Roger CaiazzaNew York’s Climate Leadership and Community Protection Act (Climate Act) mandates that a scoping plan be developed to guide the next Energy Plan. In order to address particular draft scoping plan issues three subgroups have been setup to address particular issues. This article describes my initial impression of the economywide strategies subgroup. I am not sure why they did not simply refer to these strategies as carbon pricing mechanisms because that is what they are talking about.
Everyone wants to do right by the environment to the extent that they can afford to and not be unduly burdened by the effects of environmental policies. I submitted comments on the Plan and have written extensively on implementation of New York’s response to that risk because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that it will adversely affect reliability, impact affordability, risk safety, affect lifestyles, and will have worse impacts on the environment than the purported effects of climate change in New York.
New York’s Greenhouse Gas (GHG) emissions are less than one half one percent of global emissions and since 1990 global GHG emissions have increased by more than one half a percent per year. Moreover, the reductions cannot measurably affect global warming when implemented. 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 establishes a “Net Zero” target (85% reduction and 15% offset of emissions) by 2050. The Climate Action Council is responsible for preparing the Scoping Plan that will “achieve the State’s bold clean energy and climate agenda”. They were assisted by Advisory Panels who developed and presented strategies to the meet the goals to the Council. Those strategies were used to develop the integration analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants that tried to quantify the impact of the strategies. That material was used to write a Draft Scoping Plan that was released for public comment at the end of 2021. The public comment period on the Draft ended on July 1.
In order to address particular Draft Scoping Plan issues three Climate Action Council subgroups have been setup to address the following issues:
- Economywide strategies
- Alternative Fuels
- Gas System Transition
Each subgroup is supposed to develop a better understanding of their topic, focus on implementation issues, and then provide information to the full Council so that it can be incorporated into the Final Scoping Plan.
Public Comments
The Climate Action Council states that it will revise the Draft Scoping Plan based on comments and other expert input in 2022 with the goal to finalize the Scoping Plan by the end of the year. According to remarks made at the July 11, 2022 Climate Action Council meeting about 35,000 comments were submitted. If the Council were to truly consider public comments, then the comment review process would have been on-going. The State claims that they did not do that so it will be some time before the Council will start getting information from those submitted comments. It is unimaginable that the Council members will be able to review all the comments so it is very likely that they will rely on summaries written by agency staff.
It appears that each subgroup is taking a different approach to considering public comments relative to their topic. The alternative fuels workplan hopes to discuss public comments at their fifth meeting on July 27 and hope to finalize their framework at their eighth meeting in early September. The economywide strategies workplan holds off discussion of public comments until the sixth meeting on August 22. That is one meeting before the final scheduled meeting. The gas system transition workplan does not even mention public comment consideration. In my opinion, the alternative fuels workgroup is at least trying to consider public input. The economywide strategies workgroup is only paying lip service to public input despite the fact that the Draft Scoping Plan posed specific questions about the proposed strategies in the Plan. The alternative fuels workgroup does not apparently even want to consider public input.
Expert Input
The Climate Action Council has stated that it will revise the Draft Scoping Plan based on other expert input in 2022. I think there is a problem with their perception of expert input. The Climate Act itself is based on the opinionated expertise of the authors. Their expertise was over-confident, proscriptive, biased, and naïve. They over confidently presumed that a net-zero transition was simply a matter of political will. The law includes proscriptive mandates for specific amounts of different renewable energy technology. There is a bias against the only scalable, dispatchable, zero-emissions generating resource – nuclear power. The law naïvely assumes that untested technology will be available to meet their arbitrary schedule.
If it was apparent that the Council intended to incorporate unbiased outside expertise then I would not be worried. It is not surprising this is not the case given that some members were actively involved in the development of the language of the law so they apparently think that they don’t need any input from experts that may disagree with their pre-conceived notions. My biggest concerns are reliability and affordability. There is no workgroup addressing reliability and some vocal members have flatly stated that reliability in an electric grid that relies on renewables is not an issue. The deference of the Council leadership to these ideologues who haven’t the background, education or experience to have a worthwhile opinion on that subject is disappointing and the apparent lack of urgency to engage with the experts who do have that expertise is frightening.
I am only going to discuss the economywide strategies subgroup. In my comments on economywide strategies I made the point that that the relevant chapter was written to address specific issues raised by the Climate Action Council. The Draft Scoping Plan only considers three economy-wide approaches and not the possibility that not doing anything like this might be the better choice. As a result, the chapter gets bogged down into details about specific issues raised by council members rather than looking at whether the theory of a price on carbon has worked well in practice.
Economywide Strategies
According to the June 27, 2022 meeting presentation: “This subgroup will provide further evaluation and guidance regarding the three economy-wide approaches identified in the Draft Scoping Plan.”
At their second meeting, the results of a New York State Energy Research & Development Authority and Resources for the Future analysis were presented. Members of the Workgroup should keep in mind that the NYSERDA-RFF Carbon Pricing Project: Lessons Learned from the Literature Review and Policy Design Experience presentation is not a critical review of carbon pricing approaches. Instead, it describes the theory without regard to issues and summarizes three ways to implement a carbon pricing scheme. There are warning signs that should be highlighted and there are some misconceptions included in the presentation.
The first slide in the New York Policy Context section poses the question why jurisdictions pursue carbon pricing. It claims that “Pricing provides an efficient market signal to reduce emissions” and goes on to argue that:
- Does not require policy makers to pick technologies and creates incentives for private actors to make clean investments and reduce fossil fuel use
- Provides cost-effective implementation by investing in low-cost emissions reductions
- Internalizes the environmental cost of emissions in economic decisions
- Carbon pricing involves price stability that yields a behavioral response that is three times greater than market-driven price variations of the same magnitude (Andersson 2019).
The presentation claims that jurisdictions pursue carbon pricing because it “does not require policy makers to pick technologies and creates incentives for private actors to make clean investments and reduce fossil fuel use”. However, the later Carbon Fee versus Emissions Cap slide states “Recent emissions cap programs have opted for a cap-and-invest model which directs carbon revenues toward program-related investments to accelerate emissions reductions”.
Directing carbon revenues explicitly picks technologies contradicting this “benefit.” In my Draft Scoping Plan comments, I quoted Paul Homewood who made the point that “The only logical reason for a carbon tax is to reduce emissions. Such a tax might help to reduce energy consumption, but only at punitive levels, because energy demand is so inelastic.” Keep in mind that there aren’t any cost-effective retrofit technologies to reduce greenhouse gas emissions so the only way to reduce fossil fuel use is to convert energy consumption to a less emitting resource or reduce use.
The presentation claims that jurisdictions pursue carbon pricing because it “Provides cost-effective implementation by investing in low-cost emissions reductions”. One of the underlying presumptions in any carbon price program is that the funds received will be spent effectively. I have evaluated the results of the investments made by regulatory agencies to date in RGGI measured as the cost per ton reduced.
The RGGI states have been investing investments of RGGI proceeds since 2008 but their investments to date are only directly responsible for less than 5% of the total observed reductions. Furthermore, from the start of the program in 2009 through 2017, RGGI has invested $2,527,635,414 and reduced annual CO2 emissions 2,818,775 tons. The resulting cost efficiency, $897 per ton reduced, far exceeds the Social Cost of Carbon (SCC) that represents the value of reducing CO2 today to prevent climate change damages in the future.
Finally, the presentation claims that jurisdictions pursue carbon pricing because it “Internalizes the environmental cost of emissions in economic decisions”. The Draft Scoping Plan avoided societal costs from GHG emissions are the largest benefits claimed. In my comments on the Plan benefits I included a description of the SCC and the caveats associated with the alleged benefits.
The methodology calculates the benefits out to 2300 so they will accrue to the next 11 generations. Jurisdictions that cannot afford investment in resilient agriculture, sea-level rise mitigation, and disease prevention have larger impacts so the benefits will accrue to them rather than New York. The bottom line is that the costs are real but the internalized environmental benefits are mostly imaginary and will not accrue to New York in any event.
Misconceptions
There are misconceptions in two claims that carbon pricing has been successful that need to be addressed for a full understanding of economywide strategies.
The first claim states that “Murray and Maniloff (2015) find that RGGI has driven about half of the region’s emission reductions in the power sector since the program’s inception”. I disagree with conclusion. The Murray and Maniloff analysis relied on econometric modeling that assumes that compliance with the program is made more efficient by an allowance acquisition program that resembles commodities markets. In reality, based on my experience in the utility allowance trading business and discussions with my peers, the vast majority of companies treat allowance acquisition as simply a tax. Allowances are purchased in the auctions or on the secondary market based on short-term compliance needs. The over-riding concern is compliance and there is no efficiency gain due to the market.
In my opinion the Murray and Maniloff analysis assumed that companies would do things to reduce their CO2 emissions rather than just buying allowances as a tax. However, the only thing that affected sources could do is to improve combustion efficiency to use less fuel. Fuel costs are the over-riding driver for operating costs so plants have already looked into this and probably made the efficiency changes that they could afford so there were few opportunities left to become more efficient.
In addition, EPA’s New Source Review program can penalize old facilities that make efficiency improvements because they are concerned that they those improvements could extend the life of a higher emitting facility. Based on my experience and discussions with colleagues in the industry affected generating units did not do anything to explicitly control emissions for RGGI compliance. More importantly when this analysis observed facilities shutting down, they claimed that was due to RGGI. In fact, all the facilities that I am familiar with would have shut down even if RGGI were not in effect. For all these reasons I do not accept this reference as credible evidence for RGGI success.
There are two ways to determine why the emission reductions occurred using data and observations. The first way to determine why emissions dropped over this period is to evaluate the emissions data. I queried the database at EPA Clean Air Markets Division data and maps and downloaded emissions, load and heat rate data for the nine RGGI states for the years 2000-2018. In order to determine what fuel was used I had to use these data instead of the data in the RGGI system because the EPA data includes fuel type information. This means that there are differences in the annual totals because the EPA data set has more units in it. Prior to the start of RGGI I had to ask for data from “all programs” and for consistency kept that constraint even after the start of RGGI.
The RGGI Nine-State EPA Clean Air Markets Division Annual Emissions Data by Primary Fuel Type table lists load and CO2 mass data from 2006 to 2018. In order to establish a baseline, I used the average of the three years prior to the start of the program. The CO2 mass and load from coal-fired units went down over 80% from the baseline to 2018. The RGGI states have a relatively high concentration of residual oil-fired units and load and CO2 mass went down nearly as much. Diesel and other oil-fired units went down over 50%.
On the other hand, natural gas firing loads went up 35% and CO2 mass went up 43%. Because natural gas firing has much lower CO2 per MWhr emission rates the total CO2 mass went down 41% from my baseline to 2018. Because fuel prices are the primary driver of unit operations and because the RGGI allowance price was relatively small in comparison to the fuel price differential of natural gas relative to coal and oil I conclude that the primary driver of RGGI region CO2 emission reductions was fuel switching not RGGI.
The second way to determine the effect of RGGI is to use RGGI’s own information. The Investment of RGGI Proceeds in 2017 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. I recently calculated that the total annual reductions since the start of the program were: 4,014,410 MWh of electricity use avoided, 9,824,199 MMBtu of fossil fuel use avoided, and 2,818,775 short tons of CO2 emissions avoided.
The total reduction in load from the baseline until 2018 is 51,098,013 MWh so the direct investments of RGGI auction proceeds were responsible for 7.9% of the observed reduction in load. The total reduction in CO2 from the baseline until 2018 is 52,202,198 tons so the direct investments of RGGI auction proceeds were responsible for only 5.4% of the observed emissions reduction.
The second claims that “Carbon pricing involves price stability that yields a behavioral response that is three times greater than market-driven price variations of the same magnitude (Andersson 2019)”. The abstract states “This quasi-experimental study is the first to find a significant causal effect of carbon taxes on emissions, empirically analyzing the implementation of a carbon tax and a value-added tax on transport fuel in Sweden”.
This analysis modeled emission reductions with and without the carbon tax and then had to “disentangle” the carbon tax and the extension of a value-added tax to include gasoline and diesel. Based on my findings for RGGI this kind of modeling is prone to prove the pre-conceived notions of the researcher. He claims that this is the first quasi-experimental study to find a significant causal effect of a carbon tax on emissions. However, he admits and the NYSERDA-RFF presentation neglects to point out that:
This result is in contrast to earlier empirical studies that find no effect from the Swedish carbon tax on domestic transport CO2 emissions (Bohlin 1998, Lin and Li 2011), and the estimated reduction is 40 percent larger than an earlier simulation study finds (Ministry of the Environment and Energy 2009). In fact, my finding differs from all earlier empirical studies of carbon taxes, which find that the taxes have had very small to no effect on CO2 emissions in the countries that implemented them (Bohlin 1998, Bruvoll and Larsen 2004, and Lin and Li 2011).
Discussion
I believe that the answer to the Scoping Plan has always been in the back of the book. There never has been any intention to incorporate comments to revise the Draft Scoping Plan that did not comport with the Hochul Administration’s idea of what their political base wants. The first Climate Action Council meeting of the year was not held until the beginning of March thus wasting two months. There was no plan to process submitted comments on an on-going basis because there was no perceived need to address inconvenient comments. The “plan” to address comments promises to address them all but I predict that many substantive criticisms will essentially be ignored. The comment will be acknowledged but not addressed.
They are going through the motions with respect to the subgroups too. The three subgroups ostensibly will provide the rest of the Council their considered opinions of the issues and, I presume, recommendations on how to proceed. I am a student of market-based air pollution control programs so I am most familiar with the economywide strategies topic. Everybody who volunteered to be on this subgroup has a vested interest in adding carbon pricing to the recommendations for the Final Scoping Plan. They got a briefing from NYSERDA and RFF who both are biased towards the approach. I showed that their briefing presentation was prejudiced. There are unmentioned issues with carbon pricing and at least one of the examples described selectively chose results that supported their pre-conceived conclusions and ignored contrary evidence.
The economywide strategies subgroup workplan does not plan to consider public comments until their sixth meeting despite the fact that there was a specific request for comments on the economywide strategies chapter. The Draft Scoping Plan chapter on the topic was written to cater to Council member comments and suggestions and I showed above that the presentation did not suggest that there might be issues associated with a carbon pricing scheme. As a result, I believe that the final recommendation will reflect the agendas of Council members rather than the best interests of New York. However, I think that their recommendations may not be in the back of the book.
Conclusion
Based on my experience and observations of trading programs the only way for a carbon pricing scheme to actually reduce emissions is to set the price at punitive levels. Consider that in the most recent legislative session the Climate and Community Investment Act intended to provide funding for the Climate Act never made it out of committee. At this time there is $2.3 billion in utility debt statewide and one in six households is more than two months behind on utility bills. When gasoline prices went up this year the Governor suspended motor fuel and diesel motor fuel taxes because:
“Fuel prices have surged in recent months, hurting working families and small businesses the most, and it is crucial that we provide New Yorkers relief,” Governor Hochul said. “By suspending certain fuel taxes for the next seven months, New York is providing some $609 million in direct relief to New Yorkers — a critical lifeline for those who need it most. At a time when families are struggling because of economic headwinds and inflation, we will continue to take bold action to reduce the economic burden on New Yorkers and get money back in their pockets.”
I cannot imagine a scenario in which the proponents of carbon pricing can ever sneak a scheme through that would have a high enough cost to actually reduce carbon emissions without immediate political pushback. The answer in the back of the book for economywide strategies is most likely pay lip service to it but don’t do anything that will give political ammunition to the opposition.
Finally, note that I did submit a letter to subgroup members based largely on this material. I do not expect any response but if I do hear something I will update this post.
Roger Caiazza blogs on New York energy and environmental issues at Pragmatic Environmentalist of New York. This represents his opinion and not the opinion of any of his previous employers or any other company with which he has been associated.