FROM: Ostroff Associates

DATE: November 17, 2020

RE: Climate Action Council Just Transition Working Group

Co-Chairs
• Roberta Reardon, Co-Chair, Commissioner, New York State Department of Labor
• Doreen M. Harris, Co-Chair, Acting President and CEO, New York State Energy Research and
Development Authority
Members
• RuthAnne Visnauskas, Commissioner, Homes and Community Renewal
• John B. Rhodes, Chair, New York State Public Service Commission
• Vincent Albanese, Director of Policy and Public Affairs, LIUNA
• Omar Freilla, Founder and Coordinator, Green Worker Cooperatives
• Henry A. Garrido, Executive Director, DC 37
• Patrick Jackson, Director of Global Energy Management, Corning, Inc.
• Gary LaBarbera, President, Building and Construction Trades Council of Greater New York
• Michael Padgett, Vice President of Energy, Alcoa
• Brian Raley, Principal Staff Engineer, Global Foundries
• James Shillitto, President, Utilities Workers Union of America Local 1-2
• Maritza Silva-Farrell, Executive Director, ALIGN
• Theodore J. Skerpon, President, International Brotherhood of Electrical Workers Local 97
and Chair, Utility Labor Council of New York
• Lara Skinner, Executive Director, The Worker Institute, Cornell University
• Candis Tolliver, Political Director, 32BJ SEIU
• Randy Wolken, President and Chief Executive Officer, Manufacturers Association of Central
New York and Manufacturers Alliance

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Roberta Reardon: The focus of the meeting will be on the Business Impacts Subgroup’s recent
activity, a report from ESD on Energy Intensive and Trade Exposed Industries, and a presentation
on leakage.

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Patrick Jackson: Last week we announced Corning was recognized by the EPA’s ENERGY STAR
Challenge for Industry which recognizes energy efficiencies in businesses of at least 10% within
five years. All five of our New York plants have achieved this now. I have to thank NYSERDA for
helping us reach this achievement. We are thrilled to be part of this initiative.

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Kara Allen: We will look to develop specific objectives for each of these tasks. The proposed
schedule will help us move swiftly along this path. We will be looking at industries and specific
workforce areas to address issues and realize opportunities in developing recommendations for the
Climate Action Council and relay them back to the Just Transition Working Group.

Kevin Hansen: We have spent a lot of time talking about what it means to be energy intensive and
trade exposed. My goal is to outline the process we have been following to develop these
definitions. Energy Intensive and Trade Exposed (EITE) industries generally break down into three
main concepts: energy-intensive, emissions-intensive, and trade-exposed.

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Hansen: Energy intensive sectors tend to spend much more on their energy and are much more
sensitive to policies pertaining to the costs or delivery of their energy. Emissions-intensive
industries have traditionally also been energy-intensive industries however with advances in
technology, it has been possible for an energy-intensive industry that uses a lot of electricity, to not
be emissions-intensive if the energy is from clean sources.

Hansen: New York jurisdictions often choose to specifically target industries which are both “EI”
and “TE” to mitigate leakage. New York State is not the only government that has sought to define
EITEs following the same general steps. Today we will talk about the first two of these steps. In the
future we will present an analysis of steps three and four.

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Hansen: The US bill did not pass the Senate, but the bill is often cited as a precedent definition
because it did advance so far. Working Industry Classification uses the NAICS system and tends to
be a self-reported system. We think the State’s best option is NAICS for the reasons that every other
state has used it. They have all of the data to be able to assess if an industry is “TI” or “TE” because
so many other governments have used this data to assess industries.

Doreen Harris: What is the difference between the SIC code and NAICS? And why are you advancing
the NAICS over the SIC code?

Hansen: My understanding is that SIC codes tend to be a higher level and NAICS is more specific.
Under NAICS code there are more granular details and there is more data available.

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Hansen: After developing definitions, our next step is to establish metrics for assessing those
industries. All of the data is available at the most granular level with the NAICS code. We think it
doesn’t hurt to track this metric and start collecting data so we can decide later which activities we
want to focus on specifically.

Hansen: Emissions Intensity is measured either by the amount of emissions or amount of economic
activity used by different governments. Some systems have to spend more for different energy data,
for example. New York is still in the process of developing metrics for determining the cost of
emissions production, and until that is more settled, we decided to start with looking at emissions
relative to an industries’ relative size. Our hypothesis is that there won’t be major differences in the

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approach we take, but rather what data is available and where you set the cut off for “EI” and “TE”.
Because we are already talking about this revenue metric the census collects or the definition the
U.S. is already using, we assumed it would be simple and straightforward to use this metric.

Hansen: For trade exposure, all three jurisdictions use the same measure. The idea for trade
exposure is straightforward and is that if an industry has less trade, it is less captive and therefore
less trade exposed. The measure takes the total share of trade relative to that industries’ size to
assess trade exposure.

Randy Wolken: One thing that wasn’t mentioned was, since this isn’t a national standard how do we
account for different states using separate standards and account for businesses who can move
operations to other states without higher production costs to make them more competitive?

Hansen: These definitions were mostly done at the national level which is different for trade
exposure at the interstate level. It is a lot easier to move or buy supplies across a state line versus
another country. As a state defining sector in our economy, we need to consider international and
interstate trade exposure. California had the same conclusion. They set a lower bar to assess trade
exposure at the state level because there is greater risk of leakage across state lines. This is a great
point to keep in mind. Trade exposure for some of these businesses might be more regional for
example and not international.

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Hansen: This chart tracks industries that are energy intense and trade exposed. The vast majority of
industries tend not to qualify, so it’s important to characterize which industries those are to better
understand how to best assess those thresholds. We found EITE subsectors are located more
upstate but there are also plenty downstate, accounting for about one percent of state jobs in total.
The review process will ask the group to define those industries qualify based on the approach.

Wolken: Points out some small manufacturers may serve multiple industries and fall into the
qualification but understands they can appeal, it’s not clean cut for all industry providers.

Hansen: There’s no perfect system but NAICS is the best we currently have. Our hope is to come
back and present how industries score on how energy-intense, emissions intense and trade
exposed they are, and depending on where the thresholds are set if they would qualify as EITE or
not.

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Hansen: Talking about one percent of jobs that have historically been classified as EITE in NYS.

Hansen: Thinks once results are found for the varying degree of energy intensive, emissions
intensive, and trade exposed industries it will be easier to map and establish definitions.

Jackson: What are the safety-valve provisions, because some industries vary from year to year in
their emissions levels, would the Secretary of Energy make that call?

Hansen: There needs to be a process for catching businesses that are actually EITE. This can be
done in a few different ways. One approach is by setting up a process for businesses to appeal and
argue that they are more or less exposed compared to the industry at large, but typically the

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thresholds are very clear cut. Another way is to set a firm minimum emissions threshold for
manufacturers. Believes the process to figure this out will evolve as time goes on

Harris: Is there a particular schedule for assessing these metrics?

Hansen: On the one hand climate change is imminent so we have to hit the timeline in order for the
group to do its business. In the next couple of weeks, now that we have the data, we will crunch the
numbers and if we find it is acceptable, we can set helpful proxies. It is possible we could have
something by January at the latest. California has a farther-reaching emissions reporting
requirement so they had an abundance of data to use to form their definition, in NY’s case he thinks
we will use proxies based on the amount of electricity or fuel used times an emissions fact or
whatever other data that becomes available. Thinks an answer will come soon and it will not be
based on anything that they don’t already know. There should not be any surprises, it is getting the
10% right that is time consuming. Believes there should be an answer in the next month or two.

Maritza Silva-Farrell: What is your perspective on the sector in EITE industries that will face the
highest cost of compliance?

Hansen: Some governments have set a price on emissions, so industries paying for those emissions
have a high cost for compliance. It’s not just a social cost then it’s your bottom line. Those operating
in a system with an imposed cost can be a good proxy to industry spending relative to overall size
based on the percentage of costs. As of now, New York State has not set such a proxy so that is
something to think about.

Jamie Dickerson: The power plant subgroup has continued to meet. They are making progress
identifying data sources and pulling in insights and information to achieve the work products the
subgroup revolves around, the power plant inventory as well as the reuse of those power plants.
During the update they will hear about the approach of that work from NYSERDA and other
stakeholders. Also, at the December meeting there will be cross panel work with the Power
Generation Advisory Panel and the Land Use and Local Government Panel who will come listen and
participate.

Harris: Dr. Greg Dotson who contributed to the American Clean Energy and Security Act of 2009
will now present on emissions leakage, and provide an understanding of what it means and how it

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arises. He will also go on a deeper dive on how the definition of EITE industries was developed in
context of the act. This can help inform our thinking and application here in New York.

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Dr. Greg Dotson: Leakage and competitiveness are two sides of the same coin. If domestic
companies are competitive internationally, then they would not be at as much of a risk for leakage.

Dotson: This is a slow-moving process. An initial challenge was filed in 2016, in the summer of 2020
the US Government appealed the WTO ruling and it is still unresolved. The point here is if a state
policy is not crafted correctly, it can run afoul of WTO standards, while those designed to prevent
leakage are typically more consistent in that regard. In 2007 there was a collective approach by
industry leaders which emphasized taking care that policies do not merely push emissions from U.S
facilities to overseas plants.

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Dotson: 2007 was the first time a broad coalition was brought together to challenge climate change.
The bill HR2454 - The American Clean Energy and Security (Waxman-Markey) Act – was proposed
to reduce emissions, but ultimately did not pass. One initiative included was that it set criteria for
defining those sectors most at risk of leakage. The California Global Solutions Act includes similar
anti-leakage policies on electricity and industry output, and has also extended their cap and trade
program to 2030. Early assessment has been positive. It is an inward-looking policy that assesses
costs and aims to help them avoid going to a jurisdiction that doesn’t impose a climate policy.
Canada follows the same benchmark level of efficiency approach to make some facilities pay more
by incentivizing efficiency.

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Dotson: California passed the California Global Warming Solutions Act of 2006 which adopted the
same policies. It was then amended in 2009 to include their cap and pay program for 2012. They
may extend their cap and trade program to 2030 but in 2016 they had to provide free allocation for
their industries’ industrial sectors. California has been used to address the competitive impacts on
EITE sectors.

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Dotson: The European system would impose any cost a domestic industry feels on importers,
meaning a car manufacturer would need to meet all of the climate policies of Europe and if you
imported a car from outside of Europe you would pay a high fee to cover any leakage. Compliance
can be achieved by reducing emissions or increasing output, so the environmental impact is not
guaranteed where that cap and trade element is absent. The European approach is more about
imposing domestic costs that affect a given industry on importers of similar products. This is under
development and will be proposed in 2021 to then go into effect in 2023, and is compatible with

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both the WTO and the 2015 Paris Climate Accords. They are clear that it is not about making their
businesses more competitive, but specifically for the purpose of preventing leakage.

Dotson: There are a number of initiatives from around the world that pledge to be carbon neutral by
mid-century, if these pledges spread and becomes realized, the need for these kinds of policies
diminishes.

Wolken: How might we implement policies compatible with the WTO given the slow process for
evaluation?

Dotson: One effect is that many jurisdictions have dropped their rules when they feel pressure and
modify them in ways that would be compliant with WTO standards. The WTO is known for looking
to make statements in the creation of policies and the intent of policy makers, so when crafting
policy, the articulation of the issue of leakage rather than framing the issue in terms of incentives
for manufacturing makes a difference.

Wolken: One of the challenges going in is, an industry may be looking at the law saying they have to
act but then a policy is reversed years later after the industry has stopped making investments, so
have there been studies on this? The challenge is slow-moving mechanisms and the fear that the
WTO is using this as weapon against us. Are there examples in other countries of how widespread
this is so we can do it right?

Dotson: Policies stay in place until there is a final resolution. The slow process leaves room for
course correction. There are no specific examples of European laws I can recall off the top of my
head. Not every policy is challenged by the WTO, so uncertainty in that regard is not enough to say
don’t go forward, because there is time to make adjustments along the way.

Harris: There is a lot the industry can do to proactively reduce emissions. NYSERDA has had a big
hand to play in respect to industrial processes and energy efficiency. Where does that action square
in your mind?

Dotson: In some ways what is actually happening in the energy sector is out pacing a lot of the
policy discussions. In 2009 we were thinking renewable energy was going to be significantly more
expensive than coal but the energy sector is working on becoming more competitive. The expansion

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and reduction of costs in renewable energy can make sense from a market perspective to find and
utilize electricity, in which case this whole process becomes a lot narrower. There will still be
process emissions but the conversion around emissions will come down to leakage.

Harris: In New York we are seeing that process you are describing in those procurements are more
efficient and make more sense economically year by year.

Jackson: How do you encourage businesses to go about early action? Knows with Waxman-Markey
there was a lot of discussion of, if businesses had gotten in sooner the curve would not have been as
steep.

Dotson: In the early days some companies were receiving allowances and took early action, not sure
if that’s the most forward policy. There are many motivations for companies these days. Black Rock
for example expects CEOs to have plans assuming Harris will be complied with. There are consumer
and stockholder expectations. We’re beyond early action at this point as far as the seriousness of
climate change. Targeted policies can also facilitate addressing climate change with economic
benefits like green hydrogen.

Jackson: Some of the technology is early action, they are interested in things like green hydrogen
but you do not see it yet, that is a place where NSYSERDA can step in and be helpful, to develop that
platform. That is a case with earlier access.

Wolken: When some companies take charge, other companies are incentivized to follow the
direction of others. Corning has helped reduce usage by setting an example. NYSERDA has helped
lower emissions and energy usage by helping people get started.

Reardon: That concludes our meeting. Thank you to the presenters for getting through some
important points.

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