Citizens Guide Costs and Benefits

The Climate Act did not determine the greenhouse gas emission targets based on cost feasibility.  The plan will result in increased direct net costs equivalent to “only” 0.6% of GSP in 2030 which works out to $170 per month for a family of four.  The costs will increase to the equivalent of 2.0% of GSP in 2050 and that works out to $850 per month for a family of four.  When the plan is announced next year, proponents will claim that societal benefits outweigh the costs; however, the benefits do not lower the direct costs.

Status

The Integration Analysis benefits and cost presentation has been discussed at multiple Climate Action Council meetings.  The initial discussion was at the October 14, 2021 meeting.  The results were incorporated into the draft Scoping Plan and the Council addressed them at their November 30, 2021 and wrapped up discussion at the December 6, 2021 meeting.  In response to comments from the Council the results there were revisions to the costs and benefits, mentioned at the December 20, 2021 Council meeting.

There are issues with the available cost numbers provided.  None of the numbers provided are broken down in costs to consumer.  There are no mechanisms for how to pay for this.   I think the biggest problem with the cost-benefit claims is that the benefits are societal benefits but the costs will be borne personally by New Yorkers in direct higher energy costs, the direct cost for upgraded infrastructure, and the indirect transactional costs for programs to fund the efforts needed.  None of the benefits proposed will directly offset those costs.

Costs

The Integration Analysis developed the cost estimates for several scenarios that meet the Climate Act targets with the reference case (described here).  There is insufficient information to adequately evaluate the cost calculations in any detail, but I did summarize the analysis using the information available. 

The following figure is excerpted for clarity from the Scenario Cost Assessment – Net Present Value of net direct costs relative to Reference (2020 –2050 slide (slide 34 December 20, 2021 presentation).  The key findings listed on slide are:

  • Net direct costs in all scenarios are in the same range given uncertainty, and are primarily driven by investments in buildings and the electricity system
  • All scenarios show avoided fossil fuel expenditures due to efficiency and fuel-switching relative to the Reference Case (shown in the chart as negative costs)
  • Scenario 2: “Strategic Use of Low-Carbon Fuels” includes significant investment in renewable diesel, renewable jet kerosene, and renewable natural gas
  • Scenario 3: “Accelerated Transition Away from Combustion” meets emissions limits with greater levels of electrification, which results in greater investments in building electrification, zero-emission vehicles, and the electricity system
  • Scenario 4: “Beyond 85% Reductions” meets emissions limits with further investments in transportation (intrastate rail, electric and hydrogen aviation, smart growth and VMT reductions), and innovation in non-energy agriculture and waste and avoids the need for negative emissions technologies.

Scenario Cost Assessment

Net Present Value of net direct costs relative to Reference (2020 –2050)

The costs listed are direct societal costs.  For example, incremental capital and operating transportation investments cover the direct cost of electric vehicles but not the transactional costs such as the additional interest cost for a more expensive electric vehicle loan.  In addition, there are analytical choices that could affect costs such as the number of each type of electric vehicle charging system.  In my discussion of the net direct costs of the November 18, 2021 Integration Analysis I concluded that it was likely the costs are under-estimated because of a reliance on an “innovative” world view that presumed, among other things, that there would be significant declines in prices of as yet untested at scale technologies.

Most importantly, these society-wide direct costs cannot be used to determine consumer costs.  The Climate Action Council had an extensive discussion about the lack of cost estimates for consumers in the Scoping Plan.  Societal cost estimates represent the minimum cost of the technology needed for emission reduction strategies.  The authors of the Scoping Plan explained that in order to convert societal costs to direct costs to consumers that you have to determine how to distribute those costs through, for example: ratepayer program, State tax credit or incentives or the Federal government support.  Unsaid, and important in my opinion, is that no matter how the costs are distributed, any distribution method adds transaction costs.  In addition, programs like a carbon tax don’t always fund the direct costs needed for the technology and, instead, fritter away money on things like job programs to train people for the transition technology implementation.  Without a detailed cost breakdown, the public won’t know if those costs are included in the Integration Analysis cost projection.

At this time, we know that the net direct cost of the three mitigations scenarios ranges between $310 and $290 billion.  Those direct net costs are equivalent to “only” 0.6% of Gross State Product (GSP) in 2030.  For a household of four that GSP works out to $170 per month for a family of four.  The costs will increase to the equivalent of 2.0% of GSP in 2050 and that works out to $850 per month for a family of four.  

If the numbers were broken down in the scenario cost assessment figure shown above it would be possible to estimate potential consumer costs.  In the meantime, I recently developed a table that can be used to predict the costs to retrofit a residential electric system for different types of heating systems and residences. 

In the absence of Scoping Plan estimates, I developed a table for the costs for consumers to convert from their existing home heating system to the Climate Act electric heating system based on data available in the Climate Act resources spreadsheet.  The Integration Analysis assumes that electrified houses will have to convert to an air source or a ground source heat pump.  Because New York is so cold, air source heat pumps will also need a backup resistance heating system. Upgrades to the building shells are also necessary to make heat pump technology viable in New York.  The costs for those technology upgrades are listed at the top of the table for twelve combinations of heating source, building type, and building shell type.  On the left side of the table are 12 heating types for each of the three residence categories.  For an end-of-life conversion the cost equals the cost of the electric technology less the cost to replace the existing technology.  The table shows that, for example, to estimate the cost to replace an existing efficient gas-fired furnace in a single-family residence the differential cost to replace the existing furnace ranges from $19,142 to $76,133 depending on the type of heat pump and the building shell upgrades needed.

Benefits

The presentation for the December 20, 2021 Climate Action Council meeting includes the most recent Benefit Cost assessment slide (shown below).  A prime message is that the “mitigation cases show positive net benefits ($90-$120 billion) when considering the value of avoided greenhouse gas emissions and health co-benefits, in addition to cost savings from reduced fuel use”.  According to the key benefit-cost presentation, “There are significant required investments to achieve Climate Act GHG Emissions Limits, accompanied by even greater external benefits and the opportunity to create hundreds of thousands of jobs.” 

There are four categories of claimed benefits that are used to claim that the costs of inaction out-weigh the costs of action:

  • Health benefits from improvements in air quality,
  • Health benefits due to increased active transportation,
  • Health benefits from energy efficiency interventions in low- and moderate-income homes, and  
  • Reduced economic impacts of damages caused by climate change from avoided GHG emissions

The Scoping Plan air quality improvement benefits range between $100 billion and $103 billion for the low values and the high values range between $165 billion and $172 billion.  These benefits are due to an air quality improvement for PM2.5 of 0.35 µg/m3 that is supposed to “avoid tens of thousands of premature deaths, thousands of non-fatal heart attacks, thousands of other hospitalizations, thousands of asthma-related emergency room visits, and hundreds of thousands of lost workdays”. However, the modeled impacts rely on a linear no-threshold model.  The observed reduction in New York City since 2005-2007 is 5.6 µg/m3 and that is 16 times higher than the projected decrease due to the Climate Act.  Using the linear no-threshold model that means that we should be able to observe sixteen times tens of thousands of premature deaths, sixteen times thousands of non-fatal heart attacks, sixteen times thousands of other hospitalizations, sixteen times thousands of asthma-related emergency room visits, and sixteen times hundreds of thousands of lost workdays since 2007.  When the Scoping Plan verifies that these reductions have been observed I will accept these benefits.

The Scoping Plan admits that the health benefits from increased active transportation “should be considered a first-order approximation of the benefits of increased active transportation”.  The active transportation health theory claims that as people are forced out of their personal vehicles some will switch to walking and biking.  Those activities are healthier so there is a benefit.  However, the analysis was conducted at the state level, rather than modeling changes in walking and biking activity due to changes in vehicle miles traveled within counties or individual communities.  Because the actual number of places where this strategy could actually encourage more walking and bicycling to work is small relative to the state level, the $39.5 billion health benefit claim is far too high.

Upon examination the majority of the health benefits from energy efficiency interventions in LMI homes are the result of “non-energy interventions”.  The Climate Act intends to transform the energy sector so it is disingenuous to claim health benefits not directly related to energy efficiency programs themselves.  Of the $8.7 billion in benefits claimed $3 billion is due to reduction in asthma-related incidents resulting from better ventilation not directly due to energy efficiency.  The $2.4 billion in benefits from reduced trip or fall injuries and reduced carbon monoxide poisoning benefits are non-energy interventions and should not be claimed as benefits for GHG emission reduction programs. 

The Scoping Plan claims the largest proposed benefits come from avoided GHG emission impacts on climate change due to emission reductions.  The Climate Act Scoping Plan manipulates the emissions, the emissions accounting, and calculation of social cost of carbon benefits to inflate these benefits to claim that there are net benefits.  In order to maximize the benefits from emission reductions the Scoping Plan uses non-conventional assumptions to contrive increased emission estimates that are 1.9 times higher in 1990 and 2.3 times higher in 2019 than conventional, or UNFCCC, format for emissions accounting used by other jurisdictions.  New York’s Value of Carbon guidance chooses a lower discount rate that places lower value on immediate benefits relative to higher delayed benefits received in the future.  The combined effect of the higher emissions and lower discount rate means that New York’s societal benefits of GHG emission reductions are 4.5 times higher for 1990 emissions and 5.4 times higher for 2019 emissions than other jurisdictions.  Even with that gamesmanship the Scoping Plan benefits were too low to claim that benefits out weighed the costs.  The Value of Carbon guidance incorrectly calculates benefits by applying the value of an emission reduction multiple times.  It is inappropriate to claim the benefits of an annual reduction of a ton of greenhouse gas over any lifetime or to compare it with avoided emissions.  Dr. Richard Tol confirmed that “The SCC should not be compared to life-time savings or life-time costs (unless the project life is one year)”.  Using that trick and the other manipulations results in New York societal benefits more than 21 times higher than benefits using everybody else’s methodology. When the over-counting error is corrected, the total societal benefits range between negative $74.5 billion and negative $49.5 billion. 

The Scoping Plan Costs and Benefits white paper documents the calculation results presented in this summary.  The Plan describes health benefits totaling $165 to $170 billion due to improvements in air quality but observed improvements are 16 times greater than those projected for the Climate Act.  If the State can show that the health benefits projected have been observed comparable to those observed then this claim holds water.  The increased active transportation benefit of $39.5 billion is based on a first-order approximation based on state-wide numbers but the benefits will likely only occur in certain areas.  As a result, the benefit estimate is far too high.  Energy efficiency interventions benefits in LMI homes are claimed to total $8.7 billion but $2.4 billion of that is from non-energy interventions and should not be claimed as benefits for Climate Act GHG emission reduction programs.  If the claims were documented better, I believe that the further reductions in the benefits would be found. 

The claimed benefits for the avoided cost of GHG emissions range between $235 and $250 billion.  However, Climate Act guidance incorrectly calculates avoided GHG emissions benefits by applying the value of an emission reduction multiple times.  The Climate Act manipulates emissions to increase benefits and uses a lower discount rate than current Federal guidance resulting in societal benefits of GHG emission reductions that are 4.5 times higher for 1990 emissions and 5.4 times higher for 2019 emissions than other jurisdictions.  The largest impact of the Climate Act for these benefits is based on an incorrect guidance for calculating benefits.  In particular, the benefits of reductions are counted multiple times.  If only that error is corrected the total benefits range from negative $74.5 to negative $49.5 billion instead of net benefits ranging from $90 billion to $120 billion.

Additional Reading

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