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New York State turns to Cap-and-Invest to achieve Net Zero


On 19 December 2022, the New York State Climate Action Council adopted a Scoping Plan that proposes a range of policies and actions to meet the State's carbon neutrality goal in 2050. Among the recommendations, the Council proposes an economy-wide cap-and-invest program designed to reduce emissions cost-effectively, mitigate leakage, and direct investment towards clean technologies and disadvantaged communities.

The Scoping Plan is the culmination of a series of advisory panels, cost-benefit analyses, and public consultations that began back in 2019, after the New York State Government enacted the Climate Leadership and Community Protection Act (Climate Act). The Scoping Plan, now in the hands of the governor and the legislature, will serve as a roadmap for enacting regulations in line with the targets established in the Climate Act.

According to the Plan, the cap-and-invest program should cover all emitting sectors in the state under an enforceable and declining cap. The cap would decrease yearly, with the 2030 and 2050 caps corresponding to statewide emission targets. The transport and heating sectors would be regulated upstream, with fuel producers and distributors subject to compliance obligations equal to the carbon content of their fuels. For the industry, waste, and power sectors, regulation will be placed further downstream at point source, where GHGs are released into the atmosphere.

Some special emission source categories may be exempt from compliance obligations at the outset, due to federal constraints like in the case of the aviation sector and hard to measure individual sources, such as non-fossil fuel agricultural emissions and forestry. The Council recommends that the program accounts for emissions from the electricity sector that are already subject to the Regional Greenhouse Gas Initiative (RGGI). The Department of Environmental Conservation (DEC) would monitor the emissions from these sources with the purpose of removing them from the statewide cap.

Auctioning should be the main method of allocation. However, the Council proposes a free allocation mechanism for emissions-intensive and trade-exposed industries, to mitigate the risk of carbon leakage. The program would allow for limited banking and offsets would have little or no role in the program. Auction revenues would be used in accordance with the Climate Act, with the option of investing in emission reduction strategies and clean energy technologies, and at least 35% of the revenues directed to investments that benefit disadvantaged communities. To reduce negative impacts on households, the Council has proposed a gradual phase-in of the program, a cost-containment mechanism, and rebates to compensate increased energy prices.

State agencies and legislators are tasked with achieving the targets set by the Climate Act using the Scoping Plan as road map. The DEC will have until 1 January 2024 to draft enforceable regulations and circulate them to the Legislature for their enactment.