Albany unleashes a green monster

by Ken Girardin |  | NY Torch

The Climate Leadership and Community Protection Act on its way to enactment in Albany would vastly expand the state government’s power to regulate every corner of New York’s economy in pursuit of reducing greenhouse gas emissions.

The end-of-session deal to pass the climate bill (S6599/A8427) was so rushed that its sponsors and Governor Andrew Cuomo, who will sign it, didn’t even bother to produce a rough estimate of its fiscal and economic impacts.

But consider this: one of its many mandates will require utilities to buy 9,000 megawatts of wind-generated electricity by 2035. Based on current state estimates for similar projects, those wind turbines alone will entail $48 billion in up-front capital costs—all borne by ratepayers.

Yet even as it addresses what proponents describe as a “climate emergency,” the bill’s most controversial elements have been postponed until after the 2022 elections.

As environmental policies go, the climate bill goes well beyond Cuomo’s costly and impractical 2016 Clean Energy Standard (CES), a regulatory policy implemented through the Public Service Commission (PSC). The centerpiece of the CES was “50 by 30,” requiring 50 percent of the state’s power to come from renewable sources (such as solar and wind) by 2030.

With CES already falling behind schedule in meeting its goals, the climate bill mandates an 84 percent reduction in total greenhouse gas emissions by 2050, including a 34 percent reduction by 2030.

And those aren’t just goals. The bill gives the state Department of Environmental Conservation (DEC) power to enforce the necessary reduction in emissions from all sources—including farms, factories, offices and even the furnaces in single-family homes. And it empowers every state agency to weigh emissions “in considering and issuing permits, licenses, and other administrative approvals and decisions.

Dollars up in smoke

The cost will be inflated by the new law’s insistence on dictating ends as well as means.

Instead of setting a cap and letting market forces find the best ways to meet it—as the federal government did to tackle acid rain in the 1990s—the bill micromanages the process to kick money to a host of interests and constituencies.

For example, any work done under the act—which includes construction of new renewable energy projects—will be subject to the state’s costly so-called “prevailing wage” law, which steers work to construction unions by enforcing union contract terms which make construction both more costly and less efficient. After all, Manhattan isn’t worth saving from rising oceans unless electricians are being paid $112 per hour to do it.

Replacing fossil fuels with renewable energy sources is one way to reduce emissions, but Albany has historically made that needlessly complex, too. New hydroelectric dams, such as those being built in Canada, are disqualified from receiving state subsidies because wind and solar projects can’t compete with them on cost or reliability. Instead, the bill legislates targets for new offshore wind turbine and solar-panel depot construction.

The bills puts a focus on the electrical generating sector—which is actually responsible for less than a quarter of overall emissions (the biggest source is transportation). The PSC, which has regulatory power over the state’s electric utilities, will “require the procurement” of substantial amounts of new renewables and energy storage capacity. The PSC can’t force a utility to do business with a particular plant, so instead, this means the commission will mostly force utilities and large electric customers to buy renewable energy credits that mimic the inflated cost of renewables, or pay penalties.

The PSC’s methods of subsidizing renewables get messy because the PSC was created to regulate rates and ensure reliability, not manage subsidies. The commission is powerless, for instance, to stop a utility from buying power from a coal-fired plant in Pennsylvania, paying a plant in southern Maine to burn paper sludge and declaring itself in compliance. That, under Cuomo’s existing programs, has counted as “renewable” energy, while hydro imports from Canada have not.

The bill requires the PSC to have 70 percent of the grid’s electricity come from renewable sources by 2030; just 26.4 percent of the state’s power came from renewables last year—which was down from 28 percent the year before.

The PSC will require at least 9,000 megawatts of offshore wind by 2035. That’s more than triple what Governor Cuomo has already proposed, and assuming developers use state of the art 10-megawatt turbines, it would involve placing 900 of them off New York City and Long Island.

Offshore wind is an especially expensive way to reduce emissions. Notwithstanding industry maturity or economies of scale, the state Energy Research Development Authority (NYSERDA) last year estimated an 800 MW offshore wind project would have $4.3 billion in capital costs followed by $109 million in annual operating costs. For 9,000 megawatts, that would put the up-front price-tag at more than $48 billion followed by about $1 billion in operating costs. Financed over 30 years at 4 percent, and assuming the power were sold at $40 per megawatt-hour with a capacity factor of 25 percent, the annual subsidy would be close to $3 billion. And as the Empire Center warned last year, most of the funding for these turbines will come from ratepayers north of New York City.

Utilities will also be required to fund 6,000 megawatts of solar panels, which is more than 21 times the 281 megawatts of new solar panels for which the state subsidized construction last year. It’s not clear how existing solar projects will be treated under this subsidy regime, but the existing capacity is negligible.

Assuming it takes six acres of panels to generate one megawatt, and that sites will be a maximum of 150 acres, this mandate will necessitate adding at least 56 square miles of solar panels (larger than the city of Buffalo) spread across 240 sites. But recent renewable development projects have run into significant community opposition and transmission hurdles, which is part of why the state has failed to hit Cuomo’s existing renewable goals.

The bill requires subsidies for 3,000 megawatts of “energy storage capacity” in a bid to make the state’s other investments in wind and solar projects more feasible, since they’re intermittent sources that can’t be relied on when demand is highest. It’s unclear, however, how the state hopes to force energy storage outfits—typically depots of large batteries—to buy power from particular renewable plants.

If there’s one place where these sorts of arbitrary levels shouldn’t be set by politicians, it’s in the energy sector. New York took deliberate steps in the 1990s to dial back its regulation of the wholesale electric generation market specifically because market forces did a better job of pushing down rates than any state action could. Costs will certainly vary as the offshore wind, solar, and battery sectors keep maturing, but the public will be on the hook to subsidize round-number levels that reflect lobbying prowess more than science or economics.

A massive, stealth tax hike 

What’s missing from the much touted new climate bill? A new tax to pay for it.

In fact, the money will come from two sources: entities that can’t eliminate their emissions, such as cement plants and farms, will pay penalties and the PSC will force electric utilities and large electric customers to buy credits.

The PSC is an especially attractive vehicle for funding a costly program because it has the power to forbid utilities from showing costs on electric bills—which, in just one instance, is how the Cuomo administration has concealed a corporate-welfare program now costing more than $500 million.

This lets state lawmakers keep their hands clean, and builds on their record of using commissions to do things for which they fear political consequences, such as raising their own pay and enacting congestion pricing in Manhattan. But vesting what amounts to law-making powers in the DEC and taxing powers in the PSC is certainly not good practice—and possibly not constitutional.

Judgement day: 2024

The financial impact of the bill is too large to reliably estimate—which is exactly why the worst elements are being pushed until after the 2022 general election.

The bill creates a 22-member “New York State Climate Action Council,” which will develop a “scoping plan” around which state regulators can adopt the necessary rules. The plan, according to the bill, casts a wide net and will include items including but not limited to:

  • “Performance-based standards” for sources of GHG emissions—the type of regulatory mechanism DEC recently used to shutter certain power plants;
  • “Land-use and transportation planning measures” to reduce vehicle emissions, which may signal a move to use the state’s environmental siting law to discourage development; and
  • Regulations on motor vehicles that use gasoline or diesel and boilers or furnaces that burn oil or natural gas

 That scoping plan will detail the costs and inconveniences necessitated by the law, but won’t be due back until January 1, 2023, with implementation following a year later. That’s a big change from the earlier version of the bill, which would have had the scoping plan released by July ahead of the 2022 election.

Language setting a 38 percent renewable energy goal for 2022 also vanished after negotiations with the governor, meaning the PSC can make the biggest chunk of renewable energy credits purchases come due after the votes are counted.

With the election safely behind him or her, the governor will be able to cherry-pick recommendations instead of risking having the 2022 election become a referendum on the council’s least popular proposals. The hammer will fall by the end of 2023 as DEC promulgates its rules and regulations, with just six years for people and businesses to come into compliance.

This new version, with judgement day inevitable but postponed, might as well be called the “Climate Leadership and Cuomo Protection Act.”

The expressed purpose of this unprecedented expansion of state regulatory power over every sector of the economy is to reduce emissions linked to man-made climate change. But accepting the underlying premises of the climate bill’s supporters, it will actually have very little effect. New York generates just 0.47 percent of global greenhouse gas emissions. If the ambitious emissions reduction goals all became a reality overnight, global emissions would be slashed by a grand total of 0.40 percent.

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- Ken Girardin is the Policy Analyst at the Empire Center for Public Policy.