Status quo climate policies stymie New England’s clean and reliable energy future and shackle ratepayers with higher costs. It’s time for the region’s leaders to revisit carbon pricing and more effective paths to reduce emissions, as outlined in a study released last year by the Analysis Group.
Nearly a year ago, the well-respected Analysis Group released a fascinating study outlining how New England’s wholesale electricity markets could evolve to meet a defined emissions reduction goal by a date certain. The study, the Pathways to the Future Grid, articulated a target emissions reduction – an 80% reduction in emissions from 1990 levels by 2040 – and assessed four policy “pathways” that the New England region could follow to achieve those goals. The options included a net carbon price (preferred by ISO New England), the creation of a (still-undefined) Forward Clean Energy Market (FCEM), a hybrid of a carbon price and FCEM, and the status quo of ad hoc state-directed procurements.
Not surprisingly given the volume of research on the effectiveness of carbon pricing, the Pathways study concluded that a net carbon price was the most efficient and least expensive way for the region to meet its emissions reduction goals. Conversely, the status quo of individual states directing utilities to sign long-term contracts (typically at above market rates) for less reliable (but favored) electricity generation was the most expensive and least efficient of the studied options. However, with a pair of exceptions, since releasing a statement soon after publication of the study noting that they will continue to examine the results, the silence from the New England states (and other policymakers) has been notable.
The obvious exception to this silence would be New Hampshire’s opposition to being caught up in the price and reliability consequences of all manner of state-level climate policies from the other New England states, including the potential for carbon pricing as well as out-of-market renewable energy procurements. New Hampshire outlined a clearly defined energy policy in its 10-Year State Energy Strategy released in July 2022. The second exception is the FCEM proposal released toward the end of Governor Baker’s administration in Massachusetts that punctuates the complexities and confusion in a (FERC-jurisdictional) FCEM structure and has seemingly remained on a shelf since its release.
For years, EPSA has been a strong supporter of pricing carbon into wholesale markets. Well-defined markets should identify the characteristics or attributes of resources needed for system reliability while also meeting stated goals of policymakers in order for the competitive market to attain efficient and innovative outcomes. Desired resource characteristics should certainly include reliability (particularly dispatchable, flexible, and balancing resources) and can include environmental attributes as well. However, the market needs to be structured to address stated goals – otherwise criticizing wholesale markets for not rewarding attributes that you haven’t sewn into the market misses the point at best or seems disingenuous at worst. The April 2021 policy statement from the Federal Energy Regulatory Commission that it believes that a carbon price would be permissible under the Federal Power Act should assuage concerns that federal law does not grant the federal regulator the authority to approve a regionally driven carbon price in markets administered by an ISO/RTO.
FERC’s policy statement on a carbon price hearkens to two important reminders: First, ISO/RTO-administered markets are regulated by FERC – ISO/RTO-administered markets are not jurisdictional to an individual state or a collection of states. Rather, the states have direct jurisdiction over the utilities within their borders and, though not stakeholder members of the New England Power Pool, they play an important role as members of the New England States Committee on Electricity. Second, the New England states are already subject to a multi-state carbon reduction initiative – the Regional Greenhouse Gas Initiative – with the next auction scheduled for June 2023.
EPSA appreciates the volume of work being imposed on ISO New England. ISO-NE’s work plan for 2023 (and beyond) is a daunting list of projects and initiatives, including several that will include full engagement from EPSA members (including, but not limited to, resource capacity accreditation, day-ahead ancillary services, and an effort with the Electric Power Research Institute on the impact of extreme weather events). EPSA understands that the ISO does not have unlimited time and resources and recognizes that ISO-NE engages with stakeholders and the states to refine where it should concentrate its resources.
EPSA also recognizes the difficult politics that surround carbon pricing, and we appreciate that policymakers can’t attend a ribbon cutting or ground-breaking ceremony as a result of a carbon price. But for all the political vitriol that will surely accompany any discussion of a carbon price, the Pathways study clearly demonstrates that carbon pricing is the least painful way to achieve the region’s carbon reduction goals. Of course, it is easier to maintain the status quo – it requires the least amount of regional cooperation, and it allows states to design and execute (and take credit for) more random procurements of clean energy without having to consider the systemwide impacts, including on reliability. Along those lines, the volume of energy being procured, and the types of technologies being favored, remain arbitrary and seemingly without any type of rigorous analysis underpinning the policy or system impacts. Reducing emissions is an important and laudable goal, but these state procurements rarely (if ever) are accompanied by an analysis of how they will affect global climate change. This type of analysis would seem particularly relevant in the face of higher costs and the reliability challenges created when swapping dispatchable thermal resources for weather-dependent variable resources.
From EPSA’s perspective, the status quo approach not only deprives New England of the carbon reductions that could be realized under a net carbon pricing regime, but – as the Pathways study highlights – shackles New England ratepayers with higher costs and forces the reliability coordinator to take subsequent, out-of-market action to keep the lights on. Given these realities, it is confounding that some New England policymakers oppose carbon pricing but support the status quo scattershot state procurement approach. Many of these decision makers will simultaneously support out-of-market procurement while lamenting their inability to mitigate increases in retail electricity rates, some of which are the result of their own policy choices.
This is not a call for New England states to abandon their climate goals. Rather, as we recognize that it has been a year since the Pathways study’s release, EPSA hopes that policymakers will take another look at the results of the study. Pathways illustrates that there are several roads that New England can follow to get to a cleaner future. Ignoring regional approaches – allowing inertia or the difficulty of the politics surrounding carbon pricing to preserve the status quo – may be the politically easiest path to follow but is the least effective, highest cost approach. It does a disservice to New England individuals, families, and businesses by knowingly shackling them with higher prices and forcing ISO-NE to stand on its head to maintain system reliability. The Pathways study demonstrates that there’s a better way.