Study quantifies carbon prices needed to meet New England climate targets

New York — Considerable progress toward Northeast US decarbonization can be supported by a progressively increasing price for carbon dioxide emissions in a range of $25 to $35/short ton CO2 in 2025 and $55 to $70/st CO2 in 2030 and 2035, according to a study released this week.

The New England Power Generators Association trade group commissioned a report that outlines a pathway to meet New England states' economy-wide decarbonization goals.

"Generators in New England are committed to meeting the twin responsibilities of the climate challenge and preserving reliability through competition. Carbon pricing is clearly the best, most efficient way to do that," Dan Dolan, NEGPA president, said in a June 25 email.

Consulting firm Analysis Group conducted the research and wrote the report, which was released on June 24.

A transparent carbon price should be seen across the key economic sectors in the region to help drive electrification in transportation and heating, while supporting necessary clean electricity investments, Dolan said.

"This report is the first of its kind that quantifies a sufficient carbon price and lays out an achievable pathway to make necessary progress over the next five, 10, and 15 years," he said.

The New England states have adopted aggressive greenhouse gas emission reduction requirements, policies and goals that collectively equate to regional economy-wide reductions in GHG emissions by 2050 of almost 80% relative to 2015 actual emissions, the report said.

The targets were developed as a way to mitigate the impacts of climate change and will require an "unprecedented magnitude and pace of change" in how the region produces and consumes energy for power, transportation, heating and other uses, according to the report.

The study takes a holistic approach that attempts to account for increases in building and transportation electrification while simultaneously modeling power grid decarbonization. Analysis Group conducted a study in 2019 of the New York Independent System Operator's carbon pricing plan that also accounted for various levels of electrification.

For the NEGPA study, the analysts modified the hourly load profile to reflect increased demand associated with potential increases in the uptake of electric vehicles and electric heating over the forecast horizon.

Specifically, the analysts modeled scenarios that assume up to 25% by 2025, 60% by 2030 and 90% by 2035 of consumers currently driving light-duty vehicles switch to electric vehicles; and 25% by 2025, 50% by 2030 and 75% by 2035 of residential homes currently being heated with oil, propane or natural gas switch to electric heat, according to the report.

Emissions price

Although the $25 to $35/st CO2 in 2025 and $55 to $70/st CO2 in 2030 and 2035 prices are lower than the estimated social cost of carbon over that time frame, they would allow for market competition to drive regional power system evolution, the report said.

The social cost of carbon calculated by the US Environmental Protection Agency is $46/mt in 2025 at an average discount rate of 3% in 2007 dollars, according to the EPA.

The lower range of CO2 emission prices for 2025 in NEGPA's report recognizes that certain New England states have already made long-term contractual commitments that provide financial support needed for various zero-emission resources.

As a result, in 2025, when the region is expected to be much closer to meeting its GHG reduction objectives, the carbon pricing range is driven by recent projections of unsubsidized levelized cost estimates for utility-scale solar power and onshore wind resources, the report said.

"In our analysis the difference between the estimated levelized cost ... and projected market revenues is relatively low (in comparison to 2030 and 2035), and an effective carbon price range is commensurately lower," according to the study.

However, in 2030 and 2035, the volume of zero-emission resources needed to meet projected GHG reductions is much higher and incremental offshore wind and/or renewable resources are needed for the region to meet GHG reduction targets, the report said.

These resources need a higher CO2 emissions price to be economically viable without subsidies so the estimated cost in excess of projected market revenues in 2030 and 2035 is greater, the analysts said, adding the wider range of carbon prices also reflects greater uncertainty in more advanced renewable resource costs in the next 10 or 15 years.

Electrification decreases household energy costs enough though — mainly due to cutting out gasoline and fuel oil costs — that even with a carbon price, household energy costs are expected to decline, the study found.