The Bottom Line: Researchers found carbon pricing to be the most efficient and transparent means of reducing carbon emissions while keeping costs down. ISO New England supports carbon pricing, but state policymakers throughout the region continue pushing for policies with more expensive outcomes, signing an MOU to enable offshore wind procurement even as developers pay millions to cancel projects.
Construction of new wind turbines in Holland. Research shows that carbon pricing is the most efficient and cost-effective way to achieve lower emissions. Credit: iStock/claffra
Roughly 18 months ago, the Analysis Group released a fascinating study examining how New England’s electric generation sector could most efficiently achieve a defined emissions reduction goal by 2040. The report – Pathways Study, Evaluation of Pathways to a Future Grid – conducted in consultation with ISO New England, the New England states, and regional stakeholders, identified several policy “pathways” that the region could use to reduce greenhouse gas emissions. Potential policy options studied included the status quo, defined as “continuing current unilateral state policies, which incent the development of clean energy resources using bilateral power purchase agreements,” and net carbon pricing (“pricing carbon emissions from generators and returning the carbon price revenues to electricity consumers”).
The ISO summarized the findings of the Pathways study by noting that “Analysis Group found that [net carbon pricing] met the decarbonization goals with the lowest social costs between 2021 and 2040… The status quo approach led to 40 percent higher social costs by 2040.” This is perhaps not surprising given the numerous analyses conducted in various regions identifying carbon pricing as the most efficient and transparent method to reduce emissions.
ISO New England, the administrator for New England’s wholesale power markets, has advocated for carbon pricing for many years as its preferred method to meet regional emissions goals. In testimony before a U.S. House Energy & Commerce Committee panel on September 28, 2023, ISO-NE’s President and CEO reiterated that support, noting that “I believe the most efficient, market-based solution to this problem is effective carbon pricing, which would drive innovation in the market by compensating new and existing clean energy resources for their carbon free energy, while also providing powerful incentives to existing carbon emitting resources to reduce their carbon emissions.”
It is therefore curious that state policymakers continue to celebrate their choice to deploy policies that lead to less efficient, more expensive outcomes. On October 3, state commissioners from Massachusetts, Rhode Island, and Connecticut announced a joint Memorandum of Understanding (MOU) to enhance coordination on out-of-market procurement for offshore wind development. The timing of the MOU nearly coincided precisely with the announcement of an offshore wind developer paying $16 million to cancel an existing power purchase agreement (in this case, for the proposed 800+ megawatt Park City Wind development) due to various economic and financial headwinds not anticipated during the procurement process. Cancellation of an existing offshore wind development contract in New England isn’t unique to the Park City proposal – in two other instances developers agreed to pay tens of millions of dollars to terminate contracts for proposed offshore wind.
We point this out not to criticize the goals of policymakers admirably trying to reduce power sector emissions. EPSA strongly supports the goals of the clean energy expansion and believes that our nation must make sizable investment in all types of generation and storage to meet our reliability and policy goals in the coming decades. But we juxtapose the findings of the Pathways study (and ISO-NE’s ongoing support for carbon pricing) with the insistence by many New England states to affect change in an inefficient manner while refusing to adopt the most efficient, least cost approach to achieve their explicit policy objectives. It is particularly jarring when considering that southern New England states already have some of the highest retail electricity rates in the nation. Carbon pricing in wholesale markets allows competition to drive innovation and efficiencies to achieve the dual results of reliability and emissions reductions in a transparent manner.
If the Pathways study shows that the same emissions reductions goals can be achieved through a variety of policies, it would seem reasonable to choose the policy that is the most efficient and presents the lowest burden to ratepayers.