FERC on Thursday finalized in a 3-2 vote an immediate change in policy to clarify how it plans to consider market rules proposed by regional grid operators that want to incorporate carbon prices into the wholesale market.

FERC

With Republicans James Danly and Mark Christi in partial dissent, the Federal Energy Regulatory Commission finalized the policy statement proposed last fall (No. AD20-14-000). The approved policy took immediate effect.

“Carbon pricing has emerged as an important market-based tool in state efforts to reduce greenhouse gas emissions, including in the electricity sector,” FERC noted. “Twelve states now impose some version of carbon pricing, with numerous additional states considering them. Various entities, including regional grid operators, are examining approaches to incorporating state-determined carbon prices into wholesale electricity markets.”

During a technical conference by FERC held last September on carbon pricing, “participants identified a range of potential benefits from incorporating state-determined carbon pricing into the wholesale markets, including the development of technology-neutral, transparent price signals within the markets.”

The finalized statement “explains that wholesale market rules incorporating a state-determined carbon price can fall within the Commission’s jurisdiction under section 205 of the Federal Power Act (FPA).” FERC now has a “framework…to exercise its jurisdiction when it reviews any future proposals under FPA section 205 while making clear that the Commission will evaluate any proposal based on the facts and circumstances presented in each proceeding.”

FERC noted that the policy does not indicate a “preference for carbon pricing over any other state policy.” Rather, it “affirms that whether and how a state chooses to address greenhouse gas emissions is a matter exclusively within that state’s jurisdiction.”

ClearView Energy Partners LLC analysts in their initial reactions said they did not think the statement “necessarily accelerates the pace of potential carbon price proposals arriving at the Commission.”
Before any carbon price proposals are filed, stakeholders first would have to develop them, “and such debates have been contentious and slow-moving.”

California already has implemented a carbon price in its wholesale market. Beyond California, New York as a single-state market “appears to represent the next best opportunity to test ‘integrating’ state policies into a regional market via carbon pricing policies,” the ClearView team said. “That said, we think it also illustrates the difficulty of finding consensus even among a state’s own policymakers.”

Still, the policy statement, said analysts, may guide “terms of how market operators might position a carbon price in draft tariff language that the Commission could endorse. We will be looking for additional information in the posted text and plan to follow up as appropriate.”