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New York May Finally Put a Price on Pollution in 2025

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This story originally appeared in <a href="https://nysfocus.com/2024/12/23/greenhouse-emissions-new-york-cap-and-trade">New York Focus</a>, a nonprofit news publication investigating power in New York. <a href="https://nysfocus.com/newsletter?utm_source=partner&utm_medium=website" target="_blank">Sign up for their newsletter here</a>.<hr>NEW YORK STATE · December 23, 2024
<h1>New York May Finally Put a Price on Pollution in 2025</h1>
<h2>The state is due to unveil a “cap and invest” program — its biggest effort yet to fund climate initiatives. But fears about hiking prices may limit its scope.</h2>
<h3>By <a class="yellow-underline" href="https://nysfocus.com/author/colin-kinniburgh">Colin Kinniburgh</a> , New York Focus</h3><figure><img src="https://imgproxy.gridwork.co/4wwITxvFb4tOg-HMAxMfvMUrh0DsuUVkxg2Q8IFArL4/w:820/h:546/rt:fill/g:fp:0.5:0.5/q:90/el:1/aHR0cHM6Ly9zMy51cy1lYXN0LTIuYW1hem9uYXdzLmNvbS9ueXNmb2N1cy9DYXAtYW5kLWludmVzdC5wbmc.png" alt="Black and white photo of three smokestacks overlaid with a diagonal yellow dotted line corresponding to modeled data of emissions decreases in New York State." /><figcaption>Regulators are fine-tuning the rules that will structure a program that could generate $3 billion or more a year for the state to invest in climate initiatives. / Photo: shaunl / Canva | Illustration: Leor Stylar</figcaption></figure>	Ever since New York passed its landmark climate law in 2019, a question has dogged its implementation: Who should pay the $15 billion annual cost of slashing emissions?
Two years ago, Governor Kathy Hochul <a href="https://nysfocus.com/2023/01/11/kathy-hochul-cap-and-trade-new-york">offered</a> an answer: corporate polluters. She outlined an economy-wide system, called <a href="https://nysfocus.com/2022/12/05/cap-and-trade-fossil-fuels-new-york/">“cap and invest,”</a> that would put a price on pollution and drive the steep emissions cuts mandated by law. The program might finally see the light of day in 2025. 	Regulators are fine-tuning the rules that will structure it; the state’s initial projections show it could generate $3 billion or more a year for the state to invest in green energy and other climate initiatives. Hochul and the legislature will likely negotiate further elements of the policy in the coming year’s budget, setting up what could be New York’s biggest climate fight since 2019.
“We have to” move forward with cap and invest, said state Senator Pete Harckham, chair of the chamber’s Environmental Conservation Committee. “That’s really, I think, the big budget item we’re all waiting to see.”
For many advocates, Donald Trump’s imminent return to Washington has heightened the urgency for New York to deliver on the program. 
“With a federal rollback of environmental progress anticipated and the need for states to really step up, an ambitious program in New York could really be game changing, both for the state and nationally on climate,” said Kate Courtin, senior manager with the state climate team at the Environmental Defense Fund. 
There are still hurdles to clear as budget season approaches. In recent days, Hochul’s office has quietly circulated details about her proposal — easing fears among many climate advocates that she might not move ahead with cap and invest at all. But her administration has indicated that she’ll likely embrace a far less ambitious version of the plan than many would-be supporters want, because of a perception that voters have blamed Democrats for the rising cost of living.
“We have a responsibility here as New Yorkers. I co-chair the US Climate Alliance,” Hochul told New York Focus at a press conference in early December. “I take that role very seriously, but I’m also looking at affordability and who’s paying for these costs, and what we can do to help New Yorkers reduce the cost of everyday living.”
Some climate hawk legislators plan to push for as rigorous a program as possible, in part because the limited scope Hochul is considering may undermine a core part of the program — a cap on emissions. But in the current political context, many climate advocates would be happy just to see the program get off the ground.
“Once communities start to see the benefits of that funding, and the state starts to see that revenue, making the case for it to get expanded is much easier than this first step,” said Stephan Edel, executive director of NY Renews, the coalition that led the charge for the climate law in 2019. 	In theory, a cap and invest program kills two birds with one stone. It simultaneously puts a limit on the tons of pollution companies can emit — “cap” — while making them pay for each ton, funding projects to help move the state away from polluting energy sources — “invest.”
New York needs both sides of that equation to meet its climate law’s mandates, which it is falling <a href="https://nysfocus.com/2024/06/19/new-york-climate-law-progress">far behind on</a>. Under the law, the state must cut overall emissions by 40 percent of 1990 levels by the end of the decade. But as of 2021, the latest year for which data is available, it had only achieved 9 percent emissions cuts. One reason is that the state still has <a href="https://nysfocus.com/2021/04/30/clcpa-funding-carbon-budget">no dedicated stream</a> of climate funding, even as its own analysis has found that meeting the targets will cost some <a href="https://nysfocus.com/2022/12/05/cap-and-trade-fossil-fuels-new-york">$15 billion a year</a> this decade, counting both private and public spending. 			<div class="flourish-embed flourish-chart" data-src="visualisation/18433668"><script src="https://public.flourish.studio/resources/embed.js"></script><noscript><img src="https://public.flourish.studio/visualisation/18433668/thumbnail" width="100%" alt="chart visualization" /></noscript></div>
		
	Cap and invest would charge the state’s biggest emitters for a portion of that expense. High on the list would be electric and gas utilities; waste facilities, including incinerators; and industrial plants, like cement, aluminum, and paper producers.
The state projects that the program could bring in between $3 billion and $5 billion in revenue in its first year, increasing to as much as $12 billion in 2030.
Like carbon markets around the world, New York plans to use auctions that allow companies to bid for the right to pollute, meaning the price of emissions is — in principle — determined by what polluters are willing to pay for it. Each ton of greenhouse emissions will be pegged to one “allowance” that the state sells.
If the targeted emissions cuts are steep — as New York’s are — and the “supply” of emissions allowances correspondingly low, then the auction price of those allowances could climb very high.
The Hochul administration argues that polluters would pass on high emissions prices to consumers, increasing energy bills and possibly the prices of other everyday items, as energy costs <a href="https://nysfocus.com/2022/09/06/drought-farmers-agriculture-inflation">trickle down</a> the supply chain. Analyses of similar programs in <a href="https://lao.ca.gov/Publications/Report/4811">California</a> and <a href="https://www.cleanprosperousinstitute.org/2024/03/18/the-real-world-climate-commitment-act-and-gas-prices-2/">Washington</a> have found that they have raised gasoline prices about 27 cents per gallon, an indicator that voters tend to be sensitive to. 			<blockquote>
			“The question is not whether we’re paying or not, but who you want to be the one paying it.”
		</blockquote>
				<h5>
			—Anna Kelles, Ithaca assemblymember		</h5>
		New York’s solution is to make polluting cheaper. Rather than the auction determining the price of emissions, environmental regulators want to put a ceiling on the price. So far, they’ve presented a price ceiling ranging from $14 to $23 per ton of emissions in 2025, and $25 to $54 two years later. (By comparison, the price ceiling in California and Washington’s cap and invest systems will be $95 next year.) At that price point, the state would quickly sell out of emissions allowances, its models show.
If that holds true, the state would have to release more carbon allowances, said Molly Robertson, a senior research associate at the think tank Resources for the Future, which has studied cap and trade programs in several states.
“Basically, now the amount of allowances that are available is determined by how many entities are willing to pay the ceiling price,” Robertson said. That leaves some advocates worried that the low price would effectively remove the limit on emissions underpinning the program. The state’s own modeling shows that, even with the highest price ceiling modeled, 2030 emissions would be roughly 15 percent higher than the legal cap.
And discussions in recent days suggest that the price ceiling Hochul will present in January could be lower than that — likely no higher than the low-end option of $14 per ton that regulators have presented so far, as <a href="https://subscriber.politicopro.com/article/2024/12/new-york-poised-to-move-forward-with-multibillion-dollar-climate-program-00195382">Politico first reported</a>. 
Hochul has framed the underlying dilemma as a tradeoff between climate and affordability. 	“As someone who comes from a cold weather part of our state, Buffalo,” Hochul told New York Focus at the December press conference, “we have to make sure that people can afford to keep the heat on in the winter time.”
The state’s modeling suggests that customers would not actually be paying more across the board for a cap and invest program. A third of the program’s revenue will go directly back to New Yorkers as rebates, while the rest will go toward climate-friendly investments. 
Before the rebates, low- and middle-income households would see immediate cost increases, in the range of $10 to $30 a month. But after rebates, the average low-income household would see net savings — with the savings actually increasing as the price ceiling goes up, to a maximum of about $10 a month. Savings would also increase as New Yorkers begin to see the benefits of the investments paid for by the larger portion of the cap and invest proceeds: weatherization and a switch to more efficient appliances.
Middle-income families — those earning the state’s median household income of roughly $82,000 — would see their net costs go up, though likely by no more than a few dollars in the first two years of the program. For those families, who are more likely to drive and live in larger homes that they heat with fossil fuels, monthly costs would go up with the price ceiling. For the highest ceiling the state has modeled, they could reach roughly $10 a month in 2030. 			<div class="flourish-embed flourish-chart" data-src="visualisation/20894323"><script src="https://public.flourish.studio/resources/embed.js"></script><noscript><img src="https://public.flourish.studio/visualisation/20894323/thumbnail" width="100%" alt="chart visualization" /></noscript></div>
		
	Climate hawks in Albany say Hochul’s fear that cap and invest could increase the cost of living doesn’t take into account how much New Yorkers are already paying to deal with extreme weather and other climate impacts — from <a href="https://www.nyrenews.org/climate-superfund-report">home and infrastructure repairs</a> to <a href="https://nysfocus.com/2024/06/10/home-insurance-climate-change-fossil-fuels">surging insurance rates</a> to <a href="https://nysfocus.com/2022/09/06/drought-farmers-agriculture-inflation">rising food prices</a>.
“The question is not whether we’re paying or not, but who you want to be the one paying it,” said Assemblymember Anna Kelles of Ithaca.
Alongside the <a href="https://insideclimatenews.org/news/11122024/new-york-climate-activists-urge-gov-hochul-to-sign-superfund-bill/">Climate Superfund Act</a>, which would force major oil companies to pay for climate damages, Kelles wants New York to move forward with a far more stringent cap and invest program than the one regulators have laid out so far. (She sponsors a <a href="https://spectrumlocalnews.com/nys/central-ny/politics/2024/01/09/new-bill-offers-counter-to-ny-cap-and-invest-pre-proposal">bill</a> that would ban trading of allowances and tighten a variety of other restrictions in the program.) 	When the price ceiling was first introduced last year, climate groups were not happy. But now, getting some version of cap and invest off the ground — even with a low price ceiling — is their priority.
“If what we get is revenue for programs and rebates from a carbon price, that would be a great start,” said Edel, of NY Renews.
The single biggest reason for that change in tone is the governor’s last-minute suspension of congestion pricing in June, which suggested that Hochul might be willing to walk away from major policies — even at risk of breaking the law — if they were seen to harm affordability. Many climate advocates began to worry that cap and invest could face a similar fate. 
“If your program is ever going to disappear … who cares how ambitious it was in the long run if it just evaporates?” said Nicholas Roy, a research associate at Resources for the Future.
Asked about the program’s status, state climate officials gave an oblique answer. 			<blockquote>
			“If your program is ever going to disappear … who cares how ambitious it was in the long run?”
		</blockquote>
				<h5>
			—Nicholas Roy, Resources for the Future		</h5>
		“DEC and NYSERDA remain committed to ensuring affordable energy for all New Yorkers while advancing the development of the New York Cap and Invest (NYCI) program,” said Department of Environmental Conservation spokesperson Lori Severino. (She did not answer questions about when the state would publish draft rules for the program or the apparent hole in the “cap.”)
Harckham, the state senator, said Hochul’s revival of congestion pricing — with a 40 percent lower toll than planned — might offer a hint as to the direction she’ll go. “If I were a betting man, I would suspect to see something like what the governor did with congestion pricing,” he said. “Maybe we’ll see a slower start and a ramp up, as opposed to just flooring it right out of the gate.”
But an economy-wide carbon price could open a far bigger can of worms than adding a toll to enter central Manhattan.
Some critics of the price ceiling think the problem runs deeper. The Citizens Budget Commission, a fiscally conservative watchdog group, <a href="https://cbcny.org/research/improving-nys-cap-and-invest-design">published a report</a> in October arguing that the fundamental flaw in the program lies in the climate law itself. The state’s target of reducing emissions 40 percent by 2030 is no longer possible to achieve at a reasonable cost, the group said — so regulators are now proposing a workaround that undermines the very foundation of a cap and trade program.
Instead, the CBC says, the legislature should “recalibrate the 2030 emissions cap to be ambitious yet achievable,” so that the program can function as the market-driven system it is meant to be.
“This could be a great tool if you get it right,” said CBC President Andrew Rein. “If you get it wrong, you have the lose, lose, lose — you shift emissions out of state, you shift jobs out of state, you decrease New York’s affordability.”
That aligns with demands from business groups, who have long argued that the law’s targets are unrealistic and <a href="https://web.archive.org/web/20241125094817/https://www.bcnys.org/news/statement-regarding-clcpa-letter-calling-answers-key-policy-concerns">sent Hochul a letter</a> in July urging the state to revisit its 2030 mandates — and how it <a href="https://nysfocus.com/2023/04/04/hochul-climate-grenade-methane-accounting-clcpa">counts emissions</a> in the first place.
Kelles and Harckham both bristle at the idea of revisiting the core tenets of the climate law.
“That is such a cop out. I mean, drag your feet, drag your feet, then you manifest the reality you want,” Kelles said, addressing business groups.	While many New York Democrats fear that going too far could fuel a backlash against the program and at the ballot box, others say November’s election results have only strengthened the case for moving ahead with a strong cap and invest program. Washington voters, faced with the choice to axe theirs, opted by a margin of 24 points to keep it. In New York, climate champions including Harckham and US Representative Pat Ryan won reelection in competitive districts. And with Donald Trump coming back to the White House, some Democrats are feeling the pressure for the state to once again take the reins on climate policy, as it did in passing its climate law during Trump’s first term.
For Eric Walker, the energy justice senior policy manager at WE ACT for Environmental Justice, how next year’s fight will play out, and how it affects future elections, is all about messaging. He says that because cap and invest remains unfamiliar to most New Yorkers, opponents can easily paint it as another unwelcome cost.
“Do you have a political narrative that talks about how this is going to drive benefits to people in the near term and the long term? And we don’t,” Walker said. “That’s why we’re on our heels in terms of advocates having to push for an ambitious program of any kind, let alone one that meets the ambition of our peers across the country.” 	 
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