— Carbon pricing could prevent FERC minimum-offer-price rule
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New York goals include 100% carbon-free electricity by 2040
In a new report, Resources for the Future, a nonprofit research group, found that pricing the cost of carbon dioxide emissions into New York's wholesale electricity markets through a carbon adder or a new cap-and-trade program could help the state meet its ambitious clean energy mandates with little impact on consumer prices.
"Imposing a financial cost on CO2 emissions could contribute to a further differentiation among the costs of coal, gas and non-emitting sources of generation that would encourage investment in clean generators and prompt further reductions in emissions of carbon and other related pollutants," RFF said.
The study said carbon pricing could prevent the Federal Energy Regulatory Commission from imposing a minimum-offer-price rule on clean energy resources in New York's generation capacity market, a rule that RFF said would likely make New York's climate goals more costly to meet. Those goals include having 70% of all power produced in the state be generated by renewables by 2030, 100% carbon-free electricity by 2040, and net-zero greenhouse gas emissions economywide by 2050.
The state and the New York ISO are considering a proposed "carbon adder" policy to embed the social cost of carbon into the NYISO's wholesale electricity markets to improve the price signals of its energy and capacity markets. The NYISO issued a straw proposal on carbon pricing in May 2018 and refined the proposal in December 2018 in response to stakeholder comments.
The NYISO proposed pricing emissions from New York power plants at the social cost of carbon minus the relevant allowance price from the multi-state Regional Greenhouse Gas Initiative cap-and-trade program. Under the proposal, imports would be charged and exports credited based on an estimate of the carbon component of the NYISO wholesale electricity price at the import/export location. The value of the social cost of carbon would ultimately be determined by the state of New York, which the study said could reflect an estimate developed by the former Obama administration.
RFF determined that a CO2 emissions price on New York power plants that reaches $63 per ton in 2025, or $51 per ton in 2013 dollars, could reduce emissions by between 6% and 22% in 2025 and boost clean energy use to as high as 64% of total New York state generation by 2025. Under this scenario, carbon pricing will increase zonal average wholesale electricity prices in New York by $20/MWh to $24/MWh, with the largest effects in New York City. However, if the carbon price is rebated to electricity end users, retail consumers would only pay an extra $0.09/MWh to $1.21/MWh, or 0.1% to 1.1%.
"This analysis suggests that pricing carbon within New York electricity markets could help to advance the adoption of clean energy but that a higher carbon price, additional companion policies, or different policies will likely be necessary to hit the clean energy goals that New York state has set for 2030," RFF said.
POTENTIAL IMPACTS OF CARBON PRICING
While carbon pricing is designed to both decrease New York's renewable energy and upstate nuclear subsidies to zero and cut installed capacity prices, the proposal is still expected to encourage renewables investment and continued upstate nuclear participation in energy markets.
In addition to possibly helping to prevent the triggering of a minimum-offer-price rule, which would have penalized nonemitting New York generation, the study found that emissions pricing would reduce emissions in neighboring states by increasing New York's renewable generation enough to reduce the state's net power imports.
Under a low-cost scenario, the study also found that carbon pricing would increase New York's solar and wind capacity and generation enough to appreciably reduce total net electricity imports to the RGGI states from other Eastern Interconnection states. In turn, the report said, the policy would cut total Eastern Interconnection carbon emissions by almost twice as much as it reduces carbon emissions in New York. It also reduces sulfur dioxide and nitrogen oxide emissions.
Along with carbon pricing expected to incentivize the use of lower-emitting generators over higher-emitting generators, carbon pricing also would encourage the siting of new nonemitting generators in locations where they would most effectively reduce the need for emitting generation. In addition, RFF said New York's carbon pricing proposal could reduce the emissions intensity of instate natural gas-fired generation by 4%. In total, carbon pricing's net benefit would be between $108 million and $691 million per year by 2025, the study said.
-- Andrew Coffman Smith, S&P Global Market Intelligence, firstname.lastname@example.org
-- Edited by Gail Roberts, email@example.com