Stakeholders Debate Carbon Price in New York

Earlier this week, energy stakeholders, representatives from large energy consumers,  environmental groups, and state policymakers met at the Empire State Plaza in Albany to discuss the potential ramifications of carbon pricing in New York’s electric sector. Attendees of the meeting considered ways in which revenue raised by the price on carbon could be used, with suggestions including providing incentives for renewable energy generation, returning money to customers, or flowing to utilities and other serving entities.

This meeting was one step in a multi-year process, and with New York State placing emphasis on renewable energy incentives and low natural gas prices, carbon pricing has drawn national attention from other states looking to find ways to support lowering emissions through more efficient markets.

Revenue from carbon pricing would be significant, therefore, members of the meeting had strong opinions on where it should go. Miles Farmer, from NRDC, suggested that the revenue gained from carbon pricing would best support the state’s goals if it was handled by the Public Service Commission and flowed to utilities and serving entities. Aaron Breidenbaugh of Consumer Power Advocates had a different view, suggesting that the customers who are paying the price on carbon should receive the refunds. Jeff Shrader with the NYU School of Law stood on the middle ground between them, adding that if customers were to be given back money, it should be done in a way to ensure incentives to reduce energy use from the price signal remain.

Also discussed at the meeting was the problem of “carbon leakage” which occurs when there is an increase in carbon dioxide emissions in neighboring markets as a result of an emissions reduction by another market with a strict climate policy. Stephen Molodetz with Hydro-Quebec said in the meeting that a charge on imports should differentiate between regions with higher and lower emissions instead of placing a uniform price that would disadvantage cleaner imports. Molodetz asked “Does New York want to sit back and go with a carbon approach that doesn’t address the true regional emissions?”

The idea of carbon pricing is not a new one in New York and the United States. In 2009, the Regional Greenhouse Gas Initiative (RGGI), a cooperative effort from Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont, became the first mandatory market based program in the US to reduce carbon emissions. RGGI was implemented to reduce carbon dioxide emissions in the power sector through a cap-and-trade system, which would allow lower polluting states to sell emissions credits to higher polluting states. Although the type of carbon pricing that was discussed in Albany earlier this week and RGGI are similar in the way that they both seek to reduce carbon emissions in the power sector by influencing markets with incentives, RGGI is different because of its cap-and-trade system.

Cap-and-trade systems allow entities with relatively low emission-reduction costs to be incentivized to make further emissions reductions and sell those reductions as emissions credits to entities that face higher costs to reduce their facility emissions. This system has been a source of significant debate during RGGI’s development, drawing critiques that claim it has too many holes, delays fundamental changes to outmoded power stations and factories, and give polluters leeway that otherwise would not exist. A potential carbon pricing plan in New York would seeks to eliminate some of the loopholes in RGGI’s cap-and-trade system and aim for broader, more systematic change to reduce emissions within the state.

Throughout the world, over 40 nations have implemented carbon pricing initiatives including China, Australia, Brazil, Canada, and the European Union, which has adopted a similar pricing initiative to RGGI that has become the cornerstone of its climate efforts. In British Columbia, carbon pricing increased gas prices by 17 cents per gallon, but raised raised $4.3 billion thus decreasing personal and corporate taxes and reducing pollution and lowering overall energy costs in the province. When implemented properly, carbon pricing has the ability to both lower taxes and improve the environment through incentives and gains in fuel efficiency. Given the potential of these market-based solutions to significantly accelerate progress on our climate goals, NYLCV will continue to work with all stakeholders to evaluate what a more robust carbon pricing system could look like and its merits in the coming months.