NYSERDA and DEC Kickoff Initial Stage of Pre-Proposal Outreach for Cap-and-Invest Program : Young/Sommer LLC Attorneys at Law

NYSERDA and DEC Kickoff Initial Stage of Pre-Proposal Outreach for Cap-and-Invest Program

By Ayah Badran | Posted on June 2, 2023

One of the major recommendations of the Climate Action Council’s (“Council” or “CAC”) Scoping Plan for New York’s Climate Leadership and Community Protection Act (“CLCPA”) is the economywide “cap-and-invest program” (or the “Program”) which establishes an enforceable emissions caps that decline year-by-year, including emission caps for 2030 and 2050 corresponding to the statewide emission limits pursuant to the CLCPA adopted by NYSDEC in 6 NYCRR Part 496. Allowances would be made available to regulated entities through an auction mechanism, with proceeds from the auctions to fund programs consistent with the CLCPA, including investment of at least 35%, with a goal of more than 40%, to be invested in projects and programs benefiting Disadvantaged Communities.

An overview of the Program was initially introduced in January 2023, and earlier this month the FY 2023-24 Budget established the investment structure for proceeds from the Program, creating the New York Climate Action Fund (allocating 33% of revenues between rebates for consumers & small businesses and 67% to a new climate investment account to assist in funding the State’s transition to a less carbon intensive economy). Otherwise, there has been little insight into the development of the structure and regulatory framework to administer and enforce the Cap-and-Invest Program, until DEC and NYSERDA’s (the “agencies”) announcement issued May 19, 2023, that they will be kicking off design of the Program and are hosting a series of stakeholder feedback sessions to solicit feedback on the Program as regulations for its implementation are developed. Sessions are organized by sector, with an initial overview session, to be held from June 1 to June 22, 2023,

During this initial stage of pre-proposal outreach, DEC and NYSERDA are seeking input from stakeholders on key issues relating to three regulatory areas being developed for the Cap-and-Invest Program: the Cap-and-Invest Rule (6 NYCRR Part 252), Mandatory Reporting Rule (6 NYCRR Part 253), and Auction Rule. To guide feedback received on these regulations, DEC and NYSERDA have pointed stakeholders to regulations for other cap-and-trade programs:

California’s cap-and-trade program, established in 2013, is one of the largest carbon markets in the world. With a cap of 200 million metric tons of GHG emissions in 2020, covering the electricity, transportation, and industrial sectors, it has raised between $3 billion and 4.3 billion per year in recent years.
Washington’s cap-and-trade program, which began operation earlier this year. It established three 4-yr compliance periods running from 2023 to 2040, with a starting cap of 63 MtCO2e in 2023 to decline 7% annually until 2030 and 1.8% from 2031 to 2042.
Quebec’s cap-and-trade system was initially established in 2009 and its regulatory framework was updated in 2012/2013. The program applies to businesses emitting 25,000 metric tons or more of CO2e, with an initial compliance period (2013-2014) which applied only to the industrial and electricity sectors, and later compliance periods applied to fossil fuel distributors.

California, Washington, and Quebec are participating jurisdictions in the Western Climate Initiative, Inc., which represents the largest carbon market in North America, a non-profit corporation created to provide administrative and technical support to participating jurisdictions in implementing their GHG emissions trading programs. California and Quebec’s cap-and-trade programs were linked in 2014. Notably, a study prepared by the Washington State Department of Ecology prior to the establishment of Washington’s cap-and-trade program found that linking its program to the carbon markets of California and Quebec would be the most cost-effective strategy for the state to meet its emissions reduction targets.

For the Cap-and-Invest Rule, the DEC and NYSERDA are seeking input on identification of obligated and non-obligated sources, how to establish compliance thresholds to determine which entities must provide allowances equal to their emissions and how such allowances should be allocated, how the starting point for the cap and cap decline rates should be set, how to design adjustments to the program to maintain costs and GHG emissions reductions stability, length of compliance periods and what types of enforcement mechanisms should be considered. With respect to the Mandatory Reporting Rule, solicited feedback is focused on defining which sectors/sources should be subject to reporting requirements, how emissions thresholds should be set for those sectors, how a reporting framework should be structured and verified, types of data to be reported other than GHG emissions, intersection with the Regional Greenhouse Gas Initiative, and how transportation and heating fuels should be treated under the Program. Information solicited for the Auction Rulemaking seeks to address the structure and mechanics of the GHG allowance auctions (single or multi-round, uniform or as-bid prices, frequency of auctions etc.) and the design of constraints for the purchase, holding, and trading of allowances.

DEC and NYSERDA are requesting that feedback for this initial round of pre-proposal outreach on these areas of Cap-and-Invest Program rulemakings be submitted no later than July 1, 2023. A second phase of public outreach for input on the Program is planned for later this year.