E3 Study Shows PJM Region Can Cut Power Generation Emissions 28% With $2.8 Billion in Consumer Cost Savings Compared to Current State Policies
For Immediate Release: October 28, 2020
Contact: Christina Nyquist | cnyquist@epsa.org
Washington, D.C. – A new study released by Energy + Environmental Economics (E3) and commissioned by the Electric Power Supply Association (EPSA) provides important insight about the most efficient, impactful and cost-effective ways to decarbonize the grid over the next decade. According to the study, the region served by PJM Interconnection, the nation’s largest grid operator, can achieve deeper decarbonization by 2030 at a lower cost to consumers by pursuing market-based policies such as carbon pricing instead of continuing to rely on fragmented and restrictive clean energy policies and subsidies.
E3 finds that the PJM region could reduce emissions by 28% (80 million metric tons) by 2030 with a modest carbon price of $10/ton and at an annual cost that is $2.8 billion less than a Business as Usual (BAU) approach that includes current restrictive policies and subsidies.
The status quo policy (BAU) approach is significantly more expensive and less effective than a regional alternative that directly targets carbon. Existing policies and subsidies are projected to increase electricity costs by over $3 billion in 2030 compared to a Reference Case with no clean energy policy, with less than half (just 40 million metric tons) of the emissions reductions that could be achieved through competitive, market-based approaches.
Rather than constraining resource choice, which increases costs in every scenario, emissions can be most efficiently and effectively reduced – without hampering power reliability – by:
- Targeting carbon directly through tools such as a regional carbon price,
- Encouraging choice, competition, and innovation, and
- Allowing all resources and technologies, including flexible natural gas generation, to compete in regional power markets on a level playing field to reduce carbon and meet reliability needs.
The study examines the cost impacts of carbon reduction policies over a planning horizon through 2050 in the territory overseen by PJM, which serves 65 million customers in 13 states and the District of Columbia. Its findings provide important information for policymakers to consider as they decide how to balance cost, reliability, and environmental factors related to electric power generation.
E3 Senior Partner and Lead Report Author Arne Olson said, “Our study of decarbonization policies in the PJM region finds that the most effective policies are ones that maximize market participants’ choices and leverage resource and geographic diversity across the PJM footprint. Carbon pricing is shown to be the most efficient way to achieve deep levels of carbon reductions, however a regionwide Clean Energy Standard can achieve similar outcomes if designed to encompass all available resource options.”
Curt Morgan, chair of EPSA’s board of directors and president and CEO of Vistra, an integrated power company, said businesses are supportive of a construct that is achievable, durable across a diverse set of market participants, and advances economic progress.
“Currently, states are attempting to address climate change through a patchwork of individual efforts that prioritize in-state resources and specific technologies over the most cost-effective option to meet climate targets. We need a solution that will work – one that will make a real impact on carbon emissions without undermining the competitiveness of markets,” said Morgan. “EPSA and its members believe a consistently applied carbon fee will compel companies to make strategic choices, incentivize investments in new technologies, support the integrity of markets, and provide enormous cost-savings relative to decarbonizing through one-off subsidies or other out-of-market approaches.”
EPSA President and CEO Todd Snitchler concluded that the report findings make a clear case for regional competitive power markets and a playing field that allows all potential electricity sources to participate.
Snitchler said, “E3’s findings confirm that by allowing competition to flourish we can deliver a more affordable, reliable and cleaner energy future. We have the tools we need to succeed right in front of us, with PJM’s markets already saving customers money and driving down carbon emissions. This data should inform smart policy decisions in PJM and other markets – and EPSA and our members look forward to aiding that effort as competitive power suppliers continue to provide what customers, markets, and the grid demand.”
EPSA has summarized key report takeaways in an overview here.
Key report findings and policy lessons:
- Policies that regulate carbon directly – such as carbon pricing – unlock the highest decarbonization levels at the least cost. A modest $10/ton carbon price would achieve 80 million metric tons in additional carbon reductions (a 28% reduction) by 2030 at a savings of $2.8 billion, compared to a Business as Usual approach.
- Current fragmented and restrictive clean energy policies (the status quo) are costly and ineffective at reducing carbon emissions – increasing electricity system costs by over $3 billion in 2030 compared to a Reference Case with no clean energy policy, while achieving only 40 million metric tons of carbon emissions savings.
- Alternatively, a regionwide, technology-neutral Clean Energy Standard (CES) approaches the efficiency of a direct carbon policy in achieving low-cost emissions reductions. A CES with partial credit for natural gas achieves similar emissions reductions and cost savings to a $10/ton carbon price – 80 million metric tons at a savings of $2.8 billion per year.
- 50-90 GW of firm, flexible natural gas generation is needed in PJM through 2045 to provide reliable electric load service at every level of decarbonization.
- Meeting 100% (net-zero) targets will require innovation and the use of emerging or yet-to-be-developed technologies. Flexible, market-based policy mechanisms like carbon pricing will be best equipped to incentivize technologies of the future on a level playing field, while avoiding path dependent mechanisms.
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The Electric Power Supply Association (EPSA) is the national trade association representing America’s competitive power suppliers. EPSA members provide more than 150,000 MW of reliable and competitively priced electricity from environmentally responsible facilities using a diverse mix of fuels and technologies including natural gas, wind, solar, hydropower, geothermal, storage, biomass, and coal. EPSA seeks to bring the benefits of competition to all power customers. Learn more at www.epsa.org and connect with us on LinkedIn and Twitter @EPSAnews.
