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New York, Come on Down: The Carbon Price is Right

Thursday, Jan 07 2021

Dave Gahl

Right before the New Year and with very little fanfare, the New York State Department of Environmental Conservation (NYSDEC) released final guidance for calculating the social cost of carbon. This new tool is a requirement of the landmark Climate Leadership and Community Protection Act of 2019 and will help New York leaders evaluate the true cost of projects and programs on our environment.

This is admittedly a nerdy topic for even the wonkiest of climate policy wonks, but the guidance includes a major improvement over earlier drafts—a lower discount rate that accounts for the long-term and escalating damages of climate change.

Now when New York State agencies analyze new policies, programs, and state investments, they can use these calculations to assign a cost to climate change impacts and the greenhouse gas (GHG) they emit. For example, if a state agency wants to extend a natural gas pipeline, the NYSDEC’s methodology provides guidance for assigning an actual cost to potential emissions from that pipeline. Put another way, these calculations allow decisions makers to compare and contrast projects based on their potential climate impacts, helping them better understand which projects could have a major long-term climate costs to society. This tool will ultimately help New York agencies and regulators weigh the consequences of their actions and hopefully make better informed decisions when it comes to their continued commitment to climate action.

As for the major improvement, based on the Solar Energy Industries Association’s (SEIA’s) recommendations and the work of many other partners, the NYSDEC lowered the discount rate for the social cost of carbon from 2.5% to 2%, effectively creating a value of $125 per metric ton of carbon. A discount rate essentially adjusts carbon values over time to ensure New York agencies use consistent dollars and that the decisions they make 10 years from now are still relevant and comparable over time. While this may seem counterintuitive, the calculation is similar to a time valuation of money. A lower discount rate translates to higher carbon values over a longer period of time, and that’s a good thing because it reflects the compounding damages of climate change over time.

In addition to its use in evaluating projects, assigning a cost to carbon also impacts the electricity sector, which is currently one of the largest sources of GHG emissions in the United States. These calculations are the first of their kind and could be the foundation of establishing carbon pricing for the New York Independent System Operator, which the grid operator is currently considering. The calculations could also impact the Value of Distributed Energy Resource tariff, which determines the energy compensation many solar projects receive from utilities, including community solar projects. Under this program, each project gets assigned a credit based on their social cost of carbon and this new calculation could be used to determine the environmental component of these projects.

Is the carbon price the right price? The answer probably depends on your view of climate change. The NYSDEC value exceeds the social cost of carbon that had been calculated by the federal government during the Obama administration.

Members of the state legislature weighed in helpfully, including Assemblyman Steve Englebright. We were happy to see this improvement from the NYSDEC climate team before the New Year, and we look forward to seeing this analysis applied more broadly by New York State agencies.

A special thank you to our coalition partners who helped deliver this win for the industry:

  • Borrego Solar
  • Advanced Energy Economy (AAE)
  • Alliance for Clean Energy New York (ACENY)
  • Coalition for Community Solar Access (CCSA)
  • Natural Resources Defense Council (NRDC)
  • New York League of Conservation Voters (NYLCV)
  • New York Solar Energy Industries Association (NYSEIA)
  • Sierra Club
  • Vote Solar
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