Carbon Pricing Initiatives Page

This page was originally set up to consider the New York Independent System Operator (NYISO) Carbon Pricing Initiative but it now includes all my posts on carbon pricing including the Hochul Administration’s proposal to implement a cap and invest program.

New York has goals to substantially reduce CO2 emissions. The Climate Leadership and Community Protection Act has targets to reduce GHG emissions to 60 percent of 1990 emissions levels in 2030, generate zero GHG emissions from electricity production by 2040; and ensure GHG emissions are less than 15 percent of 1990 emissions levels in 2050, with offsets to reduce net emissions to zero. Historically Renewable Energy Credits (RECs) and Zero-Emission Credits (ZECs) have been used to subsidize non-CO2 emitting sources. However, these are difficult to implement so the NYISO has proposed a carbon-pricing initiative. The Brattle Group prepared an analysis to determine whether incorporating a state policy defined cost of carbon in the wholesale market would improve the overall efficiency of the New York Independent System Operator (NYISO) energy and capacity markets.

The theory of carbon pricing is discussed in a Brattle presentation. It could internalize environmental costs and foster competition to meet energy and environmental goals cost effectively by putting a price on carbon dioxide emissions in the wholesale market. The plan is to set a cost of carbon and add that charge to the wholesale price so that CO2 emitters pay for their societal impacts. However, the devil is in the details and there are few critical voices participating in the process.

Advocates for cap and dividend programs claim that “they will make corporate polluters pay their fair share, ensure compliance with emission reduction goals, and fund beneficial investments. They do not acknowledge that there are limitations to the claims and that they conflict with each other. It is magical to think that the fees imposed will not impact consumers even if “corporate polluters” pay. The idea that setting a limit on pollution will necessarily result in pollution reductions is naïve because eliminating GHG emissions is more difficult than acknowledged. Danny Cullenward and David Victor’s book Making Climate Policy Work note that the level of expenditures needed to implement the net-zero transition vastly exceeds the “funds that can be readily appropriated from market mechanisms”. They don’t expect that a carbon tax can fund the necessary infrastructure to reduce emissions but advocates claim that the revenues wll funds for beneficial investments. Observations of existing programs described here indicate that these programs will not work as advertised.

Because there are not many critical voices I describe my understanding of the basis of the rationale for a carbon price and explain some of the complexities associated with implementing such a program. New York State energy planning is trying to choose between many expensive policy options like pricing carbon in the electric sector while at the same time attempting to understand which one (or what mix) will be the least expensive and have the fewest negative impacts on the existing system. If they make a good pick then state ratepayers spend the least amount of a lot of money, but if they get it wrong we will be left with lots of negative outcomes and even higher costs for a long time.

Recent New York Cap-and-Invest Discussion Posts