Brian George is director of policy strategy and government affairs at EPSA.
Today’s energy policy patchwork could cost $3 billion/year. A new study from Energy + Environmental Economics (E3) shows the smarter path to decarbonize the power grid at the least cost – saving PJM region consumers $2.8 billion annually with more emissions savings and the benefits that come with regional competition.
The status quo needs a shake-up. New data released last week from E3 puts a hefty price tag on the cost of doing “Business as Usual” when it comes to energy policy impacting 65 million customers served by PJM, which operates the nation’s largest power market – $3 billion each year, to be exact. But E3’s comprehensive analysis also points to the most effective and efficient solution – one that allows us to continue the environmental progress and consumer savings enabled by regional competitive power markets, and keeps the door open to more choice for electric generation.
Where We Are: A Pricey Policy Patchwork
Seeking a path to a lower carbon future, in the absence of comprehensive federal climate policy, states have enacted numerous state policies of varying design – with efforts that range from subsidizing nuclear power plants to passing state renewable portfolio standards to mandating offshore wind development. Today, 13 states across the nation and the District of Columbia have adopted renewable or clean energy goals of at least 50% by mid-century or earlier.
Meanwhile, we remain in the grip of a pandemic with millions of Americans working from home or attending school virtually. Now, more than ever, it is critical that our power grid remain reliable and affordable, particularly for lower income families struggling with job loss or other socio-economic pressures.
From state public utility boards to state legislatures, to national leaders, it’s clear many policymakers see decarbonization as a high priority. Whether it be at the state or federal level, getting it right means finding the least cost, reliable and sustainable solution.
Getting to a Reliable, Competitive Low-Carbon Future
At EPSA, we support efforts to reduce emissions though transparent, open and non-discriminatory competitive markets, such as an economy-wide price on carbon, that allow all resources to compete to reduce carbon and other harmful emissions. Competitive markets that incorporate both environmental and reliability requirements will yield the lowest cost set of resources and technologies that jointly product the greatest emission abatement while keeping the lights on. Today, PJM’s planning and competitive markets have resulted in $3.2-4 billion in annual consumer savings while emissions have declined by 34% across the region since 2005. As E3’s report notes, “The beneficiary [of PJM’s system] is the end consumer. By enabling competition at a regional level, the PJM market ensures the lowest-cost energy resources serve the bulk of the grid’s needs.”
Today’s mixed bag of state energy and climate policies has created a challenging regulatory environment for businesses and policymakers – and will lead to inefficient outcomes over time. EPSA and our members have long suspected this to be the case, but E3’s new study brings much-needed data and a dollar estimate to the discussion.
Key Findings Show Greater Savings Through a Carbon-Focused Approach
While a national approach will yield the greatest benefits, E3’s study focuses on the PJM system, which due to its large customer base, resource diversity, and geographic span, offers significant opportunity for big cost savings and emissions reductions. E3’s comprehensive analysis found that by 2030, state policies in the PJM region will cost consumers over $3 billion each year while achieving minimal carbon emissions reductions. In contrast, E3’s model shows a region-wide price on carbon of just $10/ton would save consumers $2.8 billion per year and double carbon emissions reductions over the same period.
Critically, the analysis found regional approaches that maximize power generation resource participation offer significant efficiency benefits relative to targeted policies that limit or restrict eligible resources. Using the CLEAN Future Act proposed by Congressional Democrats as a framework, the analysis also modeled a Clean Energy Standard (CES) that offered partial credit for low emitting resources. By awarding partial credit to lower emitting resources, a CES can capture the emissions savings of additional coal-to-gas switching, mimicking the effects of a price on carbon.
While EPSA recommends a national, economy-wide carbon price as the simplest approach to achieve the most widespread, efficient results, a well-designed regional CES could deliver similar benefits.
Markets Are Essential: Policymakers Can’t Afford Inefficiency
Ultimately, E3’s analysis shows regional, transparent and market-based mechanisms are the key to affordable and reliable decarbonization. With state budget gaps and the longer-term economic impacts of COVID-19 unknown, policymakers can’t afford to ignore the inefficiencies associated with today’s approach. Implementation of cost-effective policies reduces the cost impact on consumers of all types while still delivering environmental results.
Over time, continued subsidies and targeted support for select resources will stifle private investment, risking the long-term benefits of regional competitive markets – lower prices, innovation and system flexibility. If given the proper price signal and a dose of regulatory certainty, EPSA member companies – competitive power suppliers that own all types of power generation – will invest in the technologies necessary to reduce our carbon footprint. Importantly for consumer wallets, they will do so by utilizing private capital, not ratepayer dollars.
Targeted subsidies to specific resources or technologies are fraught with unintended consequences and long-term inefficiencies. EPSA and our members do not seek to oppose or slow a sustainable transition to lower-carbon electricity. But the transition must be competitive and reliable, keep the door open to new market entrants, and protect customers from investment risk. E3’s analysis shows there is a better path forward than the route we’re on today.
If the policy goal is to maximize emissions reductions at the lowest cost without jeopardizing the reliability of the grid, national or regional mechanisms that directly target and price those carbon emissions are a no brainer. There are no doubt countless obstacles, but we can find common ground. Armed with the right facts and a clear target on carbon, we are confident policymakers and stakeholders from all corners of the industry can find a pragmatic solution.
Read more and get key findings from E3’s report, “Least Cost Carbon Reduction Policies in PJM.”