FERC's Technical Conference to Focus on a Carbon Tax
All eyes are on how Supreme Court picks, presidential candidates and Congress may impact energy and climate policy. But a more technical conversation this week marks a significant milestone in our nation’s efforts to reconcile economic, environmental, and energy reliability goals.
The Federal Energy Regulatory Commission (FERC), which oversees U.S. electricity generation and power markets, will hold a day-long conference to discuss a solution that most economists, businesses, advocates, and even owners of carbon-emitting power plants agree is the surest, fastest, and most cost-effective way to reduce carbon emissions while preserving innovation and competition: putting a price on carbon.
Specifically, FERC will look at the impacts of carbon pricing in the wholesale electricity markets it regulates— a conversation that will delve into the complex web of regulations, policies, and legal precedents that determine how those market rules might account for carbon emissions.
To date, competitive power markets have transformed the U.S. grid, opening the door to innovation, greater efficiency, cost-savings, and investment in new technology. The success of these markets reflects the goals of legislation enacted in 1992 that broke up many state-regulated, vertical utility monopolies over electricity, allowing independent generators and power providers to compete to sell electricity. FERC then began to break down barriers to trading electricity within regions and then to impose reliability requirements on generators and transmission companies.
Concurrently, states began to develop their own approaches to incentivize certain types of generation or place limits on greenhouse gas emissions. These different sets of state, regional, and federal regulations co-exist without necessarily being compatible and drive up power costs without efficiently meeting their emissions reductions goals. And recent events in Ohio and Illinois have shown that state and local politics around these energy policies and subsidies open the door to corruption and rent seeking, putting political influence ahead of consumers and the environment. All that is without mentioning that large amounts of U.S. generation owned by the federal government or municipalities are not subject to the regulations imposed on investor-owned utilities or independent generators.
The electricity markets are crying for something new to untangle this Gordian knot.
That is why FERC’s upcoming technical conference on carbon pricing is attracting so much attention. To date, FERC authority has been limited to the regulation of electricity transmission and price of generation and has not included the consideration of environmental impacts of electricity regulations.
But, in the coming decades, environmental issues will be a core public interest with regard to electricity regulation. And carbon pricing is both the most efficient means to reduce carbon pollution and the means of regulating carbon pollution that falls the closest to FERC’s current purview. Rather than choosing fuels or technologies, carbon pricing appropriately targets the central issue—carbon—while leaving all current and future solutions on the table to reduce it.
While there is a great deal of interest in the outcomes of FERC’s technical conference and the path forward, cautious optimism should perhaps be the right posture. That said, the potential is tremendous.
It is vital to remember that a national policy could eliminate the need for countless costly and inefficient state, regional, and federal policies and subsidies and bring relative harmony to electricity markets nationwide. And that new market, because it would value low-carbon electricity generation, would incentivize large amounts of new resources, competitively procured – keeping costs transparent and low and meeting reliability requirements. Remarkably, power generators and investors largely support this path because they could compete on a level playing field and would have the certainty and incentives needed to retire higher emitting, higher cost plants and invest in lower-carbon resources.
The time is ripe to reinvigorate the carbon pricing conversation. FERC’s willingness to cautiously consider the matter will move all parties forward. And, most importantly, it is a sign of leadership and changing times.
Alex Flint is the executive director of the Alliance for Market Solutions.
Todd Snitchler is the president and CEO of the Electric Power Supply Association, which represents U.S. competitive power suppliers.