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The Future of a Cap-Trade-and-Invest Program in New York State [1]

['Alan Krupnick', 'Senior Fellow', 'Director', 'Industry', 'Fuels Program', 'Wesley Look', 'Senior Research Associate', 'Molly Robertson', 'Eddie Bautista', 'Resources Radio Episode']

Date: 2025-06

In January, New York State signaled that its long-awaited flagship policy for meeting the state’s goal of achieving net-zero greenhouse gas emissions by 2050—a cap-trade-and-invest program—may be delayed. Governor Kathy Hochul (D-NY) was expected to discuss the cap-trade-and-invest program in her annual State of the State Address, but the policy got only a short mention in the briefing book that accompanied the speech. This briefing indicates that regulations for reporting state emissions were in development, but that the state needed “more space and time for public transparency and a robust investment planning process.” Sensitivity over the cost of the program to New Yorkers may be a main sticking point in forward movement on the cap-trade-and-invest program.

This pullback is disappointing, because putting a price on emissions is an efficient way of meeting emissions-reduction targets. In a cap-trade-and-invest program, large emitters, such as industrial facilities or fossil fuel suppliers, self-determine the best way to cut emissions to meet the “cap,” which is the total amount of emissions allowed by the state in a given year. These firms purchase allowances from the state that permit a certain amount of emissions and can trade these allowances with other firms.

New York State legally is committed to meeting certain emissions-reduction targets by 2030 and 2050; meeting these targets will require unprecedented investment in clean energy and other pathways to decarbonization. The cap-trade-and-invest program offers a way to incentivize emissions reductions while generating revenue for the state that can be used to accelerate decarbonization of the economy and offer financial support to households. New York State could raise between $6 billion and $10 billion in revenue depending on the price of emissions allowances, with a third of that money likely going right back to New Yorkers in the form of cash payments or credits for utility bills, according to an analysis from the New York State Energy Research and Development Authority (NYSERDA) and the New York State Department of Environmental Conservation (DEC).

Instead of proceeding with the cap-trade-and-invest program in the near term, the governor announced a plan to invest $1 billion this year in efforts to promote electrification and energy efficiency. This investment could help spur electrification and reduce household exposure to higher fossil fuel prices under a future cap-trade-and-invest program, but a $1-billion investment is much lower than what would be possible if revenue were being raised through cap-trade-and-invest, particularly if policymakers let the price of emissions allowances rise to levels that reflect the statutory emissions-reduction targets. (These levels are reflective of a “price ceiling” that is commensurate with emissions-reduction targets.) The cost of transitioning all homes to heat pumps could require on average $5.7 billion per year until 2035, with the spending split between federal subsidies, state subsidies, and out-of-pocket costs for households, according to an analysis from Switchbox. (This figure includes the cost of installing heat pumps and the cost of weatherization for homes that require efficiency upgrades before installing a heat pump.) With the future of federal subsidies uncertain, New York State may need to offer more financial support to achieve electrification and decarbonization goals.

Research from Resources for the Future (RFF) and others offers evidence that distributing a portion of revenues from a cap-trade-and-invest program back to households (through direct-cash rebates and investments in decarbonization efforts) can cover typical increases in household expenditures that are due to carbon pricing. Further, many households could be better off financially, in a scenario with a cap-trade-and-invest program compared to a scenario without a program, when these rebates are larger than a concomitant increase in household expenditures. In a recent RFF analysis, researchers find that a cap-trade-and-invest program with a high allowance price and targeted payments to households could save lower-income households hundreds of dollars in 2030 while still covering the average increases in expenditures for households that earn up to $200,000 per year (Figure 1).

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[1] Url: https://www.resources.org/common-resources/the-future-of-a-cap-trade-and-invest-program-in-new-york-state/

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