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The state has binding emissions cut goals but still no regulations to meet them.
When New York Governor Kathy Hochul gave her State of the State address on Tuesday, climate advocates expected her to unveil an overdue plan to implement and fund the state’s climate law, which was enacted in 2019. Instead, she implied that she was delaying the plan indefinitely. In doing so, legal experts say Hochul would be breaking the law.
New York has a statutory requirement to cut emissions 40% from 1990 levels by 2030, and 85% by 2050. The deadline to draw up regulations to achieve this passed in January 2024. Hochul’s administration has been working on a solution — a cap and invest program, which would set a limit on total greenhouse gas emissions from the state that would decline over time and put a price on those emissions, bringing in revenue that could be reinvested in carbon reduction projects. The state expects decarbonization to cost $15 billion per year by 2030, and $45 billion in 2050.
As recently as a few weeks ago, New York climate advocates were hearing that Hochul planned to preview the program in her State of the State address before including it in her proposed budget. “All indications were that this was all systems go,” Justin Balik, the senior state program director for Evergreen Action, told me.
But Hochul didn’t mention cap and invest once in her speech. Her State of the State policy book, published Tuesday, acknowledges the program and notes that in the coming months, her administration will propose new emissions reporting regulations “while creating more space and time for public transparency and a robust investment planning process.” Advocates interpreted the message as a kiss-off.
“There have to be enforceable regulations that ensure we can meet the emission reduction mandates,” Rachel Spector, a senior attorney at Earthjustice, told me. “Those were supposed to be in place a year ago. Now they are late and there’s no clear date when we are getting those regulations, and that’s a really troubling situation.”
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Governments miss statutory deadlines all the time. But without any clear timeline on when the regulations might happen, the state’s overarching climate law could become impossible to carry out. “We have a [presidential] administration that’s coming in that's extremely hostile to moving forward on climate mitigation, and is going to potentially take us backwards,” Balik told me. “And so we need states to be the bulwark like they were during the last Trump term.”
There are a few possibilities for what can happen next.
Michael Gerrard, director of the Sabin Center for Climate Change at Columbia University, likened the situation to when Hochul tried to impose an indefinite delay on congestion pricing in New York City last June, just days before it was set to go into effect. “I helped coordinate an effort that led to two lawsuits in New York state court claiming that Hochul did not have the power to do that,” he told me in an email. “We won the lawsuits, congestion pricing survived several lawsuits against it, and it launched on January 5.”
Gerrard added that some of the groups involved in those suits and others are now considering challenging Hochul’s indefinite delay of cap and invest. The text of the Climate Leadership and Community Protection Act, which created the emissions targets, “allows citizens to bring proceedings in state court for violations of the statute,” he said. And there does not appear to be any pathway for achieving the targets without cap and invest, he added.
Liz Moran, a policy advocate for Earthjustice, said that cap and invest was never going to be enough anyway, and is urging the legislature to make progress on sector-specific policies. She called for the state assembly to pass the New York Heat Act, for instance, a bill that would remove barriers to transitioning away from the use of natural gas for home heating and set in motion a plan for mass conversion to efficient electric heating.
Early outlines of New York’s cap and invest program indicate that regulators were considering a relatively low price ceiling on pollution, making it easier for companies to buy their way out of compliance with the cap. As New York Focus has reported, the state’s own modeling shows that the program alone would not achieve the 2030 target. “Given what the governor has outlined as the ambition of the cap and invest program, there was always going to need to be additional sectoral mandates or policies that come from the legislature to drive emission reductions,” Moran told me.
In theory, the legislature could also put forward a bill outlining its own cap and invest program. Assemblywoman Anna Kelles, from Ithaca, New York, introduced a cap and invest bill last year, though it never left the environmental conservation committee.
Hochul spoke at length in her speech about affordability, and her stalling of cap and invest may be related to concerns that it would raise costs for consumers — or at least the perception that it would. “New York needs to get the transition right and keep our state affordable for families,” her policy book says. This would not be the first time Hochul’s fears about the cost of climate action (and potential backlash to it) have caused her to do an about-face. In 2023, Hochul tried to change the way the state accounted for greenhouse gas emissions under the idea that it would lower the cost of decarbonization. Her backpedaling on congestion pricing is another example.
The state’s own analysis, however, found that cap and invest would likely raise costs slightly for some New Yorkers while lowering them for others. Low-income residents would be eligible for direct rebates that would more than offset the higher cost of fuel. Depending on how the remaining revenue is spent, it could bring further cost reductions by helping New Yorkers pay for energy efficiency improvements that lower their bills.
“The governor is rightly focused on affordability, which is why extensive consumer rebates were baked into this,” said Balik. “From our perspective, the way that the state was planning on moving forward with this was perfectly in line with the governor's affordability agenda.”
The one bit of climate action Hochul did commit to on Tuesday was to call for spending $1 billion of the next budget on climate action — the “largest climate investment in the history of the state budget” — though she did not say where the money would come from or where it would go. Her State of the State book gives little more detail, noting only that it will “span different sectors of our economy and across the state’s geography,” with nods to clean heating and transportation projects. Cap and invest, meanwhile, is expected to bring in $3 billion to $5 billion in its first year.
“It's a start,” Spector said of the $1 billion. “But it’s definitely not enough.”
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Rob and Jesse digest the Ways and Means budget bill live on air, alongside former Treasury advisor Luke Bassett.
The fight over the Inflation Reduction Act has arrived. After months of discussion, the Republican majority in the House is now beginning to write, review, and argue about its plans to transform the climate law’s energy tax provisions.
We wanted to record a show about how to follow that battle. But then — halfway through recording that episode — the Republican-controlled House Ways and Means Committee dropped the first draft of its proposal to gut the IRA, and we had to review it on-air.
We were joined by Luke Bassett, a former senior advisor for domestic climate policy at the U.S. Treasury Department and a former senior staff member at the Senate Committee on Energy and Natural Resources. We chatted about the major steps in the reconciliation process, what to watch next, and what to look for in the new GOP draft. Shift Key is hosted by Jesse Jenkins, a professor of energy systems engineering at Princeton University, and Robinson Meyer, Heatmap’s executive editor.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Jesse Jenkins: Let’s come back to this as a negotiation. This is the first salvo from the House. What does this tell you about where we go from here? Is this a floor? Could it get worse? Is it likely to get better as the lobbying kicks off in earnest by various industries threatened by these changes, and they try to peel things back? What do you think happens next?
Luke Bassett: If you run with the horror movie analogy here, this is scary. I think a lot of people, especially in any energy startups or folks who have been penciling out deals, to start really lining up new projects — or even folks looking for a new EV to buy are suddenly going to have to totally rethink what the next few years look like.
And, you know, whether or not they want to build a factory, buy a car, or have to switch from an electric heat pump to a whale oil burning stove. Who knows? That said, there are champions for each of these in very different ways in the Senate. There are lobbyists who —
Jenkins: — in the House, too.
Bassett: Exactly. There will be lobbyists weighing in. And I think it matters to really think through … I think we’ve been faced with gigantic uncertainty since January. And there’s a part where companies all across the energy sector are looking at this text as we speak and thinking, whoa, I didn’t sign up for this. And to combine this with tariffs, to combine it with the cuts to other federal programs in the other committees’ jurisdictions, it is just a nearly impossible outlook for building new projects. And I bet a bunch of people, CEOs and otherwise, are thinking, I wish Joe Manchin were back in the Senate. But you know, it is what it is.
Robinson Meyer: I will say that it could get worse from here because they will be negotiating with the House Freedom Caucus and with various other conservative House members. And they’ll also be negotiating against the president’s wishes, which is that this move and get done as soon as possible. And so when I talked to Senator John Curtis, Republican of Utah, who’s a supporter of the IRA, or wants to see it extended in large part, and I asked him questions like, what happens if Republicans really go to work in the House on the IRA and then it gets sent to the Senate? One dynamic we’ve already seen during this Congress is that te House Republican Caucus in this Congress is unusually functional and unusually strategic, and has been unusually good at passing relatively extreme and aggressive policy and then jamming the Senate with it.
And unlike what has happened in the past, which is the House Republican Caucus can’t really do anything, so the Senate passes a far more moderate policy, sends it to the House and dares the House to shut things down. This time the House, if folks remember back in March, the House passed a fairly aggressive budget and kicked it to the Senate and then dared the Senate to shut down the government, and ultimately the Senate decided to keep the government open.
I asked Curtis what happens if they do the same with the IRA. What happens if they really go to task on the IRA? They pass fairly aggressive cuts to it and they send it to the Senate. And his answer was, well, I don’t think the House is going to do that. I don’t think a bill that really savages the IRA could pass the House.
We’ll see, but I just don’t think there’s any floor here. I think there’s no floor for how bad this gets. And I think I just don’t, you know … Before we went into the administration, there was a lot of confidence that the Trump administration and the new Republican majority and the Congress was not going to do anything to substantially make the business environment worse. We’ve discovered there does seem to be a degree of tariffs that will make them squeal and pull back, but we actually haven’t found that in legislature yet.
Music for Shift Key is by Adam Kromelow.
The Ways and Means Committee released its proposed budget language, and it’s not pretty for clean energy.
The House Ways and Means Committee, which oversees tax policy, released its initial proposal to overhaul the nation’s clean energy tax credits on Monday afternoon. These are separate and in addition to the extensive cuts to Inflation Reduction Act grant programs proposed by the Energy and Commerce Committee, Transportation Committee, and Natural Resources Committee in the past few weeks.
Here’s a rundown of the tax credit proposal, which, at first glance, appears to amount to a back-door full repeal of the climate law. There’s a lot that could change before we get to a final budget, let alone have a text head to the Senate. We’ll have more analysis on what these changes would mean in the days and weeks to come.
The text proposes ending the tax credit for new EVs (that is, 30D) on December 31, 2025 — with one exception. The credit would remain in effect for one year, through the end of 2026, for vehicles produced by automakers that have sold fewer than 200,000 tax credit-qualified cars between 2010 and the end of this year. That means that no Teslas would qualify for the tax credit next year, as the company has sold far more than 200,000 tax credit-eligible vehicles. A new entrant to EVs, like Honda with its Prologue model, will likely still qualify.
The committee also proposes ending the tax credit for used EVs (25E) and commercial EVs (45W) by the end of this year. This would effectively end the “leasing loophole” that allowed Americans to redeem the tax credit on vehicles that didn’t qualify for 30D because they didn’t meet domestic content requirements, meaning consumers could get discounts on leases of a wide range of makes and models.
Lastly, the draft proposes terminating the tax credit for residential EV chargers (30C) at the end of this year.
The GOP has proposed an early phase-out of the technology-neutral production and investment tax credits, which subsidize zero-emissions power generation projects including wind, solar, energy storage, advanced nuclear, and geothermal. It also proposed significant changes for the years they remain in effect.
Currently, new clean electricity projects can earn a 2.75 cents for every kilowatt-hour they produce for the first 10 years under section 45Y of the tax code. Alternatively, project developers can get a 30% investment tax credit (48E) on new projects. The Inflation Reduction Act scheduled both of these programs to phase out beginning in 2032, and expire at the end of 2035. It included a major caveat, however: that this phase-out would only happen if greenhouse gas emissions from U.S. power generation fell below 25% of 2022 levels. Otherwise, the tax credits would be maintained at their initial amounts until this target was met.
Under the GOP proposal, both credits would start to phase down in 2029, and new projects would no longer be eligible for either credit beginning in 2032. The proposal also cuts out a key provision that would have grandfathered many more projects into the tax credit. Under current law, a project only has to start construction within a certain year to qualify for that year’s tax credit amount. The draft text changes this, requiring a project to be “placed in service” before 2032 in order to qualify.
A separate tax credit for existing nuclear power generation (45U) would also phase down on the same timeline, despite Trump and other Republicans’ interest in boosting nuclear energy.
“Transferability” supercharged the nation’s clean energy tax credits by allowing project developers with low tax liability to sell their credits to another entity that stood to benefit from them. Previously, developers could only monetize their unusable tax credits through complicated tax equity deals.
Recipients of a wide range of tax credits, including those for clean manufacturing, clean fuels, carbon capture, nuclear power, and hydrogen, can all take advantage of transferability. The provision channeled new capital into the climate economy as corporations looking to reduce their tax liability began scooping up tax credits, indirectly helping to finance clean energy projects. It also helped lower the cost of wind and solar, as developers could earn a premium on tax credits compared to what they got for tax equity transfers, because the whole transaction was cheaper to do.
The proposal would get rid of this option across all of the tax credits beginning in 2028.
The proposal would also impose new sourcing requirements across all of the tax credits, prohibiting developers from using components, subcomponents, or critical minerals sourced from “foreign entities of concern,” a term that applies to companies based in China, Russia, North Korea, or Iran. The consequences would be huge, as China dominates global markets for refined lithium, cobalt, graphite, and rare earths — key materials used in clean energy technologies.
The draft text would also terminate the clean manufacturing credit (45X) in 2032 — one year earlier than under existing law. Wind energy components such as blades, towers, and gearboxes would lose their eligibility sooner, in 2028.
The text proposes repealing three tax credits for residential energy efficiency improvements at the end of 2025. Starting next year, homeowners would no longer be able to claim the Energy Efficiency Home Improvement Credit (25C), which provides up to $3,200 per year for home energy audits, energy-saving windows and doors, air sealing and insulation, heat pumps, and new electrical panels.
It also proposes killing the Residential Clean Energy Credit (25D), which offered homeowners 30% off the cost of solar panels and battery systems to store energy from those solar panels. This credit also subsidizes geothermal home heating systems.
Both of these tax credits have existed in some form since the Energy Policy Act of 2005.
The third credit that would end this year is an up to $5,000 subsidy for contractors who construct new, energy efficient homes (45L).
The proposal would not repeal the energy efficiency tax deduction for improvements made to commercial buildings (179D).
The Inflation Reduction Act created a technology-neutral tax credit for low-carbon transportation fuels, like sustainable aviation fuel and biodiesel (45Z). It operates on a sliding scale, depending on how carbon-intensive the fuel is. The credit is set to expire after 2027, however the GOP proposal would extend it for four years, through the end of 2031.
That said, it would also make a significant change to how the credit is calculated, making it much easier for projects with questionable emissions benefits to qualify. Under the Biden administration, the Treasury Department issued rules that said producers had to account for the emissions tied to indirect land use changes resulting from fuel production. That meant that corn ethanol producers, for example, had to account for the expansion of croplands resulting from the increase of biofuel production and use — which would, in most cases, disqualify corn ethanol from claiming the tax credit. But under the GOP proposal, producers would explicitly not have to account for indirect land use changes.
The GOP proposal would deal a rapid and ruthless death blow to the 45V clean hydrogen production tax credit, requiring developers to begin construction before the end of this year if they want to claim it.
Other than ending transferability, the text makes no changes to the 45Q carbon capture and sequestration tax credit.
Most of the tax credits have provisions that allow project developers to qualify for higher amounts if they pay prevailing wages, hire apprentices, build in a qualified “energy community” or a low-income community, or use a certain percentage of domestically-produced materials. This initial draft from the GOP would not change any of those provisions.
The Energy and Commerce Committee dropped its budget proposal Sunday night.
Republicans on the House Committee on Energy and Commerce unveiled their draft budget proposal Sunday night, which features widespread cuts to the Inflation Reduction Act and other clean energy and environment programs.
The legislative language is part of the House’s reconciliation package, an emerging tax and spending bill that will seek to extend much of the 2017 Tax Cuts and Jobs Act, with reduced spending on the IRA and Medicaid helping to balance the budgetary scales.
The Energy and Commerce committee covers energy and environmental programs, while the Ways and Means Committee has jurisdiction over the core tax credits of the IRA that power much of America’s non-carbon power generation. Ways and Means has yet to release its draft budget proposal, which will be another major shoe to drop.
The core way the Energy and Commerce proposal generates budgetary savings is by proposing “rescissions” to existing programs, whereby unspent money would be yanked away.
The language also includes provisions to auction electromagnetic spectrum, as well as changes to Medicaid.Overall, the Congressional Budget Office told the committee, the recommendations would “reduce deficits by more than $880 billion” from 2025 to 2034, which was the target the committee was instructed to hit. The Sierra Club estimated that the cuts specifically to programs designed to help decarbonize heavy industry would add up to $1.6 billion.
The proposed rescissions would affect a number of energy financing and grant programs, including:
And that’s just the “energy” cuts. The language also includes a number of cuts to environmental programs, including:
Lastly, the proposal would also repeal federal tailpipe emission standards starting in the 2027 model year. These rules, which were finalized just last year, would have provided a major boost to the electric vehicle industry, perhaps pushing EV sales to over half of all new car sales by the beginning of the next decade. The language also repeals the latest gas-mileage standards, which were released last year and would have applied to the 2027 through 2031 model years, eventually bumping up miles-per-gallon industry-wide to over 50 by the 2031 model year.