New England Carbon Pricing

New England Carbon Pricing

The Independent System Operator – New England (ISO-NE) has come up with a creative approach to carbon pricing without necessitating legislative action. For years, stakeholders have tried to integrate the social and environmental costs of fossil fuels into commodity pricing but have made little progress until now.

ISO-NE is responsible for operating the electrical grid in the six New England states. To learn more about what ISO-NE does, check out this Newport Solar post from our Solar Education Center archives.

In recent years, each New England state has set goals for carbon reduction, seeking to reduce emissions by 80% by 2050. A large percentage of carbon emissions come from fossil-fuel based electricity generation; the addition and replacement of power plants with low or zero-emission generation is going to be necessary in meeting these aggressive goals. New England states have driven this process by mandating or encouraging contracts for renewable energy generation outside the ISO-NE market.

ISO-NE wishes to integrate these carbon reduction goals into wholesale electricity markets for the first time in history, thereby combining public policy and electricity markets. This adds a third component to ISO-NE’s operational criteria for the electricity grid, in addition to their current mandate of system reliability and least-cost procurement.   ISO-NE has initiated an IMAPP (Integrating Markets and Public Policy) process to examine how they might account for carbon emissions with respect to energy generation; in essence, they would develop a carbon pricing methodology.

The Conservation Law Foundation (CLF) has developed its own IMAPP proposal to incentivize clean power generation in two ways. First, they propose integrating carbon pricing into the energy market at the Social Cost of Carbon defined by the EPA. An added cost per ton of emissions would make fossil fuel generated power generators costlier to operate than clean energy. Since ISO-NE turns on the cheapest generators first, priority will be transferred from costly carbon-heavy fossil fuel generators to clean energy sources such as solar, wind, or hydropower. The second component of CLF’s proposal is designed to provide an incentive for building new zero-emission generators. Clean power generation would be rewarded with economic compensation that dirty fossil fuel generators would not receive.

The battle to put a price on carbon has been uphill, especially in Rhode Island. U.S. Senator Sheldon Whitehouse and groups such as Energize Rhode Island have tried to establish legislation that would put a tax on carbon emissions for the purpose of addressing climate change; these efforts have been met with stiff opposition.

ISO-NE’s approach could negate the need for further legislative action on carbon pricing; this effort could be the conduit needed to allow for policy driven carbon pricing in New England.