Letter to Gordan van Welie, President and CEO of ISO New England - Study Benefits of Carbon Pricing

Letter

Dear Mr. van Welie:

We write to commend your engagement in the integrating markets and public policy (IMAPP) process, through which the New England states are working to better integrate climate change policies into our local energy markets.

Outside of New England, other grid operators have been exploring ways to incorporate carbon pricing into their energy markets. In particular, the New York Independent System Operator (NYISO) commissioned an outside group to study the effects of adding a carbon price into the energy market. The recent NYISO report found that such a policy could help the state meet its climate change policies goals. It also found that rebating collected revenues to customers would result in minimal net cost effects.[1]

The NYISO report builds off recent decisions by Minnesota and Colorado Public Utility Commissions that supported the use of social cost of carbon estimates in evaluating potential infrastructure projects.[2] These PUC rulings were consistent with recent court decisions in this area. In 2014, a federal district judge in Colorado faulted the Bureau of Land Management (BLM) for failing to account for greenhouse gas emissions when it approved an Arch Coal Inc. mine expansion in the Gunnison National Forest.[3] The court ordered BLM to justify its decision to omit the social cost of carbon from its process. Then, in 2016, the U.S. Court of Appeals for the 7th Circuit concluded that pricing carbon externalities through a social cost of carbon is a valid tool for use in a regulatory cost-benefit analysis.[4]

As the use of carbon pricing continues to spread at the state level, we have an opportunity through IMAPP to explore its potential. A recent legal analysis concluded that the Federal Energy Regulatory Commission (FERC) should have "justifiable and defensible" authority under Section 205 of the Federal Power Act to approve an IMAPP proposal related to adding carbon externalities into the New England energy market.[5] FERC may also have the authority to require a carbon adder because the change could help maintain system adequacy and reliability. In addition, the current system may discriminate against carbon-free resources in the absence of a carbon price.[6] Given the progress in other states, we request that the ISO work to commission a similar report to the one released by NYISO.

Thank you for your attention to this matter. We look forward to your continued work in this area.

Source