Independent Researcher and Publisher,
Pragmatic Environmentalist of New York
Roger Caiazza says New York’s new Climate Leadership and Community Protection Act will cost the electric sector (ratepayers) more than $25 billion.
I have written previously on the Regional Greenhouse Gas Initiative (RGGI) investment report such as The Investment of RGGI Proceeds in 2016 in this post. This post covers the analogous New York State Energy Research and Development Authority (NYSERDA) report New York’s RGGI-Funded Programs Status Report – Semiannual Report through December 31, 2018 (“Status Report”). I believe that the reported benefits for these investments fall far short of what is necessary to meet the RGGI reduction goals and are a warning sign that the Climate Leadership and Community Protection Act goals are going to be even tougher to meet.
I have been involved in the RGGI program process since its inception. I blog about these details of the program because very few seem to want to provide any criticisms of the program. 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.
RGGI is a market-based program to reduce greenhouse gas emissions. It is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector. The program sets a limit on CO2 emissions and auctions allowances for each ton in the cap. As the cap is ratcheted down over time emissions necessarily have to go down. The auction proceeds are used for investments in CO2 emissions reductions.
According to the NYSERDA Status Report:
The State invests RGGI proceeds to support comprehensive strategies that best achieve the RGGI CO2 emission reduction goals. These strategies aim to reduce global climate change and pollution through energy efficiency, renewable energy, and carbon abatement technology. Deploying commercially available renewable energy and energy efficiency technologies help to reduce greenhouse gas (GHG) emissions from both electricity and other energy sources in the short term. To move the State toward a more sustainable future, RGGI funds are used to empower communities to make decisions that prompt the use of cleaner and more energy-efficient technologies that lead to lower carbon emissions as well as economic and societal co-benefits. RGGI helps to build capacity for long-term carbon reduction by training workers and partnering with industry. Using innovative financing, RGGI supports the pursuit of cleaner, more efficient energy systems and encourages investment to stimulate entrepreneurial growth of clean energy companies. All of these activities use funds in ways that accelerate the uptake of low-to-zero emitting technologies.
That is the theory. In practice the results have been mixed and even environmental advocacy organizations have voiced their displeasure. For example, Environmental Advocates of New York (EANY) recently released a report, “RGGI at a Crossroads”, that details the allocation of funds raised by the Regional Greenhouse Gas Initiative (RGGI) in New York State. I published a post that agreed with their findings. The overview for RGGI at a Crossroads states:
“For the past seven years, the Cuomo Administration has used funding made available to New York through the Regional Greenhouse Gas Initiative (RGGI) for some authentic climate mitigation purposes as well as some highly questionable ones. While programs like Green Jobs – Green New York, 76West, and the Drive Clean Rebate owe their success to RGGI funding; the Governor has also diverted RGGI funds to subsidize power rates for Long Islanders and plug budget holes. These diversions are bad policy precedents that squander the opportunity to better the environment. An upcoming revision to state regulations offers the Governor an opportunity to take his hand out of the cookie jar and invest RGGI proceeds in a way that will propel New York to the forefront of climate justice.”
However, while I agree that if RGGI is supposed to be a CO2 reduction program that the auction proceeds should only be used for CO2 emissions reductions, I am less impressed with the value of their investments than EANY as I will show in the following.
Social Cost of Carbon
In order to put the value of RGGI investments in context of potential benefits some background on the social cost of carbon (SCC) is necessary. Regulators necessarily have to balance costs and benefits. This parameter was developed to estimate the cost of the long-term (that is to say hundreds of years) damage done by a ton of carbon dioxide (CO2) emitted today. This dollar figure also represents the benefit of a CO2 reduction.
I have posted on some of the issues with this parameter but for the purposes of this post you need to know that the values range widely depending on assumptions. For example, if you use a discount rate of 3% and consider global benefits like the Obama-era Environmental Protection Agency (EPA) did then the current SCC value is $50. On the other hand, the current Administration EPA SCC value for SCC is $7 for a 3% discount rate and $2 for a 5% discount rate that represents only benefits to the United States. Needless to say, New York’s preference is to use the $50 value.
December 2018 Semi-Annual Report Status Report
According to the Status Report, New York State has accumulated $1,184,631,180 either from direct auction proceeds from the sale of more than 366 million CO2 allowances or interest earnings as of December 31, 2018. Note that while the allowance prices are increasing over time the total number of allowances sold is decreasing. For the three-year control period ending in 2011 144,305,904 allowances were sold but in the control period ending in 2017 only 72,401,365 were sold. The increase in allowance costs does not offset the drop in allowances sold so annual proceeds are decreasing over time.
The Status Report 2018 Investment Summary Table 1 deserves special comment. The lifetime net energy savings 62,466,470 mmBtu, renewable generation 8,243,824 MWh, net efficiency electricity savings 17,446,899 MWh, and net CO2 emissions reductions of 20,762,489 tons are all big numbers. When you consider that total investments are $558 million you could be led to believe that the cost benefit ratio dollars invested per ton of CO2 reduced is $26.88. That is well below the NY SCC target of $50. However, using expected lifetime savings is bogus.
The CLCPA has a target to reduce annual CO2 emissions to zero compared to the 1990 emissions. The key is that we need to know what the program investments do to annual emissions. The New York State Energy Research and Development Authority Patterns and Trends document provides CO2 emissions data and that shows that in 1990 the NY total was 235.8 million metric tons. In order to assess progress against that goal annualized reductions are the only ones that matter so the only cost benefit values that matter are for annual reductions.
The Status Report 2018 Investment Summary Table 2 and Table 2 notes provides the information necessary to determine progress relative to the goals. There are six program categories: Green Jobs – Green New York, Energy Efficiency, Renewable Energy, Community Clean Energy, Innovative GHG Abatement Strategies, and Clean Energy Fund. The Consolidated Summary of Expected Cumulative Annualized Program Benefits through 31 December 2018 table summarizes the benefits and costs for those categories. Note that the cost benefit ratio is $463.54, nearly ten times the NY SCC value.
Green Jobs – Green New York
As shown in my Consolidated Summary table total program costs were $172.5 million through the end of 2018 for programs that reduced CO2 264,048 tons for a cost benefit ratio of $653.29 per ton reduced. Green Jobs – Green New York provides “funding for energy assessments, low-cost financing for energy upgrades, and technical and financial support to develop a clean energy workforce”. It is administered by NYSERDA and made available by the Green Jobs – Green New York Act of 2009. As I recall the administrative costs associated with this program are notable.
As shown in my Consolidated Summary table total program costs were $260.2 million through the end of 2018 for programs that reduced CO2 611,898 tons for a cost benefit ratio of $425.23 per ton reduced. These programs provide “comprehensive energy efficiency services for single and multifamily existing buildings and new construction, including low-income households”. RGGI funds are provided to the Long Island Power Authority support energy efficiency programs administered by PSEG Long Island. RGGI funds were also used to “fill gaps in residential energy efficiency services, offering incentives to implement energy efficiency measures related to petroleum fuel opportunities, or opportunities on Long Island and municipal electric districts”.
As shown in my Consolidated Summary table total program costs were $79.9 million through the end of 2018 for programs that reduced CO2 144,408 tons for a cost benefit ratio of $553.29 per ton reduced. One program in this category tries to increase the use of biomass for renewable heating. NY-Sun provides “declining incentives for the installation of systems and works to reduce solar electric balance-of-system costs through technology advancements, streamlined processes, and customer aggregation models” with a goal to “achieve a sustainable solar industry that does not depend on incentives”.
There is another solar incentive program that funded “221 solar electric system installations outside of Long Island”. The Advanced Renewable Energy Program supports “projects that foster the market introduction of a broad range of promising new and advanced renewable energy technologies, including advanced biomass, tidal, and offshore wind technologies”.
Finally, in a vivid example of Cuomo Administration creative accounting, RGGI funds the New York Generation Attribute Tracking System that records “electricity generation attribute information within NYS, and processes generation attribute information from energy imported and consumed within the State as a basis for creating tradable generation attribute certificates”. Although there is a tortuous path linked to emission reductions linked to this program it really is an example of the type of program that really should be funded by the State and not RGGI that the EANY RGGI at a Crossroads report described.
Community Clean Energy
As shown in my Consolidated Summary table total program costs were $21.8 million through the end of 2018 for programs that reduced CO2 130,662 tons for a cost benefit ratio of $166.84 per ton reduced. There are seven component programs in this general category. It is notable that this category’s emphasis on funding specific GHG reduction projects makes this most cost-effective program area.
Mind you the Reforming the Energy Vision Campus Competition Program component award for Bard College’s Micro Hydro for Macro Impact project that will use local dams to develop micro hydropower is probably not going to help much meet the CLCPA target. The Status Report breathlessly notes that “the project is expected to avoid 335 metric tons of GHG emissions annually, equivalent to taking 70 cars off the road”.
Innovative GHG Abatement Strategies
As shown in my Consolidated Summary table total program costs were $6.2 million through the end of 2018 for programs that reduced CO2 1,804 tons for a cost benefit ratio of $3,436.81 per ton reduced. This includes a longer-term Industrial innovations program that “supports development and demonstration of technologies with substantial GHG reduction potential and technologies relevant to NYS manufacturing industries and building systems”.
Another creative accounting effort includes the Climate Research and Analysis Program that “supports research studies, demonstrations, policy research and analyses, and outreach and education efforts”. According to the report these activities address “critical climate change related problems facing the State and the region, including the needs of environmental justice communities”. All well and good but this is a mission of NYSERDA and should be funded out of the Administration’s budget and not detract from the RGGI mission to reduce CO2 emissions.
Also included in this program is the Clean Energy Business Development program that “seeks to support emerging business opportunities in clean energy and environmental technologies while maintaining the goal of carbon mitigation”. Perhaps I have been reading to much of this but I am getting a wift of crony capitalism for the well-connected in Albany. There are several programs similar to those listed here.
Clean Energy Fund
As shown in my Consolidated Summary table total program costs were $17.4 million through the end of 2018 for programs that reduced CO2 50,961 tons for a cost benefit ratio of $341.44 per ton reduced. This program area is not described in the document.
Cost Recovery Fee
For your information, this is another example of New York State bureaucracy at its best. The New York State Cost Recovery Fee is imposed on the New York State Energy Research and Development Authority (NYSERDA) by law to reimburse the State for the cost attributable to the provision of central government services to NYSERDA. The available RGGI funding budget at the end of 2018 is $1.245 billion and $11.9 million is reimbursed to the state for the privilege of adding money for reducing emissions.
There is a wide range of cost benefit ratios for the six program areas. At the high end Innovative GHG Abatement Strategies have a cost benefit ratio of $3,347 per ton reduced and the at the low end Community Clean Energy has a cost benefit ratio of $167 per ton reduced. Overall the cost benefit ratio was $464. The cost benefit ratios can be used to estimate the total costs to meet the CLCPA target to eliminate CO2 emissions from the NY electric sector. The Status Report cost to reduce NYS fossil fuel 2018 CO2 emissions to zero table multiplies the 2018 CO2 emissions from the electric sector (27,786,614 tons) by the cost benefit ratios. If NY eliminates CO2 emissions using the approaches in use for the RGGI investments, the total costs range from $4.6 billion to $95 billion with an overall cost of $12.9 billion.
Another important point is that there is likely a reason for the range of cost benefit ratios. At the high end, the GHG Abatement Strategies category emphasizes long-term research and development. Because this research could make a cost breakthrough the investments make sense. Looking at the other categories it appears that the more investments are focused on direct reductions rather than indirect investments the better the cost benefit ratio. For example, the best ratio is in Community Clean Energy and that category includes direct support for renewable energy projects.
Although the Renewable Energy category would seemingly meet the criteria for direct support, remember that the Cuomo Administration has diverted funds for other program areas that do not directly support climate mitigation efforts. The Energy Efficiency category is a better example of indirect support. Investments in this category do not directly reduce emissions. Instead reducing energy use reduces the need for energy production and indirectly reduces emissions.
The most important conclusion is that none of the NYSERDA investments of RGGI auction proceeds meet the social cost of carbon criterion of a cost-effective benefit. New York proposes to use the Obama era SCC value which is $50 in 2019 and the best investment category cost benefit ratio is three times greater than that value. The cost benefit ratio for all the investments is over nine times greater than the $50 SCC value.
I also believe that there are important ramifications to the apparent reason for the range of cost-benefit ratios. I think that the more focus on direct investments in emission reductions the better the ratio. On one hand it could be seen as intuitively obvious but the point is that carbon pricing proposals rely on a completely indirect impetus for emission reductions. As such those proposals, as theoretically appealing as they may be, may be much less cost effective than suggested.
The Status Report includes a table that lists the expected lifetime benefits of the projects. Because our primary concern is meeting annual limits those numbers are at best a distraction and at worst a coverup attempt of the poor return on investments.
Finally, the total costs are staggering. I estimate that the projected costs will be over $25 billion for just the electric sector to meet the CLCPA targets. If NY relies on the approaches used by NYSERDA for the RGGI investments to eliminate fossil fuel CO2 emissions, the overall cost is $12.9 billion. I earlier made an estimate of the costs for energy storage if fossil fuels generation is eliminated and that came out to $12.5 billion.
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