The Federal Energy Regulatory Commission (FERC) today 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.
“As states actively seek to reduce greenhouse gas emissions within their regions, carbon pricing has emerged as an important, market-based tool that has wide support from across sectors,” FERC Chairman Neil Chatterjee said. “The Commission is not an environmental regulator, but we may be called upon to review proposals that incorporate a state-determined state carbon price into these regional markets. These rules could improve the efficiency and transparency of the organized wholesale markets by providing a market-based method to reduce GHG emissions.”
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:
- 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?
- How does the FPA section 205 proposal ensure price transparency and enhance price formation?
- How will the carbon price or prices be reflected in locational marginal pricing?
- 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?
- 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?
Comments on the proposed policy statement are due in 30 days, with reply comments due 15 days after that.