Climate Act Misinformation: Cost Effectiveness Value of Societal Effects
Pragmatic Environmentalist of New York Balancing the risks and benefits of environmental initiatives
Pragmatic Environmentalist of New York
Balancing the risks and benefits of environmental initiatives
Climate Act Misinformation: Cost Effectiveness Value of Societal Effects
Today I found a perfect example of Hochul Administration misinformation. The New York State Energy Research & Development Authority (NYSEDA) Tier 4 renewable energy solicitation prepared Appendix C Cost Analysis document to support the petition by developers of four proposed offshore wind projects and 86 land-based renewable projects. The claims made for the societal benefits of greenhouse gas emission reductions that are used to claim that various components of the net-zero transition mandated by the New York Climate Leadership & Community Protection Act (Climate Act) have greater benefits than costs are based on inaccurate methods. This post explains the problem with the methodology used by New York State.
I have followed the Climate Act since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 350 articles about New York’s net-zero transition. I have devoted a lot of time to the Climate Act because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good by increasing costs unacceptably, threatening electric system reliability, and causing significant unintended environmental impacts. The opinions expressed in this post do not reflect the position of any of my previous employers or any other organization I have been associated with, these comments are mine alone.
Overview
The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050. It includes an interim 2030 reduction target of a 40% reduction by 2030 and a requirement that all electricity generated be “zero-emissions” by 2040. The Climate Action Council (CAC) is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.” In brief, that plan is to electrify everything possible using zero-emissions electricity. The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies. That material was used to develop the Draft Scoping Plan. After a year-long review, the Scoping Plan recommendations were finalized at the end of 2022. In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation and legislation.
Obviously, it is important to consider whether the costs that will be incurred for the net-zero transition are lower than the benefits. The Hochul Administration narrative claims that the costs of inaction for the net zero Climate Act transition outweigh the costs of action. I have been arguing for years that the statement is nothing more than a slogan and it is misleading because it does not include all the costs of the transition. My analyses of costs found that there are several necessary program costs not included by the Administration. The benefits claimed are the focus of this post. The analysis of the benefits that I submitted as a comment to the Scoping Plan shows that they over-estimated the benefits in several ways and incorrectly calculated the benefits. The Climate Action Council never responded to my comments. This post will summarize my comments and show the effect of the flawed methodology on the cost-effectiveness analyses in the Appendix C Cost Analysis document.
Societal Benefits
The NYSEDA Tier 4 renewable energy solicitation (“Tier 4 Solicitation”) awarded contracts for two transmission projects. Clean Path New York (CPNY) and the Champlain Hudson Power Express (CHPE) The projects are:
Expected to deliver 18 million megawatt-hours of clean energy per year to New York City, or more than a third of the City’s annual consumption. During their construction and operation, the projects are expected to generate close to $6 billion in overall net societal benefits statewide, inclusive of greenhouse gas reductions and air quality improvements, and over $8 billion in economic development, including investments in disadvantaged communities.
I am only going to address the societal benefits of greenhouse gas reductions in this article. For a complete discussion of societal benefits used to justify the Scoping Plan and these projects, I refer you to my Scoping Plan Benefits Comments. I summarize some of the details I provided for the greenhouse gas reduction benefits discussion below.
The largest benefits claimed for the Scoping Plan and the Tier 4 Solicitation are related to avoided societal costs from GHG emissions. These benefits are calculated using the Social Cost of Carbon (SCC) or Value of Carbon. This is a measure of the avoided costs for estimated global warming impacts out to the year 2300 resulting from a reduction of one ton of today’s emissions. Models are used to project the benefits of reducing GHG emissions on future global warming impacts including those on agriculture, energy, and forestry, as well as sea-level rises, water resources, storms, biodiversity, cardiovascular and respiratory diseases, and vector-borne diseases (like malaria), and diarrhea.
Richard Tol describes the value of greenhouse gas emission reductions thusly: “In sum, the causal chain from carbon dioxide emission to social cost of carbon is long, complex, and contingent on human decisions that are at least partly unrelated to climate policy. The social cost of carbon is, at least in part, also the social cost of underinvestment in infectious disease, the social cost of institutional failure in coastal countries, and so on.” Clearly, the Social Cost of Carbon price is subject to value judgements. It is strongly affected by the choice of impacts included and by the assumptions made for the discount rate. New York’s choices all maximize the value used.
Flawed Methodology
The methodology used by New York agencies to calculate societal benefits relies on the New York Department of Environmental Conservation Value of Avoided Carbon Guidance. The Guidance includes a recommendation how to estimate emission reduction benefits. In the section entitled “Estimating the emission reduction benefits of a plan or goal” an example is included that states:
The net present value of the plan is equal to the cumulative benefit of the emission reductions that happened each year (adjusted for the discount rate). In other words, the value of carbon is applied to each year, based on the reduction from the no action case, 100,000 tons in this case. The Appendix provides the value of carbon for each year. For example, the social cost of carbon dioxide in 2021 at a 2% discount rate is $127 per metric ton. The value of the reductions in 2021 are equal to $127 times 5,000 metric tons, or $635,000; in 2022 $129 times 10,000 tons, etc. This calculation would be carried out for each year and for each discount rate of interest.
I believe that the guidance approach is wrong because it applies the social cost multiple times for each ton reduced. It is inappropriate to claim the cumulative benefits of an annual reduction of a ton of greenhouse gas over any lifetime or to compare it with avoided emissions. The value of carbon for an emission reduction is based on all the damage that occur from the year that ton of carbon is reduced out to 2300. Clearly, using cumulative values for this parameter is incorrect because it counts those values over and over. I contacted social cost of carbon expert Dr. Richard Tol about my interpretation of the use of lifetime savings and he confirmed that “The SCC should not be compared to life-time savings or life-time costs (unless the project life is one year)”.
For the record I have made this argument in several different proceedings and with one exception my comments have been ignored. I pushed for an explanation long enough for the comment that I submitted on the Value of Avoided Carbon Guidance that I did get a response. There wasn’t any explanation why Dr. Tol and I were wrong. The reason was “We ultimately decided to stay with the recommendation of applying the Value of Carbon as described in the guidance as that is consistent with how it is applied in benefit-cost analyses at the state and federal level.”
Impact on Claimed Benefits
Appendix C to the Tier 4 Petition describes how the societal benefits were calculated. It states: “net carbon value provided by the Project is quantified as the difference in carbon emissions between the scenarios with and without Tier 4 on an annual basis, multiplied by respective the social cost of carbon (SCC) per ton of carbon emissions”. In other words, they used models to project the GHG emissions with and without the Tier 4 projects and then multiplied the difference in emissions by the SCC value. To their credit they do make a conservative assumption: “Both scenarios are set up in the analysis to achieve New York’s goal of 100% carbon-free generation by 2040, so by 2040 the difference in carbon emissions between the two scenarios reduces to zero.”
Using this methodology, the Public Service Commission Order Approving Contracts for Purchase of Tier 4 RECs claims that:
NYSERDA and Staff estimate that the combination of the CPNY and HQUS projects would provide a societal benefit of between $2.3 and $5.8 billion, using a net present value based on 2021 dollars.
There is no documentation that lists the annual emission reduction projections used and which SCC values were used so I cannot reproduce their estimates. I made an estimate of the societal benefits of these two Tier 4 transmission projects. The NYSEDA Tier 4 renewable energy solicitation claims that the projects will “deliver 18 million megawatt-hours of clean energy” per year. Assuming this energy displaces electric generating units that in 2022 emitted CO2 at a rate of 0.51 tons per MWH, I calculate an emission reduction of 8.35 million metric tons. Using the 2030 value of carbon at a 3% discount rate the societal benefit is $0.53 billion which is an order of magnitude less than the higher societal benefit claimed.
Conclusion
This post re-iterates a point that I have been making for years. The Hochul Administration has contrived higher estimates for societal greenhouse gas emission benefits to the point where their valuation is much higher than other jurisdictions. This manipulation has not been sufficient to “prove” that societal benefits were greater than the costs for various Climate Act transition programs. To maximize benefits, the State inappropriately applies the Social Cost of Carbon to multiple years rather than once. This is akin to saying that because I lost five pounds ten years ago I can claim that I lost 50 pounds. The advocates of the Climate Act transition are the first to claim that they “follow the science” but the reality is that the biased analyses, selective choice of assumptions, and dodgy calculation methods represent misinformation of the highest order.