Legislative Memos

Gavin Donohue Testimony on the CCIA

Testimony of Gavin J. Donohue, President and CEO of the
Independent Power Producers of New York
Climate and Community Investment Act (CCIA) Roundtable
August 10, 2021

The Independent Power Producers of New York (IPPNY) is New York’s oldest trade association dedicated to representing the independent generators of electric power in New York State. Our members generate more than 75 percent of New York's electricity, utilizing almost every generation technology available today, such as wind, solar, natural gas, energy storage, oil, hydro, waste-to-energy, biomass, and nuclear.

As a member of the State’s Climate Action Council, charged with implementing the Climate Leadership and Community Protection Act (CLCPA), I appreciate the opportunity to continue the necessary dialogue to ensure we are reaching New York’s climate and green energy mandates effectively. The effects of climate change are well understood, and addressing those impacts, while transitioning New York to a new energy future, is important. IPPNY actively supports a move to a more efficient electric system in a way that maintains the reliability of our grid and makes sure consumers are not met with significant financial burden.

That leads to today’s topic – the Climate and Community Investment Act (CCIA). This legislation shines an important light on environmental justice, expanding New York’s green economy and providing opportunities for communities most impacted by the effects of climate change. However, as currently presented, the legislation needs to be improved. Dialogue like today’s roundtable provides essential feedback to shape and improve New York’s nation-leading climate and energy policies.

Electricity is the lifeblood of our economy. While New York works on economy-wide beneficial electrification measures, it is important to understand the current makeup of our electric grid, along with the sector’s progress in emissions reductions to identify more effective ways to accomplish the goals of this proposed bill.

State of the Electric Grid

It has been more than 20 years since the inception of New York’s wholesale electricity markets. In that time, New York’s electricity markets have driven independent power producers to make tremendous investments in emission-reduction technologies / practices, providing significant environmental benefits. As a result, New York’s air is cleaner - sulfur dioxide (SO2) emissions have decreased by 99 percent, nitrogen oxides (NOx) by 93 percent, and carbon dioxide emissions have decreased by 52 percent.

Upstate New York’s power is 90 percent emissions-free, and the state’s last coal-burning power plant exited the system in 2020. In fact, the electric generation sector (statewide) has seen the sharpest decrease of emissions from 1990 levels of any sector. Thanks to the power of competitive markets, 10,535 megawatts (MW) of less efficient generation have retired, and 12,739 MW of new, efficient generation has been added to the grid since 2000.

According to data from the New York State Energy Research and Development Authority, from 1990 through 2017 (the most recent info available), the power sector reduced greenhouse gas emissions by 65 percent. This is largely due to the forces of the competitive wholesale electricity market and without the availability of direct emission control technologies for carbon dioxide. In that same span of time, emissions from the transportation sector, which is the highest emitting sector, increased by 13 percent.

Carbon Pricing

The CCIA proposes to place a fee on all Title V permit holders, which include businesses, schools, and hospitals, in addition to power plant owners. The fee would be on emissions of “regulated air contaminants,” such as NOx and SO2, which are covered under Title V permits. There also is a “carbon pollution fee” on the sale and use of carbon-based fuels. The amount of the carbon pollution fee starts at $55 per ton for 2022 and would increase from there based upon a formula in the legislation. Recent conversation during the legislative session centered on the CCIA’s proposed carbon pollution fee, which was estimated by the Business Council of New York State to increase residential natural gas prices 26 percent and gasoline prices by $0.55 per gallon.

Those numbers are eye-popping, especially as we continue to grapple with an uncertain economic outlook as a result of the ongoing coronavirus pandemic. A more prudent approach towards decarbonization is to leverage the power of New York’s wholesale electricity markets and capitalize on its well-documented success.

As New York strives to electrify its transportation and building stock, the demand for electricity will increase significantly and market efficiency is paramount if we are to achieve our statutory decarbonization goals. The New York Independent System Operator (NYISO), the organization responsible for managing New York’s electric grid and competitive wholesale electricity markets, has developed a proposal to value the social cost of carbon within its markets to align the state’s economic and environmental interests. Under this program, the State would set a social cost of carbon as a price per ton of emitted carbon dioxide, and power plants would pay for the carbon they emit via their offers in the electricity markets, setting New York on a path toward a 100 percent emissions-free electric system. In doing so, the NYISO’s carbon pricing proposal supports investments in green jobs by accelerating the build-out of renewable energy and cost-effective transmission infrastructure, and it creates incentives for energy efficiency, putting thousands back to work while safeguarding the health of our environment and the reliability of our electric system.

Pricing carbon emissions within the NYISO’s markets has been a priority of IPPNY for more than four years. New York would be the first state in the nation to implement such a program, setting a blueprint for other sectors of our economy as well as other states. IPPNY’s diverse membership agrees on the importance of the NYISO’s carbon pricing proposal. What generators see in carbon pricing is simple: markets work. Leveraging the power of markets is the only way New York is going to achieve its lofty, yet laudable, decarbonization goals. Implementing NYISO’s carbon pricing proposal will help reduce the cost and time to achieve the CLCPA’s goals of 70 percent renewable generation by 2030 and 100 percent emissions-free electric system by 2040.

Earlier this year, Senator Kevin Parker and Assemblywoman Amy Paulin introduced legislation, S.4372/ A.1168, requiring the NYS Department of Environmental Conservation (DEC) to determine and establish a carbon dioxide emissions price and transmit that price to the NYISO for use in its carbon pricing proposal. The NYISO’s carbon pricing proposal has been ready for several years but has needed a signal of support from the State to move forward; this legislation would be that signal, and this approach should be included as an amendment to the CCIA.

An initial study for the NYISO conducted by The Brattle Group found that carbon pricing would achieve the State’s targets faster and in a more efficient manner than State programs would alone, and these findings were confirmed by a later Analysis Group study. The NYISO has also found that carbon pricing would lead to long-term consumer savings by reducing the need for out-of-market payments by energy consumers. Importantly, the financial risk of developing these projects would be on developers and investors, not on already-strained ratepayers.

In relation to the priorities of the CCIA, carbon pricing would accelerate retirements of less efficient generation in environmental justice communities. It would also promote investment in new storage facilities and/or the siting of more efficient generation, and it would enable innovation in new clean energy production and energy efficiency technologies and services.

New Technologies and Grid Reliability

The past year under the coronavirus pandemic has shown how essential electric system reliability is. Remote work and learning, hospitals, schools, and essential businesses – all aspects of our life - depend on having power when needed. As we seek to electrify our way of life in the coming years to comply with the CLCPA, the last thing we can do is jeopardize system reliability. This is an opportunity to amend the CCIA to encourage investments that comport with the current targets enshrined in law under the CLCPA.

Currently, the CLCPA requires a zero-emission power sector by 2040. Reaching that goal will require careful consideration of new technologies. Each fuel and technology play an important role in maintaining electric system reliability. Currently, 43 percent of the energy produced in New York, including 77 percent of the electricity downstate, is produced by fossil fuel resources. 35 percent of statewide energy and 67 percent of downstate energy come from dual fuel (gas and oil) resources. These are dispatchable resources that are critical to keeping the lights on.

A fact of the electric grid is that it needs flexible, dispatchable resources to keep the lights on 24x7, rain, snow, or shine. Grid conditions change on a moment’s notice – a big snowstorm, for example, could take down power lines and force major generation facilities offline – and the grid needs generation that can turn on, ramp up, etc. to meet consumer demands regardless of the weather. Something needs to be there to supplement intermittent renewable generation and current energy storage and produce life-saving, economy-supporting electricity when the wind isn’t blowing, the sun isn’t shining, and/or the water isn’t flowing (California drought example), and no one can compromise on that. Multiple studies have shown that New York needs dispatchable, flexible long-duration resources to maintain reliability cost-effectively:

Brattle Group’s May 2020 Zero Emission Power System study for the NYISO simulating the resources needed to meet state policy objectives and energy needs reliably;
The June 2020 report presented to the Climate Action Council prepared by Energy and Environmental Economics (E3), Pathways to Deep Decarbonization in New York State;
Analysis Group’s September 2020 Climate Change Impact and Resilience Study prepared for the NYISO;
Brattle Group’s January 2021 Initial Report on the New York Power Grid Study prepared for the Public Service Commission (PSC);
The April 2021 joint study conducted by the New York City Mayor’s Office of Sustainability, National Grid, and Con Edison, Pathways to Carbon-Neutral NYC; and
The April 2021 Center on Global Energy Policy at Columbia University’s School of International and Public Affairs report, Investing in the US Natural Gas Pipeline System to Support Net-Zero Targets.

Each study, conducted for and by different entities but all with the same goal of finding a path to a low- and zero-carbon future, arrived at the conclusion of the necessity of dispatchable, flexible generation. The current slate of short-duration (intraday) batteries being deployed will not provide the dispatchable generation needed when solar and wind resources are unavailable for extended periods of time.

The CCIA should be amended to include provisions requiring the PSC to establish a competitive program to reach the CLCPA’s 2040 target. Legislation that would do just that passed unanimously in the Senate this year. S.6497-A (Parker) / A.8094 (Cusick) would have the PSC create a market for zero-emission technologies. This program would secure investment in 1 GW of zero-emitting resources by 2030. The PSC would also include the provisions for prevailing wage, project labor agreements, and Buy American provisions that were put in place for renewable energy projects. The concept of this legislation is worth rolling into the CCIA. That way, the CCIA would include the foundation for using the revenues from its fees to encourage the development of technologies needed to meet the CLCPA’s targets and maintain reliability and support union jobs.

Natural gas is an essential fuel for maintaining reliability currently, and it is used by facilities that can respond quickly to meet the needs of the grid. With proper regulation and market signals, at some point in the future, zero-emissions fuel technologies, such as those using hydrogen or renewable natural gas, may be an economically viable replacement for natural gas at dispatchable facilities, or perhaps some other technology will prove its ability to balance the intermittency of renewables and energy limited nature of batteries.

The CLCPA and the CCIA currently prescribe specific technology solutions. However, the best public policy solutions to achieve New York’s energy goals should not mandate specific technology targets but instead should create/evolve markets to incentivize technology-agnostic, least-emission solutions for all grid reliability needs (i.e., produce energy, turn on/off, ramp up/down, etc.). This will continue New York’s history of providing environmentally conscious energy to consumers.

Reconciliation with Federal Funding Efforts

The State should look at revenue options, such as the CCIA, to complement, and build upon, other efforts in a cost-effective way. For example, the Federal Infrastructure Deal includes a total of $550 billion of investment in infrastructure and will create union jobs.

The Federal Infrastructure Deal creates a new Grid Deployment Authority and provides $73 billion of investment to upgrade power infrastructure, including by building thousands of miles of new, resilient transmission lines to facilitate the expansion of renewable energy. The Grid Deployment Authority will invest in demonstration projects and research hubs for next generation technologies like carbon capture and clean hydrogen, advanced transmission and electricity distribution technologies, and smart grid technologies that deliver flexibility and resilience.

The federal agreement will replace transit vehicles, including buses, with zero emission vehicles. The bill invests $7.5 billion to build out a national network of electric vehicle chargers. The funding has a focus on rural, disadvantaged, and hard-to-reach communities. The deal invests $21 billion in environmental remediation to address pollution of communities, create union jobs, and advance economic and environmental justice.

Other Considerations for the CCIA

Additional amendments to the CCIA that would benefit consumers and businesses in New York include:

Building on the need for new, innovative technologies, more specifically adding language to have the Climate Jobs and Infrastructure Fund apply to zero emissions energy systems and the conversion of facilities to use those resources, to associated provisions for prevailing wage, project labor agreements, and Buy American provisions, and to demonstration projects for the blending of green hydrogen with natural gas at power plants;
Adding provisions for a study on the technical and economic feasibility of meeting the CLCPA mandates and implementing the CCIA, including impacts on ratepayers, jobs, and reliability;
Removing language from the Community Just Transition Fund to have it no longer apply to the permanent closure of fossil plants, peaker plants and waste-to-energy facilities; and
Adding the specific enacted language from the CLCPA to allow the DEC, in consultation with the NYS Department of Public Service, to temporarily suspend or modify the bill’s provisions, if, after a public hearing, there is a finding that such provisions: impede reliable and affordable electricity service; are likely to impair existing obligations and agreements; and/or result in a significant increase in unpayable bills or service disconnections.

Conclusion

Thank you for the opportunity to provide these comments. The fight against global climate change requires an all-hands-on-deck approach, and there are ways to more efficiently accomplish the CCIA’s intended aims. Getting this right is critical, and I appreciate your consideration of these central issues to the energy sector.

Please contact my office with any questions.