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US FERC finalizes carbon pricing policy statement with bipartisan support

16 April 2021 Amena Saiyid

With varying degrees of enthusiasm among its members, the US Federal Energy Regulatory Commission issued its final word 15 April on how it will consider plans submitted by regional grid operators to incorporate state-determined carbon prices in FERC-regulated wholesale power markets.

Currently, FERC said, 12 states impose some version of carbon pricing, with additional states considering it, but it has received no grid operator plan to date.

The agency charged with overseeing wholesale electricity markets acknowledged carbon pricing has emerged as an important market-based tool in state efforts to reduce GHG emissions, especially in the absence of any GHG regulation in the power sector.

FERC, however, made it clear that its policy statement should not be read as a preference for carbon pricing over any other state policy. Rather, the agency said it "affirms that whether and how a state chooses to address greenhouse gas emissions is a matter exclusively within that state's jurisdiction."

Helpful guidance

FERC Chairman Richard Glick said the policy statement provided guidance to states about how it "might accommodate [a] state carbon program, [but] the devil is always in the details."

"Until we get a specific request to act, I don't think there's much benefit to weighing in on further hypotheticals," he added.

The American Council on Renewable Energy (ACORE) said the policy statement provides certainty to market operators that FERC will give proposals that incorporate a state-determined carbon price due consideration.

The New York Independent System Operator (NYISO) has been developing a carbon pricing proposal for its market, which FERC would have to approve. NYISO has not yet submitted its proposal to FERC and does not plan to do so until it receives state support.

"And we have said we would only bring [a proposal] up for a vote before our stakeholders if the state signals its support," NYISO spokesman Zachary Hutchins wrote in a 16 April email to IHS Markit.

It is unclear whether Governor Andrew Cuomo would back the grid operator's plan as consistent with his aggressive effort to build out renewable generation in the state.

However, NYISO CEO Rich Dewey in a 15 April statement said he was pleased with the carbon pricing policy. He added that NYISO will continue to work closely with FERC and New York State "to explore opportunities that leverage the power of wholesale electric markets to help meet the respective decarbonization and renewable investment goals."

According to ACORE CEO Gregory Wetstone, "pricing carbon not only sends market signals to emitting resources that they should retire, but also drives investment in new, low-carbon resources by helping them compete."

American Clean Power Association General Counsel Gene Grace also welcomed the policy from FERC, saying it encourages states that are considering carbon pricing in organized markets.

Chatterjee enthused

Meanwhile, the member of FERC who was most enthused about the policy was Republican Commissioner Neil Chatterjee, who risked the ire of the Trump administration when as FERC chairman he launched the initiative a year ago that led to the carbon pricing policy.

Shortly thereafter, President Donald Trump removed Chatterjee as chairman, replacing him with fellow Republican Commissioner James Danly, who subsequently was replaced by Glick, President Joe Biden's pick to head the agency, in late January.

In comments on the carbon policy 15 April, Chatterjee said he was "extremely pleased that we're taking this step forward on a bipartisan basis."

"When I initiated this proceeding last year, I did it with open eyes," he added. "Sometimes leadership requires sticking your neck out in order to make progress toward common goals."

Less enthusiastic about FERC's statement was Danly, although he said he had no objections to the agency clarifying the regulatory framework under which it would consider carbon pricing proposals. He was quick to add though that he considered the statement a "nullity" because there was no such proposal before FERC.

In addition to the varied group of stakeholders that asked FERC last year to issue such a policy statement, Chatterjee noted there has been growing support for carbon pricing from other groups, including the American Petroleum Institute.

FERC held a September 2020 technical conference on carbon pricing at which participants identified a range of potential benefits from incorporating state-determined carbon pricing into wholesale markets, including the development of technology-neutral, transparent price signals in the market.

--Based on original reporting in The Energy Daily's 16 April edition.

Posted 16 April 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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