FERC’s proposed policy statement on carbon pricing won wide support in comments filed Monday, although some stakeholders expressed doubts that it will spur states to adopt a CO2 adder, suggesting regional, market-based clean energy standards (CES) may be more politically appealing.
Other commenters raised jurisdictional questions, with commenters disagreeing on FERC’s role in mitigating “leakage” or evaluating the efficiency of the programs that may be submitted.
FERC’s Oct. 15 proposal invited states to introduce carbon pricing in organized wholesale electricity markets but said the commission has no authority to initiate such programs itself (AD20-14). (See FERC: Send Us Your Carbon Pricing Plans.)
More than 40 companies, grid operators, interest groups and coalitions of state officials filed substantive comments; only a handful opposed the proposal outright.
“Establishing an ISO/RTO carbon pricing mechanism is the most durable and effective way to address climate concerns and facilitate an evolving resource mix while maintaining the integrity and reliability of the organized wholesale electricity markets,” the Electric Power Supply Association said.
A clean energy standard can be almost as effective as direct carbon regulation if it distinguishes between fossil generators with different carbon intensities, according to Energy and Environmental Economics. Policies such as renewable portfolio standards have significantly higher costs because they do little to accelerate coal retirements, retain economic nuclear generation or incentivize energy efficiency. | Energy and Environmental Economics
The Natural Gas Supply Association said FERC should broaden the statement to apply to both organized and non-organized markets.
Even the American Petroleum Institute expressed thanks for “the clarity, direction and deference from FERC to the RTOs/ISOs.”
“Properly designed carbon pricing can be one fuel- and technology-neutral tool to reduce emissions and deploy newer, cleaner sources of electricity,” API said.
Opponents
But coal lobbying group America’s Power (formerly the American Coalition for Clean Coal Electricity) said FERC should withdraw the policy statement and terminate the docket, saying a carbon price would undermine reliability by accelerating coal retirements. “By encouraging RTOs/ISOs to establish wholesale market rules that incorporate state-determined carbon prices, the commission might be deemed to impermissibly seek to do indirectly what it cannot do directly, which is to influence states to adopt carbon pricing,” it said. It noted that 39 states do not price carbon.
A coalition of conservative groups, including Americans for Prosperity, Americans for Tax Reform and the Competitive Enterprise Institute also opposed the proposal, saying “FERC should not rush forward with a blanket endorsement of ill-conceived, top-down climate policies that have been demonstrated to be costly, ineffective, regressive and consistently rejected by the American people.”
The groups said they agree with FERC Chair James Danly, who dissented in the 2-1 vote in favor of the policy statement, calling it “unnecessary and unwise.”
Instead, they said, the commission should investigate “existing, hidden carbon taxes” in current state subsidies and mandates for carbon-free power.
“Adding a carbon price on top of the mélange of subsidies would further erode the concept of competition in a level playing field for all generation resources,” they said. “There is no evidence to suggest that the carbon pricing schemes identified by FERC in the policy statement have been — or will be — accompanied by the elimination of inefficient, market-distorting government interventions that constitute a significant, nontransparent price in the status quo.”
The New England States Committee on Electricity (NESCOE) also reiterated its opposition to “a new, incremental carbon price” on top of the Regional Greenhouse Gas Initiative (RGGI).
NESCOE said it was open to the idea of a forward clean energy market and supported evaluation of a related proposal for an “integrated clean capacity market” in a Nov. 2 memo to ISO-NE’s Board of Directors. It urged the commission “not to create any barriers that could inhibit these collaborative processes.”
The Electricity Consumers Resource Council (ELCON), which represents large industrial consumers, said the proposed policy statement was premature because only one of the 32 panelists at the commission’s Sept. 30 technical conference on carbon pricing represented consumers. (See FERC Urged to Embrace Carbon Pricing.)
ELCON said the policy statement focused on the potential benefits of carbon pricing but ignored potential costs. “Carbon pricing would only improve economic efficiency if it were to effectively replace the carbon-related subsidies, mandates and regulations that apply to the electricity sector,” it said. It also said FERC should only accept a carbon pricing or cap-and-trade proposal that returns the revenues in full to consumers.
RTOs, Regional Differences
PJM, CAISO, NYISO and MISO all said they would work with the commission on the policy.
MISO said that although it “takes no issue with the commission’s analysis of its jurisdiction” to review an RTO proposal incorporating state carbon prices, FERC “should refrain from nudging RTOs towards specific carbon pricing proposals and instead should allow such proposals to emerge organically, through the stakeholder process, to accommodate member goals and specific state policies.”
MISO and the PJM Power Providers Group (P3) also called for FERC to allow for regional differences in proposals. “Failure to accommodate regional flexibilities and priorities would create an increased burden on member companies and may discourage future RTO membership,” the RTO said.
P3 said the commission should “retain flexibility to respond to different flavors of carbon pricing in different regions of the country. New England and PJM could easily develop different proposals related to carbon pricing, yet both could be considered just and reasonable.”
P3 also noted that Pennsylvania is considering joining New Jersey, Delaware, Maryland and Virginia as members of RGGI and that Illinois Gov. J.B. Pritzker has endorsed a carbon price in his state. “If Pennsylvania and Illinois begin to price carbon, 70% of the installed capacity in PJM will be subject to a price on carbon emissions. This would be a significant change from just two years ago,” P3 said.
The Independent Power Producers of New York said the commission should adopt the policy statement “as soon as possible to encourage the state of New York and adjacent RTOs to establish a carbon price that can be incorporated into the NYISO’s and adjacent RTOs’ wholesale energy market.”
“IPPNY believes that carbon pricing is a critical step to resolve the growing tension between the state’s efforts to meet its clean energy goals and the efficient functioning of the competitive wholesale markets,” it added.
Ravenswood Generating Station, a 2,480-MW fossil fuel plant in New York City
Consumer advocates for D.C., Delaware, Illinois, Maryland, New Jersey and Pennsylvania said the commission should evaluate proposed pricing schemes individually and include consumer representation at any future technical conference or workshop. “It is axiomatic that a carbon pricing proposal that is just and reasonable for ISO New England or MISO is not necessarily just and reasonable for PJM consumers or markets,” they said.
But the Real Estate Roundtable said the commission “should foster national uniformity that avoids a patchwork of different state and local carbon protocols.”
“If 50 states and scores of local jurisdictions are left to their own devices to craft their own approaches to measure and price carbon, havoc would ensue,” it said. FERC should “advance greater national uniformity in carbon measurement” by promoting use of data in EPA’s Emissions and Generation Resource Integrated Database.”
“Fair and equitable determinations of who produces ‘more’ or ‘less’ carbon — and who should pay ‘more’ or ‘less’ — necessarily depend upon common practices to quantify [greenhouse gas] emissions, convert fuel sources to carbon and affix a price per ton of emissions,” it said.
Disparate Treatment of State Programs?
Several commenters challenged what it saw as an inconsistency between FERC’s openness to carbon pricing while it is imposing mitigation measures on existing state efforts to decarbonize, including its controversial expansion of PJM’s minimum offer price rule (MOPR).
Public interest organizations including the Union of Concerned Scientists (UCS) and the Natural Resources Defense Council’s Sustainable FERC Project said the commission was wrong to treat carbon pricing differently from renewable energy credits (RECs), which the commission says produce “unreasonable price distortions” in wholesale markets.
“FERC cannot justify different treatment for state policies that seek to address environmental and public health harms through either imposing costs or conferring benefits,” they said. “Taxes and supports are equal but opposite measures. … Both are economic policy tools intended to move a market away from the equilibrium it would have achieved absent policy intervention.”
NRG Energy said carbon pricing is not the only way to incorporate state climate policies in wholesale markets and that FERC should also encourage the development of regional clean energy markets. It noted that trade in compliance-based credits totaled $4.4 billion from 2014 to 2018 in PJM alone, more than three times the $1.4 billion generated by the RGGI carbon-allowance market over the same period.
The company cited a study published last month by Energy and Environmental Economics (E3), saying it found “a well designed regional CES can rival the economic efficiency of a regional carbon price. The report concluded either a regional CES or a carbon price could eliminate one-third of PJM system emissions by 2030 at a cost of $3.60/ton and two-thirds by 2050 at a cost of $22.60/ton. That would save $3.2 billion annually in 2030 and $12.6 billion in 2050, compared with the current practice of individual states’ renewable portfolio standards and CES policies lacking a regional market, E3 said. (See Study Recommends Carbon Price for PJM.)
A recent study on PJM’s decarbonization options concluded that the most cost-effective policies for reducing carbon emissions are those that directly target CO2 by placing a price on carbon or limiting electricity-sector emissions. | Energy and Environmental Economics
Advanced Energy Economy also urged FERC to avoid disrupting the markets for RECs and similar instruments for compensating clean energy generation. “Numerous states have expressed frustration with the misalignment of the wholesale markets with their state policy requirements and have stated that while they would prefer to leverage the benefits of broader regional wholesale markets to achieve those requirements, they will abandon wholesale market structures if necessary, AEE said.
Cost-benefit Analysis, Section 206 Authority
UCS and Sustainable FERC also said the commission would be overstepping its authority by opining on the efficiency of a particular program. “In designing their policies, state legislators and regulators may consider matters far beyond and outside of FERC’s authority and jurisdiction,” they said. “In regulating power plants and protecting the public health and welfare, states are fully within their authority to consider environmental justice, land use, labor, economic development, environmental quality, aesthetics and nearly limitless other criteria. In contrast, FERC must limit its decision making to factors related to wholesale rates.”
But the right-leaning R Street Institute said FERC should amend its policy to consider the “net benefits” of carbon pricing regimes “to ensure costs are accounted for.”
“The decisional criteria should at least explicitly require a thorough process for evaluating economic efficiency and whether the proposal harmonizes state energy policy with wholesale market operation, which have been identified in the literature as key conditions to deem rates ‘just and reasonable’ under” the Federal Power Act, R Street said. “Some of the measures of accomplishing this — such as the benefits methodology of avoiding the social cost of emissions — are outside of the commission’s scope, but it can require that economic techniques must generally comport with the peer-reviewed literature.”
R Street also said the commission should “add an explicit statement that a uniform, FERC-imposed carbon price under [FPA] Section 206 is off the table.”
But the American Council on Renewable Energy said that FERC’s authority to proactively implement carbon prices under Section 206 warrants further examination. That issue should be decided based on “analysis of the particular facts and circumstances of any future Section 206 complaints lodged by the public or the commission,” it said.
Leakage
There also were disagreements over what FERC’s role should be in addressing carbon “leakage” between states with different energy policies.
Exelon said FERC should require development of leakage mitigation rules and convene workshops to help work through policy issues.
“Among other things, RTO/ISOs must consider and resolve issues related to how the carbon price will be determined and updated, how the carbon price will interact with the market, and how to mitigate leakage and ensure price transparency,” Exelon said. “These issues take time to work through RTO/ISO stakeholder processes, particularly if there is no explicit commission obligation. For example, NYISO has been working with its stakeholders to develop a carbon adder mechanism for several years, and despite the significant efforts and progress of NYISO, its staff and numerous stakeholders, that proposal has yet to be approved and filed.”
Winning consensus is even more difficult in multistate RTOs, Exelon said. “While PJM recognizes that the expanded mitigation required under the commission’s recent MOPR orders is not a sensible long-term path forward for accommodating state policy mechanisms in PJM, support for the status quo remains, and little meaningful work has been done in PJM towards implementing carbon pricing.”
PJM states use a range of policies to promote renewable energy, reduce GHG emissions and support specific technologies and plants, such as several nuclear and coal-fired generators. | Energy and Environmental Economics
Exelon said it is unclear whether the policy statement “will have much, if any, impact on RTO/ISO prioritization of this issue. Therefore, if the commission agrees that carbon pricing is a sensible part of any path forward, it needs to go beyond merely providing ‘encouragement’ in a policy statement.”
But attorneys general for Massachusetts, California, Delaware, Maryland, Michigan, Minnesota, New Mexico, Pennsylvania, Rhode Island, Wisconsin and D.C. said “the commission need not, and should not, declare general positions on the design elements of state programs that are plainly within states’ jurisdiction, such as the manner by which state policymakers determine carbon prices, the transparency of those prices to program participants and the design of any measures to address leakage.”
Researchers from D.C.-based think tank Resources for the Future said the issue of emissions leakage should not be a factor in determining if a carbon price proposal is just and reasonable. “It is up to the state that establishes a carbon pricing policy to decide whether it is willing to accept the environmental leakage associated with its efforts to limit carbon emissions,” they said.
Jurisdiction
Independent power producer Calpine said market clearing settlement rules under carbon pricing may raise new jurisdictional questions.
“The treatment of electricity imports from resources in a state that has chosen to impose no carbon price or compliance costs into an RTO/ISO in which member states do impose a carbon price or compliance costs may present jurisdictional questions that were not squarely before the Supreme Court” in 2016’s FERC v. EPSA, which upheld FERC’s jurisdiction over demand response, Calpine said. (See Supreme Court Upholds FERC Jurisdiction over DR.)
The company also sought to ensure a continued role for natural gas, the fuel used in most of its generating plants. “To support decarbonization and electrification, credible analytical and academic studies have shown that retention of modern, highly efficient, natural gas-fired generation at capacity levels similar to or even greater than present levels is also required to ensure grid reliability. Thus, natural gas generation is an enabler, not an impediment, of economy-wide decarbonization.”