Here are six key items to be aware of today concerning FERC Carbon Pricing Policy:
1. FERC issues Policy Statement on carbon pricing. On October 15, 2020, during a FERC webcast technical conference on "Carbon Pricing in Organized Wholesale Electricity Markets," FERC issued a Policy Statement signaling its authority to review and approve ISO and RTO incorporation of carbon pricing programs into their rate structures.
2. Commissioners have expressed mixed views on carbon pricing. Following on this October conference, former FERC Chairman Neil Chatterjee (a Republican) indicated his view that there was "consensus and enthusiasm" for carbon pricing as a market-driven solution to climate change. Commissioner James Danly outlined a more conservative response, especially concerning whether FERC has the authority and jurisdiction to review and comment on grid operators' carbon pricing measures under the Federal Power Act. At that time, Commissioner Glick noted that, "if finalized, the policy statement would provide states with the confidence that FERC would not deny state-led efforts to price carbon"; that said, Glick at that time also rejected the idea of focusing solely on "byzantine administrative pricing."
3. Commissioner Glick has previously signaled that carbon pricing alone must be balanced with broader goals on climate. Commissioner Glick has noted that carbon pricing could have the effect of wiping out state-level decisions in wholesale markets, that price-setting could be an issue as, on the one hand, "obviously some states might react negatively" to a price that is too high, and on the other, if the price were too low it would not cause any changes to state level decisions as states would view it as "a carbon price that [they] don't think is going to have a significant impact." Notably, Commissioner Glick has espoused support for transmission line construction and grid modernization as key in concert with carbon pricing: "Even with carbon pricing, and maybe because of carbon pricing, you're going to have to figure out a way to access areas where we have significant and very efficient clean energy resources."
4. The Biden Administration has made climate change and decarbonization a central part of its initial policy actions. These include rejoining the Paris Agreement, signaling a regulatory review of Trump-era policies to ensure consistency with the Biden Administration's climate policies, and issuing an executive order that calls for a "carbon pollution-free electricity sector no later than 2035." And FERC alumni are pushing for change as well - on January 28, 2021, bipartisan group of nine former FERC commissioners released a statement encouraging transmission reform as part of President Biden's push for decarbonization and climate change mitigation.
5. Eleven states have adopted carbon pricing in some form, and regional transmission organizations are moving in that direction as well. For example, NYISO is advancing a plan to set a carbon price, and PJM Interconnection is studying whether carbon pricing could work in its markets. If any carbon pricing proposals were approved by FERC during Chairman Glick's tenure, such proposals likely will begin in RTOs/ISOs that do not cover multiple state regulatory jurisdictions, ones like NYISO. ISOs like PJM that cover multiple states will confront more difficult coordination issues when endeavoring to set a price on carbon.
6. Any FERC action on carbon pricing will likely be part of a broader set of regulatory actions. Given the prior statements of Commissioner Glick, the fact that Commissioner Glick will still need to work within a Republican-majority at FERC for at least the next six months, and the Biden Administration's broader push on climate and decarbonization policies, if FERC further develops carbon pricing, it likely will be in the context of a broader set of regulatory actions, including most notably transmission build-out and a revisiting of the Minimum Offer Price Rule, to which Commissioner Glick has indicated strong opposition in the past, including with respect to its interaction with carbon pricing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
