Building on its recent discussions with stakeholders, FERC on Thursday unveiled a proposed policy statement on its role in regulating state-led efforts to price carbon emissions in wholesale electricity markets, signaling its openness to moving forward with future proposals.
The move comes after the Federal Energy Regulatory Commission convened a technical conference on the subject earlier this month. The participants at the conference, including representatives from the natural gas industry, brought forward a “diverse range of potential benefits” associated with integrating state-determined carbon pricing into regional electricity markets, according to the Commission.
“As states actively seek to reduce greenhouse gas (GHG) emissions within their regions, carbon pricing has emerged as an important, market-based tool that has wide support from across sectors,” FERC Chairman Neil Chatterjee said.
“The Commission is not an environmental regulator, but we may be called upon to review proposals that incorporate a state-determined state carbon price into these regional markets. These rules could improve the efficiency and transparency of the organized wholesale markets by providing a market-based method to reduce GHG emissions.”
FERC’s policy statement is designed to clarify its jurisdiction over wholesale electric markets that incorporate state-determined carbon pricing. The Commission also is seeking to “encourage regional electric market operators to explore and consider the benefits of establishing such rules.”
The Natural Gas Supply Association (NGSA), which expressed support for carbon pricing during the recent technical conference, commended FERC’s decision to move forward with a policy statement.
“Chairman Chatterjee demonstrated outstanding leadership in bringing carbon pricing up for discussion before the Commission and we are delighted that he continues to advance the issue with bipartisan support,” NGSA CEO Dena Wiggins said. “We believe carbon pricing is a critical policy for securing a clean, reliable and affordable energy future.”
NGSA Executive Vice President Pat Jagtiani added that the move “sends a clear signal” to grid operators, states and other stakeholders, showing the Commission’s “willingness to consider proposals that include carbon pricing. A price on carbon is the most effective long term solution in power markets, enabling states and regions to achieve carbon reductions without compromising competitive power markets and the benefits they’ve provided to customers.”
By FERC’s count, 11 states currently impose some version of carbon pricing, and regional market operators have been among the other entities looking at this approach to mitigating GHG emissions.
“Participants at the technical conference said carbon pricing is an example of an efficient market-based tool to incorporate state public policies into regional markets without diminishing state authority,” according to FERC.
Under the proposed policy statement, FERC would establish that regional market rules incorporating state-determined carbon pricing could fall under its jurisdiction over wholesale rates in the power sector. However, whether or not a given proposal falls under its jurisdiction will depend on the facts and circumstances specific to that case, the agency said.
Still, whether or not any carbon pricing proposals advance at FERC could depend on what happens after the Nov. 3 election, according to analysts at ClearView Energy LLC.
“As we have discussed in the past, we think the prospects of FERC’s adoption of carbon prices in restructured markets are election-sensitive,” the firm said in a note to clients Thursday. “If former Vice President Joe Biden wins the November election, we think a FERC with a Democratic majority…would be more inclined to approve carbon pricing proposals than one with a Republican majority in a second Trump term.”
The Commission is seeking comments on its potential reviews of carbon price proposals and the potential impacts of such proposals on electricity markets. FERC set a 30-day deadline for submitting comments on its proposed policy statement, with another 15 days allotted for reply comments.
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