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PJM endorses plan to evaluate pricing carbon emissions into its wholesale power markets

New York — PJM Interconnection initiated a process Thursday to explore the feasibility of developing a regional or sub-regional approach to pricing carbon emissions into its wholesale power markets, with members and stakeholders endorsing the plan by a wide margin.

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A group of utilities and power generators proposed a broad plan that would first analyze various approaches to pricing carbon into PJM's power markets and then work towards developing a common set of rules to implement carbon pricing and manage cross-border emissions leakage.

The proposal introduced during a Markets and Reliability Committee meeting was sponsored by Eastern Generation, Public Service Electric & Gas, CPV Power Holdings, NextEra Energy Marketing and Dayton Power & Light Company.

It was endorsed by a vote that passed with 3.92% in favor. The threshold for approval was 2.5%. A new senior task force reporting to the MRC will be formed and work will start in six to eight weeks.

A document describing the initiative referenced a 2017 white paper PJM published titled "Advancing Zero Emissions Objectives through PJM's Energy Markets: A Review of Carbon-Pricing Frameworks," which explored how all or a portion of PJM could put a price on carbon that could be reflected in wholesale energy market prices.

While it would be PJM's preference to enact carbon pricing across its whole territory, the grid operator recognizes a "single perspective on carbon is not shared among the states" and as a result PJM believes a coordinated carbon policy could be "advanced through the PJM markets by a sub-group of states," according to the white paper.

The proposal introduced at the MRC noted that since the paper was published, New Jersey and Virginia initiated processes to join Maryland and Delaware in the Regional Greenhouse Gas Initiative, an emissions cap and trade system. Additionally, some of PJM's neighbors have started carbon pricing initiatives, including the New York Independent System Operator and Canada, the proposal said.

In the absence of a regional or national emissions reduction mandate, officials in local jurisdictions - not PJM or its stakeholders - will determine whether or not to adopt carbon pricing policies along with implementation mechanisms, the proposal said.

Some initial considerations include evaluating approaches for local jurisdictions to opt-in and opt-out of a regional or sub-regional carbon pricing construct and how to treat transactions, contracts and other relationships between PJM market participants conducted across the border between local jurisdictions that have and have not chosen to implement carbon pricing policies.

REGIONAL VARIATION

Covering 13 states and the District of Columbia, PJM is the largest US power market and its member states are characterized by widely varied power generation fuel mixes. For instance, coal-fired power plants accounted for 93% of West Virginia's 2017 net electricity generation, while New Jersey only generates about 2% of its power from the fossil fuel.

The variation in power systems and state policies across PJM's footprint makes agreement on carbon pricing a greater challenge than in a single-state ISO like NYISO.

One stakeholder representing industrial power consumers said their first thought was "this is crazy," but found the proposal "compelling" in its reach and consideration of different viewpoints. "This is one of the best solutions to address the externalities the states say PJM does not address," the stakeholder said.

Another stakeholder said as the representative of utility with coal units, "we disagree the timing is right for this now," and expressed concern about customers having to pay more.

The stage-one education and analysis process will likely take six to 12 months, and the stage-two rule-development process is expected to take an additional six months, according to the proposal.

-- Jared Anderson, jared.anderson@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com