New York's cap-and-invest program and GHG reporting requirements

Environmental Compliance News

State:

Mandatory GHG Reporting Program Rule

This program proposes to identify the types of GHG emissions sources that would be required to report their GHG emissions to the DEC, the emissions or activity thresholds at which a source would be required to comply with the regulations, and how the source would be required to report its emissions. Once implemented, the program will establish a mandatory GHG reporting program.

“The program will expand reporting obligations to many more industries than are currently subject to reporting obligations, including coal suppliers, solid waste transporters, fertilizer manufacturers, and electricity importers,” Reuters adds. “While the proposal suggests that DEC will try to make the obligations consistent with existing reporting requirements under California and federal laws, some changes will be necessary to cover New York-specific needs.”

The pre-proposal outline says that “not all the GHG emissions reported under this rule would necessarily be obligated GHG emissions – meaning a requirement for Obligated Entities to provide Allowances to cover such emissions – under NYCI and the Cap-and-Invest Rule.”

In summary, this rule proposes that:

Reporting entities would need to register with the reporting system and certify their GHG emissions.
Reporting entities are anticipated to report GHG emissions leveraging their activity and published emissions factors and methods.
Where necessary, information that’s duplicative to other reporting (e.g., from fuel suppliers) would need to be reported to the DEC when it isn’t accessible in those other reporting programs or systems to ensure data is reported uniformly and comprehensively.

Cap-and-Invest Program

The New York State Cap-and-Invest Program will set declining limits on annual permitted amounts of GHG emissions within the state’s borders. Large emitters will be allowed to purchase allowance credits from the state for excess emissions, and the state will use funds generated from those purchases to invest in emissions-reduction programs the state believes will reduce future compliance costs.

Reported data under the Mandatory GHG Reporting Program will be used to determine which sources qualify as “obligated entities” under the NYCI. Those identified will be required to purchase allowances in the NYCI.

“The Cap-and-Invest Rule and the Auction Rule are the keystones of NYCI,” Phillips Lytle LLP notes in a Lexology article. “Collectively, these regulations will establish a market in which both obligated entities and general market participants can purchase allowances through NYSERDA- (New York State Energy Research and Development Authority-) administered auctions. Each allowance permits up to one metric ton of carbon-dioxide-equivalent (CO2e) emissions. While obligated entities will have to surrender allowances to DEC to cover their emissions, obligated entities that reduce their emissions and non-obligated participants can hold or sell their allowances on the secondary market.”

The “DEC will determine the amount of allowances to be auctioned off each year in accordance with that year’s cap on GHG emissions. The annual cap will decline over the course of the program in order to meet the 2030 and 2050 emissions caps set by the CLCPA (New York’s Climate Leadership and Community Protection Act).”

According to the draft outline, the state proposes to define “obligated entities” as emitters whose stationary sources “produce greater than 25,000 metric tons, and fuel suppliers whose sales exceed 100,000 gallons of liquid fuel or 15 million standard cubic feet of gaseous fuel sold to an end user in New York State,” Reuters says.

The state will provide “no-cost allowances” to eligible emissions-intensive and trade-exposed (EITE) GHG emissions sources, according to the draft outline.

The purpose of these allowances is “to mitigate risk of GHG ‘leakage’ from the State (i.e., to prevent those industries from moving production to other jurisdictions to avoid emission reductions),” Reuters continues. “The Pre-Proposal Outline calls for NYSERDA to sell the allocated allowances in the auctions on the EITEs' behalf, and for NYSERDA to provide the proceeds of those sales to the EITEs directly as a cash payment.”

Auction Rule

The Auction Rule will describe the operation of NYCI Allowance auctions and mechanisms to protect the overall integrity of the allowance market, prevent market manipulation, and provide cost containment and program stability.

Reuters continues, “The auctions are anticipated to raise between $6 and $12 billion for investment in technologies to further reduce GHG emissions in the State, and to reduce the program's economic impact on residents and businesses. The Pre-Proposal Outline provides very little in the way of details about how exactly those revenues would be distributed, although some more analysis on the program's benefits are available on the Cap-and-Invest website.”

By any other name—What’s happening in other states

Similar programs to the NYCI program exist but have different names, such as cap-and-trade programs. While comparable, the emphasis is different, with one placing more importance on investing in climate change compared with permits being traded among companies and the importance being placed on the price of carbon emissions.

Cap-and-trade programs have already been implemented in two states, and other states are in the process of putting regulations in place.

“Cap-and-trade policies are currently implemented in California, Washington State, and through the Regional Greenhouse Gas Initiative (RGGI),” according to the Breakthrough blog.

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among 11 eastern states to reduce carbon dioxide (CO2) emissions from power plants within each participating state. Those states are:

Connecticut
Delaware
Maine
Maryland
Massachusetts
New Hampshire
New Jersey
New York
Pennsylvania (This state’s RGGI regulation is under ongoing litigation, which prevents the state from fully participating in the RGGI until it’s resolved.)
Rhode Island
Vermont

It’s important to note that the RGGI program only covers GHGs from power generation.

Oregon is also working on a cap-and-trade program, dubbed the Climate Protection Plan. It was previously implemented but was shut down due to legal challenges.

“Oregon's government will go through the regulatory process in 2024 to reinstate the program, aiming to implement it by 2025,” Breakthrough says.

Another variation on cap-and-trade programs is Clean Fuel Standards programs, which set emissions limits on fuels produced within or supplied to a state.

“Covered fuel suppliers can either meet these limits through buying allowances to cover emissions, improving the emissions profile of the production process, and/or incorporating a greater proportion of alternative energies into their supplies,” according to Breakthrough. “Clean fuel standards create additional costs for traditional fuels while also creating a new market for alternative fuels. These regulations are in place in California, Washington State, and Oregon.”

The following states are in the process of implementing Clean Fuel Standards programs:

Minnesota
New Mexico
New Jersey
New York

HFC standards and reporting—Amending 6 New York Codes, Rules, and Regulations (NYCRR) Part 494

The DEC is also proposing amendments to the state’s HFC regulations.

HFCs are powerful GHGs with much higher global warming potential (GWP) than natural refrigerants. These gases are used in air conditioning, refrigeration equipment, and some insulation foams.

“The buildings sector was the largest source of HFC emissions in New York in 2019, responsible for 32% of emissions statewide,” notes Reuters.

The proposed amendments to the state’s HFC regulations are in keeping with the Kigali Amendment to the Montreal Protocol, which was implemented under the 2021 American Innovation and Manufacturing Act (AIM).

It seeks to limit the GWP of new refrigeration and cooling systems to the equivalent of 10 CO2e by 2034, Reuters says. This supports the use of natural refrigerants.

The proposed regulations call for banning HFC refrigerants with a GWP20 of greater than 580 in equipment with a refrigerant charge capacity of 50 pounds (lb) (23 kilograms (kg)) or greater as of January 1, 2025, according to R744.com.

As proposed, Reuters says, the regulations include a slew of “prohibitions, reporting, and repair requirements, in addition to other restrictions on the sale, use, and supply of HFCs, and on new products and systems containing them.”

New York officials have noted “misconceptions and misinformation” about the proposed rule amid pushback during the public comment period, according to the R744 article.

“The rulemaking does not require any person or entity to replace any existing equipment or product,” said Suzanne Hagell, DEC Climate Change Policy Analyst II, at a March 13, 2024, online public hearing. “It would not require grocery stores, including small and independent businesses, to replace their refrigeration equipment before the end of its useful life.”

“Regulations in the proposed rule would only phase out HFCs in newly manufactured equipment and products under a timeline that ‘varies by equipment type and recognizes the status of available alternatives on the market,’” Hagell noted.

According to R744, comments received from those expressing opposition to the proposed regulations include:

Concerns about the unknown availability of replacement refrigerants;
Rejection of the use of the 20-year GWP;
Calls for a “strong road map” from the state;
Requests for a “clearer definition of ‘new refrigeration equipment’ in retrofit scenarios”; and
Beliefs that the regulations will “‘create undue and insurmountable financial burden’ on local independent retailers.”

However, other stakeholders endorsed the proposed changes.

Anne Erling, a member of New Yorkers for Cool Refrigerant Management, said, “Owners of systems using natural refrigerants will save costs and avoid the hassles of accessing increasingly scarce high-GWP refrigerants and won’t have to worry about any additional replacements to comply with climate-protecting regulations.”

SF6 standards and reporting—Proposed 6 NYCRR 495

The DEC is proposing a new regulation, 6 NYCRR Part 495, “Sulfur Hexafluoride Standards and Reporting.” The proposed regulation includes a program to phase down the use of SF6 in gas-insulated equipment (GIE) used by the electricity sector, an emissions limit for GIE owners, limitations on the use of SF6, and reporting requirements for certain users and suppliers of SF6 and other fluorinated GHGs. The goal of this proposed rule is to implement recommendations of the Climate Action Council Scoping Plan necessary to achieve the required 2030 and 2050 statewide GHG emissions limits and net-zero goal.

“Fluorinated GHGs are among the most powerful forces of global climate change,” according to the NY Regulatory Impact Statement. “The primary focus of this proposal is SF6, which is the most potent GHG currently known with a GWP 18,300-25,200 times that of carbon dioxide. … It is also one of the longest-lived GHGs, persisting in the atmosphere for 1,000 years once emitted. All fluorinated GHGs have high GWP values, and some persist for hundreds, thousands, or even tens of thousands of years. This means that even if these GHGs are emitted at low volumes, they are accumulating in the atmosphere, and they will continue to impact the climate for centuries. In the case of SF6, the abundance has increased more than 40% from 2011 to 2019. Finally, because this gas persists in the atmosphere much longer than can be modelled, the costs to society from SF6 emissions cannot be fully estimated.”

This proposed regulation aligns closely with the California Air Resources Board's (CARB) Regulation for Reducing Sulfur Hexafluoride Emissions and with federal reporting requirements.

“The proposed regulatory timeline delineates a planned obsolescence for SF6, with a ban on acquisition after designated phase-out dates unless certain conditions are met,” Reuters says. “These phase-out dates are tailored to the equipment's configuration, voltage capacity, and short-circuit current ratings. The proposed regulation will require owners of SF6 GIE to maintain an annualized inventory of equipment and insulating gas starting in 2025, and for owners with annual GHG emissions above 7,500 MTCO2e to report on this inventory starting in 2026.”

The phasedown is slated to begin in 2026 and to last through 2033. In 2028, GIE owners will be provided with a baseline capacity limit they’ll be required to keep their GIE emissions below.

“Under Subpart 495-2, New York will restrict the use of SF6 to certain essential uses and establish a registration requirement on suppliers (including manufacturers, producers, and distributors) of fluorinated GHGs, both starting in 2025,” Reuters continues. “In 2026, these suppliers will begin reporting annually on total volumes supplied to the State.”

The DEC is expected to issue final regulations later this year, with regulatory compliance slated to become effective in January 2025.

Takeaway

Impacted industries in the aforementioned states are advised to carefully monitor the multiple regulatory agendas to ensure they remain aware of these impactful regulations and take every opportunity to comment on proposed regulations so they have a voice in shaping final regulations.

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