Guess post by Roger Caiazza
On October 5th, Anthony published my article at the Federal Energy Regulatory Commission (FERC) technical conference on carbon pricing in organized wholesale electricity markets on September 30th, 2020. On October 15th, 2020, FERC proposed a policy statement to “assign jurisdiction clarify organized rules for wholesale electricity that include a government-set carbon price in these markets. The proposed Declaration of Principles is also intended to encourage regional electricity market operators to investigate and examine the benefits of establishing such regulations. “This post draws WUWT readers' attention to the opportunity to comment on this policy statement.
Policy statement comments
According to the FERC press release:
The proposed policy statement follows the September 30, 2020 technical conference at which attendees identified a number of potential benefits of proposals to integrate government-set carbon prices into regional markets. These advantages include the development of technology-neutral, transparent price signals in the markets and the guarantee of market security to support investments.
States are taking the lead in efforts to combat climate change by adopting measures to reduce their greenhouse gas emissions. Currently 11 states are mandating some version of carbon pricing, and other companies, including regional markets, are considering this approach. The technical conference attendees said carbon pricing is an example of an efficient market-based tool to pull state public policy into regional markets without compromising state authority.
Today's proposal is for regional market rules that include a government-set carbon price to be the responsibility of the wholesale price commission. However, determining whether the rules proposed in any particular section 205 of the Federal Power Act (FPA) fall under the jurisdiction of FERC is based on the specific facts and circumstances. The Commission requests an opinion on the appropriate information to take into account when reviewing such a submission, including:
1. How do relevant market design considerations change depending on the way in which the state or states determine the price of carbon? How is this price updated?
2. How does the proposal in FPA Section 205 ensure price transparency and improve pricing?
3. How will the carbon price or the CO2 prices be reflected in the marginal prices at the site?
4. How does the inclusion of the government-set carbon price in the regional market affect shipping? Will the government-set carbon price have an impact on how the regional market helps to optimize energy and ancillary services?
5. Does the proposal lead to an economic or environmental "leak" in which production can be relocated to more expensive generators in other countries, regardless of its carbon emissions? How does the proposal deal with such leaks?
The Commission invites comments on this proposed policy statement by November 16, 2020 and comments by December 1, 2020. Comments must refer to file number AD20-14-000 and, if applicable, include the name of the commentator, the organization they represent and their address in their comments.
Comments identified by the file number (AD20-14-000) can be filed electronically at http://www.ferc.gov in acceptable native applications and as print-to-PDF, but not in scanned or image format. For those unable to file electronically, comments may be submitted by mail or by hand to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE, Washington, DC 20426.
If you would like to participate in a process where your comments could affect the guidelines, I recommend that you read the policy statement for yourself. I will summarize the content below.
The policy statement begins with a background section. It should be noted that states are currently taking responsibility for combating climate change by adopting measures to reduce their greenhouse gas (GHG) emissions and often focusing on the electricity sector. It states that:
Carbon pricing has emerged as an important, market-driven tool in government efforts to reduce greenhouse gas emissions, including efforts to reduce greenhouse gas emissions from the electricity sector. In this proposed policy statement, we use the term “carbon pricing” to encompass both “price-based” methods used by states that directly price greenhouse gas emissions and “quantity-based” approaches used by states that do so indirectly for example through a cap-and-trade system.
The policy statement points out that although the “Commission is not an environmental regulator”, it must deal with proposals that include a government-set carbon price in the markets of regional transmission system operators (RTO) or independent system operators (ISO). They conclude that carbon pricing is no different from any other material they referred to, so it shouldn't be any different.
In the discussion part they make “it clear that the Commission is responsible for RTO / ISO market rules that include a government-set carbon price in these markets.” Then they argue: “It is the policy of this commission to endeavor to include a government-set carbon price into the RTO / ISO markets. "I will not attempt to interpret their legal arguments to justify this policy.
Under the subsection entitled “To encourage the Commission's efforts to incorporate a government-set carbon price into RTO / ISO markets”, the Policy Statement states:
As mentioned earlier, on September 30, 2020, the Commission held a technical conference on integrating government-set carbon prices into RTO / ISO markets. Conference attendees identified a number of potential benefits from such a proposal. These advantages include the development of technology-neutral, transparent price signals in RTO / ISO markets and the guarantee of market security to support investments. In addition, participants stated that carbon pricing is an example of an efficient market-based tool that incorporates state public policy into RTO / ISO markets without compromising state authority in any way.
We agree that proposals to include a government-set carbon price in RTO / ISO markets, if properly designed and implemented, could significantly improve the efficiency of those markets. Accordingly, we propose to make it the policy of this commission to encourage the efforts of RTOs / ISOs and their stakeholders – including states, market participants and consumers – to investigate the establishment of wholesale market rules, the government-set carbon prices in RTO / ISO markets consider .
The discussion concludes that:
The Commission will consider all FPA filings under Section 205, which proposes to establish wholesale market rules that include a government-set carbon price in RTO / ISO markets based on the specific facts and circumstances set out in this process. However, it is likely that certain questions and issues will arise with such a submission.
They specifically ask for an opinion on the questions listed in the press release quote above. These are the “appropriate information and considerations that the Commission should take into account, or whether different or additional considerations may or must be taken into account” in order to “determine whether there is an RTO / ISO's market rules that set a government-set carbon price in RTO / ISO -Markets are fair, fair, and not overly discriminatory or favored. "
For the residents of this blog, this is your opportunity to comment on something that could affect politics. I suggest that those who are skeptical of the value of greenhouse gas emission reduction policies focus on whether a government-set carbon price in RTO / ISO markets can be fair, reasonable, and not overly discriminatory or preferential.
I intend to personally comment on the concerns I raised in my personal blog post at the FERC technical conference. The technical conference convinced the FERC commissioners that carbon pricing is an "efficient" market-based tool, but no one asked and no one proved that it works. In my opinion, the first rule of effective policy is that it works. I believe that those who support carbon pricing for theoretical economic reasons may or may not be aware of practical issues that I have raised. I am cynical and I think the main value for FERC and the RTO / ISO operators is that the price of carbon makes their lives easier. That it has a significant impact on consumers and does nothing for the climate is someone else's problem.
Roger Caiazza blogs for the New York Pragmatic Environmentalist about energy and environmental issues in New York. This is his opinion and not the opinion of any of his previous employers or any other company he has been associated with.