Us electricity markets are exploring carbon pricing, an economically simple but politically fraught tool to address the greenhouse gas emissions that drive global warming.
A carbon price would layer the environmental cost of emissions on to the bids of generators, and make fossil fuel power plants especially coal and older natural gas plants less competitive than zero carbon power from nuclear and renewables.
On wednesday, some of the largest us power suppliers and traders are set to discuss carbon pricing at a special conference of the us federal energy regulatory commission. speakers include representatives of heavyweight players, including nrg and vistra, independent power producers; goldman sachs, the wall street bank; vitol, the commodities trader; and academics and grid operators.
The discussions come as us states emerge on the forefront of climate action as the trump administration dismantles rules to control heat-trapping carbon dioxide.
Two-thirds of the electricity in the us is dispatched in competitive wholesale markets that encompass regions including the north-east, the midwest and california. grid operators have been attempting to square some states aggressive efforts to rein in emissions with market rules that reward the cheapest sources of generation.
This technical conference is really a signal that the time has come to take this on as a national issue. it cant be put off any longer, said peter fox-penner, director of the institute for sustainable energy at boston university and author of power after carbon.
The new york independent system operator has proposed incorporating a social cost of carbon into its wholesale power market to speed progress towards an aggressive state goal of 100 per cent zero-carbon electricity by 2040.
Lower- and non-emitting resources would benefit from higher net revenues, and higher-emitting resources would have a powerful incentive to invest in emissions-reducing technologies, richard dewey, nyiso chief executive, said in remarks prepared for the ferc conference.
The largest us power market, the pjm interconnection, stretches from new jersey to chicago, and has set up a task force to examine the prospect of carbon pricing.
Carbon prices from californias cap-and-trade scheme have been included in electricity bids since 2013 and the system operator is now trying to wrap them into a nascent market for day-ahead power supplies around the us west.
Climate change has raced up the political agenda after a summer of heatwaves, wildfires and hurricanes. the electric power sector accounts for a third of us energy-related carbon emissions.
Ferc scheduled the meeting in response to a petition by power producers and clean-energy groups. theyre all looking for some market certainty around this issue, because at the end of the day we have a patchwork of state actions that seem to be trying to address the carbon question. a more centralised approach would certainly be more cost-effective and efficient, said todd snitchler, chief executive of the electric power supply association, which was among the petitioners.
Carbon prices have proven to be easy political targets in places that have tried them. ontario, canadas most populous province, briefly joined the california cap-and-trade market before abandoning it under a new premier. canadas federal government has since imposed nationwide carbon pricing.
In the us, democrats in congress have been wary of embracing a direct levy on carbon dioxide. a clean energy bill that passed the house last week excluded carbon prices.
The regional greenhouse gas initiative (rggi), a 10-state carbon market in the us north-east, lost and regained new jersey as a member as successive governors took office. power plants paid less than $7 a tonne of carbon in its latest auction well below the $40-$80 estimated as necessary to meet goals of the paris climate agreement.
Even those prices can create leakage, a problem in which traders buy cheaper power from states without carbon prices, undermining the goals of states with carbon prices.
The pjm market encompasses three of the rggi member states as well as coal-mining west virginia, where a clampdown on carbon emissions is unpopular.
Some states are contemplating carbon prices for electricity as they also promote zero-carbon energy in other ways, such as through financial credits for wind, solar and nuclear generators that are ultimately funded by utility customers.
Implementation of a carbon price is a market approach which would let market participants respond in efficient and innovative ways to the price signal rather than relying on planners to identify specific technologies or resources to be subsidised, joseph bowring, pjms independent market monitor, said in prepared remarks.
Ferc, led by republican chairman neil chatterjee, angered some state governors after mandating a floor price for generators bidding into pjms power capacity auctions, which could undercut subsidies for clean energy projects such as offshore wind farms.
A high enough carbon price could lessen the need for such subsidies. in our view it would replace many of those, the electric power supply associations mr snitchler said.
Renewable energy developers support pairing a carbon price with other clean energy policies, not replacing them.
As americas wholesale power markets weather unprecedented turmoil, thoughtful carbon pricing can serve as an effective complement to policies like renewable energy standards which are designed to accelerate the transition to pollution-free, renewable power, said gregory wetstone, chief executive of the american council on renewable energy.