DEC Calls for Aggressive Climate Action in Key Guidance

On December 30, the New York State Department of Environmental Conservation (DEC) released a Value of Carbon Guidance Document for state agencies to use in estimating the value of reducing one ton of greenhouse gas emissions. This guidance document was released pursuant to the state’s recently enacted landmark climate law, the Climate Leadership and Community Protection Act (CLCPA), which requires DEC, in consultation with the New York State Energy Research and Development Authority (NYSERDA), to establish a monetary value of the impact of a marginal change in greenhouse gas emissions, which is more commonly known as the social cost of carbon (SCC).

The SCC is expressed as the dollar value of the total damages from emitting one ton of carbon dioxide into the atmosphere. Among other things, the SCC takes into account changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change. This guidance will play a critical role in the state’s regulatory decisions and in New York’s ability to meet its ambitious climate and environmental justice goals.

What’s in it?

The guidance has several important features. First, it uses a value of carbon which is based on the damages arising from greenhouse gas emissions. The CLCPA provides that the SCC “may be based… on the global economic, environmental, and social impacts of emitting a marginal ton of greenhouse gas emissions into the atmosphere.” This “damages-based” approach is preferable to the alternative of using “marginal greenhouse gas abatement costs,” which estimates the per-unit cost of the most expensive abatement measure required to reducing emissions to a certain specified level, in this case reductions of at least 40% below 1990 levels by 2030 and 85% below these levels by 2050 as required by the CLCPA. Estimating this cost can be difficult and would likely be time-consuming and labor intensive to develop – and could have led to a delay in issuing this guidance. In addition, the damages-based approach has the advantage of being well established and widely used, including by the federal Interagency Working Group, which was first tasked with establishing a SCC in 2009.

Second, the guidance recommends that State agencies, when deciding what polices to implement to reduce greenhouse gas emissions, provide an assessment using a 2 percent “discount rate,” while also reporting discount rates of 1 and 3 percent. A discount rate converts future damages into a present-day value, based on the assumption that effects further in the future have a lower present-day value. NRDC, along with a broad coalition of environmental and public interest groups, had strongly recommended that DEC adopt a low discount rate that appropriately reflects concerns over public health, welfare, and environmental protection. As a result of our advocacy, the guidance rightly uses a low discount rate to reflect the state’s mandate to protect people’s health and preserve a livable environment for future generations. This calculation translates into a 2020 value of carbon dioxide of $125 per ton, a value of methane of $2,782 per ton; and a value of nitrous oxide of $44,727 per ton. The values for methane and nitrous oxide are much higher than that for carbon dioxide because these gases have a higher global warming potential (GWP). The full set of values for 2020-2050 is available here.

Why does it matter for NYS climate and clean energy policy?

This guidance will likely result in higher incentives for state programs that rely on SCC calculations. For example, the Public Service Commission (PSC) could increase the environmental value, or “E value,” in the Value of Distributed Energy Resources (VDER) value stack, which calculates ratepayer-based support for clean energy resources like large-scale and community solar. The E value is currently set at the higher of the PSC-determined SCC or the most recent Tier 1 REC price. The adoption of the SCC guidance at a 2% discount rate could result in a significant increase in the E value, providing an important financial boost for these clean energy resources.

In addition, this guidance will play a central role in deciding which measures to implement to meet the CLCPA’s ambitious statewide greenhouse gas reduction targets. The CLCPA established a Climate Action Council, which is charged with approving a Scoping Plan that will recommend measures that the State should take to ensure that these targets are met. The Council is required to approve the Scoping Plan by January 1, 2022.

In compiling the Scoping Plan, the CLCPA requires that the Council evaluate “the total potential costs and potential economic and non-economic benefits of the plan for reducing greenhouse gases” and directs it to quantify the “economic and social benefits of greenhouse gas emissions reductions, taking into account the value of carbon,” established by DEC. Thus, the guidance will directly influence which reduction measures are recommended in the transportation, building, industrial, commercial, and agricultural sectors. A SCC value at a 2% discount rate may allow State agencies to pursue more ambitious emission-reduction actions given that the benefits of those actions will outweigh their costs.

Governor Cuomo, as well as DEC staff, deserve a great deal of credit for moving quickly to finalize this guidance under challenging conditions and for leading on climate and ensuring the timely implementation of key parts of the CLCPA. Now it is up to the Climate Action Council and State agencies to use this guidance in the way it is intended—to ensure that the state pursues ambitious greenhouse gas reduction actions that ensure we meet our climate targets and, more importantly, that we leave a healthy and habitable world for future generations.