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New York Releases Report On Introducing Carbon Pricing Into Its Grid

New York state moved a step closer to implementing carbon pricing into its grid last week after releasing a report that investigated the feasibility of introducing a carbon tax.  

The report, which was prepared by research consultancy Brattle Group, proposes establishing a carbon footprint charge for power generating sources. It anticipates a $40 per tonne surcharge by 2025 on electricity sources that add carbon emissions to the atmosphere. But the price increase for customers is expected to be minimal because the system proposes refunding the same back to customers. The report does not envisage replacing existing subsidies for nuclear plants and renewable energy plants.

The study is meant to be a starting point for discussions regarding the inclusion of carbon pricing into electricity charges. It is also meant to spur investment into renewable energy and natural gas plants by utilities. According to the report, a carbon pricing mechanism could  decrease CO2 emissions from the power sector by 2.6 million tonnes every year. Initial reaction to the report has been positive among stakeholders. “Incorporating the value of carbon into the marketplace ultimately benefits ratepayers and demonstrates that private investment is best suite for continued success of New York’s energy markets,” said Gavin Donohue, president and CEO of the Independent Power Producers of New York.

Earlier this year, Columbia Law School’s Sabin Center for Climate Change and Law released a report that provided the framework for this current report. The plan envisages a system in which a fee is added to the price generators bid into the wholesale electricity market and NYISO’s dispatch orders. Power generators are already subject to  the Regional Greenhouse Gas Initiative or RGGI, a cap-and-trade program that requires them to buy emissions credits at auction prices, in the state. But the carbon price levels are too low to make a difference to overall emission levels.  

Three other state grid operators have introduced carbon pricing mechanisms into their grids. Forty countries across the world have also implemented similar initiatives. But the results have been mixed across the board.

For example, Ontario in Canada began introducing renewable energy into its grid through the Green Energy Act in 2009. The system locked in high procurement rates for renewable energy producers through a Feed-in-Tariff (FIT) system back in 2009. Lately, however, there has been an increase in average electricity costs for customers, leading to what the Ontario Energy Minister Glenn Thibeault termed as “sub-optimal” outcomes. In a February interview, he said the system had led to removal of “competitive incentives” for renewable energy producers. He said the government there was planning to move away from targets for specific energy sources to a competitive system, regardless of energy source. Considering the cap-and-trade program that the province put in place earlier this year, fuel sources that emit carbons will become more expensive as compared to fuel sources that do not. The financial recession played spoilsport in Australia’s carbon pricing plan. Then Prime Minister Tony Abbott, who came to power on a pledge to repeal the carbon tax, said it was a “$9 billion a year handbrake on the economy”.  

The Brattle Group report also does not provide comprehensive answers to key questions. For example, it outlines two means - allocating standard charges across zones on a per KwH basis versus implementing varied carbon pricing charges across zones to minimize overall net electricity charges - but does not recommend a given method to return carbon charges to customers. It also does not provide the best method to prevent emissions “leakage” between different electricity markets.


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