Unique New York GHG market rules risk linkage

New York's economy-wide carbon market could include a variety of unique rules, potentially jeopardizing regulators' goal of designing the new program to be able to join similar cap-and-trade systems elsewhere.

Governor Kathy Hochul (D) has said she wants New York's new program to be "linkage-ready" when it launches next year. But various features that the administration plans to include differ from those existing systems, such as California, Quebec and Washington state, making linkage later this decade less likely, according to various stakeholders in comments on draft program rules and emissions modeling.

For one, regulators have only modeled scenarios with relatively modest price ceilings that range from $14-23/metric tonne in 2025 and rise to $40-86/t by 2035. But California and Washington both have annually increasing price ceilings in their respective markets that are already above $88/t, creating a significant gulf that could make linkage with New York "completely incompatible," according to the International Emissions Trading Association.

Shell agreed, saying that alignment around the price ceilings is "necessary for linkage to take place."

Another barrier, according to commenters, is how New York measures greenhouse gas (GHG) emissions, which forms the basis for compliance obligations. The state tracks GHG emissions on a unique 20-year warming timeline that emphasizes shorter-lived methane emissions, while North American jurisdictions with carbon markets in place use a more typical 100-year warming timeline.

Hochul has criticized the GHG accounting method for potentially increasing carbon market costs, but it is required by state law and her administration has signaled that changes are not a priority for budget negotiations this year.

This accounting "presents a significant issue" and "would prevent further linkage to other programs," according to the US environmental services company Waste Management. The Clean Fuels Alliance America agreed, saying that New York's unique GHG accounting, which also treats biofuels differently than other states, and the state's plan to not exempt biofuels from allowance holding obligations make linkage "very challenging."

Programs do not have be identical to link, but too many bespoke rules would make linkage more complicated. Differing again from California and Washington, New York has said it plans to not allow the use of offsets toward compliance, to impose minimum hold times on allowance purchases, and to potentially restrict allowance trading for sources near disadvantaged communities.

Beyond policy concerns, linkage could also run into political backlash from New York environmental groups wary of altering state climate targets and GHG accounting methods. Multiple commenters, including the environmental groups Sierra Club and Earthjustice, suggested that linkage could violate state climate law by allowing sources to buy allowances from out of state and thus exceed mandatory statewide GHG limits.

By Cole Martin