Conn. wary of carbon ‘cap and trade’ override
How does the U.S. best set prices and incentives to get power plant developers to meet future demand, and increasingly from clean sources like wind and solar farms?
Federal lawmakers are coalescing around the concept of “carbon pricing” — a tax on emissions — as the most efficient way, with the possibility of elbowing aside the existing “permit to pollute” system, as one official puts it, through which Connecticut and other states have been successfully reducing carbon emissions.
More than 20 years after a carbon pricing bill was first proposed in Congress, the Federal Energy and Regulatory Commission held a hearing last week on how it might roll out the concept nationally if asked to do so, with multiple bills under consideration.
FERC Chair Neil Chatterjee expressed support for the carbon-pricing concept after hearing testimony from officials with ISO New
England, which is charged with overseeing the regional grid, and other independent system operators and energy experts.
Connecticut is part of the Regional Greenhouse Gas Initiative that debuted a dozen years ago, derived from the “cap and trade” concept that limits carbon dioxide emissions by power plants burning fossil fuels. From an initial cap of 188 million tons annually in 2008 when the pact went into effect, those limits have come down in steady increments since to roughly half that level today.
Chatterjee credited RGGI with proving the concept that making polluters pay for emissions can in turn underwrite the cost of renewables like solar arrays and wind farms, creating a virtuous cycle. And he backed the idea of continuing that flow of funding to renewables in any national carbon pricing model, while noting FERC’s mission is centered on maintaining a reliable grid rather than pushing an environmental
agenda.
The commissioner of the Connecticut Department of Energy and Environment Protection told Hearst Connecticut Media that the state is supportive of a national
carbon pricing program, while urging FERC to consider the progress made in efforts like RGGI.
“We know there are many mechanisms that comple
ment carbon pricing programs and help achieve decarbonization affordably,” DEEP Commissioner Katie Dykes stated in an email response to a query. “So long as it is the states alone that have these clean energy goals and mandates, the exclusion of state voices from this discussion is cause for concern.”
But only a few weeks before, Dykes expressed stronger skepticism of the structure of a national carbon pricing program and any partial or full displacement of RGGI’s cap-and trade system, while speaking during an ISO New England web conference that addressed carbon pricing.
”What would happen with the revenues?” Dykes said in midSeptember. “The states that have these policies are making decisions about how the revenues are then reinvested. It’s very important for supporting our other clean-energy programs ... (and) addressing consumer impacts from these programs.”
$240M in 10 years
On Wednesday, electricity market experts told Chatterjee and fellow FERC commissioners that carbon pricing represents a better model. Setting a national carbon-price policy now will eliminate the possibility of emissions “leakage,” the result of power plant operators investing in states with looser emissions policies.
ISO New England runs annual auctions through which power plant developers bid to add generation capacity to fill any projected electricity gap years in advance, based on projections for economic growth and the expected retirement of older plants.
“That would certainly help their decisions when they are making the billion-dollar decisions on what to invest in,” said Matthew White, chief economist for ISO New England. “Investors in new generation facilities face tremendous risk right now over their future costs of carbon compliance and the highly uncertain impact of ever more renewables, when most of those renewables are coming from state policies that could change year to year as state budgets move around.”
At the outset in 2008, the Regional Greenhouse Gas Initiative included the six New England states and New York, along with Maryland, Delaware and New Jersey, which rejoined in January after a three year hiatus. Pennsylvania and Virginia have since moved toward joining up.
Under the initiative, power plants were assigned caps on emissions, but are allowed to purchase excess capacity freed up by rival plants that beat their emission targets. Across 49 such auctions through this month, Connecticut has generated nearly $240 million in proceeds.
For two years the Connecticut General Assembly and former Gov. Dannel P. Malloy siphoned off those funds to address budget shortfalls, including more than 90 percent of the proceeds from 2018. From more than $12 million directed to residential weatherization incentives in 2016, within two years that total had dropped
to $400,000.
Upon taking office,Gov. Ned Lamont recommitted RGGI funds to their original purpose, including supporting a Connecticut Green Bank program to pay for the cost of commercial renewable energy projects through extra assessments on taxes.
Lamont’s emergency budget measures to close a $2 billion gap released Thursday did not specify any transfers from RGGI funds, though the governor is paring $1.1 million from DEEP’s budget including about $50,000 for clean air programs.
“Gov. Lamont is committed to seeing RGGI funds being invested to reduce the burden of energy costs on Connecticut families and businesses, creating jobs in our communities, and reducing the greenhouse gas emissions that cause climate change,” stated Connecticut Green Bank CEO Bryan Garcia, in an email response to a query. “Continuing to invest these resources in our growing green economy is vital to making our great state more resilient to the impacts of climate change.”
At what price?
ISO New England tracked a 31 percent decline in carbon dioxide emissions in the region over 10 years through 2018. As home to New England’s lone nuclear power plants, New Hampshire and Connecticut lead New England on carbon dioxide emissions from power plants, as averaged against megawatt hours of electricity production.
Natural gas generators like the new PSEG Bridgeport plant and CPV Towantic in Oxford have supplanted coal and oil plants like the former Manresa Island Power Plant in Norwalk; and states continue to push efficiency like LED lights and renewables like solar panels.
Dykes said any attempt to blend a new carbon pricing regime with RGGI’s requirements could push costs beyond what households and businesses can bear, with Connecticut bills having shot up this summer amid the coronavirus pandemic and a new power purchase agreement with the owner of the Millstone nuclear power plant.
“Affordability has to be at the forefront of any mechanism, any design to accelerate the deployment of clean energy ... or energy efficiency,” Dykes said. “Our primary concern would be the price that this carbon ‘adder’ ... would push up consumer prices to astronomical levels.”
If Congress and FERC proceed with carbon pricing, the actual price thresholds become “the elephant in the room” confirmed Bill Hogan, who runs the Harvard Electricity Policy Center at Harvard University, speaking Wednesday during the FERC forum.
“If the carbon price is too low, then it doesn’t meet the efficiency objectives and doesn’t internalize the impact on the climate,” Hogan said. “The social, cost-of-carbon estimate is important — and it’s not easy to isolate that number. But it’s not impossible, and we’ve had government task forces in the past that have done it as well as you can do it.”