Structuring the NYS Cap-and-Invest Emissions Auction Market

Natural Gas Focused Webinar on Policy and Price Considerations for New Emissions Market

On Tuesday, June 6, the New York State Department of Energy Research & Development Agency (NYSERDA) and the Department of Environmental Conservation (DEC) held their second webinar as part of a stakeholder outreach series on developing new rules, regulations, and pricing emissions for New York’s “Cap-and-Invest” program.

The Climate Leadership and Community Protection Act (CLCPA) provides for an economywide “Cap-and-Invest” program to reduce New York’s greenhouse gas emissions (GHG) by 85% below 1990 levels by 2050 and 100% zero-emissions electricity by 2040. The plan also calls for the electric grid to run on 70% renewables by 2030 including:

· 9,000 MW of offshore wind by 2035

· 6,000 MW of distributed solar by 2025

· 3,000 MW of energy storage by 2030

· 185 TBtu on-site energy savings by 2025

The DEC and NYSERDA are developing the new emissions credit auction program to meet GHG reduction and equity requirements. According to the regulators, large-scale GHG emitters and distributors of heating and transportation fuels will be required to purchase allowances for the emissions associated with their activities. The objective is to “incentivize” businesses and other entities to transition to lower-carbon alternatives.

New York envisions using the proceeds from the new fees in two ways.

First, a “Consumer Climate Action Account” will be created to deliver at least 30% in future Cap-and-Invest proceeds to New Yorkers every year to mitigate consumer costs.

Second, a “Climate Investment Account” will direct the remaining two-thirds of future Cap-and-Invest proceeds to support the transition to a less carbon-intensive economy.

The state agencies are proposing three regulations to implement an economywide Cap-and-Invest program (NYCI) which entail:

· DEC Mandatory Greenhouse Gas Reporting Rulemaking (Part 253)

· DEC Economywide NYCI Rulemaking (Part 252)

· NYSERDA Auction Rulemaking (Part 510)

Moreover, New York policymakers identified GHG auction program terms and conditions utilized in California as their guiding principles to design market regulations and compliance tracking requirements.

Policymakers indicated that, “All GHG emissions would be accounted for under the program and the cap must reduce at a rate to achieve the statewide GHG emission limits.”

This means everything from ground transportation to heating, cooling, and distribution networks must all track and report their fuel consumption. Source of fuel origin details would also be required for electric power generated in-state or imported from other areas.

The biggest implication yet to be quantified is the cost of the GHG auction credit. The regulators appear to be applying a “supply-side” economics approach, whereby the price of each GHG credit will be set based on the demand of limited supplies. It follows that the price of each emissions credit will increase over time as the amount of emissions credits decrease-or are taken off the market.

When asked, “who would be responsible for paying for compliance,” one regulator said, “The responsibility is with natural gas suppliers, mainly utility companies, will pay.”

Questions arose as to whether the state should consider the impact of “power generation retirements ahead of and against Climate Action Plan emissions goals and reliability standards.”

In other words, what happens if current power plants retire as per the state’s climate plan and there is not enough zero-emission electricity to replace it? Policy makers are essentially asking stakeholders, “What should the Empire State do under a reliability-clean power gap scenario?”

Additional questions were raised as to whether emissions targets would be flexible to protect the economy. One policymaker said, “No. Emissions targets will be set regardless of economic conditions.”

Another rule-maker asked a similar, yet different question related to financing institutions, seeking feedback on “bank financing provisions” and whether banks should have an “adjustment” threshold to protect their bottom line.

At present, there are more questions than answers on the Cap-and-Invest program. Hence, the purpose of the Climate Action stakeholder webinar series which started on June 1, 2023, and concludes on June 22, 2023.

A full list of webinars with presentation materials are accessible here or under this link <<https://capandinvest.ny.gov/Meetings-and-Events>>.

To comment on the proposed Cap-and-Invest program, click here or visit the following link: www.capandinvest.ny.gov