What Kathy Hochul’s Budget Tells Us About New York’s Cap-and-Invest Plan

AS GOVERNOR KATHY HOCHUL unveiled her executive budget Wednesday, New York’s climate watchers zeroed in on one critical piece: cap and invest. Hochul has presented the proposal, which would force polluters to buy allowances for carbon emissions and reinvest the proceeds into the clean energy transition, as a cornerstone of New York’s climate policy. But she had so far offered little detail on a plan that could potentially transform the state’s economy.

The executive budget Hochul presented on Wednesday — a first draft whose final form state lawmakers must approve by April 1 — fills in a few of those details, but not many.

It specifies that at least a third of revenues from the cap-and-invest program should go into a Climate Action Fund, the bulk of which would provide direct rebates to New Yorkers to offset increased energy costs from what is effectively a carbon tax. It also requires that “energy-intensive and trade-exposed facilities” get their share of allowances for free. And it says that “an amount” of the revenue should go into the state general fund to cover the expense of enforcing it.

Beyond that, Hochul proposes to entrust the program’s design to the state’s Department of Environmental Conservation and the energy authority NYSERDA. The two agencies face a tight deadline — January 1 of next year — to hash out a program that would touch every aspect of the state’s economy, from aging rental buildings in New York City to gas stations to major new manufacturers, like chip maker Micron.

Lawmakers have indicated that they are wary of seeing such a major pillar of New York’s climate plan passed without more of their input.

“We’re never comfortable in having something that could have significant resources paid into it, and just leaving that up to the full discretion of either the governor or a gubernatorial agency,” said Assemblymember Deborah Glick, chair of the chamber’s environmental committee.

“I don’t think the legislature wants to give a blank check, as it were, for the governor or an agency to disburse the funds that would be coming into the government from some cap-and-invest scheme,” she continued, speaking to New York Focus before the budget was released.

Her counterpart in the state Senate, Pete Harckham, also expressed reservations.

“I always find legislation is always better than regulation, because there’s a sense of permanence there and a sense of ownership, as opposed to just agencies regulating something this big,” Harckham said.

But Harckham acknowledged that “sometimes it’s easier to get [programs] started through regulation,” as Hochul intends to.

“Obviously, doing things by regulation is quicker and makes it a little bit more flexible,” agreed energy committee chair Kevin Parker. “But I think long term, we obviously want to make sure that the program has longevity and resilience.”

Many climate advocates insist that the cap-and-invest plan should be decided through the budget, where they have a greater chance of helping shape it — especially the investment side.

NY Renews — the broad coalition of environmental, community, and labor groups that led the push for New York’s climate law in 2019 — is calling for the creation of a Climate and Community Protection Fund to direct spending. The group has offered a detailed list of investments in climate jobs and infrastructure, energy affordability, assistance for fossil fuel workers, and more, adding up to $10 billion.

Anthony Rogers-Wright, director of environmental justice at New York Lawyers for the Public Interest and a steering committee member of NY Renews, says that a rigorous cap-and-invest program could raise at least half that amount, with the rest coming from legislation like a Climate Superfund Act and taxes on the wealthy. The governor’s office estimates “at least” $1 billion in annual revenue to go to the rebate fund, implying that the program as a whole would be worth somewhere upwards of $3 billion. But the draft legislation leaves regulators with enormous leeway to set the final numbers.

California’s decade-old cap-and-trade program raised $4.5 billion in the most recent fiscal year, up from $2 to 3 billion in the four previous years. But it has so far been slow to bring down emissions and has become a cautionary tale for environmental justice advocates, who argue that it has failed to relieve the burden of pollution on disadvantaged communities.

Beyond the overall size of the program, Rogers-Wright argued that any direct rebates should prioritize low-income New Yorkers — rather than being distributed evenly to all residents — and that the program should be designed to prevent trading of allowances.

“We don’t want to create a stock exchange for pollution. That’s just antithetical, I think, to the intents of the climate law,” he said.

The climate plan published late last year suggested that a cap-and-invest program could rule out certain kinds of trades, to avoid reinforcing emissions “hot spots” in disadvantaged communities, but it didn’t propose a ban on trading altogether.

The governor’s proposed free allowances for energy-intensive industries are likely to be another major sticking point. The goal is to prevent high-emitting companies from simply leaving the state, taking jobs with them — and going right back to polluting across the border. But “to just exempt [the biggest polluters] outright automatically sends a signal to smaller polluters … that they’re getting picked on,” Rogers-Wright said.

Energy lobbyists have also raised concerns about this element of the program.

“Are chip fabs going to give free allowances because they employ a lot of people, but Corning Glass doesn’t?” asked Gavin Donohue, president of the trade group Independent Power Producers of New York, speaking to New York Focus in January.

It all leaves state regulators with a lot to decide over the next 11 months — if the legislature doesn’t step in first. Even some of the plan’s most ardent supporters are skeptical that the agencies can manage in time.

“It would be very difficult to do it in a year, but the law says that they’re supposed to,” said Anne Reynolds, executive director of the Alliance for Clean Energy NY. “I still would be very surprised if they finalized these rules by then.”

The Assembly and Senate will release their responses to Hochul’s proposal as part of their respective one-house budgets in the coming weeks. Some lawmakers have signaled that they’re willing to be flexible on how the cap-and-invest program is implemented, as long as the path to meeting New York’s climate law is clear.

“I’m not too worried about process at this stage,” said housing committee chair Brian Kavanagh, speaking to New York Focus on Tuesday. “I think the critical thing is that we get the details right.”