Go FERC yourself: Carbon Pricing Conference

Guest essay by Roger Caiazza

The Federal Energy Regulatory Commission (FERC) hosted a technical conference regarding Carbon Pricing in Organized Wholesale Electricity Markets on September 30, 2020.  This post describes the presentations and issues raised at the conference. It is intended to give an overview of the conference and provides references so that readers can follow up on their own.

Goal of Conference

Last April I posted an article that described the reasons I think that carbon pricing is a practical dead end that was prompted by news that organizations had asked to host a conference on carbon pricing.  The September conference was held in response to those requests.  According to FERC:

“The purpose of this conference is to discuss considerations related to state-adoption of mechanisms to price carbon dioxide emissions, commonly referred to as carbon pricing, in regions with Commission-jurisdictional organized wholesale electricity markets (i.e., regions with regional transmission organizations/independent system operators, or RTOs/ISOs). This conference will focus on carbon pricing approaches where a state (or group of states) sets an explicit carbon price, whether through a price-based or quantity-based approach, and how that carbon price intersects with RTO/ISO-administered markets, addressing both legal and technical issues.”

There were three panel discussions at the conference:

  • Legal Considerations for State-Adopted Carbon Pricing and RTO/ISO Markets,
  • Overview of Carbon Pricing Mechanisms and Interactions with RTO/ISO Markets, and
  • Considerations for Market Design.

Experts were invited to submit comments to FERC before the conference (available in the event details).  During the conference each expert gave an opening statement and then FERC Commissioners posed questions to the panelists.  There is an audio recording of the conference available and I added the approximate times of each speaker to a copy of the agenda here.

Legal Considerations

The first panel covered general legal issues that may “arise under the Federal Power Act when the Commission is presented with a proposal to integrate a carbon price set by a state (or group of states) into a Regional Transmission Operator (RTO)/Independent System Operator (ISO) market design”. 

Most of the panelists were lawyers and their comments mostly addressed the limits of the Commission’s jurisdiction. In my opinion, Professor Rossi’s submitted comments were the best summary of the responses.  The following issues were raised by FERC: whether the Commission has statutory authority under the Federal Power Act (FPA) associated with implementation of carbon pricing in electric markets; how integrating a state-set carbon price into an RTO/ISO market can be just, reasonable and not unduly discriminatory or preferential; how to deal with proposals by RTOs/ISOs to incorporate costs associated with participation in state or regional cap-and-trade programs; whether potential rate impacts stemming from the integration of carbon pricing into RTO/ISO markets are just, reasonable, and not unduly discriminatory or preferential; and legal implications under the FPA associated with any implementation of a carbon price.

In my opinion, every panelist who participated agreed that carbon pricing was the most efficient approach to reduce carbon emissions and that if implemented across the country there would be no problem for FERC.  As that is not the case, the problem is how FERC deals with carbon pricing amongst different jurisdictions.  The consensus on this panel was that FERC does have jurisdiction to deal with carbon pricing.  There also was a discussion whether FERC should react to issues raised by carbon pricing in different areas or FERC should become pro-active and impose a carbon price outside of legislative authority.  Roy Shanker’s comments described this issue.  My impression is that being reactive has fewer legal hurdles but the pro-active approach would face many more legal challenges.

Overview of Carbon Pricing Mechanisms and Interactions with RTO/ISO Markets

The objective of the second panel was to “provide a common understanding of (1) how RTO/ISO markets currently incorporate carbon pricing set by state and regional initiatives (i.e., state-administered carbon pricing), and (2) carbon pricing mechanisms that are under development that contemplate a greater role for RTOs/ISOs in administering a carbon price set through a state or regional initiative, and how such mechanisms intersect with RTO/ISO markets”.

The panelists in this session had technical backgrounds.  They agreed that the options to carbon pricing were a worse alternative.  The different options include renewable portfolio standards that require energy suppliers to provide their customers with a specified minimum level of electricity from eligible renewable sources, renewable energy certificates, and direct subsidies to specific renewable sources. Dr. Joe Bowring from the PJM Interconnection explained that “the state renewables programs in PJM are not coordinated with one another, are generally not consistent with the PJM market design or PJM prices, have widely differing objectives, have widely differing implied prices of carbon and are not transparent on pricing and quantities”. Dr. Frank Wolak of Stanford described the economic advantages of pricing fossil-fired “brown generation” rather than subsidizing renewable “green generation”.  Of particular concern to all the panelists, including spokespersons for the New England and New York grid operators, was that alternatives to carbon pricing may present grid resource adequacy concerns.

Considerations for Market Design

Two panels addressed “the operational and market design issues that arise as RTOs/ISOs seek to integrate carbon pricing into their energy and ancillary services markets”.  The panels also presented “perspectives from both market design experts (about ways to integrate carbon pricing into RTO/ISO markets) and market participants (about how carbon pricing might affect their participation in the RTO/ISO markets)”. 

There were 12 people on these panels: four from RTO/ISO organizations, three from generating companies, three from trading organizations, one academic and one representing industrial customers.  I thought Dr. William Hogan expressed the common concerns of this panel well.  Everyone agreed that emission leakage is a concern but others also raised the issue of economic leakage where the increased costs inside the control area leads to business leaving for non-affected areas.  Another aspect of economic leakage was described by Chris Parker in the final roundtable discussion: “If a generator in Utah would run in a given dispatch period in an organized market based on its marginal cost, but it finishes out of the money solely because of another state’s carbon price adder, the other state’s policy has illegal extraterritorial effect.”

Closing Roundtable Discussion

By the time of the roundtable discussion I had enough so I did not listen to that section.  The statements of each participant are available for review.  My impression is that, not surprisingly, all of the roundtable speakers were biased to support their company, state or organization’s vested interests.  As a result, their commentary was predictable.

Conclusions

The ultimate problem is that while everyone agreed that a carbon price is the most efficient and effective way to reduce carbon, they also recognized that carbon pricing works better for a national price on carbon and others pointed out that in should also be across all sectors.  Because that is not possible FERC has to figure out how to deal with fragmented carbon policies.

This conference might foreshadow the future direction of FERC and carbon pricing.  My impression is that if this conference is any indication then FERC will likely not act to prevent a jurisdiction enacting a carbon pricing scheme.  Note that there are jurisdictions opposed to that who would no doubt fight that interpretation.  I also understood that FERC likely does not have the authority to establish a national carbon pricing scheme on its own.  That would require legislative authority.

While there were some suggestions that fragmented carbon policies were not the best solution, there was no discussion of the spatial and sectorial cut-off point where carbon pricing would work so poorly that it should not be considered.  There were plenty of instances where speakers were unaware or did not address the practical issues with carbon pricing that I discussed last spring.  Many participants had motivations to support carbon pricing based on their biased interests and I don’t think they necessarily align with the best interests of the general public.

Furthermore, I think there is a big gap between the theory that setting a price will actually cause the desired shift to zero-emitting electric generation and the real world.  Multiple speakers hinted that the carbon price needed to make those changes would have to be much higher than the current values of the social cost of carbon.  I believe that is true and if that is the case there is a fundamental problem.  The social cost of carbon represents the negative externalities of climate change due to emitting CO2 today.  If the price to convert to renewables exceeds that cost then the theory says it is not cost-effective to convert to renewables.  Logically the carbon tax proceeds should be invested elsewhere.  Offhand spending it on R&D to find a zero-emitting cheaper alternative and investing the money to make society more resilient would be better options than social cost ineffective mitigation.


Roger Caiazza blogs on New York energy and environmental issues at Pragmatic Environmentalist of New York.  This represents his opinion and not the opinion of any of his previous employers or any other company he has been associated with. 

42 thoughts on “Go FERC yourself: Carbon Pricing Conference

  1. Carbon dioxide pricing, not carbon prcing.

    He who controls the language of a conversation controls the conversation.

    • I have a great idea: well, maybe a GOOD idea, but it might work.

      We can demand a tax per minute of say $0.09/min, minimum, or maybe $0.09/word? – so that every time they make speeches, they have to cough up a substantial sum of cash, payable to every one of us who have IRS accounts. That could apply to people who live in other oddball countries like Whales and Irkland. You get the idea. I think per word is better than per minute, don’tcha know?

      It should apply to all climate science peeps, including the more notorious and most gassy CO2 producing individuals, who have to make themselves appear on TV a lot, and maybe movie producers and actors and people running for office.

      The longer they yap, the more they annoy me, so this might shorten the torture and I would not be forced to turn the sound down and say rude things that go with the way they wiggle their lips. It will (not would) benefit the environment and the planet enormously, forcing them to economize by cutting their speechifying and reducing their CO2 volumes drastically. We could throw that at reporters who are idiots, too, but overpaid and self-important politicians get the first attachments.

      If that doesn’t reduce CO2, nothing will.

  2. The over-whelming bias is that carbon pricing may not/ won’t have any effect on stopping “climate change!” But it will cause even more increases in already regulatory-inflated electric prices to customers and taxpayers !
    Put all the extra costs of distribution, transmission, generation, pipelines, land area, etc out in public. Add likely reduced availability and reliability, ….or now VOTE to eliminate fear-derived regulations and laws.
    Strive for available, reliable, lowest direct cost electricity and natural gas, and a robust energy and economic future….
    Free of threats to energy supplies critical to our well-being.

  3. Tax private jets. Tax homes over 10000 square feet. Tax Al Gore and Nancy Pelosi (worth over 100 million each). Tax the Clinton Foundation and Soros and Bloomberg and Steyer. Tax Joey Biden who says Trump is bankrupt. Tax conferences that are about taxing CO2. Tax private security of the rich and famous.

  4. The presumption that carbon pricing should be uniform across the country benefits urban fuel users vs. rural fuel users. Rural users have much higher per capita fuel usage than urban ones so carbon taxes fall more heavily on them. Then there is the general issue of energy costs as a percentage of income based on income level, race/ethnicity, rent vs. own, etc. This chart just looks are metro areas https://www.nrdc.org/experts/khalil-shahyd/study-highlights-energy-burden-households-and-how-energy-efficiency-can-help but its clear the poorest (and the youngest) get hit the hardest.

  5. This reminded me of a rundown on Amy Coney Barrett’s history of legal theory and the relation to Antonin Scalia’s – the question being whether a “textualist” would ask FERC – in their argument supporting their authority to regulate CO2 during the inevitable lawsuit(s) – to point to the OPERATIVE UNDERSTANDING OF THE TERMS AT THE TIME THE LAW WAS PASSED and show where CO2 was considered a “pollutant.”

    Nicely dovetails with tearing down some Chevron Deference eh. Fill that seat.

  6. “Go FERC yourself” is an offensive title unless spoken by a parrot. They don’t know better. If the author wrote the title, or had someone else write the title, he should ask for it to be changed.

    Where is the moderator when we need one to defend this formerly high class joint? Probably sitting on his usual bar stool, in a seedy bar near the docks, drunk, as usual, and about to reach his tipping point, falling off the bar stool onto the floor, as fellow patrons cheer, having bet on exactly when he would tip today … usually before noon. Moderator Bait.

  7. The most important word in this post is judiciously withheld until the next-to-last sentence of the final paragraph. The word, of course, is “tax.”

    I am not aware of anything in the Constitution that authorizes the Federal Energy Regulatory Commission or, for that matter, any regional wholesale electricity market, to levy a tax on anyone or anything. That authority is reserved to Congress.

    The term “carbon pricing” is simply an evasion, thoughtfully designed to obscure the fact that what’s being discussed is an unlawful tax aimed at penalizing people for using reliable and efficient energy sources and compelling the use of inefficient and unreliable ones.

    • Any energy tax, aka carbon tax, on a commodity good like gasoline or electricity is highly regressive on the populace. So unless the proceeds are directly and fully redistributed to the those who can least afford their effects, then its is the lower and middle class that gets squeezed while the top 1% of wealth/earners are not significantly impacted.
      And you can be sure the Libtard politicians are licking their chops at getting more tax money to give to public unions and special interests to continue to buy political campaign support. And when the businesses and jobs leave for more favorable states, so will the people and the taxes they pay go with them.

  8. Taxing CO2 is moronic greed. CO2 is the foundation upon which nearly all life on Earth is built. You don’t want less CO2, you want more…double or triple the current atmospheric concentration. More over, we REALLY don’t know what all the sources of CO2 are or what all the sinks are or what our own, feeble, contributions of CO2 amount to in the recent increases.

    If the Human contribution of CO2 is responsible for the increase in atmospheric concentration then we deserve a medal for staving off an extinction event. If the past CO2 concentrations derived from ice cores are to be taken at face value then the Earth was very close to CO2 starvation levels at the height of the last glaciation and the increase, if we humans are responsible, is a GOOD thing and may prevent all life on Earth from going extinct in the next, few, million years. And, IF CO2 is the control nob for climate and can warm things to the extent claimed by many who, regularly, troll this site, that’s a GOOD thing as well. Warmer is better. We can only hope that it prevents the next glaciation from happening.

    Cheers

    Max P

  9. 1. It’s illegal, 2. It’s stupid, and 3. It’s not worth 2 fracking cents. Please invite me to the next commission meeting.

  10. We have reached “tax the air you breath” state. So far all the so called “carbon tax” schemes in the USA have been met with resounding “no” votes by the people even in the most Liberal states. In fact the last time we did a House/Senate vote (Kyoto) on joining a Global Warming world consortium there wasn’t a single vote for it. It may change now but I bet not by much. Are we going to let the politicians back door “carbon” taxes against the will of the people without a vote?

    • China doesn’t have to cheat on emissions for now. The Paris Agreement is a gift to them and India to emit CO2 as they like going forward.

  11. I still fail to see how these regional (across state lines) agreements and compacts, lacking specific congressional approval, are constitutional and can be upheld by the courts in the inevitable legal challenges.
    And yes, businesses will shift away from regions that make themselves competitively disadvantaged when they impose these higher energy costs on them when its easy to move. This already well underway in California across all levels of business and manufacturing activities. California’s negatives (especially quality of life issues for employees) are rapidly offsetting many of the traditional reasons to stay.
    Example, if importing and exporting cars/good via the Port of Bayonne NJ becomes much more expensive due to regional costs of energy compared to Charleston, SC or the Gulf Coast, those shippers are going to relocate.

    And yes all of these on the cross state, out of region impacts becomes an unconstitutional usurpation of Congress’s constitution-given authority to control interstate commerce.

  12. Any Republican who supports a Carbon Dioxide tax should be voted out of office, as they have proven themselves clueless with this stance.

    Putting taxes on gasoline and diesel will raise the price of everything in the economy, and, as usual, the poorest people will suffer the most.

    The promoters of a carbon dioxide tax claim the poor will be reimbursed for their fuel taxes, and that may be true, but the poor won’t be reimbursed for the extra money they have to spend for everything else they buy that has gone up in price because fuel prices have been raised across the economy.

  13. “…can be just, reasonable and not unduly discriminatory or preferential.”

    How can any CO2 pricing scheme be these things? The less income you have, the bigger the hit, any way you look at it.

    If you want a “just, reasonable and not unduly discriminatory or preferential” scheme for reducing the production of CO2 in our society, ration it. You, me, Bill Gates and Warren Buffett all get our 10 gallons per week of gas and so forth.

  14. What about the social cost of silicon?
    What about the social cost of wind turbines?
    Do they even have to do an environmental assessment to install them?
    When did society lose its collective mind?

  15. WHAT COULD GO WRONG? We now have alcohol mandated in gasoline….made from corn…it is not something that the market would produce since it makes gasoline more expensive. I would not buy it but gas pumps that have pure gasoline are not common and the gasoline costs more than the gasohol. Yes, we need more taxes…more government….more expensive cost of living…more debt….more socialism….more communism….less freedom…yeah, that’s the ticket.

  16. Reducing Carbon Dioxide is Expensive and Futile:
    Zero Carbon Dioxide: The Obama EPA and other scientists have calculated the result of the reducing the entire US to zero carbon dioxide is hundreds of a degree reduction in temperature. This was revealed to the US congress by the Obama EPA. That’s because the US emits an insignificant amount of the global carbon dioxide. India and China are currently busy building coal plants. They alone make our carbon dioxide emissions globally insignificant.

  17. ” is hundreds of a degree reduction in temperature.”

    LOL…. I am assuming you meant “hundredths of a degree” 🙂

  18. “In the past, companies that have missed their so-called renewables obligation payments have often struggled to continue trading.”

    So ‘renewables obligation payments’ it is now is it?
    https://www.thisismoney.co.uk/money/bills/article-8810325/More-100-000-households-without-energy-supplier-Tonik-goes-bust.html
    Ah well I suppose the 130,000 will just have to shift their custom across to those reputable companies that do pay their renewables obligations payments. Easily fixed as they don’t want to pay those dreaded carbon taxes.

Comments are closed.