On December 20, 2023, the New York State Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA) released a pre-proposal outline of New York State’s Cap-and-Invest Program and Mandatory Greenhouse Gas (GHG) Reporting Program.
The programs aim to achieve the economy-wide greenhouse gas emission reductions of 40% by 2030, and at least 85% from 1990 levels by 2050, as mandated by the Climate Leadership and Community Protection Act of 2019 (CLCPA).
As described by Basil Seggos, Commissioner of the DEC, “New York State will set a statewide cap on climate pollution. Every year the cap will be set lower to align with our climate goals, protecting the health of New Yorkers and our environment.”
The CLCPA amended the Environmental Conservation Law to provide DEC authority to establish a mandatory registry and reporting system from individual sources to obtain data on GHG emissions and to promulgate regulations to achieve the statewide emissions limits. The CLCPA also requires NYSERDA to issue regulations to “contribute to achieving” such statewide emissions limits. In many places, the outline seeks to align with recommendations made in the New York State Climate Action Council Scoping Plan released last December.
The outline does not contain final program decisions, but only “preliminary program leanings.” Stakeholder input and ongoing analyses will inform the final draft regulations, which will in turn be subject to public notice and comment before becoming law.
The programs will consist of three components:
- Mandatory GHG Reporting Program Rule (to be promulgated by DEC) – Identifies the types of emissions sources that would need to report their emissions to DEC, the emissions or activity thresholds that would trigger such reporting requirements, and further establishes a GHG emissions registry and reporting system.
- Cap-and-Invest Rule (to be promulgated by DEC) – Establishes compliance obligations and identifies the types of sources that would have such obligations; identifies which GHG emissions would be subject to reporting requirements, addresses GHG emission allowances, non-obligated GHG emissions, energy-intensive and trade-exposed industries, and measures to ensure program stability and cost containment.
- Auction Rule (to be promulgated by NYSERDA) – Describes the operation of the cap-and-invest allowance auctions, mechanisms to (i) protect the integrity of the allowance market, (ii) prevent market manipulation, and (iii) provide cost containment and program stability.
Mandatory GHG Reporting Program Rule
The Mandatory GHG Reporting Program Rule would have a broader reach than the Cap-and-Invest Rule. Not all reporting entities would be subject to the Cap-and-Invest Rule and not all reported GHG emissions would be “obligated GHG emissions” requiring the purchase of allowances.
DEC may require more emission sources to report than are currently required by the U.S. EPA’s GHG Reporting Program, including emissions from biogenic combustion and upstream/out-of-state fossil fuel facilities.
Sources would need to report their emissions if they are owned or operated in New York State and meet one of the following categorical thresholds: (1) a specific source category (e.g., Regional Greenhouse Gas Initiative (RGGI) sources, electricity importers); (2) a source responsible for more than 10,000 metric tons of CO2 equivalent GHG emissions in a year; or (3) a specific source category with a specific operational activity (e.g., landfills, centralized waste water treatment, manure storage).
For the third category, DEC is seeking feedback on whether a GHG emission threshold would be more appropriate than an activity or volume-based threshold (e.g., volume of manure managed).
Cap and Invest Rule
This rule would establish the annual enforceable GHG emissions cap, which would decline over time consistent with the CLCPA’s statewide GHG emission limits: 245.87 MMT CO2e GHG emissions in 2030 and 61.47 MMT CO2e GHG emissions in 2050. DEC anticipates a non-linear reduction with more gradual reductions in early years and accelerated reductions as the applicable deadline approaches.
The first two-year compliance period would be from 2025 to 2026, with subsequent compliance periods consisting of two or three years.
The rule proposes source-specific thresholds that would trigger the need to purchase allowances: e.g., for Stationary GHG Emissions Sources (25,000 metric tons of CO2e) and for Fuel Suppliers (100,000 gallons of liquid fuel or 15,000,000 standard cubic feet of gaseous fuel sold to an end user in New York State). For entities that have GHG emissions in multiple subsectors (e.g., industrial entities with fuel combustion and process GHG emissions), the allowance obligation threshold would apply collectively.
The agencies have not set forth any electricity sector obligations and are seeking public input on that subject. In response to the outline, Anne Reynolds, Executive Director of the Alliance for Clean Energy New York (ACE NY), reaffirmed ACE NY’s position that “the cap-and-invest policy should include the electricity sector.”
Auctions would be the primary way that allowances would be available to sources subject to the Cap-and-Invest Rule. The annual number of allowances issued would reflect the GHG emissions cap less any adjustments for emissions from non-obligated entities and for any applicable banking adjustments.
To mitigate risk of leakage, certain sources in emissions-intensive and trade-exposed (EITE) industries would be allocated a limited amount of allowances at no cost.
These allowances would be consigned to the NYSERDA-administer auctions and the proceeds from the sale of such consigned allowances would accrue to the EITE sources. The EITE sources would simultaneously submit bids like any other entity for the volume of allowances they seek to purchase. If the EITE sources ultimately need fewer allowances than the allowances originally allocated to them, they would generate net proceeds from the auction, effectively rewarding such facilities for reducing GHG emissions faster than the allocation decline.
Utilities similarly would be allocated a number of consigned allowances and receive proceeds from their sales in the auction so long as such proceeds were used to promote affordability for the utilities’ ratepayers.
Importantly, there would be a price floor and ceiling, as well as a cost containment reserve to make more allowances available if prices reach a certain threshold. After the first compliance period, allowances would not expire and could be banked for use in subsequent years.
Offsets would be prohibited in order to ensure no disproportionate impact on disadvantaged communities (DACs). The agencies are considering other regulatory mechanisms to protect DACs, including facility-specific emissions caps for sources located in or near DACs.
Auction Rule
NYSERDA would design and administer the allowance auctions, which would be held at least quarterly with 60 days prior notice. Consistent with RGGI, the auction bidding format would be a single round, sealed-bid, uniform price auction.
Among other measures, NYSERDA would prohibit specific collusive activities, establish auction purchase limits and holding limits to prevent the exercise of market power, and retain a professional market monitor.
Next Steps
DEC and NYSERDA will be holding a series of webinars and workshops in late January 2024 to gather feedback on the pre-proposal outline. No firm deadline has been established for submitting comments, which may be submitted through an online portal. Once this second stage of outreach is complete, DEC and NYSERDA will assess the input received and issue a regulatory proposal. This will be followed by a formal comment period and public hearings, further assessment of those public comments, and then issuance of the final regulations.
