By Rich Heidorn Jr.

More than 10 years after the failure of the Waxman-Markey cap-and-trade bill, carbon pricing’s time may be nearing — seemingly good news to those concerned about climate change.

But carbon pricing won’t solve the climate crisis by itself or persuade states to abandon their own clean energy policies, speakers said Tuesday at a forum in D.C. sponsored by New York University School of Law Institute for Policy Integrity and Duke University’s Nicholas Institute for Environmental Policy Solutions.

“We’ve seen political interest increase for doing something to reduce greenhouse gas emissions,” said former FERC Commissioner Suedeen Kelly, now a partner with Jenner & Block. “We’re seeing it in Congress. We aren’t seeing it in legislation likely to be passed by both houses yet. But people on the inside say it’s quite likely that we could do something in the next Congress around carbon or climate change.”

Kelly noted that the Obama administration deferred action on the Waxman-Markey bill, choosing to spend its political capital first on winning approval of financial market legislation and the Affordable Care Act.

She recalled that former Sen. Jeff Bingaman (D-N.M.), whom she served as a legislative aide, talked about the ability of carbon pricing to “create new wealth” by creating a commodity that didn’t exist before — a way to create funding for programs such as carbon sequestration that can win support from coal generators and other unlikely allies.

“If we had put it first, it would have sailed through,” she said. “That consensus, for political reasons, has fallen apart, but underneath it I think there are still the underpinnings that could give rise to a consensus again.”

Indeed, there is evidence that climate denialism may have reached its nadir.

On Feb. 26, the Electric Power Supply Association (EPSA), many of whose members own fossil fuel generation, announced its support for a carbon price.

That came two weeks after Minority Leader Kevin McCarthy (R-Calif.) announced Republican plans for addressing climate change through carbon sequestration and removal, prompting Jason Grumet, president of the Bipartisan Policy Center, to declare: “The climate science debate is formally over.”

NYISO is awaiting state action on a carbon pricing plan to help New York meet its goal of generating 70% of its electricity from renewables by 2030. (See NYISO Focus Turns to Grid ‘Transition.’) A PJM task force is considering the implementation of carbon pricing in part of the RTO’s footprint. (See PJM Panel Weighs Impact of Pa., Va. Joining RGGI.)

But FERC Commissioner Richard Glick said carbon pricing won’t solve climate change by itself. Nor will it necessarily eliminate the tension over state and federal jurisdiction, illustrated most recently by FERC’s December order that PJM expand its minimum offer price rule (MOPR) to new state-subsidized resources, he said.

One issue, Glick said, is the price level.

“If it’s too high, you’ll have some states reacting negatively to it. If it’s too low, a number of states are going to say, ‘Why should I [eschew] clean energy policies if FERC is going to impose a carbon price that we don’t think is going to have a significant impact?’”

Danny Cullenward, a Stanford University law lecturer, also is concerned about pricing levels, saying carbon pricing should “integrate” state policies rather than seeking to replace them. “The more this is done from the bottom up, the less of a risk that FERC will come in and say, ‘Here’s a $3 carbon price that applies to everybody and that’s the end of climate policy.’ Which I think is an awful outcome and — frankly in the hands of the wrong people — could be done.”

Won’t End State Policies

Jeff Dennis, general counsel for Advanced Energy Economy, said carbon pricing will be less effective in decarbonizing the economy outside of electric generation.

“There are reasonable [carbon] price levels that will get you significant benefits in the power sector today and that’s why we should do carbon pricing. When you’re thinking about economy-wide though, you need other policies, because you need some astronomically high carbon prices, from what I’ve seen, to get a lot of those hard-to-abate sectors to achieve carbon reductions,” he said.

“Are states going to have to rethink their own policies in response to markets and carbon prices? Sure. But I don’t think that’s going to obviate the need for states to continue to have policies — or frankly the desire of other states to continue to have policies.”

Casey Roberts, senior attorney for the Sierra Club, said state energy policies have objectives including green energy jobs and priming the pump for technologies such as storage and offshore wind “that might otherwise not get off the ground but that are really needed to [reach the] 100% renewable energy future.”

“Because of that, I think the notion that carbon pricing is going to solve the MOPR [and] federal-state tensions is a bit misguided,” she said. “If the carbon price is intended to displace those other state policies, then that’s really a nonstarter for organizations like the Sierra Club, and I think many other stakeholders.”

Roberts said carbon pricing also poses an “opportunity cost” because of the limited resources of RTO stakeholder processes and FERC.

“We feel like there are bigger obstacles to clean energy deployment in the country and a major one of those … is the mandatory capacity market,” she said. “I’m worried that carbon pricing becomes a distraction from resolving those other problems.”

Gary Helm, lead market strategist for PJM, insisted capacity markets can enable emissions reductions, citing PJM’s generation shift following the Mercury and Air Toxics Standards (MATS), which resulted in the closing of many coal generators.

Pricing in Capacity or Energy Market?

NYISO Principal Economist Nicole Bouchez said the ISO determined its carbon price should be incorporated in the energy rather than capacity market because of transmission constraints that prevent upstate New York, which has 87% zero-emission generation, from delivering it to downstate, where only 27% of the mix is renewable.

“The problem with having it in the capacity market is in many ways [you have] some of the same problems as in renewable portfolio standards and different types of subsidies and payments from states to resources, which [are]: How do you make sure that what you’re getting is offsetting carbon production and not being replaced by something else; and how do you make sure you’re getting the most bang for your buck in that? Because location matters. … We all have constrained systems. There are times when you can’t get energy from point A to point B, and the impact on the dispatch matters at those times.”

Glick also cited the importance of transmission in meeting clean energy goals.

“We need to spend a lot more time at the commission … on the issue of transmission. How are we going to help the states achieve these dramatic, aggressive clean energy goals? We’re not going to do it unless we build out the grid.”

Abe Silverman, general counsel for the New Jersey Board of Public Utilities, had a different perspective, saying that carbon prices as an LMP adder to the energy markets is “a very small part of the solution.”

“We need to start shifting that carbon price into the future; into the planning horizon and incorporating those carbon externalities into things like capacity markets, into our long-term planning,” he said.

“This is one of the fundamental questions,” he added. “Are we trying to incent investment in the lowest carbon grid tomorrow, or are we really trying to build the low-carbon grid of the future? Those are two very different policy outcomes. And they may require a different style of carbon pricing.”

Expensive RECs

Travis Kavulla, vice president of regulatory affairs for NRG Energy, said carbon prices may not matter “if states are just going to commandeer this market” with long-term resource procurements at higher prices.

He cited the cost of D.C.’s solar renewable energy credits (SRECs), which he said “exceed the social cost of carbon by an order of magnitude.”

“The rooftop solar developers of [wealthy] Georgetown thank the people of [low-income] Anacostia for their generous contributions to climate policy,” he joked.