By Michael Kuser

To model the impacts of carbon pricing on dispatch, resource costs and emissions in its wholesale electricity market, New York would do well to start by estimating a social cost of carbon (SCC), experts told a state task force Monday.

The Integrating Public Policy Task Force (IPPTF) heard three presentations on SCC and related topics as the group drilled further into technical details in its mission to reconcile the wholesale electricity market with state environmental goals.

The IPPTF is jointly run by NYISO and the state’s Department of Public Service (DPS). The April 23 discussions were part of issue “Track 3” and “Track 5” in the group’s five-track effort to price carbon emissions.

“Each and every ton [of CO₂] that’s emitted contributes to harms that you and I face from climate change,” Bethany Davis Noll, litigation director at the Institute for Policy Integrity at the NYU School of Law, said in explaining how the SCC attempts to put a monetary value on the damages associated with the incremental rise in carbon emissions each year. “What economists tell us is that if we can figure out a way to put a dollar value on those harms, it’s easier for us to face or figure out what to do in response in order to stop them.”

Davis Noll presented a report on the SCC determined by the Obama administration’s Interagency Working Group (IWG) on Social Cost of Greenhouse Gases, which in 2016 estimated the SCC at $50 per ton of CO₂.

Numbers Game

President Trump in March 2017 signed an executive order disbanding the IWG and withdrawing its technical support documents, but federal agencies are still required to monetize climate harms, said Davis Noll.

Some agencies are still using the IWG’s number, while EPA and the Bureau of Land Management have proposed to use an “interim” social cost of carbon.

“Basically, the interim estimate brings the $40 to $50 number down to $1,” Davis Noll said.

The methodology used to get the $1 value obscures the global harm of emissions “and was rejected by the IWG as inappropriate for this type of analysis,” Davis Noll said. “Agencies are not allowed to do lopsided analysis, putting a dollar value on the one side and not using a well-recognized tool on the other side.”

David Clarke, director of wholesale market policy for Power Supply Long Island, contended the state has two approaches to consider: either a federally approved tariff or state regulation.

“What’s your view on FERC and what kind of things they would consider when deciding whether a social cost of carbon is just and reasonable?” Clarke asked.

Davis Noll’s position is as follows:  Based on the “extensive research” already done on the SCC, the widespread support for the IWG number suggests it clearly is “just and reasonable” according to FERC standards.

“I think FERC is actually receptive to using it themselves in their decisions … here all we have to do is figure out whether the ISO’s proposal’s going to be judged just and reasonable,” Davis Noll said.

She added, “The executive order doesn’t do anything, it really just disbands the working group … and so far, there are so many states relying on this number — that’s also supportive.” States incorporating the IWG value into their environmental policies include California, Colorado, Illinois, Maine, Minnesota, New Jersey, New York and Washington.

New York Way

Warren Myers, DPS director of market and regulatory economics, presented a report recommending the task force use in its analysis the CO₂ value already adopted by the New York Public Service Commission (PSC).

The commission in its January 2016 Benefit Cost Analysis Framework Order (14-M-0101) relied on the IWG’s “central value” SCC minus the Regional Greenhouse Gas Initiative (RGGI) allowance price, until Tier 1 renewable energy credit (REC) procurements were established later that year under the state’s Clean Energy Standard (CES).

The PSC’s March 2017 Value of Distributed Energy Resources (VDER) Order (15-E-0751) set compensation value at the higher of Tier 1 REC or SCC minus RGGI. Converted by DPS to dollar per ton, the latter figure would gradually increase over the coming decade from $40.74/ton in 2020 to $56.77/ton in 2030. (See NYPSC Adopts ‘Value Stack’ Rate Structure for DER.)

Myers said the precise dollars and cents values for each year could be a little misleading, since it is the order of magnitude that really matters. So, while those precise calculations do reflect the IWG numbers adopted by the PSC, we should not conclude they are necessarily any more accurate than Davis Noll’s $50/ton estimate, he said.

A portion of the SCC has already been internalized in the ISO’s locational-based marginal pricing, Myers said, “and so what we would like is the externality, which we say is the SCC minus the relevant RGGI number.”

One reason developers and environmentalists in the VDER proceeding “opposed using the Tier 1 RECs price only was that it just really doesn’t triangulate at all; it isn’t tied at all specifically to carbon; it’s just a compliance cost of a program with certain program parameters,” Myers said.

Howard Fromer, director of market policy for PSEG Power New York, said he appreciated the DPS’s effort to send a consistent price signal to the market that clarifies “here is the value of avoiding carbon.”

However, he said state subsidies for large amounts of preferred technologies, such as the $180/MWh cost for the first 90 MW of offshore wind on Long Island, has the potential to undermine the price signal consistency.

“I would hope that we would not blindly lock ourselves into the [IWG] number, given that I have very little confidence in what today’s interagency task force, if reconstituted, might produce, and I would much prefer to speak to the New York [Public Service] commission, frankly, with consistency with their policy,” he said.

Modeling Resource Shift

Tim Duffy, NYISO manager of economic planning, presented a report addressing customer impacts via a proposed methodology for modeling and analysis. The ISO proposed starting from a base case using  its Congestion Assessment and Resource Integration Study (CARIS) data, updated and extended, and carrying through to both a simple change case and a dynamic change case, which would add assumed changes to fleet and load.

“For the purpose of developing the system resource shift scenario or case, we assume achievement of CES in 2026,” said Duffy. The CES mandates that New York get 50% of its electricity from renewable resources by 2030.

The ISO study aimed to define enough market scenarios to span the range of plausible impacts of a carbon charge throughout the state, as well as the key factors affecting marginal emission rates in various parts of the state, such as whether a new renewable resource is located upstate or closer to the load centers around New York City, he said.

“We’re proposing to run multiple years here, 2020, 2025 and 2030, and all the data associated with each of those three years would be provided,” said Duffy.

IPPTF co-chair Nicole Bouchez, NYISO principal economist, referred to the Brattle Group carbon pricing report from last August.

“We’re looking at something in the same conceptual way that Brattle looked at this, which is first you look at what are going to be the direct price impacts, and then you look at these dynamic changes, how does investment change, how do the numbers change,” said Bouchez.

Marc Montalvo of Daymark Energy Advisors, representing the state’s Utility Intervention Unit, said, “The state is going to seek to meet its CES policy objectives with or without this carbon charge policy. So, if we add the carbon charge, will that be a successful thing to do? Analytically, how do we measure success?”

The task force will next meet May 7 at NYISO headquarters to further cover issue “Track 5,” which it will discuss again June 4 to complete the assumptions and scenarios. The study results are scheduled to be presented in September.

In a related move, the ISO has scheduled a public forum May 1 on analysis of transmission congestion on the New York state bulk power system and the potential costs and benefits of relieving transmission congestion through its CARIS process.