Comments of the Green Education and Legal Fund on New York’s Cap-and-Invest Program
Mark Dunlea, chair, GELF, 156 Big Toad Road, Poestenkill NY 12140. www.gelfny.org
June 29, 2023
These comments are being submitted by the Green Education and Legal Fund with respect to the development of a cap-and-invest program in NYS.
GELF remains opposed to such cap-and-trade programs, as outlined below. We instead prefer a carbon tax as the most effective and equitable form of carbon pricing. The Congressional Research Service found that NY’s existing cap-and-trade program, RGGI (Regional Greenhouse Gas Initiative), had not been effective in reducing emissions, though the use of permit revenues to fund renewables had been beneficial.
Most cap-and-trade programs have failed to achieve their initial emission reduction goals. A prime reason is the elected officials invariably weaken the targets at the last moment due to pressure from the fossil fuel industry and their backers. We unfortunately recently witnessed such an attempted capitulation by Governor Hochul during the recent budget negotiations, a retreat that was supported by the heads of both DEC and NYSERDA.
GELF generally supports the comments submitted by Earth Justice on the issue of agriculture in cap and invest. “While DEC has indicated that agriculture is likely to be a non-obligated source, the NYCI program should consider any agricultural facility that exceeds the threshold emissions limits for the cap-and-invest program to be an obligated source. Neither New York nor the U.S. will be able to achieve our climate goals without accelerating the transformation of agriculture to more climate-friendly practices…Given that agriculture is an immense and concentrated source of GHG emissions, the NYCI should require the largest animal operations in the state to participate in the cap-and-invest and reporting programs.”
Offset Increase in Price of Fossil Fuels with at least a 60% rebate
The International Monetary Fund estimates that the world governments provide an annual $6 trillion subsidy to the use of fossil fuels. The vast majority of the subsidy is due to the failure of government to make polluters pay for the damages their emissions cause, instead allowing these costs to be shifted to taxpayers and consumers. Carbon pricing helps end such subsidies, provided that the price reflects the actual costs (estimated by DEC to average $121 a ton).
Carbon pricing raises the price of fossil fuels and its products. Having the use of fossil fuels reflect their actual costs makes renewable energy comparatively cheaper and speeds up the transition to renewable energy, conservation, and battery storage. In order to protect consumers from such price increases, especially low- and middle-income individuals who spend a higher percentage of their income on energy, there needs to be a strong targeted rebate. The 1/3 of revenue proposed by Hochul is inadequate and needs to be significantly increased.
NY Renews in the polluter pay bill outlines several alternative ways to provide rebates other than through the tax system, which is important since many low-income households have less interaction with the state tax system. Households who struggle daily to pay for essentials such as utility bills and rent will not be helped by a tax credit that is returned once a year. One of the few positive developments of the COVID crisis was that the government figured out a way to provide several stimuli checks directly to individuals. This would enable New York to adopt a similar approach for a carbon pricing rebate.
Rebates can include initiatives to assist households in decarbonizing their homes.
Cap-and-trade should not be the only major source of new climate funding for New York, which would allow for greater rebates than the Hochul administration has proposed. The Climate Superfund legislation passed by the State Senate would raise an estimated $3 billion annually from the 30 largest polluters in New York. Since much of these polluter payments would come from muti-state and multi-national gas and oil funds, the price increases are unlikely to be passed on to New York Consumers. Raising taxes on the wealthy is another mechanism to fund climate change.
Emission Reduction Targets need to be stronger than in the CLCPA.
At a minimum, NY’s cap-and-invest program should adopt the greenhouse gas emission reduction goal adopted by the Biden administration – 50 to 52% reduction by 2030 – rather than the outdated and inadequate goals still incorporated in the CLCPA (40% reduction by 2030). To meet such national goals, states led by Democrats need to adopt faster timetables to offset slower action in Republican-controlled states.
To increase the chances of New York avoiding climate collapse, we recommend a target of 70 to 80% reduction by 2030, with 100% reduction within the following decade.
The CLCPA unfortunately is largely based on a goal of keeping global warming at 2 degrees C; it built off a prior 2009 Executive Order. State lawmakers failed to change the emission reduction targets even after the rest of the world opposed the efforts by the US and other polluters to promote the 2-degree target in the Paris climate accord. The Intergovernmental Panel on Climate Change (IPCC) is now recommending a target closer to 50% reduction by 2030 (up from its prior target of 45%). It admits however that such targets are inadequate to keep global warming below 1.5 degrees C (the world will exceed that level within the next five years; it already occasionally exceeds 1.5 degrees). The inadequacy of the targets leads the IPCC to promote carbon capture technologies even though they recognize that decades of research and tens of billions of investments have failed to show it is viable.
The developed, industrial countries need to slash emissions much faster than the worldwide average, as developing countries will have higher emissions as they seek to catch up with the Global North in terms of raising their standards of living through economic development.
GELF Supports the Objectives NY Renews Sets Out for Cap and invest.
GELF generally supports the principles outlined by NY Renews as to what a cap-and-invest program needs to include:
- Generate funding for vital climate, jobs, and justice investments;
- Reduce energy bills for households and small businesses;
- Improve public health by investing in renewable energy systems that will cut rates of asthma, heart disease, and other illnesses, especially in Black, Brown, and low- income communities;
- Make our homes safer and more comfortable; and
- Help reduce the effects of extreme weather on our communities.
A cap and invest program only benefit New Yorkers if it’s implemented in a just way. NY Renews talking points on the need for key protections includes:
- Statewide pollution limits must decline every year in every sector, including the electric sector, and these limits must be strongly enforced.
- It must include facility-specific caps on greenhouse gas and co-pollutant emission in addition to a statewide pollution cap and sectoral caps.
- Greenhouse gas and co-pollutant emissions permits must be non-tradable, and must have aggressive penalties for exceeding cap levels. Permits must avoid loopholes that have weakened or undermined other efforts, including exemptions for any emissions and double allowances for facilities that utilize the same fossil fuel unit for multiple purposes, and avoid offsets and excessive banking. Polluters should not be permitted to play games with the system with any emissions offset regimes. Unused permits should not be banked year-on-year, and regulators must adjust the cap and invest program design as needed to minimize any banking. (Note: GELF in general opposes tradeable allowances.)
- Expenditures must not harm vulnerable New Yorkers. The cost burden for New Yorkers who can least afford it must not be made worse. The cap and invest program must include rebates and targeted relief for low- and moderate-income households to ensure energy bills go down.
- Permits should have a clear and escalating price, and there should be a policy to ensure both a price floor to ensure adequate revenue. There should be a higher price in Disadvantaged Communities and environmental justice areas. The price and regulations must be based on the CLCPA’s current 20-year cost accounting for methane. (GELF supports an initial floor of $60, rapidly rising to $120. See below.)
- Any cap and invest system must be part of a broader regulatory approach to reducing pollution and must ensure that New York can achieve the greenhouse gas reduction mandates in the CLCPA. Cap and invest must be complemented by other strong regulatory and enforcement tools.
- The system must include pollution reduction mandates for overburdened communities by agencies including the NYS Department of Environmental Conservation and the Attorney General’s office. In addition to a C&I system, we need a broad array of effective regulations and enforcement to reduce pollution.
GELF also shares the concerns raised by NY Renews about EITE and alternative compliance. (Note: NY Renews is still developing their positions in this and other areas.).
GELF supports requiring all such entities to reduce their emissions. GELF does not support any polluter (e.g., cement) paying less than the full price – one reason we support an across-the-board carbon tax. All polluters must be required to seek to eliminate their emissions.
CLCPA requires all polluters to be regulated, even though it only supports a net zero emissions reduction by 2050, which it defines as an 85% reduction. Climate advocates feel that “if the state was to allow any exemptions, free permits, or unregulated emissions, they must be transparently presented, accountable as part of the overall Scoping plan approach to the 15% flexibility mechanism, only apply as long as there is no current available compliance technology or mitigation approach, and should be time-limited and assessed with a clear regulatory process offering impacted communities and the broader New York Community the opportunity to assess their value. This MUST NOT be exploited for the gains of industry polluters.”
Any best available technology must not include carbon capture, sequestration, or alternative fuel combustion.
Set an Initial Floor for Carbon Permits at least $60 a ton, quickly ramping to $120.
The state should set a firm price for the greenhouse permits, rather than allowing the market to determine them. The state needs a high bottom floor for the cost of carbon. A carbon price is not only intended to raise revenues (at least in the short term before emissions decline) but to also raise the cost of using fossil fuels to make renewable energy even more cost effective.
GELF suggests an initial price (or at least a floor) of $60 a ton, ramping up within 4 to 5 years to the social cost of pricing set by the state Department of Environmental Conservation (presently $121 a ton). The European Union price has been around 100 Eurodollars in 2023.
GELF opposes allowing “the market” to set the price of carbon. That has been a complete failure in RGGI, with the present price still only $12 to $14 a ton despite DEC estimating that the average social cost of carbon is $121 a ton (much more for methane). As both Pope Francis and the IPCC have pointed out, capitalism and the market are a core cause of the climate crisis, Solving the climate crisis requires an economic system centered on the common good, not the maximization of profit.
The International Monetary Fund estimates that the annual worldwide fossil fuel subsidies by governments is $6 trillion. Most of this vast subsidy is due to governments not making fossil fuel users pay for the pollution damage they cause, starting with increased health problems. New York needs to finally end this major subsidy for fossil fuels (as well as the more than $1 billion in direct subsidies).
Cap and Trade Programs Routinely Fail to Achieve Emission Reduction Targets
Cap-and-trade programs (branded by the Hochul administration as cap-and-invest) have historically failed to effectively cut emissions, while often allowing pollution to continue and often increase in low-income and communities of color. Even Pope Francis has condemned such proposals as schemes to benefit Wall Street speculators. Virtually no support for a cap-and-trade version of carbon pricing was expressed during the three years of public input into the state’s climate scoping document. Cap-and-trade often fails because politicians weaken the cap on emissions at the last moment to appease the fossil fuel industry.
GELF recently published a primer on climate change, which includes a chapter on carbon pricing. Copied below is our analysis of cap-and-trade.
Cap-and-trade can lead to an overproduction of pollutants up to the maximum levels set by the government each year, since allowable levels may be set too generously, actually slowing the move to cleaner energy. Emissions credits and penalties are often cheaper than converting to cleaner technologies and resources, meaning that cap-and-trade is not a real incentive for those industries to change their practices.
California’s cap-and-trade program is one of the largest in the world and among the first. Although the state’s program helped it meet some initial, more easily attained benchmarks for emission reductions, many worry that it enables California’s biggest polluters to conduct business as usual and even increase their emissions. By 2019, carbon emissions from the state’s oil and gas industry actually rose 3.5% since the program began. Many say cap-and-trade is rarely stringent enough when used alone; direct regulations on refineries and cars are crucial to reining in emissions. Such programs usually include offsets, and offset programs largely don’t work.
Pope Francis in his climate change encyclical stated that “The strategy of buying and selling ‘carbon credits’ can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. … in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.”
A University of Southern California study of that state’s program showed that low-income communities and communities of color were less likely to see reductions in pollution and more likely to live near polluting plants that participated in cap-and-trade. Many studies have found that cap-and-trade programs can maintain or even worsen environmental disparities by allowing polluting industries, often in communities of color, to buy their way out of reducing their emissions.
Cap-and-invest has recently emerged as an alternative branding to cap-and-trade, putting more emphasis on the need to invest funds raised through the program into climate mitigation and adaptation efforts including renewable energy and funding targeting environmental justice communities. The State of Washington has adopted this, and New York is considering a similar plan.
Some studies have found that cap-and-trade systems “if well designed and appropriately implemented, can achieve their core objective of meeting targeted emissions reductions cost-effectively.” While proponents they argue that allowing that market to set the price will lower costs, they recognize that “a robust market requires a cap that is significantly below business-as-usual emissions.” They also stress the importance of the government being able to document the actual level of emissions, including before the program starts.
The Problems with Carbon Offsets
One key issue is whether companies can use verified emissions reductions generated outside the cap to comply. Governments and industry argue that such offsets can lower the overall costs of meeting the cap. For instance, agricultural and forestry projects can often reduce emissions at lower cost than industrial facilities. However, to be effective, offset projects must undergo rigorous verification procedures to ensure that emissions are actually reduced, and that only one entity takes credit for the offset.
Many studies have concluded that the emission reduction benefits of carbon offsets are greatly oversold and are not a substitute for reducing emissions. Many carbon offset efforts have focused on planting trees. Critics argue that continuing to dig up and burn fossil fuels and emitting fossil fuel emissions into the atmosphere, and then removing these by growing forests, does not actually reduce emissions or atmospheric concentrations over a century-long time scale, due to the length of time needed for trees to mature.
“Projects meant to regenerate Australia’s outback forests to store carbon dioxide have been awarded millions of carbon credits – worth hundreds of millions of dollars – despite total tree and shrub cover in those areas having declined,” a 2022 analysis has found.
Carbon emissions for fossil fuels are effectively permanent, remaining in the atmosphere for hundreds to thousands of years. In contrast, crops, soils, oceans, and forests are “fast-exchange” carbon reservoirs, with limited carbon storage capacity. They can re-release carbon back into the atmosphere over the course of a few decades, or sometimes even over a few days.
The Clean Development Mechanism (CDM) came out of the 1997 Kyoto Protocol, when dozens of nations made a pact to cut greenhouse gases. The program subsidized thousands of projects, including hydropower, wind and, even coal plants that claimed credits for being more efficient than they would have been. CDM became mired in technical and human rights scandals, prompting the European Union to stop accepting most credits. A 2016 report found that 85% of offsets had a “low likelihood” of creating real impacts. A 2015 study of another global program, Joint Implementation, found that 75% of the credits issued were unlikely to represent real reductions, and that if countries had cut pollution on-site instead of relying on offsets, global CO₂ emissions would have been 600 million tons lower. ProPublica found that investments in Reducing Emissions from Deforestation and Forest Degradation (REDD) were also plagued with numerous problems and failed to meet their stated goals; often they just attached the logo to an existing project to draw down more funding.