condition that past success does not guarantee future results has been overlooked particularly because there are conditions on the past successes.  The Clean Air Act Amendments of 1990 established the Acid Rain Program to reduce acidic deposition.  This was a cap-and-trade program for the electric generating sector that issued free allowances based on historical operating characteristics.  Initially intended to provide a 50% reduction in sulfur dioxide and nitrogen oxides emissions it was ratcheted down because emissions were reduced lower and at costs significantly lower than expected.  There is an important caveat.  The original concept was that coal-fired power plants would install control equipment to get the reductions necessary.   However, railroad deregulation at the same time lowered coal transportation costs so much that it enabled switching to low sulfur coal from Wyoming across the country.  Power plants figured out how to burn that coal and achieved reductions on the order of 90%.  The Acid Rain Program incentivized the electric industry to reduce emissions but the ultimate results were influenced by other factors.

New York was an original participating state in the Regional Greenhouse Gas Initiative (RGGI).  This is a Cap and Invest program in which the affected sources purchase their allowances in auctions. New York was a primary driver for RGGI and has consistently touted its success by pointing out that carbon dioxide emissions are down by more than 50% since 2000 and that they have raised over $1.5 billion.  However, I have shown that this success is conditional.  The primary reason New York generating unit RGGI emissions are down is because the fracking revolution reduced the cost of natural gas so much that it displaced coal and residual oil fuels. I have determined that since the beginning of the RGGI program RGGI funded control programs have been responsible only for 5.6% of the observed reductions. I believe that RGGI had very little to do with these fuel switches because fuel costs are the biggest driver for operational costs and the cost adder of the RGGI carbon price was too small to drive the use of natural gas over coal and oil.  

There is no question that RGGI has successfully raised revenues but the results of those investments are disappointing.  According to the latest NYSERDA RGGI funding status report the projected costs of the current programs are $776.1 million, the net greenhouse gas emission savings are 1,656,198 tons and that works out to emission cost per ton removed of $469.  If all the RGGI administrative and operating costs are included another $113 million is added to the total and the emissions cost per ton removed is $537 per ton.  

There is a very important pollution control consideration.  Sulfur Dioxide (SO2) emissions can be controlled with add-on pollution control equipment or by switching to a lower sulfur fuel.  Nitrogen Oxides (NOx) emissions can also be controlled with add-on control equipment or by combustion modifications but fuel switching does not provide much of a reduction.  On the other hand, Carbon Dioxide (CO2) add-on carbon capture and sequestration control systems are not viable as an add-on control system.  The only ways to reduce CO2 is to switch to a lower emitting fuel or combust less fuel.  However, combusting less fuel means that less energy (for electricity, transportation, or heating) is available to meet societal needs.

Hochul Cap and Invest Proposal

I have consolidated in one document the Hochul Administration description of Cap and Invest including links to the Climate Act Scoping Plan Toolkit , references to Cap and Invest in the Scoping Plan Executive Summary, references to it in the State of the State materials, and the relevant Chapter from the Final Scoping Plan.

Hochul has said “New York’s Cap-and-Invest Program will draw from the experience of similar, successful programs across the country and worldwide that have yielded sizable emissions reductions while catalyzing the clean energy economy.”  My main concern is that drawing from the experience of previous programs is not nearly as simple as implied, particularly for people not familiar with the caveats and conditions associated with previous program “success”.

Hochul’s Budget Bill claims that it would be based on “best practices” gleaned from RGGI success.  It goes on to note that RGGI auction proceeds were invested in “energy efficiency, renewable energy, and other programs that save consumers money on energy bills and hasten the transition to cleaner energy”; that the proposed Cap and Invest will be specifically designed to “enable public agencies to focus the investment of allowance auction proceeds in communities with particular needs”; that

“A portion of the auction revenue generated will be returned to consumers to mitigate average costs to New Yorkers”; and that the program will be designed with the capacity to join other current or future programs.

In the previous section I noted that there are caveats to RGGI success claims.  One of my primary concerns is that RGGI investments did not produce cost-effective GHG emission reductions or very many reductions.  I have argued that the State has to change its investment strategies to focus on emission reductions to improve that performance because future reductions are going to depend on effective investments.  The low-hanging fruit of potential reductions is disappearing and that has compliance target ramifications.

Unfortunately, many programs that save consumers money on energy bills or focus on investments in disadvantaged communities with particular needs are not very effective producing significant emission reductions.  Policy makers should keep this conundrum in mind.  There is no resolution to the tradeoff between the need to provide ratepayers, especially those with least ability to pay, with the means to reduce energy use and the need to make emission reductions to reach the targets. 

To this point I have not addressed costs.  In no small part that is because so little information is available.  Hochul mentioned that there would be climate rebate fund of $1 billion and I saw somewhere that represented 30% of the total expected revenues.  That yields $3.3 billion for total revenues and an economy wide allowance price of $8.66.  If the allowance price equals the current RGGI price of $13 per ton, then the total revenues rises to $5 billion.  The New York Value of Carbon in 2022 is $129 per ton and using that would provide $50 billion per year.  If the Cap and Invest proceeds are set at the rate necessary to meet projected required emission reductions, a cost estimate using the historical cost per ton reduced from RGGI investments and tons reduced per year can be determined.  Depending on the interpretation of how the funding is allocated I estimate the revenues would range between $46 and $10 billion.  For this spread of revenues I estimate that this will translate to $0.08 and $1.14 per gallon of gasoline and between $0.47 and $7.04 for Mcf of natural gas.

The final Hochul goal was the capacity to join other current or future programs.  There are two reasons that this is unlikely.  Firstly, the Climate Act has a unique emission accounting system that is incompatible with other jurisdictions.  That would have to change to join other programs. The

Climate Act emission accounting system also mandates consideration of upstream emissions.  Trying to extract another jurisdiction from upstream emissions would be difficult if not impossible.

Scoping Plan Evaluation Criteria

The Final Scoping Plan recommendation included evaluation criteria for an economy-wide strategy.  Those criteria included certainty of emission reductions, price certainty, prioritizing emission reductions and avoiding hotspots in disadvantaged communities, and mitigating risk of leakage.

Advocates claim that the emissions cap guarantees emission reductions consistent with the Climate Act mandate. This is a naïve presumption apparently based on the fact that all the Acid Rain Program, RGGI, and the other cap and trade programs for NOx have all had emissions compliant with the caps.  EPA explains that “The cap is intended to protect public health and the environment and to sustain that protection into the future, regardless of growth in the sector.”  For the Acid Rain Program, the cap was originally intended to reduce emissions by 50% but later was tightened down.  In the NOx cap and trade programs the caps were set based on a technological evaluation of the control technology available to affected sources.  The industry – agency issues with those caps centered on whether the agency estimates for additional control levels were reasonable.  Importantly, the SO2 and NOx caps were based on the feasibility of affected source characteristics and were not binding in and of themselves.

On the other hand, the CO2 cap in RGGI and the New York cap-and-invest caps are not based on technical evaluation.   I define a binding cap as one chosen arbitrarily without any feasibility evaluation.  In 2030 New York GHG emissions must be 40% lower than the 1990 baseline but this is an arbitrary target mandated by the Climate Act.  The  Scoping Plan for this transition did not include an analysis to see if this target was feasible so I think this will be risky.

The following graph lists NY GHG emissions by sector from 1990 to 2030.  The data from 1990 to 2020 is from the New York 2022 GHG emission inventory.  Electric sector emissions are available through 2022 and I used those with estimates based on recent averages to project emissions for the other sectors in 2021 and 2022.  The emissions shown for 2023-2030 simply represent the straight-line interpolation between the 2022 emissions and the 2030 emission limits consistent with the state’s Climate Act mandate that 2030 emissions must be 40% less than the 1990 baseline emissions.

I estimate that meeting the 2030 emissions limit will require a 4.5% annual decrease from each sector from 2023 to 2030.  That is an unprecedented reduction trajectory.  Those percentages translate to annual reductions of 2.73 million metric tons of CO2e (MMT) for the electricity sector, 0.97 MMT for agriculture, 5.32 MMT for buildings, 1.59 MMT for industry, 4.89 MMT for transportation, and 1.88 MMT for the waste sector. 

The Climate Act has exemptions for certain sectors.  All components in the agriculture sector are not required to meet the 40% mandate and energy-intensive and trade exposed industries also get some sort of a pass.  Even a cursory examination of the data in the graph suggests that the presumption that a binding cap will necessarily ensure compliance is magical thinking.  The historical trend in electricity sector emission reductions appear similar to the trend necessary to meet the 2030 target but the historical trend was caused by fuel switching and there are no more reductions to be had in that regard.  In order to reduce electricity sector emissions, the energy output will have to be displaced with wind and solar.  Waste sector emissions have been more or less constant since 1990.  An entirely new technology has to be implemented in the next seven years to get a 4.5% per year reduction in emissions. 

Transportation can only reduce emissions if the transition to zero-emissions vehicles accelerates a lot.  When I point out that there has been no feasibility analysis, my concern is that the Scoping Plan did not analyze whether the necessary technologies are likely to be available and deployed as needed and there was no consideration of what if questions.  At the top of that list is “what if technology rollout is delayed?”

Another Scoping Plan criterion was price certainty.  The RGGI design includes s price control mechanism.  If the price gets higher than the RGGI ceiling price, additional allowances are added to the auction.  If the price gets too low, then subsequent auctions reduce the number of allowances available.  Obviously, adding allowances to limit high prices is incompatible with the compliance certainty criterion.  Also note that these mechanisms only affect auction prices.  There will be a secondary market price that will be largely unaffected by any similar mechanisms in the Cap and Invest program.  The important point is that the cost of allowances that consumers pay is the uncontrollable secondary market price.

The Climate Act, Scoping Plan, the Hochul Budget Bill and at least one amendment to the Budget Bill establish a goal of prioritizing emission reductions and avoiding hotspots in disadvantaged communities.  Chapter 6. Advancing Climate Justice in the Scoping Plan states:

Prioritizing emissions reduction in Disadvantaged Communities should help to prevent the formation or co-pollutant emissions despite a reduction in emissions statewide. A broad range of factors may contribute to high concentrations of pollutants in a given location that create a hotspot. The result can be unhealthy air quality, particularly for sensitive populations such as expectant mothers, children, the elderly, people of low socio-economic status, and people with pre-existing medical conditions.

The poster child for egregious harm from hotspots is fossil-fired peaking power plants. I believe the genesis of this contention is the arguments in Dirty Energy, Big Money and I have shown that that analysis is flawed because it relies on selective choice of metrics, poor understanding of air quality health impacts,  unsubstantiated health impact analysis, and ignorance of air quality trends.  In this context, I have seen indications that there are some people who believe that GHG emissions themselves have some kind of air quality impact exacerbated in disadvantaged community hot spots.  That is simply wrong – there are no health impacts associated with carbon dioxide emissions at current observed ambient levels.  Dirty Energy, Big Money and arguments in the Scoping Plan are based on co-pollutant emissions (NOx and PM_2.5) that allegedly cause impactful hot spots that result in unhealthy air quality.  Note that all facilities in New York State have done analyses that prove that their emissions do not directly produce concentrations in the vicinity of power plants that contravene National Ambient Air Quality Standards (NAAQS) mandated to protect human health and welfare.  Trying to make the Cap and Invest program, that is appropriate for controlling GHG emissions to mitigate global warming, also address a neighborhood air quality problem already covered by other air quality rules is not in the best interests of a successful Cap and Invest program.  I do not know how the allowance tracking system could be modified to address hot spots without creating major unintended consequences.

The final evaluation criterion in the Scoping Plan is mitigating risk of leakage.  Pollution leakage refers to the situation where a pollution reduction policy simply moves the pollution around geographically rather than reducing it.  Ideally the carbon price should apply to all sectors across the globe so that leakage cannot occur. Preventing leakage in an area as small as New York is impossible because, for example,  car owners on the border will simply cross the border to purchase fuel.  Any program conditions to limit emissions in smaller areas of New York will guarantee problems.

Cap and Invest Concerns

Implementation of a Cap and Invest program requires consideration of a myriad of technical and logistical issues best addressed by subject matter experts unencumbered by restrictive legislation.  Climate Act § 75-0109, Promulgation of regulations to achieve statewide greenhouse  gas emissions reductions lays out a public stakeholder process to promulgate rules and regulations to ensure compliance with the statewide emissions reduction limits that should be allowed to play out before any new legislation is promulgated. 

There are numerous technical and logistical issues that must be addressed so that a Cap and Invest market-based program can be successfully implemented.  Previous Cap and Trade programs relied on emissions estimates from instruments and EPA has developed a comprehensive and transparent reporting methodology.  Instruments cannot be used to estimate emissions from every automobile in the state so emissions estimates based on fuel use must be used.  The logistics to develop such a system will take time and must be considered when deadlines are set.

The arbitrary 40% reduction by 2030 target codifies an aggressive reduction schedule by limiting allowance availability in the Cap and Invest proposal. The required emission reductions per year to meet the 2030 mandate are so aggressive that it is unlikely that there will be sufficient allowances available for all sectors to meet that mandate.  The result will be an artificial energy shortage that will limit electric production as well as gasoline and natural gas availability.  The stakeholder process must develop a plan to address this potential outcome.

The stakeholder process cannot operate in a vacuum.  In order for the stakeholder process to function properly the Hochul Administration is going to have to commit to some revenue target and allocation of funds.  Although emission reduction priorities in certain areas of the state is a noble concept it is incompatible with the global impacts of GHG emissions.  More importantly putting it into practice is extraordinarily difficult.

Senate Bill 4008-B

The legislative amendments (Senate Bill 4008-B) to the Hochul Administration bill should be rejected out of hand because they are not based on how emissions market systems work.  They represent nothing more than ideological misunderstanding of these systems.  If implemented the Cap and Invest program will fail.  The problematic provisions address hot spots, allowance banking, allowance trading, and emission offsets.

I already addressed hot spots above.

The allowance banking proposed amendments to Hochul’s budget bill include a new section to the existing Climate Act law.  Proposed § 75-0123. Use of allowances states that:

1. Allowances must be submitted to the department for the full amount of greenhouse  gas emissions emitted during such compliance period.  If greenhouse gas emissions exceed allowances submitted for the  compliance  period, such shortfall shall be penalized pursuant to section 75-0129 of this article.
2. Any allowances not submitted at the end of the compliance period in which  they  are  issued by the authority shall automatically expire one hundred eighty days after the end such compliance period if not  submitted prior to such date.

The provision for expiring allowances would prohibit allowance banking.  Allowance banking is a feature of all existing cap and trade programs and is one of the reasons that they have been successful.  Banking enables affected sources to handle unexpected changes in operation, compliance monitoring problems, and long-term planning.

The authors of this amendment have not figured out that the primary source of GHG emissions is energy production.  One major difference between controlling CO2 and other pollutants is that there are no cost-effective control technologies that can be added to existing sources to reduce emissions.  Combine that with the fact that CO2 emissions are directly related to energy production, the result is that after fuel switching the primary way to reduce emissions is to reduce operations.  Consequently, CO2 emission reductions require replacement energy production that can displace existing production. 

A feature of RGGI that addresses the link between energy use and CO2 emissions is a three-year compliance period with banking.  It is included because it was recognized that in a year when it is either really cold or really hot GHG emissions go up as energy use goes up.  In a year when it is mild, energy use goes down and emissions go down.  To address that variability RGGI has a three-year compliance period and allows sources to bank allowances for this balancing inter-annual variability.  The inevitable result of this amendment language would be insufficient allowances in a year with high energy use and that translates to an artificial shortage of energy.

There also is a provision addressing allowance trading.  There is no better example of ideological passion over-riding reality than language in the proposed amendments to Hochul’s budget bill that prohibits allowance trading.  Proposed § 75-0123. Use of allowances states that:

3. Allowances shall not be tradable, saleable, exchangeable or otherwise transferable.

Words cannot describe how little I think of the authors’ understanding of cap and invest based on this language.  Cap and invest programs are a form of cap-and-trade programs.  Anyone who thinks that a program that excludes allowance exchanges has no concept whatsoever of how these programs are supposed to work and how they have been successfully working.

There is one aspect of the proposed cap and invest legislation that is conspicuous by its absence – offsets.  In RGGI a CO₂ offset allowance represents “a project-based greenhouse gas emission reduction outside of the capped electric power generation sector.”  In the California program  Offset Credits are issued to “qualifying projects that reduce or sequester greenhouse gases (GHG) pursuant to six Board-approved Compliance Offset Protocols.”  Recall that Hochul stated that “New York’s Cap-and-Invest Program will draw from the experience of similar, successful programs across the country and worldwide that have yielded sizable emissions reductions while catalyzing the clean energy economy.” Furthermore, the Climate Act has a net-zero target.  In other words, emissions from certain sectors that can never be expected to reduce their GHG emissions to zero (like aviation) will have those emissions offset by programs that reduce or sequester GHG emissions. 

In a rational world, it is obvious that the agriculture and forestry sectors that are the likely sources of most offsets in New York would get incentives to develop offsets compliant with qualification protocols used in other successful programs.  After all the Climate Act needs offsets to meet its net-zero targets and offset programs are components of the similar, successful programs New York wants to emulate.

New York’s Climate Act is not rational.  Chapter 17 in the Final Scoping Plan explains why offsets are not mentioned:

The inclusion of offset programs in some cap-and-invest programs, such as RGGI, has engendered some criticism, particularly from environmental justice organizations that contend that the availability of offsets reduces the certainty of emission reductions from the regulated sources. In any cap-and-invest program adopted to meet Climate Act requirements, the role of offsets would have to be strictly limited or even prohibited in accordance with the requirements of ECL § 75-0109(4). Under that provision, DEC would have to ensure that any Alternative Compliance Mechanism that is adopted would meet various requirements specified in that provision of the Climate Act. Therefore, offsets would have little, if any, role under a cap-and-invest program designed to comply with the Climate Act.

In short, because there was “some criticism” from environmental justice organizations, the Progressive Democrats in control of the Administration and Legislature are excluding this “important cost-containment element” used in other successful programs.  Given that offsets are a necessary component for meeting the net-zero by 2050 target I expect that a different subsidy will be used to incentivize offsets.

Conclusion

I have tried very hard to not get involved with politicians over my career because I don’t think there is much interest in my nuts-and-bolts concerns.  Unfortunately for me, the Climate Act is at its heart a political construct.  In order to try to get some rationality into the implementation process it is apparent that I have to engage with politicians.  In that regard, Senator Mannion is to be commended for listening to the technical side of the Cap and Invest proposal and I appreciate his time very much.

There have been a couple of positive notes.  According to Buffalo Business First, New York DEC Commissioner Basil Seggos says the regulations forming the state’s cap-and-invest program likely won’t be ready before a deadline this year.  Both Senator Mannion and Ken Pokalsky said they don’t believe the Cap and Invest program language will be included in the final Budget Bill.  That suggests that there will be time to develop a plan that addresses all the technical and logistical issues inherent in a New York only Cap and Invest program without legislative naïve interference.

One of my pragmatic interests is market-based pollution control programs. As part of New York’s budget process Governor Kathy Hochul announced a plan to use a market-based program to raise funds for Climate Leadership & Community Protection Act (Climate Act) implementation that is included in the Budget Bill.  I have looked at the language for proposed amendments to the original Budget Bill proposal and am stunned at the disconnect between reality and the perceptions of the authors of the amendments.

I submitted comments on the Climate Act implementation plan and have written over 290 articles about New York’s net-zero transition because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good.  I also follow and write about the Regional Greenhouse Gas Initiative (RGGI) market-based CO2 pollution control program for electric generating units in the NE United States.    I have extensive experience with air pollution control theory, implementation, and evaluation having worked on every cap-and-trade program affecting electric generating facilities in New York including the Acid Rain Program, RGGI, and several Nitrogen Oxide programs. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Climate Act Background

The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050. The Climate Action Council is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.”  In brief, that plan is to electrify everything possible and power the electric grid with zero-emissions generating resources by 2040.  The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies.  That material was used to write a Draft Scoping Plan that was released for public comment at the end of 2021 and approved on   December 19, 2022. 

The Final Scoping Plan included recommendations for a comprehensive economy-wide policy to support implementation.  The recommendations included a cap and invest market-based emissions control approach similar to the Regional Greenhouse Gas Initiative (RGGI).  The policy is supposed to provide compliance certainty and “support clean technology market development and send a consistent market signal across all economic sectors that yields the necessary emission reductions as individuals and businesses make decisions that reduce their emissions.”  The “market signal” translates into an additional source of funding to implement policies identified in the Scoping Plan.  But that’s not all.  A key narrative in New York’s version of the Green New Deal is equity and the cap and invest recommendation includes “prioritizing air quality improvement in Disadvantaged Communities and accounting for costs realized by low- and moderate income (LMI) New Yorkers.”   

New York Cap and Invest

Hochul’s state of the state address included a proposal for a cap and invest program.  It stated that “New York’s Cap-and-Invest Program will draw from the experience of similar, successful programs across the country and worldwide that have yielded sizable emissions reductions while catalyzing the clean energy economy.”  Subsequently other legislators have jumped on the bandwagon and offered legislation to modify the Hochul proposal.  My first article on this plan, initial impression of the New York cap and invest program, gave background information on the Climate Act’s  economy-wide strategy and my overarching concerns.  I looked at potential revenue targets in a couple of subsequent posts here and here.  More recently I compared the emissions reduction trajectory necessary to meet the 40% GHG emission reduction by 2030 mandate relative to observed emissions trends.

My analyses to date indicate that New York’s belief that the proposed cap and invest program can build on “the experience of similar, successful programs across the country and worldwide” is misplaced. The idea that the RGGI market signal was a significant driver for the observed emissions reductions is inaccurate because the primary driver was fuel switching to cheaper natural gas caused by the fracking success in other states.  New York has been investing RGGI auction proceeds for years and the cost per ton reduced is no less than $469.  At that rate, if the program were to fund all of the reductions necessary, auction revenues of anywhere between $10 billion per year and over $40 billion per year would be needed depending on the assumptions used.  Finally, the required emission reductions per year to meet the 2030 mandate are so aggressive that it is unlikely that there will be sufficient allowances available for all sectors to meet that mandate.  The result will be an artificial energy shortage that will limit electric production as well as gasoline and natural gas availability.

Incredibly, the legislative amendments (Senate Bill 4008-B) to the Hochul Administration bill proposal described below would make things worse for New Yorkers.

Fatal Flaws for Cap and Invest

In my opinion, the Hochul Administration and other Progressive legislators have been trying too hard to incorporate environmental and climate justice concerns into the net-zero transition plans.  In the first place, I don’t think that constituency will ever be satisfied because their insistence on zero-risk policies ultimately requires a shut down of all power sources.  There is no benign way to make power or use energy so ignoring the possibility of pragmatic tradeoffs means they will never be placated.  Worse, their rationale for the tenets of their beliefs is flawed.

The Climate Act requires the state to invest or direct resources in a manner designed to ensure that disadvantaged communities to receive at least 35 percent, with the goal of 40 percent, of overall benefits of spending on:

• Clean energy and energy efficiency programs
• Projects or investments in the areas of housing, workforce development, pollution reduction, low-income energy assistance, energy, transportation, and economic development 

In order to implement these goals, the Climate Act created the Climate Justice Working Group (CJWG) which is comprised of representatives from Environmental Justice communities statewide, including three members from New York City communities, three members from rural communities, and three members from urban communities in upstate New York, as well as representatives from the State Departments of Environmental Conservation, Health, Labor, and NYSERDA.  The 22 members of the Climate Action Council were chosen mostly because of their ideology but most at least had relevant expertise.  None of the representatives appointed to the CJWG outside of the agency staff have any energy or climate science background.  Nonetheless, all of their comments on the Draft Scoping Plan were explicitly addressed and responses to their concerns are evident in the cap and invest plan.

There are four CJWG concerns that legislators are trying to incorporate into the cap and invest proposed laws or are in the Climate Act itself that make the proposed approach unworkable.  Their four concerns are “hot spots”, allowance banking, allowance trading, and the use of offsets.  I will address each one below.  In each case, CJWG members, climate activists, and environmental justice advocates have seized on an issue based on poor understanding or something else and are demanding their concerns be considered and the legislators are addressing their concerns.

Hot Spots

As mentioned previously a key consideration in the Climate Act is “prioritizing air quality improvement in Disadvantaged Communities”.  Chapter 6. Advancing Climate Justice in the Scoping Plan states:

Prioritizing emissions reduction in Disadvantaged Communities should help to prevent the formation or co-pollutant emissions despite a reduction in emissions statewide. A broad range of factors may contribute to high concentrations of pollutants in a given location that create a hotspot. The result can be unhealthy air quality, particularly for sensitive populations such as expectant mothers, children, the elderly, people of low socio-economic status, and people with pre-existing medical conditions.

The poster child for egregious harm from hotspots is fossil-fired peaking power plants. I believe the genesis of this contention is the arguments in Dirty Energy, Big Money and I have shown that that analysis is flawed because it relies on selective choice of metrics, poor understanding of air quality health impacts,  unsubstantiated health impact analysis, and ignorance of air quality trends.  In this context, I have seen indications that there are people who believe that GHG emissions themselves have some kind of air quality impact exacerbated in disadvantaged community hot spots.  That is simply wrong – there are no health impacts associated with carbon dioxide emissions at current observed ambient levels.  Dirty Energy, Big Money and arguments in the Scoping Plan are based on co-pollutant emissions (NOx and PM_2.5) that allegedly cause impactful hot spots that result in unhealthy air quality.  Note that all facilities in New York State have done analyses that prove that their emissions do not directly produce concentrations in the vicinity of power plants that contravene National Ambient Air Quality Standards (NAAQS) mandated to protect human health and welfare.  Trying to make the cap and invest program, that is appropriate for controlling GHG emissions to mitigate global warming, also address a neighborhood air quality problem already covered by other air quality rules is not in the best interests of a successful cap and invest program.  I do not know how the allowance tracking system could be modified to address hot spots without creating major unintended consequences.

Allowance Banking

The proposed amendments to Hochul’s budget bill include a new section to the existing Climate Act law.  Proposed § 75-0123. Use of allowances states that:

1. Allowances must be submitted to the department for the full amount of greenhouse  gas emissions emitted during such compliance period.  If greenhouse gas emissions exceed allowances submitted for the  compliance  period, such shortfall shall be penalized pursuant to section 75-0129 of this article.
2. Any allowances not submitted at the end of the compliance period in which  they  are  issued by the authority shall automatically expire one hundred eighty days after the end such compliance period if not  submitted prior to such date.

The provision for expiring allowances would prohibit allowance banking.  Allowance banking is a feature of all existing cap and trade programs and is one of the reasons that they have been successful.  Banking enables affected sources to handle unexpected changes in operation, compliance monitoring problems, and long-term planning.

The authors of this amendment have not figured out that the primary source of GHG emissions is energy production.  One major difference between controlling CO2 and other pollutants is that there are no cost-effective control technologies that can be added to existing sources to reduce emissions.  Combine that with the fact that CO2 emissions are directly related to energy production, the result is that after fuel switching the primary way to reduce emissions is to reduce operations.  Consequently, CO2 emission reductions require replacement energy production that can displace existing production. 

A feature of RGGI that addresses the link between energy use and CO2 emissions is a three-year compliance period with banking.  It is included because it was recognized that in a year when it is either really cold or really hot GHG emissions go up as energy use goes up.  In a year when it is mild, energy use goes down and emissions go down.  To address that variability RGGI has a three-year compliance period and allows sources to bank allowances for this balancing inter-annual variability.  The inevitable result of this amendment language would be insufficient allowances in a year with high energy use and that translates to an artificial shortage of energy.

Allowance Trading

There is no better example of ideological passion over-riding reality than language in the proposed amendments to Hochul’s budget bill that prohibits allowance trading.  Proposed § 75-0123. Use of allowances states that:

3. Allowances shall not be tradable, saleable, exchangeable or otherwise transferable.

Words cannot describe how little I think of the authors’ understanding of cap and invest based on this language.  Cap and invest programs are a form of cap-and-trade programs.  Anyone who thinks that a program that excludes allowance exchanges has no concept whatsoever of how these programs are supposed to work and how they have been successfully working.

Offsets

There is one aspect of the proposed cap and invest legislation that is conspicuous by its absence – offsets.  In RGGI a CO₂ offset allowance represents “a project-based greenhouse gas emission reduction outside of the capped electric power generation sector.”  In the California program  Offset Credits are issued to “qualifying projects that reduce or sequester greenhouse gases (GHG) pursuant to six Board-approved Compliance Offset Protocols.”  Recall that Hochul stated that “New York’s Cap-and-Invest Program will draw from the experience of similar, successful programs across the country and worldwide that have yielded sizable emissions reductions while catalyzing the clean energy economy.” Furthermore, the Climate Act has a net-zero target.  In other words, emissions from certain sectors that can never be expected to reduce their GHG emissions to zero (like aviation) will have those emissions offset by programs that reduce or sequester GHG emissions. 

In a rational world, it is obvious that the agriculture and forestry sectors that are the likely sources of most offsets in New York would get incentives to develop offsets compliant with qualification protocols used in other successful programs.  After all the Climate Act needs offsets to meet its net-zero targets and offset programs are components of the similar, successful programs New York wants to emulate.

New York’s Climate Act is not rational.  Chapter 17 in the Final Scoping Plan explains why offsets are not mentioned:

The inclusion of offset programs in some cap-and-invest programs, such as RGGI, has engendered some criticism, particularly from environmental justice organizations that contend that the availability of offsets reduces the certainty of emission reductions from the regulated sources. In any cap-and-invest program adopted to meet Climate Act requirements, the role of offsets would have to be strictly limited or even prohibited in accordance with the requirements of ECL § 75-0109(4). Under that provision, DEC would have to ensure that any Alternative Compliance Mechanism that is adopted would meet various requirements specified in that provision of the Climate Act. Therefore, offsets would have little, if any, role under a cap-and-invest program designed to comply with the Climate Act.

In short, because there was “some criticism” from environmental justice organizations, the Progressive Democrats in control of the Administration and Legislature are excluding this “important cost-containment element” used in other successful programs.  Given that offsets are a necessary component for meeting the net-zero by 2050 target I expect that a different subsidy will be used to incentivize offsets.

Conclusion

There are four CJWG concerns that legislators are trying to incorporate into the cap and invest proposed laws or are in the Climate Act itself that will make New York’s cap and invest plan fail.  All cap and invest programs are intended to reduce emissions that have regional or global impacts.  Trying to combine cap and invest global obligations with “hotspot” neighborhood air quality obligations already covered by other air quality rules would be difficult if not impossible to do without unintended consequences.  Prohibiting allowance banking eliminates a compliance mechanism widely used in all existing emission market programs.  Cap and invest is a variant of cap-and-trade emission market programs so eliminating trading is absurd.  Emission offsets are a necessary component of economy-wide net-zero targets.  If offsets are prohibited in the cap and invest plan they will be subsidized elsewhere.

A primary component of New York’s Climate Act and cap and invest legislation was to address climate justice.  I do not dispute that is a reasonable goal but appeasement of the naïve and misguided demands of the CJWG on cap and invest components will make that program unworkable and cause reliability, affordability, and safety problems.  When those problems occur, the communities that will be impacted the most will be the ones this mis-guided appeasement is intended to protect.