Carbon pricing uses market-based mechanisms like cap-and-invest programs or carbon fees to assign a cost to greenhouse gas emissions, incentivizing businesses and residents to reduce their carbon footprint. This page covers CBC’s work on the New York Cap-and-Invest program, Local Law 97 building emissions mandates, the Regional Greenhouse Gas Initiative, carbon tax proposals, and strategies for achieving state climate goals cost-effectively.
This page was created with AICBC Insights uses AI to group, analyze and present data and recommendations from CBC's publications. Always reference the cited sources to verify important details..
Conduct and publicly release, before or with the draft rules, a more robust assessment of NYCI’s potential fiscal and economic impacts that details the portion of the cost borne by businesses, impacts on various types of businesses, impacts on the economy overall, and impacts on households.
Recalibrate the 2030 emissions reduction goal to be ambitious but feasible, so New York can leverage market-driven, cost-effective emissions reductions that are balanced with economic growth.
Consider switching to the conventional emissions accounting methodology.
Proceed with rulemaking only when comprehensive assessments are public and based on recalibrated targets.
Periodically evaluate and adjust the program based on experience.
Present a detailed plan to use the program’s revenue—which could exceed $30 billion over the next 5 years.
Permit banking of allowances from the start, instead of after the first compliance period.
Allow limited use of rigorously verified offsets.
Modify design elements to facilitate linkage with other systems and broaden coverage.
Consider regulating co-pollutants separately from NYCI, rather than including firm-specific emissions caps or limitations on emissions trading.
Key Data
In October 2024, the CBC noted that the proposed New York Cap-and-Invest program would levy a massive new charge that could reach $12 billion annually by 2030, with total program revenues potentially exceeding $30 billion over the next 5 years.
As of November 2023, the Regional Greenhouse Gas Initiative (RGGI) had generated $6,749 million in cumulative auction revenue across participating states, with New York's individual share of the revenue totaling $2.1 billion.
A November 2023 analysis highlighted the risk of emissions leakage in regional carbon pricing, noting that between 43% and 86% of emissions reductions benefits within the RGGI region were estimated to be offset by increased emissions in neighboring states.
According to a November 2023 report, California's cap-and-trade system, which began in 2013, has generated more than $38 billion (specifically $38,934 million in cumulative auction revenue as of August 2023) to fund climate and energy programs.
Under New York City's Local Law 97, which functions similarly to a localized carbon pricing mechanism, buildings exceeding annual greenhouse gas limits face an annual fine of up to $268 per metric ton, which could result in total penalties averaging $218 million per year by 2030.
New York's proposed Cap-and-Invest program risks significant economic harm and uncertainty due to design flaws, including a potential $12 billion annual cost to residents and businesses by 2030. To ensure the program balances environmental goals with economic vitality, the state should conduct more robust fiscal impact assessments, recalibrate emissions targets, and provide a clear plan for utilizing the projected $30 billion in revenue.
Recommendations related to Carbon Pricing
Conduct and publicly release, before or with the draft rules, a more robust assessment of NYCI’s potential fiscal and economic impacts that details the portion of the cost borne by businesses, impacts on various types of businesses, impacts on the economy overall, and impacts on households.
Recalibrate the 2030 emissions reduction goal to be ambitious but feasible, so New York can leverage market-driven, cost-effective emissions reductions that are balanced with economic growth.
Consider switching to the conventional emissions accounting methodology.
Proceed with rulemaking only when comprehensive assessments are public and based on recalibrated targets.
Periodically evaluate and adjust the program based on experience.
Present a detailed plan to use the program’s revenue—which could exceed $30 billion over the next 5 years.
Permit banking of allowances from the start, instead of after the first compliance period.
Allow limited use of rigorously verified offsets.
Modify design elements to facilitate linkage with other systems and broaden coverage.
Consider regulating co-pollutants separately from NYCI, rather than including firm-specific emissions caps or limitations on emissions trading.
Key Data
$12 billion
— The potential annual cost of the new emissions charge by 2030.
$30 billion
— The potential revenue the program could generate over the next 5 years.
85% is the amount New York State must reduce greenhouse gas emissions by 2050. The State’s Cap-and-Invest program is a key strategy to cap and reduce emissions, auction emission rights, and invest proceeds in energy transition. Doreen Harris, President and CEO of NYS Energy Research and Development Authority, and Basil…
New York's proposed Cap-and-Invest program aims to reduce greenhouse gas emissions by 85 percent by 2050 through an economy-wide carbon pricing initiative. To ensure cost-effectiveness and minimize economic disruption, the program should prioritize broad sectoral coverage, allow for geographic linkage with other systems, and maintain compliance flexibility through trading and offsets.
Recommendations related to Carbon Pricing
The State should allow and pursue linkage with other cap-and-invest programs to enhance cost-effectiveness by providing a larger pool of emissions reduction opportunities.
New York should keep sectoral coverage as broad as possible, limiting exemptions to sectors that are exceedingly difficult or expensive to regulate.
The program must maintain flexibility in compliance through trading, banking, and verifiable offsets to ensure the market behaves efficiently and accommodates businesses' varying circumstances.
The State should allocate revenue on-budget, segregating it for uses that promote cost-effective emissions reduction to ensure transparency and accountability.
Regulators should regularly monitor, publicly report, and evaluate program data to inform necessary programmatic modifications based on evidence.
The State should align the program with other CLCPA-related regulations to minimize overlapping regulatory costs and improve overall policy effectiveness.
Regulators should finalize clear and comprehensive rules with adequate time for businesses to prepare to provide the predictability necessary for compliance strategies.
Key Data
$112,790 million
— Cumulative auction revenue generated by the European Union's cap-and-trade system since its first year of operation in 2005.
$38,934 million
— Cumulative auction revenue generated by California's cap-and-trade system since its first year of operation in 2013.
$6,749 million
— Cumulative auction revenue generated by the Regional Greenhouse Gas Initiative (RGGI) since its first year of operation in 2009.
85%
— New York's goal for reducing greenhouse gas emissions by 2050 under the Climate Leadership and Community Protection Act.
3%
— Estimated increase in the price of allowances if facility-specific caps were implemented to mitigate inter-facility leakage.
New York aims to reduce greenhouse gas emissions by 40% by 2030 and 85% by 2050, but the current climate plan lacks the necessary analysis to weigh the costs and benefits of various proposals. Policymakers must prioritize strategies that achieve the greatest emissions reductions at the lowest cost while carefully evaluating the economic impacts on residents, businesses, and state budgets.
Recommendations related to Carbon Pricing
The State should consider regional approaches when implementing carbon pricing policies to ensure they are most effective.
Legislators and regulators should carefully consider the full range of economic impacts and distribution of costs of the many mitigation strategies included in the Final Scoping Plan.
Policymakers should prioritize those mitigation strategies that generate the greatest emissions reduction at the lowest cost to New Yorkers.
The State should identify, publicize, and consider the impacts of various strategies on residential and business utility rates, disaggregated by economic circumstance, sector, and geography.
The State should identify, publicize, and consider the impacts of various strategies on state economic competitiveness, especially the additional costs and regulatory burdens of operating a business in New York State.
Key Data
40%
— New York's goal to reduce greenhouse gas emissions by 2030 from 1990 levels.
85%
— New York's goal to reduce greenhouse gas emissions by 2050 from 1990 levels.
Local Law 97 mandates significant greenhouse gas emissions reductions for buildings over 25,000 square feet, aiming for a 40 percent decrease by 2030 and 80 percent by 2050 relative to 2005 levels. To ensure compliance and avoid counterproductive costs, the city must provide clearer implementation rules, including flexible carbon trading and expanded renewable energy credit options.
Recommendations related to Carbon Pricing
The City should specify, expand, and continue emission limit adjustments for density and specific uses to better capture the energy intensity of each type of use.
The City should set an accelerated, public timeline for rulemaking that includes critical rules governing limit adjustments and penalty mitigation as well as universal criteria.
The City should expand allowable renewable energy credits (RECs) to offshore wind and a phased-down portion of Tier 2 RECs to provide buildings with flexibility.
The City should allow owners of multiple buildings to target the most cost-effective emissions reductions across their assets by establishing a carbon trading scheme.
Key Data
40 percent
— Greenhouse gas emissions reduction goal for buildings larger than 25,000 square feet by 2030, relative to 2005 levels.
80 percent
— Greenhouse gas emissions reduction goal for buildings larger than 25,000 square feet by 2050, relative to 2005 levels.
25,000 square feet
— The size threshold for buildings subject to Local Law 97 greenhouse gas emissions reduction goals.
2005
— The baseline year for measuring greenhouse gas emissions reduction goals.
2024
— The year for which building owners must meet initial emissions limits.
Achieving the state's goal of reducing greenhouse gas emissions by 85% by 2050 will require significant investment, with total costs estimated at approximately $300 Billion through 2050. To ensure these goals are met efficiently, policymakers should prioritize cost-effective strategies, such as implementing market-based carbon pricing, while providing detailed analysis on the economic impacts and feasibility of proposed mitigation measures.
Recommendations related to Carbon Pricing
The State should utilize market incentives as much as possible by putting a price on carbon through a fee system or a cap-and-trade system to incentivize businesses and residents to choose low energy intensive goods and technologies.
Policymakers should calculate and identify the cost effectiveness of each mitigation strategy to provide the necessary basis for prioritization and prevent large investments with relatively little payback.
The State should specify the incremental costs of achieving the 2050 goal to support a public discussion of the incremental economic impact and associated implementation costs of meeting environmental targets.
The Final Scoping Plan should disaggregate the financial impacts of each strategy on businesses and households to help prioritize strategies that maximize equity and minimize negative economic impacts on jobs.
Policymakers should determine the probabilities associated with different mitigation strategies because cost-effectiveness alone is not sufficient for prioritization, as the probability of success is also essential.
Key Data
$300 Billion
— Total costs through 2050 for the climate scenarios on a discounted present value basis.
85%
— Statewide greenhouse gas emission reduction target from 1990 levels by 2050.
New York State's transportation sector is the largest source of carbon dioxide emissions, accounting for 47 percent of the state's total in 2018, with emissions rising 31 percent since 1990. To address this, policymakers are encouraged to implement congestion pricing in Manhattan and consider carbon fees on fossil fuel-heavy transport options like gas cars and aviation.
Recommendations related to Carbon Pricing
Implementing congestion pricing in Manhattan should reduce emissions.
State leaders should consider how transportation emission reductions can be encouraged when making tax policy, state spending, and local aid decisions.
The State should consider other options, such as carbon fees to build the cost of carbon emissions in the price of fossil fuel heavy transport options like gas cars and aviation with the intent to reduce their use.
Key Data
47 percent
— The transportation sector's share of New York State's total annual carbon dioxide emissions in 2018.
83.3 MMT
— The amount of CO2 generated by the transportation sector in New York State in 2018.
31 percent
— The increase in transportation emissions in New York State between 1990 and 2018.
22 MMT
— The amount of aviation-related emissions in New York State in 2018, up from 2 MMT in 1990.
21 percent
— The growth in SUV ownership in New York City between 2016 and 2020.
6,324 miles
— The vehicle miles travelled (VMT) per capita in New York State in 2018.
New York City's Local Law 97 aims to significantly reduce greenhouse gas emissions from large buildings by 2030 and 2050, but its implementation faces challenges regarding renewable energy supply, density disincentives, and economic impacts. To ensure cost-effective compliance and avoid unnecessary penalties, the City should tailor regulations to provide flexible, transparent, and practical pathways for building owners to meet these ambitious targets.
Recommendations related to Carbon Pricing
Adjust credits appropriately for lack of renewable energy availability to encourage electrification: Mitigate penalties if the greening of the grid is slower than planned, which will incentivize building owners to accelerate the switch to electric building systems.
Expand allowable RECs to offshore wind and a phased-down portion of Tier 2 RECs: Provide buildings with flexibility while the New York City electric grid remains fossil fuel-powered by allowing buildings to purchase unlimited amounts of Renewable Energy Certificates (RECs) associated with downstate offshore wind projects and limited amounts of existing RECs from existing generation.
Specify, expand and continue emission limit adjustments for density and specific uses: Alleviate counterproductive disincentives to density and certain economically vital uses by clearly specifying parameters for the law’s adjustments for high density and energy-intensive uses, providing clear and appropriate adjustments for these uses, including economically important activities disincentivized by classifications, and extending adjustments past the first compliance period.
Specify and extend need-based building-level adjustments: Set an accelerated, public timeline for rulemaking that includes critical rules governing limit adjustments and penalty mitigation and universal criteria so building owners can determine eligibility and adjusted requirements as-of-right, rather than through individual petitions.
Allow carbon trading within an owner’s portfolio: Allow owners of multiple buildings to target the most cost-effective emissions reductions across their assets by establishing a carbon trading scheme that allows credits to be traded within a portfolio.
Adjust limits and penalties appropriately to the post-pandemic economy: Study whether LL97 emissions limits or alternative compliance paths in the first compliance period should be modified due to permanent shifts in work patterns, delays in retrofit projects or financial strain.
Key Data
$268
— Annual fine per metric ton for buildings whose GHG emissions are above the established limit.
24 percent
— Percentage of affected buildings that were not compliant with 2024 limits.
75 percent
— Percentage of affected buildings that will not be compliant with 2030 limits.
$218 million
— Total annual penalties in 2030 for all covered buildings if 2019 emissions were constant.
$20 billion
— Total city-wide cost of reaching the emissions limits set in the first and second compliance periods solely through energy efficiency retrofits.
68.3%
— Share of downstate energy production from fossil fuels in 2019.
New York's goal to reduce greenhouse gas emissions by 85 percent by 2050 requires cost-effective strategies, such as implementing an economy-wide carbon pricing system to provide clear price signals to energy consumers. Expanding regional initiatives like the Regional Greenhouse Gas Initiative (RGGI) to cover all economic sectors, including transportation, would more effectively direct investment toward cleaner energy sources.
Recommendations related to Carbon Pricing
Establish an economy-wide carbon pricing system to deliver effective price signals to energy consumers.
To be most effective, these policies should be implemented on at least a regional, if not national, scale, so that dollars are directed most effectively toward the dirtiest energy sources and states.
The Regional Greenhouse Gas Initiative (RGGI) should be expanded to other sectors of the economy, including transportation.
Key Data
33%
— The transportation sector represents 33% of New York’s greenhouse gas emissions.
30%
— Heating and cooling usage in the commercial, industrial, and residential sectors account for over 30% of statewide greenhouse gas emissions.
46%
— Across the RGGI states, power sector CO2 emissions have fallen by over 46% from 2009 to 2016.
$167.7 million
— In 2015, New York received $167.7 million from RGGI auctions.
$1.4 billion
— A review of the most recent three-year period shows a net present value for the nine RGGI states of $1.4 billion.
New York State is evaluating a potential carbon tax proposal as part of its strategy to achieve electricity carbon neutrality by 2040. While the state can regulate the electricity-generating sector, implementing a broader tax across all sectors would require legislative action.
Recommendations related to Carbon Pricing
The state should responsibly address climate change by including a carbon tax proposal in the Executive Budget.
The state should ensure that any carbon tax proposal applies across all sectors rather than just the electricity-generating sector.
The New York State Fiscal Year 2019 Executive Budget process includes considerations regarding the potential implementation of a carbon tax to align with the Governor's energy reform goals. Questions remain regarding whether such a tax would be restricted to electricity and how the state would allocate the generated revenues.
The Regional Greenhouse Gas Initiative, a market-based cap-and-trade program, has successfully reduced greenhouse gas emissions while generating $912 million in auction proceeds for participating states between 2008 and 2011. This initiative provided a net present benefit of $1.6 billion to the region in its first three years, including $1.3 billion in savings for residents on utility bills and the creation of 16,000 job-years.
Key Data
$912 million
— raised by participating states through the auction of emission allowances from 2008 to June 2011
$1.6 billion
— net present benefit across the region in the first three years
$1.3 billion
— saved by residents in reduced utility bills
$765 million
— kept from leaving the region to pay for energy produced in other states
16,000
— job-years created
15,553
— annual tons of carbon dioxide equivalent emissions avoided
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