Prioritizing Justice in New York’s Cap-Trade-and-Invest: Obligating Electricity and Capping Generator Emissions

Disadvantaged communities (DACs) in New York State bear a disproportionate burden of pollution from fossil fuel power plants. Using SNL Energy data on generators, we estimate that 65 percent of emitting power generators in New York State are within one mile of a DAC. In New York City, nearly a million people live within one mile of the dirtiest peaker power plants, and the overwhelming majority are people of color. This issue brief presents modeling results for obligating the electricity sector and adding facility-specific caps to electric power generating facilities in the context of New York State’s cap-trade-and-invest (CT&I) system. Our analysis, which builds on previous work, covers the statewide and regional effects of these policy decisions and examines the community-level impacts to assess the role of these policies in delivering benefits to DACs in New York.The work featured in this issue brief builds on prior research, including a report coauthored by Resources for the Future and the New York City Environmental Justice Alliance that examined the impacts of environmental justice guardrails on emissions and costs in a cap-trade-and-invest program in New York State (Krupnick et al. 2024). That report provided evidence that facility- and sector-specific caps could be implemented to reduce emissions near DACs at little to no cost to households.Shortly before we released that report, the state shared a CT&I pre-proposal outline and preliminary scenario analyses to evaluate the policy designs it is considering (NYSERDA & DEC 2023, 2024). In the pre-proposal outline, the state requested feedback from stakeholders on certain aspects of the program to inform the CT&I draft regulations that will be released at the end of 2024. This issue brief and Krupnick et al. (2024) directly respond to questions raised in the pre-proposal outline.NYSERDA and DEC (2023) indicated that the state may not obligate (include) the New York power sector in the economy-wide CT&I system. In practice, this would mean that emissions from the electricity sector would contribute to New York’s overall emissions targets, but generators would not be required to purchase allowances to cover their emissions in the CT&I auction. Power generators in New York would still be required to purchase allowances in the Regional Greenhouse Gas Initiative (RGGI) auction to cover their emissions.The pre-proposal provided several reasons for this exclusion:the power sector is already regulated by other policies, including RGGI, a clean energy standard, and clean generation mandates that will drive decarbonization in the sector;electricity prices could rise if the power sector is included, which could discourage the electrification needed to drive decarbonization in a variety of sectors;rising electricity prices for New York generators facing the carbon price could induce power plants in other states (which may be dirtier than those in New York State) to increase their generation and associated greenhouse gas (GHG) and copollutant emissions, a process called leakage, making the regional emissions problem worse; andpermitting and interconnection delays for clean generation may limit the sector’s ability to decarbonize in the earliest years of the program, even with a carbon price in place.The state’s preliminary scenario analyses highlighted some of these concerns, mainly noting higher costs of delivering electricity and high GHG emissions leakage rates. The analyses did not investigate the impact of excluding the power sector on DACs.The pre-proposal solicited further input on whether the electricity sector should be obligated—that is, included in the CT&I system. It also sought guidance on the impact and importance of facility-specific caps for stationary emitters like power sector facilities. Our research responds to this solicitation, further informing the development of the New York cap-trade-and-invest system.In our previous report (Krupnick et al. 2024), we discussed the emissions and cost impacts of implementing facility-specific CO2 emissions caps in the power sector under a New York State cap-trade-and-invest program. However, our analysis did not consider what the impact of these caps would be if the state chose not to obligate the power sector in the program. We saw significant GHG and copollutant emissions benefits in the power sector relative to a business-as-usual (BAU) case without cap-trade-and-invest, but that case did not consider the possible impact of increased demand for electricity from other sectors driving emissions even higher in the power sector. We address this gap in this issue brief.For brevity, this issue brief focuses more on GHG and fine particulate matter (PM2.5) emissions than on results for NOX and SO2 emissions because these three copollutants generally move together. However, some tables and text do consider SO2 and NOx emissions separately. The next report from our team will examine the implications for DACs and other New York communities of the transformation and dispersal of these copollutant emissions into fine particulate concentrations (PM2.5 in ug/m3).Our main findings are as follows:All CT&I designs increase the demand for electricity in New York. Without obligating the electricity sector under CT&I, this rise in demand leads to an increase in GHG and PM2.5 emissions in the New York power sector.Statewide GHG emissions and average PM2.5 emissions at power sector facilities are lowest when the power sector is obligated and power generators face facility-specific caps. Statewide GHG emissions are highest when the power sector is not obligated and there are no facility-specific caps.Facility-specific CO2 emissions caps on power generators deliver copollutant emissions benefits to DACs whether the electricity sector is obligated under CT&I or not, by forcing emissions reductions at those facilities that are least responsive to CO2 emissions pricing through cap-trade-and-invest.About 43 percent of emissions reductions achieved by obligating the electricity sector are offset by out-of-state increases in power sector emissions.Obligating the electricity sector in CT&I or including facility-specific caps has almost no impact on electricity prices in our modeling.Overall, we find that obligating the electricity sector under New York’s CT&I program while also capping CO2 emissions at each facility offers the greatest power sector GHG and copollutant emissions improvements statewide and for areas surrounding DACs, compared with a BAU scenario. If the state ultimately decides not to obligate the electricity sector, facility-specific caps are even more important for delivering PM2.5 (and other copollutant) emissions reductions. Obligating the electricity sector under CT&I leads to some emissions leakage but still has a net negative impact on regional power sector emissions. Neither of the policy options we explored has a significant impact on retail electricity prices in our model.