PJM Outlines Plan to Study Market Effects of Carbon Pricing

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PJM is studying the potential impacts of carbon pricing on the competitive wholesale energy market to inform the decision makers across the region who are considering climate policies.

Gary Helm, lead market strategist – Applied Innovation, outlined the study for members of the Market Implementation Committee May 15.

PJM is not proposing to establish a carbon price, Helm said. PJM’s interest is in maintaining grid reliability and keeping the markets competitive amid external influences.

Some carbon pricing already flows through the market related to the Regional Greenhouse Gas Initiative, a nonprofit cooperative effort among nine states to reduce greenhouse gas emissions – but it’s not significant enough to impact dispatch operations or create cross-border issues, Helm said.

The study will look at a scenario in which a significant carbon price is imposed on a regional or sub-regional level for the 13 states and the District of Columbia covered by PJM, and how that would impact dispatch and emissions.

PJM recognizes the states’ responsibility to develop environmental and energy-resource policies. PJM believes the most efficient way to enable state policies aimed at reducing carbon emissions from power plants is to reflect the cost of carbon in wholesale energy market prices.

The study is being conducted in tandem with the work of a new senior task force. The task force will study frameworks that could accommodate states’ carbon-pricing policies while mitigating negative spillover effects into surrounding states, while preserving orderly and competitive economic dispatch of generation resources across PJM’s 13-state footprint. States’ greatest concern is the prospect of “leakage” – when higher-emission generators from regions without a carbon price import cheaper energy into an area with a carbon price, putting lower-emission generators at a disadvantage and defeating the purpose of a carbon price.

The study will review the impacts of a carbon price on PJM’s energy and ancillary service markets, both across the entire system and at a sub-regional level. On a sub-regional level, PJM will look at the likely grouping of Delaware, Maryland and New Jersey. Delaware and Maryland already participate in the Regional Greenhouse Gas Initiative, and New Jersey is considering joining.

The review will address the energy market, not the capacity market.

Helm introduced the variables to be used in the study to address leakage, including three border-adjustment approaches: no price adjustment for imports/exports, a one-way adjustment on imports into a carbon-pricing region, and two-way border adjustments.

The base price it will use is the social cost of carbon for 2023, which is $52.79 per ton of carbon dioxide.

The study builds on the work of a whitepaper PJM released in 2017 that explored approaches to carbon pricing.

Carbon pricing also was the subject of the General Session panel at the Annual Meeting May 8. Participating industry experts said PJM’s mission of ensuring a reliable, affordable grid will benefit from considering how carbon-pricing policies could be integrated into the competitive market.

Capacity Interconnection Rights

Also at the meeting, members discussed whether to update an existing issue charge examining PJM’s must-offer exception process to consider whether and how any resource should relinquish unused Capacity Interconnection Rights.  

It was decided that a representative from the Public Power Coalition will take the lead on drafting a new problem statement and issue charge, which is expected to be heard in June by the Markets & Reliability Committee.

The issue was raised in April when the Markets & Reliability Committee endorsed reforms to the must-offer exception process, which governs how resources request an exemption from offering into the capacity market. Those revisions document a process for generation capacity resources to voluntarily request a status change to energy-only, with rules regarding the loss of capacity interconnection rights.