Yesterday, The Federal Energy Regulatory Commission (FERC) hosted a technical conference on Carbon Pricing in Organized Wholesale Electricity Markets. Conference participants waded deeply into the technical details of how power markets might incorporate carbon pricing under FERC’s jurisdictional authority. The conversation centered around how current and future state carbon pricing programs will be integrated into wholesale electricity markets, and how their integration will impact these markets’ functioning. While the conference’s technical and legal aspects deserve attention, one theme stood out in expert testimony. Carbon pricing is the most cost-effective, transparent, and market-friendly way for electricity markets to reduce their carbon footprint.
This theme was touched upon by almost every lawyer, economist, and industry leader that was invited to speak at the conference. These conference participants are practitioners of the regulations, laws, and economic decisions that inform power markets, and their comments represent expert opinion on the topic of carbon pricing.
Below are a few key quotes from the conference panelists’ opening statements that highlight the power of carbon pricing as a market-based tool to reduce ghg emissions.
“States can lawfully establish their own climate change policies and can price carbon. The FERC-jurisdictional markets’ incorporation of state carbon pricing would help promote the efficient and transparent markets both FERC and the courts have supported in the past”David R. Hill, Columbia University Center on Global Energy Policy
“The Supreme Court’s most recent decision about the scope of the Commission’s authority teaches that when the Commission does ‘no more than follow the dictates of its regulatory mission to improve the competitiveness, efficiency, and reliability of the wholesale markets,’ courts will be reluctant to cut off the Commission’s jurisdiction…Integrating a carbon price can fit well within the Commission’s mandate as a market regulator.”Ari Peskoe, Harvard Electricity Law Initiative
“Carbon emissions are, from an economic standpoint, a well-accepted externality….states have adopted a wide range of policies governing the power sector in an attempt to reduce carbon emissions, but there is broad agreement that a carbon price would be the most efficient policy.”Matthew E. Price, Jenner & Block
Panelists also highlighted carbon pricings benefits in the context of a diversity of state and regional approaches to reducing emissions.
“Ad hoc state policy has often led to mounting costs and anti-competitiveness concerns, which has renewed interest in exploring carbon pricing as the centerpiece of an economically sound climate strategy… Carbon pricing creates synergies with competitive electricity market structures by allowing investors to assemble risk-return trade-offs in lower emissions technologies, while driving dispatch and investment decisions in low-carbon technologies in an economically efficient manner.”Devin Hartman, Director Energy and Environmental Policy R Street Institute
“Carbon pricing is the least cost path to reduce GHG emissions. Based on recent research, a carbon tax rather than a cap-and-trade market is likely to do this at a lower cost to consumers and less administrative burden in both the short and long term…If we want to address the global climate challenge but do not want to burden current and future generations with unnecessary environmental and economic costs, then the choice is clear-tax brown and don’t subsidize green.”Frank Wolak, Stanford University
“Enhancing RTOs’/ISOs’ wholesale markets through the administration of a carbon price set through a state or regional initiative is the best way to maintain these benefits and preserve economic efficiency of existing wholesale market signals in the content of the various state and regional initiatives in place today”Richard J. Dewey, New York ISO
The importance of carbon pricing and its unique strengths can be distilled into this quote from William Hogan, director of the Harvard Electricity Policy Group.
“The climate impacts and their consequences could be very large or relatively modest, and would unfold over such a long-time frame that we don’t know what solutions will be available or adopted. But we do know that material changes in carbon emissions will involve a vast array of individual choices affecting nearly every aspect of modern life. We should not think we can make all these choices today. Rather we should be focused on providing the structure and information to provide the right incentives to guide choices over a long horizon that allows for learning, surprises, and adaptation..These conditions call out for common carbon pricing.”William Hogan, Director of Harvard Electricity Policy Group
The more detailed and technical discussions in the conference did point to specific challenges associated with implementing carbon pricing in wholesale markets, namely concerns related to emissions and competitiveness leakage to markets without similar policies. Well-designed federal carbon pricing legislation would capture the policy’s efficiency benefits without the limited scope of FERC’s authority, addressing some of the concerns raised in the conference. Regardless of the technical and market challenges of implementing carbon pricing in wholesale electricity markets, nearly all panelists agreed that a carbon price is the most cost-efficient and transparent tool to address emissions in that sector.