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Legislative Memo

Darren Suarez
Director of Government Affairs
T 518.465.7511, ext. 206
www.bcnys.org

BILL:

S.3747 (Griffo)

Support

SUBJECT:

Carbon Leakage Prevention Action

 

DATE:

May 10, 2017

 

The Business Council of New York State strongly supports the advancement and adoption of S.3747 which would allow electric load serving entities (utilities or energy service companies) to offer business customers electricity that is exempt from their obligation under the Clean Energy Standard. The Clean Energy Standard (CES) as proposed by Governor Cuomo would mandate that 50 percent of all electricity consumed in New York by 2030 result from clean and renewable energy sources.

The Business Council has expressed significant concerns about the future of energy intensive industries in New York if the proposed Clean Energy Standard is adopted. Furthermore the Business Council does not have confidence in the Clean Energy Standard White Paper Cost Study (Cost Study) since the cost-benefit analysis is unsound.

Although the CES has been advanced as a means to address climate change, there is no certainty that it would reduce C02 emissions. Currently, over 55% of New York’s electric energy produced is generated by zero emitting resources (nuclear & renewables). Some nations that have put in place similar renewable energy mandates that have failed to maintain their nuclear generation have seen increased CO2 emissions and increased energy costs.

It should be noted that New York State is one of the least carbon intensity economies. In 2011, New York produced 155.7 metric tons energy-related carbon dioxide per million dollars of GDP, which is about a third of average carbon intensity nationwide.

If New York were to eliminate all of its C02 emission (211.74 MMtCO2e) it would reduce US CO2 by 3.3% and world emissions by .5%. (In 2012, U.S. greenhouse gas emissions totaled 6,235.10 MMtCO2e and World emissions were 44,815.44 MMtCO2e). If New York were to try and stop all CO2 emissions it would lead to massive ‘carbon leakage’ 1. Many nations or the European Commission that have implemented climate constraints also have taken affirmative steps to mitigate carbon leakage by adopting specific protections for businesses.

A 2014 European Commission staff report on the link between energy prices, energy efficiency and industrial competitiveness (as measured by extra-EU exports), confirms the IEA finding.  Specifically the report “shows that the increasing electricity costs had a negative impact on export competitiveness. Moreover, the high heterogeneity within sectors suggests that energy-intensive industries are most heavily affected. The results show that, since energy savings in most cases were not large enough to fully compensate for energy price increases, energy represents a growing share of total production costs. Therefore caution is called for when adopting policies that determine a further increase of energy prices, since this creates a real burden that some European firms cannot fully compensate for.” 2 The Business Council directs the Commission to heed the advice of the European Commission and use caution when adopting policies that will increase energy prices.

Furthermore, the European experience can demonstrate that well-intentioned environmental policies have resulted in higher energy costs driving carbon leakage 3 and output leakage 4.

The New York Times reported:

“The expansion in renewables will probably ensure that Europe will meet its target of reducing greenhouse gases 20 percent from their 1990 levels by 2020. But it has been a disappointment on other levels.
For one thing, emissions continue to rise globally. In a sense, Europe is likely to have exported its emissions to places like China, where polluting economic activity continues to increase while the European economy stagnates.

A striking indicator that the European effort has not achieved all that it intended to is the continued rise in the burning of coal ”. 5

If this legislation is adopted the state can still achieve its renewable goals and maintain some semblance of industrial comparativeness.

For these reasons The Business Council supports the adoption of this legislation which will protect New York energy intensive industries and the global environment.

  1. Carbon leakage is the term often used to describe the situation that occurs if for reasons of costs related to climate policies; businesses were to transfer production to other countries which have laxer constraints on greenhouse gas emissions. This leads to an increase in their total emissions.
  2. “Energy Prices and Costs Report” SWD(2014) 19 final, http://ec.europa.eu/energy/doc/2030/20140122_swd_prices.pdf
  3. Carbon leakage refers to the increase in emissions resulting from the relocation of production.
  4. Output leakage is measured as the ratio between increases of output in less-stringently regulated regions to falls in output in the reference region, and the latter is the ratio between increases in emissions in unregulated regions and falls in emissions in the reference region.
  5. www.nytimes.com/2012/12/27/business/energy-environment/27iht-green27.html