Watts Up With That FERC Carbon Pricing Policy Statement

Guess post by Roger Caiazza

On October 5 Anthony posted my article on the Federal Energy Regulatory Commission (FERC) technical conference regarding Carbon Pricing in Organized Wholesale Electricity Markets held on September 30, 2020.  On October 15, 2020 FERC proposed a policy statement to “clarify that it has jurisdiction over organized wholesale electric market rules that incorporate a state-determined carbon price in those markets. The proposed policy statement also seeks to encourage regional electric market operators to explore and consider the benefits of establishing such rules.” This post alerts WUWT readers to the opportunity to provide comments on that policy statement.

Policy Statement Comments

According to the FERC press release:

The proposed policy statement follows the September 30, 2020, technical conference at which participants identified a diverse range of potential benefits from proposals to integrate state-determined carbon pricing into the regional markets. Those benefits include the development of technology-neutral, transparent price signals within the markets and providing market certainty to support investment. 

States are taking the lead in efforts to address climate change by adopting policies to reduce their GHG emissions. Currently, 11 states impose some version of carbon pricing, and other entities, including the regional markets, are examining this approach. Participants at the technical conference said carbon pricing is an example of an efficient market-based tool to incorporate state public policies into regional markets without diminishing state authority.

Today’s proposal finds that regional market rules incorporating a state-determined carbon price can fall within the Commission’s jurisdiction over wholesale rates. However, determining whether the rules proposed in any particular Federal Power Act (FPA) section 205 filing do fall under FERC jurisdiction will be based on the specific facts and circumstances. The Commission is seeking comment on the appropriate information to consider when reviewing such a filing, including:

1. How do the relevant market design considerations change depending on the manner in which the state or states determine the carbon price? How will that price be updated?

2. How does the FPA section 205 proposal ensure price transparency and enhance price formation? 

3. How will the carbon price or prices be reflected in locational marginal pricing? 

4. How will the incorporation of the state-determined carbon price into the regional market affect dispatch? Will the state-determined carbon price affect how the regional market co-optimizes energy and ancillary services? 

5. Does the proposal result in economic or environmental “leakage,” in which production may shift to more costly generators in other states, without regard to their carbon emissions? How does the proposal address any such leakage? 

The Commission invites comments on this Proposed Policy Statement by November 16, 2020 and reply comments by December 1, 2020. Comments must refer to Docket No. AD20-14-000, and must include the commenter’s name, the organization they represent, if applicable, and their address in their comments.

Comments, identified by docket number [AD20-14-000], may be filed electronically at http://www.ferc.gov in acceptable native applications and print-to-PDF, but not in scanned or picture format. For those unable to file electronically, comments may be filed by mail or hand-delivery to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE, Washington, DC 20426.

Policy Statement

If you want to participate in a process where your comments could affect policy I encourage you to read the policy statement itself.  I will summarize its contents below.

The policy statement starts with a background section.  It notes that states are currently leading the charge to address climate change by adopting policies to reduce their greenhouse gas emissions (GHG) and frequently focus on the electric sector.  It notes that:

Carbon pricing has emerged as an important, market-based tool in state efforts to reduce GHG emissions, including efforts to reduce GHG emissions from the electricity sector. In this proposed policy statement, we use the term “carbon pricing” to include both “price-based” methods adopted by states that directly establish a price on GHG emissions as well as “quantity-based” approaches adopted by states that do so indirectly through, for example, a cap-and-trade system.

The policy statement notes that even though the “Commission is not an environmental regulator” they still have to address proposals that incorporate a state-determined carbon price into Regional Transmission Operators (RTO) or Independent System Operators (ISO) markets.  They conclude that carbon pricing is not unlike other filings that they address so this should be no different.

In the discussion section they “clarify that the Commission has the jurisdiction over RTO/ISO market rules that incorporate a state-determined carbon price in those markets.”  Then they go on to argue that “it is the policy of this Commission to encourage efforts to incorporate a state-determined carbon price in RTO/ISO markets”.  I am not going to try to interpret their legal arguments justifying this policy. 

In the sub-section titled “Commission Encouragement of Efforts to Incorporate a State-Determined Carbon Price into RTO/ISO Markets” the policy statement says:

As noted, on September 30, 2020, the Commission held a technical conference on the integration of state-determined carbon pricing in RTO/ISO markets. Participants at the conference identified a diverse range of potential benefits that could arise from such a proposal. Those benefits include the development of technology-neutral, transparent price signals within RTO/ISO markets and providing market certainty to support investment. In addition, participants explained that carbon pricing is an example of an efficient market-based tool that incorporates state public policies into RTO/ISO markets, without in any way diminishing state authority. 

We agree that proposals to incorporate a state-determined carbon price in RTO/ISO markets could, if properly designed and implemented, significantly improve the efficiency of those markets. Accordingly, we propose to make it the policy of this Commission to encourage efforts by RTOs/ISOs and their stakeholders—including States, market participants, and consumers—to explore establishing wholesale market rules that incorporate state-determined carbon prices in RTO/ISO markets.

The discussion concludes that:

The Commission will review any FPA section 205 filing that proposes to establish wholesale market rules that incorporate a state-determined carbon price in RTO/ISO markets based on the particular facts and circumstances presented in that proceeding.  Nevertheless, certain questions and issues are likely to arise in any such filing.

They specifically ask for comment on the questions listed in the press release quotation above that are the “appropriate information and considerations the Commission should take into account or whether different or additional considerations may be or must be taken into account” to “determine whether an RTO/ISO’s market rules that incorporate a state-determined carbon price in RTO/ISO markets are just, reasonable and not unduly discriminatory or preferential.”

Conclusion

For the denizens of this blog this is your opportunity to comment on something that could affect policy.  I suggest that those who are skeptical of the value of GHG emission reduction policies concentrate on whether a state-determined carbon price in RTO/ISO markets can be just, reasonable and not unduly discriminatory or preferential. 

I intend to personally comment on the concerns I raised in my personal blog post on the FERC technical conference.   The technical conference convinced FERC commissioners that carbon-pricing was an “efficient” market-based tool but nobody asked and no one proved that they work.  In my opinion the first rule of efficient policy is that it works.  I believe that those who support carbon pricing on theoretical economic grounds are overlooking or are unaware of practical issues I have raised.  Cynic that I am, I think the primary value to FERC and the RTO/ISO operators is that the carbon price makes their lives easier.  That it will have significant impacts on consumers and not do anything for the climate is somebody else’s problem.

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 with which he has been associated.

40 thoughts on “Watts Up With That FERC Carbon Pricing Policy Statement

  1. It seems to me the states ability to set their own individual carbon prices raises questions. First there may be advantages and disadvantages of this approach. The obvious disadvantage is lack of consistency across the states and entire nation. However, on the plus side it gives flexibility to states such as California , Washington, Oregon, etc. to set higher penalties if they so choose in order to achieve their legislative objectives and reflecting their desire / leaning on this issue. At the same time it allows states that are not motivated or inclined to punish their citizens to pursue / act on their own different inclinations. Does it also mean that states an opt out entirely if that is their choice?

  2. The FERC seems to be assuming that Democrats will soon be fully in power and/or that the USA is now part of the European Union.

  3. Not all pickpockets are on a subway or at a New Years celebration in Times Square. To clarify that it has justification” and ” to encourage others to adapt such rules sounds opportunistic and a bit shady. W hy do it at all?

  4. Roger, I read your Oct. 5 and April blog posts here on WUWT. I am no policy expert but I am a taxpayer in the US and I consume electricity.

    Why was the conference only about possible benefits? Why did it not also ask participants to consider the problems of a carbon pricing system? From a quote in the post: “Participants at the conference identified a diverse range of potential benefits that could arise from such a proposal.” This demonstrates a lack of scientific rigor. But perhaps I go too far in assuming anything remotely close to a sensible scientific analysis from such conferences.

    • I remember by Dad’s quote when Pennsylvania instituted a Wage Tax, or was it the Sales Tax? —-
      ” The next fu*king thing is that they’ll tax is the air we breathe”!!

  5. The proposed tax has potential benefits. It lowers hypothetical costs associated with carbon dioxide. To whose pockets will this beneficial tax money go? Is there any real data on damages caused by carbon dioxide in 2015, 2016, 2017, 2018, 2019, 2020?

  6. In better times, when more attention was paid to the rule of law, the FERC’s proposed “Carbon Pricing in Organized Wholesale Electricity Markets” would be identified as outright price fixing, an illegal act.

    And while the Federal Government, via the powers granted to it under the US Constitution, does have the power to impose taxes on goods and services, there must be a very good reason that the words “carbon tax” do not appear anywhere in the above article and boxed excerpts. I suspect it directly relates to the power grab evidenced by this statement: “In the discussion section they ‘clarify that the Commission has the jurisdiction over RTO/ISO market rules that incorporate a state-determined carbon price in those markets.’ ”

  7. This is clear as mud, so I’m against FERC’s involvement. Let states that want to handicap their citizens do so. They elected their politicians to do so. Yeah, there will be unfair aspects of such state policy choices. For example there will be businesses in the carbon priced states that will move to nearby non-carb priced, etc.

    Don’t make life smooth for the тотаliтагуаиz. Let their citizens see the unfairness. They never seem to stop voting for them so they must like it.

  8. A lot of this legal justification goes back to the fraudulent Social Cost of Carbon (SCC) analysis done under the Obama Maladministration. The SCC was Fraudulent because the finals “costs” were calculated without any considerations of the massive benefits to society and the environment that burning that fossil fuels brings.

    For just one example, consider the treatment of waste waters and its discharge to waterways and the ocean. Waste water treatment is an energy intensive process that must run uninterrupted 24/7 in all municipalities. The energy of course delivered in the form of electricity. When electricity is interrupted (in the evening when the sun was gone and solar and wind power was negligible, a common occurrence), as was seen in examples of California’s recent summer rolling blackouts, waste water treatment plants lost power resulting in raw sewage water discharge in violation of EPA standards. These kinds of situations can only increase if too much reliance is placed on “emissions-free” generation sources.

    The FERC must consider the implications of unreliable grid electricity delivery in pricing schemes that would results in too heavy a reliance on solar and wind power as California has done to its failing electricity reliability. Not only does this unreliability affect delivery, it requires the ISO’s to pay very high prices for spot market delivery of electricity during peak demand periods, prices that will be passed on the consumer.

    And it is the fraudulent SCC that lies at the heart of the justification for carbon pricing schemes that drives too much reliance on unreliable wind and solar power systems.

    • Don’t fix what’s already fixing itself. They conveniently overlook the fact that U.S. CO2 emissions declined by 13% from 2007 to 2016 without any carbon tax, “carbon pricing” or federal regulation whatsoever. Let’s keep the government out of the way of private market innovations that are already significantly reducing CO2 emissions.

      WorldBank graph of U.S. CO2 emission through 2016:

      https://data.worldbank.org/indicator/EN.ATM.CO2E.KT?end=2016&locations=US&start=1960&view=chart

      U.S. EPA shows our emissions declined by 11.5% from 2007 to 2018:

      https://cfpub.epa.gov/ghgdata/inventoryexplorer/#allsectors/allgas/gas/all

      • Barbara, your email is a little obtuse.

        If it’s simply that you are new to this site and would like to share information with us that we might find useful, well then thank you, if we aren’t already aware of some of this information then it may be useful.

        If for some reason you just like labels and have tagged us all as uncaring ‘capitalists’ then you are simply ignorant. That isn’t meant to offend you, none of us know everything, and until we take the time to understand what we don’t know, we are ignorant. There are many philanthropists on this site, just as there are many who are not wealthy. Though I’m sure you would not imply that extreme wealth is not apparent one or the other side of politics, and does not preclude them from being good people. Or that wealth is relevant to a person’s worth. Don’t assume either that this site is open only to those with leanings to one political party or another. We all have something to say, it gets really interesting.

        If you have chosen the ‘denier’ label in relation to AGW then that is just funny, and you are definitely new to this site! The more correct description is of course ‘skeptic’ and since you have visited a science site, you may not understand that skepticism is essential in science. It keeps the scientists honest. Without debate it really isn’t science, it’s simply dogma.

        If you support renewable energy, backup batteries and EV’s then again, you are ignorant. If you knew, the amount of damage that renewables technology was doing on a global level, there is no way you could support this technology.

        Rather than assumptions and name calling, wouldn’t it be more useful to have a conversation? There are large numbers of scientists and associated experts, along with those who have taken the time to glean information, who would be happy to respectfully answer any questions you might like to ask.

        Oh, OK there might be one or two who’ll have a go, we’re non of us perfect.

        If you’re a regular and I’ve misconstrued something, then apologies in advance.

  9. A late-night disk jockey in Edmonton once got a listener call from a woman who told him she’d discovered she could change the shape of the Northern Lights by flapping her tablecloth at them. He thanked her for sharing that, hung up the phone, and queued the next record before dissolving in hysterical giggling, thinking of that silly lady, standing out in the cold, flapping her tablecloth at Aurora Borealis, and imagining she was affecting it. He was laughing too hard to announce the next song and had to finish the hour with a tape.

    I’d like to assure the FERC that, since glaciers began to recede in the mid-19th Century, the regulation of “carbon” will be about as effective in controlling global warming as that poor lady and her tablecloth.

    • Way back in 2006 we visited Glacier Bay in Alaska, a 65 mile long bay with a few glaciers in the small side bays. The ancient mariners had made charts of the area back as far as 1750, and had to keep updating them as the glaciers in this navigable bay receded. Those charts showed that the massive 65 mile long glacier which occupied the entire bay back in 1750 has started melting by 1800. By the year 1900 most of the glacier was gone, prior to the invention of the airplane, the mass production of the automobile, and with earth’s population ranging from about 1/7h of today in 1800 to 1/4 of today in 1900. I still have a copy of the map we were handed by the parks commission back in 2006, with all the lines indicating the melting.

      If we were causing that warming, I challenge anyone to come up with a realistic proposal for how to stop the warming today.

    • The on-going La Nina conditions will be the reason for a seasonal MLO CO2 rise will be lower this NH winter.

  10. I didn’t see the FERC data showing how much “climate change” will be averted, and by when, as the result of a so-called carbon tax. Does anyone have that FERC data? Energy consumers would like to know the predicted, measurable effects of a carbon tax and the metrics FERC uses to analyze “climate change.”

    • As the effect of CO2 is supposedly the raising of temperature, perhaps they should be explaining what the reduction will be should they implement any carbon (sic) tax.

      At the state level, this would be so low there may not be sufficient decimal places on their calculators

  11. The sad thing is that even so-called Republicans have, at least in part, bought into the whole carbon scam. Here in the Northeast US, we have this RGGI scam going, a cap-and-trade program which started in 2014. Hard to drain the swamp when you’re up to your a$$ in alligators.

  12. See how stealthily and slowly the AGW antagonists have made so called “carbon pricing” acceptable? It’s not even questioned and those that do are ostracized and ridiculed by the same people/media that introduced the scam. This circular reasoning is nothing but propaganda and it will take us/the people forcing the media into reporting truth to change the thought process. The only way to force media into anything is to stop patronizing them.

    • Anthropogenic CO2 causing global warming, still, to this day, is unproven. It has never been established that there is even a ‘problem’ that needs fixing.

      Yet policies have been put in place globally to fix this ‘problem’. Trillions of dollars have been ‘invested’, to no avail. Resources have been wasted, people have died and vast areas of the environment destroyed across the globe. For what?

      So now we have the second scam. A carbon tax, to fix a ‘problem’ that hasn’t happened. It’s just another way to part people from their money, there is in reality nothing to fix.

      The Emporer is adding to his fine wardrobe. He will eventually be ‘exposed’.

  13. It looks like a power struggle over FERC, who make important ruling over US energy project, including energy pipelines that activists want to prevent. Looking at statements by the three commissioners, you get the flavor of the agendas. Commissioner Richard Glick on October 15, 2020:

    “I dissent in part from today’s order because it fails to comply with our obligations under the Natural Gas Act[1] (NGA) and the National Environmental Policy Act[2] (NEPA). The Commission once again refuses to consider the consequences its actions have for climate change. Although neither the NGA nor NEPA permit the Commission to ignore the climate change implications of constructing and operating this project, that is precisely what the Commission is doing here. ”

    “In today’s order authorizing Texas Eastern Transmission, LP’s Middlesex Extension Project (Project), the Commission continues to treat greenhouse gas (GHG) emissions and climate change differently than all other environmental impacts.[3] The Commission again refuses to consider whether the Project’s contribution to climate change from GHG emissions would be significant, even though it quantifies the Project’s direct GHG emissions from construction and operation.” [Note: Glick wants to disqualify pipelines based on the social cost of carbon emitted by the end users, while present FERC policy assesses impacts of the project itself: the construction and operation of the pipeline. He thus dissents from all such approvals made by the other two commissioners]

    FERC Chairman and Commissioner Neil Chatterjee had this to say about the carbon tax proposal:

    “My overarching takeaway from this robust conversation was that if states continue to pursue carbon pricing — and I fully expect this to be the case — RTOs and their stakeholders can and should explore the feasibility and benefits of market rules that incorporate the state-determined carbon price. And when they do, they should have confidence that those proposals will be not be a dead letter on our doorstep . . . confidence that we recognize the benefits that such proposals, if properly designed, could bring to our markets . . . and confidence that we will bring our pragmatic, market-based lens to this conversation.

    “That’s why today we’re issuing Item M-1, on a bipartisan basis. M-1 is a proposed policy statement clarifying that, though jurisdictional questions must be answered on the specific facts at hand, the Commission can have jurisdiction under FPA section 205 to consider RTO/ISO market rules that incorporate a state-determined carbon price.

    “Today’s proposal also puts down a marker signaling that this Commission encourages efforts to develop wholesale market rules that incorporate a state-determined carbon price in RTO/ISO markets. And importantly, with today’s policy statement, we’re seeking comment on any considerations the Commission could or should take into account when reviewing RTOs’ proposals under FPA section 205.

    “Now, I want to take a moment to underscore what this proposed policy statement is and is not about . . .

    “It’s about our openness to considering RTO proposals to improve the efficiency of organized wholesale markets by incorporating state-determined carbon prices into their rules. Let me be clear on this point. This is not, in any way, shape or form, an effort by FERC to take proactive action to set a carbon price. I may sound like a broken record here but I’ll say it again: the FPA does not give us authority to act as an environmental regulator. We have neither the expertise nor the authority to drive emissions policy in this space. So that is not the objective here today.”

    https://www.ferc.gov/news-events/news/remarks-chairman-neil-chatterjee-ferc-proposed-policy-statement-state-determined

  14. The RGGI, mentioned above, dominated by the Democrat controlled NE states, except Pennsylvania, is chomping at the bit to collect $20 per ton of CO2.
    If Biden wins, it will happen immediately.

    Forget that it will be an extremely regressive tax on the poor, who will pay a much higher percentage of their income to heat and cool their homes when energy prices rise.

    Forget that it will finalize the elimination of manufacturing in the Northeast.

    Forget that it will impoverish the people, and drive ever more money to China, as it’s $0.08/kwh electricity will continue to make their goods cheaper than they can be produced here.

    Forget that it will eliminate US energy independence, as the only way to satisfy these idiots is to force us to purchase Chinese PV panels.

    If Trump loses, we’re screwed.

    • Thanks John, climate change isn’t an existential threat but Harris/Biden climate policy will be. Willfully uniformed voters could really do it for all of us this election. We might survive a Harris/Biden administration or a Democrat controlled senate, but not both. How “Big Technology”fails to understand that escapes me.

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