Panel: PJM Adds Value in Preparing for Carbon Pricing

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PJM’s mission of ensuring a reliable, affordable grid will benefit from exploring how state carbon-pricing policies could be incorporated into the competitive markets, industry experts said on the General Session panel May 8.

“We face a future with a carbon-constrained economy. Investments today will create legacy infrastructure tomorrow that PJM will inherit,” Dallas Burtraw, senior fellow at Resources for the Future, said in his opening remarks. Resources for the Future is a Washington-based think tank focused on environmental and energy research and policy.

Burtraw said he has seen the ability of markets to drive down emissions in the case of sulfur dioxide, where the industry found innovative, market-driven solutions to limit their costs while meeting new emissions standards. While PJM itself doesn’t have a mandate to set carbon pricing, coordinating with states that are leading the effort to reduce carbon emissions will put PJM in a better position to achieve its primary obligations, he said.

PJM President and CEO Andy Ott said PJM is not attempting to implement a carbon price.

“We’re the data people, the grid operator; we provide analytics. We would show folks what the impact would be,” Ott said. “I think it is of significant value to have this conversation.”

The panel discussion came as stakeholders are embarking on an exploratory task force to study frameworks that could accommodate states’ carbon-pricing polices while mitigating negative spillover effects on surrounding states that have elected not to price emissions. That dynamic, referred to as leakage, occurs when higher-emitting generators, in a region without a carbon price, import energy at a lower price into an area where a carbon price results in higher costs for generators. This displaces lower-emission generation resources and defeats the purpose of a carbon price.

Without a federal mandate, the challenge for PJM will be to find a common set of rules it can apply to all of the 13 states, and Washington, D.C., within its footprint, Burtraw said.

Nichole Bouchez, New York ISO.

One solution would be to constrain imports, but federal laws preclude states from regulating commerce in a discriminatory fashion, he said.

Nicole Bouchez, principal economist, market design, for New York ISO, shared the experience of her one-state organization. There, energy imports are charged and exports are credited to reflect what the exchange would look like if there were no carbon charge.

Several months ago, PJM began studying the impacts of integrating carbon pricing, said PJM’s Anthony Giacomoni, senior market strategist – Advanced Analytics. The analysis will continue in parallel with the stakeholder process, which is expected to run about 18 months.

The study will quantify key impacts of several different options, from a less likely system-wide approach to a subset of states, he said.

“We want to make sure we’re enabling future state policies, regardless of what they might be,” Giacomoni said.

One of the technical challenges, he said, is how to deal with border adjustments between states that have carbon pricing and those that do not. Options include having no border adjustment, adjusting only for imports, or implementing a two-way adjustment that credits exports as well.

Anthony Giacomoni, senior market strategist, PJM.

PJM’s plans for the analysis will be outlined to members Wednesday, May 15, at the Market Implementation Committee meeting. A full report is expected in the summer.

Panelist Ben Grumbles, secretary of the Maryland Department of the Environment, also chairs the Regional Greenhouse Gas Initiative, a nonprofit, cooperative effort among nine states to reduce greenhouse gas emissions.

He urged stakeholders not to lose sight of the goal of reducing emissions as they struggle to devise a framework that fits everyone. In addition, he encouraged them to ensure that customers get their money’s worth for their investments.

Lastly, he said, “Your discussions about carbon pricing need to respect state sovereignty.”

Don Tretheway, senior adviser, market design and regulatory policy, for California ISO, shared that state’s considerable experience with the issue.

“The real complexity comes about when you’re having to dispatch a carbon regime in a non-carbon regime area,” he said. “But I do think it’s solvable.”

Dirk Forrister, president and CEO, International Emissions Trading Association, agreed. Carbon prices have been implemented from Europe to China, and closer to home in Mexico, and in individual Canadian provinces. Regardless of the difficulty in administering such a construct, he said, PJM must be prepared to step in with a tool for states and utilities that are aspiring to curb carbon emissions. “My main message is: Come on in, the water’s fine. A lot of people are doing this.”

Michael Borgatti of Gabel Associates, who introduced the proposal in the PJM stakeholder process that led to the formation of the task force, moderated the panel.

The purpose of the panel discussion – and the task force – is to acknowledge the realities of conversations already taking place among the states, he said.

“This is not a value-judgment discussion,” he said. “It’s just a conceptual discussion of how to get down the road.” In closing remarks, PJM Board of Managers Chair Ake Almgren said that offering states a way to achieve their policy goals fits into PJM’s agnostic market-based solutions. “The information we’ve learned today will help set the stage,” he said, “and also guide the process.”