PJM weighs response to state carbon pricing

Source: By Rod Kuckro, E&E News reporter • Posted: Tuesday, February 25, 2020

Participants in the nation’s largest electricity market will meet today to continue weighing the merits of adjusting rules to account for some member states moving to reduce carbon emissions.

The meeting of the PJM Interconnection Carbon Pricing Senior Task Force in Audubon, Pa., will focus on a PJM study looking at the potential effects different carbon-pricing scenarios could have on the region it serves.

The discussions, which began last March, are intended to provide information for policy leaders and stakeholders to use as part of their own deliberations over carbon pricing.

“PJM is not proposing to establish a carbon price,” Stu Bresler, PJM’s senior vice president for market services, said yesterday during an interview.

PJM oversees the transmission grid and power market that deliver electricity to 65 million customers in 13 states in the Mid-Atlantic and parts of the Midwest.

PJM states Delaware and Maryland are also members of the Regional Greenhouse Gas Initiative (RGGI), a regional compact that caps CO2 from electric generators. New Jersey is poised to rejoin this year, and Virginia plans to participate in 2021.

And Pennsylvania Gov. Tom Wolf (D) has directed his administration to put forth a proposal this summer that would have the Keystone State participate, also by next year.

Separately, the New York Independent System Operator has decided to price carbon in its power market, as it could lead to renewable energy development, encourage switching fossil fuel-based heating and cooling systems to electricity, and spur the expansion of electric vehicle charging infrastructure.

The ISO is poised to submit its proposal to the Federal Energy Regulatory Commission, and, if approved, it could spark similar action in other regions, experts say.

The initial results of the PJM study considered a subregion consisting of Delaware, Maryland and New Jersey with other scenarios looking at the inclusion of Virginia, Pennsylvania or both.

Bresler said this latest task force meeting will help answer the question of what should happen if a carbon price were put in place for a portion of the PJM region.

“If PJM were to implement border adjustments within the region, what would it look like as far as the impact” on prices and emissions, he asked.

The border adjustments would deal with so-called leakage, or shifts in generation and related emissions from a regulated jurisdiction, such as Ohio, to a less-regulated area because of differing compliance costs.

Such leakage can drive up emissions in the overall PJM footprint and defeat the purpose of carbon reduction programs, as well as raise prices for consumers, PJM has said.

Ideally, well-designed border mechanisms to mitigate leakage would allow “the states with a carbon price to actually see emissions reductions, and the [states] outside the carbon pricing region” to not experience unreasonable wholesale prices increases, he said.

States participating in RGGI effectively assign a price on carbon, Bresler said.

“So the question is, do our stakeholders want to go down the path of designing PJM wholesale market rules to address the potential for leakage?” he said.

At present, though, CO2 prices in RGGI are so low that “implementing a border adjustment doesn’t do very much,” Bresler said.

He thinks there is “probably a decision point coming up in the next several months” for PJM on whether to craft such a policy.

PJM must decide whether to continue holding meetings to come up with market rules to implement a border adjustment, or hold off until the grid operator sees an increase in the price of carbon allowances in RGGI auctions, he said.

Kevin Sunday, director of government affairs with the Pennsylvania Chamber of Business and Industry, agreed that leakage has to be addressed.

Without a border adjustment mechanism, “we just see higher energy prices and no meaningful regional environmental gains,” he said.

“The big-picture question is, what does this 13-state [regional transmission organization] do if half of the states are in and half the states are out” of RGGI?