New York Carbon Cost Charge

The New York Department of Public Service and the New York Independent System Operator (NYISO) issued a joint statement reporting on an independently conducted study that has put forth suggestions for ways the state can (1) address carbon reduction, (2) incentivize future generation investments, (3) meet renewable energy and other related state public policy goals, (4) achieve appropriate fuel/resource diversity, and (5) maintain grid reliability.

The consultant's findings indicate that presently, the wholesale electricity markets operated by NYISO are not aligned with the state's "decarbonization" objective.

The authors wrote that while the wholesale markets are intended to provide electricity reliably and cost-effectively, the costs considered in the markets do not include the cost of carbon emissions- except as conveyed through a special Regional Greenhouse Gas Initiative (RGGI) pricing mechanism, which is currently quite low. The study warns that by not internalizing environmental costs, New York's markets do not comport with the state's carbon reduction goals.

One recommendation the authors made is aimed at introducing a carbon pricing initiative. The consultant admits that a similar action is already part of the existing RGGI program, but the authors said that the carbon price levels are too low to support New York's objectives.

Instead, the report suggests that NYISO could incorporate a higher carbon price into its energy market by adding a charge to a resource's costs based on its emissions rate and a price-per-ton established by the Public Service Commission. According to the report, higher carbon prices would drive competition from low-cost sources of carbon abatement and consequently reduce the total economic cost of meeting New York's decarbonization targets.

Moreover, the report maintains that increased electric prices would actually provide a stronger market signal than current RGGI prices, thereby rewarding efficiency improvements across the fossil fleet, incentivizing conservation and energy efficiency, and encouraging storage and other technologies that can reduce emissions and lead to other market responses.

The authors argue that while the effects of a price increase are difficult to predict, their analysis indicates that imposing a $40/ton carbon charge would have a relatively small impart on customer costs.