6 NYCRR Part 242 Assessment of Public Comments Summary
Comments Received from October 24, 2007 to December 24, 2007
The New York State Department of Environmental Conservation (Department) is proposing to establish 6 NYCRR Part 242, CO2 Budget Trading Program, which is designed to stabilize and then reduce anthropogenic emissions of carbon dioxide (CO2), a greenhouse gas (GHG), from CO2 budget sources in an economically efficient manner. The New York State Energy Research and Development Authority (Authority) is proposing to establish 21 NYCRR Part 507, CO2 Allowance Auction Program, which implements essential segments of the CO2 Budget Trading Program.
The Department proposed Part 242, and the Authority proposed Part 507, on October 24, 2007. Hearings were held in Albany, NY on December 10, 2007, in Ray Brook, NY on December 11, 2007, in New York City, NY on December 12, 2007, and in Avon, NY on December 13, 2007. The comment period closed on December 24, 2007. The Department and the Authority received written and oral comments from approximately 10,000 commenters on the proposed regulations. All of these comments have been reviewed, summarized, and responded to by the Department and the Authority.
Commenters generally support the Department's and the Authority's adoption of the CO2 Budget Trading Program and CO2 Allowance Auction Program (collectively "the Program"), although many, primarily electric generators and those affiliated with the energy industry, are opposed to the Program for various reasons. Comments address legal issues, proposed revisions to the regulations, implementation, and the potential benefits and impacts of the Program.
Several commenters challenge the Department's and the Authority's statutory authority to establish the Programs. Specifically, it is asserted that the Department and the Authority cannot establish the Program without legislative expression of a statewide policy addressing global climate change. In response, the Department and the Authority cite extensive statutory authority which overwhelmingly supports the Department's and the Authority's statutory authority to establish the Programs. Principally, the Department has the authority to enact the Program pursuant to New York State Environmental Conservation Law (ECL) Sections 19-0103 and 19-0301. The Department's broad authority to develop regulatory programs derives primarily from its obligation to prevent and control air pollution, as set out in the ECL at Sections 1-0101, 1-0303, 3-0301, 19-0103, 19-0105, 19-0107, 19-0301, 19-0303, 19-0305, 71-2103, 71-2105. Further, the Department's obligation to preserve and protect natural resources and public health in the State as it relates to climate change also extends beyond the control of air pollution, as set out in ECL Sections 11-0303, 11-0305, 11-0535, 13-0105, 15-0109, 15-1903, 16-0111, 17-0303, 24-0103, 25-0102, 34-0108, and 49-0309 and the Energy Law Sections 3-101 and 3-103.
Similarly, the general powers of the Authority that are relevant to the Program's ability to sell allowances in an auction are set forth in the Public Authorities Law (PAL) Sections 1851, 1854 and 1855. Under the Program, the Authority's activities would include the conduct of allowance auctions and the administration of the Energy Efficiency and Clean Energy Technology Account (Account). The statutory provision relevant to the Authority's statutory authority to accept the allowances allocated to it by the Department is PAL Section 1855, subsections 10, 14 and 17.
Commenters also argue that although the Legislature has never authorized the Authority to issue or sell regulatory licenses/permits, the Program purports to empower the Authority to auction allowances, which constitute licenses/permits under New York State law. The Department and the Authority disagree with this contention and believe that the allowances themselves are not permits or licenses under New York Law. Rather, an allowance is a condition of an operating permit that constitutes a limited authorization to emit up to one ton of CO2.
Another significant comment states that the Program constitutes taxation in contravention of the New York State Constitution. Alternatively, commenters argue that if the Program does not impose a tax, the Program is ultra vires because the Department and the Authority lack the statutory authority to create fees.
The Department and the Authority do not believe that the Program constitutes a tax. The primary purpose of this measure is to discourage the emissions of CO2. The sale and auction of allowances will help create CO2 allowance price signals at a level sufficient to cause investment in technologies and strategies that would reduce or avoid emissions of CO2. Similarly, the Program does not implement a fee. Rather, the Department is requiring owners and operators of each CO2 budget unit at the source to acquire allowances either at an auction or in the secondary market.
Regarding reliability, many commenters suggest that the Program might have an impact on electric system reliability; some further allege that the modeling conducted to assess potential impacts on reliability is inadequate. Notwithstanding this, the New York Independent System Operator (NYISO), ICS Consulting, and the Department of Public Service (DPS) each concluded that reliability would not be impacted. Based on their research, these entities all found that no generating facility would be forced to retire as a result of the Program.
Several commenters expressed concern over the potential for leakage. Concerns regarding cost effectiveness, price increases for energy in RGGI states, utility diminishment, and importation of energy from non-RGGI states are also expressed. In response, the Department submitted a final report of the RGGI Emissions Leakage Workgroup dated March 31, 2008. Among other things, the report includes: 1) information about the tracking of potential leakage, 2) a number of possible leakage mitigation policies, and 3) information about the current political momentum towards a national cap-and-trade program.
Although the Department and the Authority provided an unprecedented amount of public comment on the model rule, pre-proposal and the proposed Program and Draft Generic Environmental Impact Statement (DGEIS), some commenters note that the comment period was insufficient. The Department and the Authority strongly disagree with this comment because the public had ample opportunity over several years to engage in the unprecedented stakeholder process. RGGI included an extensive stakeholder process in which an expert Resource Panel was assembled to provide the RGGI states with assistance in the development of a framework for a regional carbon cap-and-trade program.
To supplement the regional stakeholder process, New York carried out its own stakeholder process which was designed to afford additional opportunities to provide input directly to New York's representatives. On December 5, 2006, the Department released a pre-proposal draft of the Program after which it held a public meeting. The Department allowed stakeholders and the public the opportunity to provide written comments which were then reviewed and considered in the development of the Program. On October 24, 2007, the Department and the Authority formally proposed the Program which was also followed by public hearings. In response to these comments, the Department and the Authority are proposing revised rules.
Comments were also received requesting additional offset categories, including tail pipe emissions projects, biomass, and forest products, among others. The Department responded that it will not deviate from the five categories included in the original proposal, but it will work with the other RGGI states to determine additional categories in the future.
In addition to the offset comments, several comments regarding the auction component of the Program were received which center on the structure of the auction system, the transparency of its operation, the pricing and allocation of allowances and the implementation of the Account. Many comments are directed at the perceived potential for manipulating the auction process, and the need for a "robust" oversight and monitoring system. The Department and the Authority responded by amending the rule to provide for an independent monitor to observe the conduct and outcome of each auction and activity among and between the allowances accounts looking for collusion, price manipulation or unfair market power.
Concern is also voiced about the use of a reserve price in the auctions. Several comments expressed concern that allowances not sold would be taken out of the market or have their market entry delayed. Others said that a reserve price creates an artificial floor. The Department's and the Authority's decision to use a reserve price was based upon extensive analysis by the Authority's research team with stakeholder input. Both the Authority and the Department agree that the reserve price protects against the possibility of collusion and provides a price signal that supports a minimum rate of investment in technologies and strategies that reduce CO2 emissions.
Several comments are directed at the structure and implementation of the Account. Furthermore, while many support the Authority as the appropriate manager of auction proceeds and suggest that an oversight committee to assist with distribution issues would also be appropriate, some make specific requests that the auction proceeds flow back to certain entities or for specific purposes, including rate payer relief.
The Authority responded that the proceeds raised through the sale of allowances will be used to promote and implement programs for energy efficiency, renewable or non-carbon emitting technologies, and innovative carbon emissions abatement technologies with significant carbon reduction potential. The Authority will periodically convene an advisory group of stakeholders representing a broad array of energy and environmental interests to advise it on how to best utilize the funds to achieve the goals of the Account. As part of initial program development, the Authority will outline draft program guidelines and funding criteria for the Account. Stakeholders will have an opportunity to provide input and comment on these guidelines through the stakeholder advisory group and open public comment. Subsequently, a draft multi-year operating plan will be presented to the stakeholder advisory group for comment. An annual program evaluation and progress report will be prepared and shared with the stakeholder advisory group and the public.
In response to several comments, Part 507.6 of the Auction Program has been revised to accommodate quarterly auctions. The rule now provides that they will be held at least quarterly or "as often as necessary to effectuate the objectives of the budget trading program." Further, in response to several comments, the Department and Authority state that they are committed to making nearly 100 percent of the allowances for sale.
A majority of comments voice support for a regional auction that uses a uniform price auction formula. Accordingly, Part 507 has been revised to provide that participation in a multi state auction is the preferred approach. New York State will not take place in the first scheduled auction in September, but plans to participate in the December multi State auction.
Concerns regarding the potential participation of eligible companies in the auction were also expressed. In response, the revised regulations allow the Authority to limit the participation of any applicant or bidder found to have violated any rule, regulation or law associated with any commodity market. The Authority also may limit eligibility to participate in any auction to the level of security provided. Finally, the Program was revised to require public disclosure of auction related auction results.
Apart from the auctions, some commenters allege that the Department and the Authority did not comply with the requirements of the State Environmental Quality Review Act (SEQRA) because the DGEIS was incomplete. To address this concern, the Department and the Authority are preparing a Supplemental DGEIS to consider aspects of the Program that were not fully developed at the time the initial DGEIS was prepared.
Some commenters are concerned about the possible costs of the Program to both regulated facilities and electricity consumers. They oppose the decision to auction nearly 100 percent of the allowances, rather than allocate the allowances for free; they also claim that a price cap is needed in order to protect consumers. The Department and the Authority responded that a price cap would have no impact on the cost to consumers because it would not affect the price of allowances on the secondary market. Moreover, the investment of auction proceeds in energy efficiency will reduce electricity demand and thus lessen any increase in cost to consumers caused by the Program.
Several comments were received regarding the behind-the-meter exemption. Some commenters express an opinion that there should be no such exemption, while others feel that the exemption is not large enough. The Department included this provision to create a limited exemption for industrial sources, not typically regulated in New York as electric generators, that provide little or no electrical output to the grid.
Most comments received regarding the voluntary renewable set-aside support this provision, while a small number oppose it. In particular, commenters addressed the 700,000 ton amount of the set-aside. Adjustments to the amount of the set-aside can be made through amendments to the regulation if the set-aside is determined to be over or under subscribed.
A number of commenters recommend that a sunset provision be included that is contingent upon the enactment of a Federal cap and trade or other climate change program. The Department and the Authority anticipate that they will repeal or amend the regulations to comport with the Federal program, in the event such a program is established.
Several comments address the Department's inclusion of a Long-term Contract (LTC) set-aside of 1.5 million allowances. The vast majority of these comments are opposed to the set-aside, while a small number of commenters urged an increase in the size of the set-aside. The Department created the set-aside to accommodate the small number of generators able to demonstrate a financial hardship created by having to purchase allowances. The Department made revisions to the Program to further limit the use of the set-aside, including requiring that the allowances be used for compliance only.
A substantial number of comments were received that express support for the Program and New York's participation and leadership in RGGI. The Department acknowledged that adequately addressing climate change issues will eventually require economy-wide regulation.
Many commenters suggest that the emissions cap is set too high and request that the Department consider re-evaluating the numbers to reflect the reduction in emissions since 2005. Other commenters note that if the cap is too high in 2009, an artificially low market would be created. The Department maintains that the base budget will be used and will not be revisited at this time; however, there will be annual updates that may be used to adjust the cap if necessary.
Finally, many comments were received that provided specific recommendations for changes to or clarifications of the regulatory language, such as definitions and permitting requirements. In each instance, the Department and the Authority explained the reasoning behind the inclusion of the particular language, and in some cases made the suggested changes to the regulations.
