The Road Ahead for New York Cap-and-Invest: Too Many GHG Emissions?
A Joint Blog By Elizabeth B. Stein of the Institute for Policy Integrity and Nathaniel R. Mattison of the Guarini Center on Environmental, Energy & Land Use Law
New York’s 2019 climate law, the Climate Leadership and Community Protection Act (CLCPA), sets firm requirements for New York to reduce economy-wide greenhouse gas (GHG) emissions — but largely tasks regulators with designing programs to achieve them. Since the middle of last year, New York’s Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA) have been attempting to do just that, developing a cap-and-invest program known as New York Cap-and-Invest (NYCI).
Recently, the Institute for Policy Integrity and the Guarini Center on Environmental, Energy and Land Use Law submitted joint comments to DEC and NYSERDA regarding the agencies’ pre-proposal outline and modeling results for NYCI. In our comments, we strongly recommend that DEC and NYSERDA take additional steps to improve NYCI’s design, and to bring the state’s overall climate program into alignment with CLCPA requirements. Our colleague, Michelle Fleurantin, has written a blog post addressing how NYCI program rules can be designed to account for environmental justice risks. In this post, we focus on how NYCI (as currently described) is insufficient to achieve legally mandated GHG emissions reductions, and on the urgent need for state agencies to develop complementary programs.
NYCI’s Insufficiency
At this time, DEC and NYSERDA have not presented a NYCI program that puts New York on track to meet the CLCPA’s firm GHG emissions reduction requirements. Under the law, New York is required to reduce GHG emissions to 60% of 1990 levels by 2030, and to 15% of 1990 levels by 2050. The auction price scenarios modeled by DEC and NYSERDA, however, lead to 2030 GHG emissions from NYCI-obligated economic sectors that exceed those sectors’ share of the 2030 statewide GHG emissions limit by 15–17%.
If NYCI’s price on GHG emissions will not unlock the necessary emissions reductions for the CLCPA’s first compliance deadline (2030), DEC, NYSERDA, and other state agencies must act immediately to deploy complementary programs that make up the difference. But the state has provided little evidence of such action — and 2030 is nearly upon us.
New York must change tack now.
Complementary Programs Needed
To craft complementary programs that accomplish what NYCI’s market mechanisms, on their own, do not, DEC and NYSERDA will need to identify the types of emissions sources that are less likely to respond to anticipated NYCI GHG allowance prices, understand why those sources may be hard to influence through NYCI prices alone, and design programs that overcome those sources’ specific barriers to decarbonization. DEC and NYSERDA should analyze these issues in coordination with other state agencies, all of which are required by the CLCPA to promulgate regulations to help achieve the statewide GHG emissions limits. The state’s 2022 Scoping Plan provides a robust menu of policy options that could complement NYCI, such as building energy benchmarking and disclosure policies, and zero-emission standards for heating equipment.
The buildings sector — New York’s single largest source category of GHG emissions — includes many examples of potentially hard-to-influence sources. For example, in some cases, building owners may not experience NYCI’s price signals because building energy costs are paid by tenants. Yet, the Agencies’ analyses lack the granularity needed to shed light on which buildings will be hardest to decarbonize, how they may be geographically distributed, and how their decarbonization barriers can be addressed.
For instance, the Agencies presented results for “residential buildings” that appear to conflate single-family homes with apartment buildings of all kinds. Further, their modeling does not address the possibility that different regions of the state will electrify at different rates due to price signals that exist outside the NYCI program. Finally, the Agencies have released no modeling results that address the interplay between NYCI and New York City’s own GHG emissions reduction program for buildings, Local Law 97. The Agencies need to dig into these questions, both so that they can better craft complementary policies that support progress toward meeting New York’s GHG limits, and also so that they can better address buildings’ co-pollutant impacts on environmental justice communities, such as through reductions in particulate matter and smog-forming nitrogen oxides.
Another sector where NYCI GHG allowance prices alone are unlikely to change behavior is the natural gas sector. Natural gas utilities, for the most part, will not experience the effects of NYCI’s GHG allowance prices on their fuel costs because they pass all such costs on to their customers. Meanwhile, gas utilities’ business model relies on capital investment in infrastructure for profitability, so they have an inherent incentive to build extensive infrastructure and use as much of it as possible for as long as possible. When infrastructure or equipment is retired early, the remaining costs associated with financing those assets can be considered “stranded.” Current natural-gas-related emissions would by themselves exceed economy-wide limits for 2050. Unfortunately, despite the central importance of the natural gas sector in achieving the emissions limits set forth in the CLCPA, the law does not expressly modify gas utilities’ traditional obligations and business opportunities with respect to infrastructure buildout.
Thus, NYCI price signal or no, gas utilities still have powerful reasons to continue with business as usual for as long as they can, kicking the stranded cost question into the indefinite future. Meanwhile, although the CLCPA obligates the Public Service Commission (New York’s utility regulator) both to align its decisions with the CLCPA’s economy-wide GHG limits and to promulgate regulations that help achieve those limits, neither the CLCPA nor the ensuing Scoping Plan have provided specific, numerical expectations for the natural gas sector’s share of those limits. As a result, while DEC and NYSERDA’s NYCI “program leanings” can be compared with CLCPA and Scoping Plan benchmarks and evaluated for deficiencies, the Public Service Commission has struggled to analyze gas utilities’ long-term gas system plans’ alignment with CLCPA requirements in the absence of gas sector targets.
To provide a basis for meaningful evaluation, state energy and environmental regulators should, at a minimum, develop plausible expectations for the future role and extent of natural gas utilities’ contribution to statewide emissions that are compatible with meeting 2030 and 2050 statewide emissions limits. Only with the help of such benchmarks can agencies and stakeholders compare actual or projected utility performance to something concrete. On that basis, they can then discern whether gas utilities are moving in a direction that is in alignment with state policy, or whether a course correction is needed.
Understanding the drivers of excess emissions under NYCI, and designing ways of addressing them, will not be New York regulators’ only tasks in the months ahead if they want to ensure the success of the state’s climate program. For one, agencies will need to develop better strategies to manage energy affordability risks that low- and middle-income households may face due to NYCI. They will need to design programs to effectively and fairly invest NYCI auction proceeds. They also will need to partner and coordinate with local governments to ensure state and local initiatives work together (and not at cross-purposes). And, they must ensure that environmental justice communities will see pollution burden reductions and health quality gains in the years ahead. Our comments explore these issues in more detail. Implementing economy-wide changes was never going to be easy, but the state must intensify its efforts if it is to meet its CLCPA obligations and the urgency of our climate moment.
