A Framework for Carbon Pricing

The New York League of Conservation Voters recently joined Carbon Free New York, a coalition of various organizations that supports implementing a social cost of carbon dioxide (CO2) to help decarbonize New York’s electricity sector.

Carbon Free New York supports carbon pricing because it can mitigate climate change, protect public health, and continue to ensure that states can set individual clean energy policies and goals. This plan would help New York meet the objectives of the Climate Leadership Community Protection Act (CLCPA), which requires the State to have 70% renewable energy by 2030 and 100% clean energy by 2040. New York’s current carbon emissions are responsible for one out of every 230 tons of emissions worldwide. These emissions have a dramatic impact on climate, increasing global temperatures and the frequency of severe storms. Fossil fuel emissions also have consequences for public health, including higher rates of asthma and certain cancers.

The framework for carbon pricing is based on a proposal from the New York Independent System Operator (NYISO), which administers New York’s wholesale power market. This proposal, which persuasively argues that carbon pricing is one of the fastest and most cost-effective tools for meeting our clean energy targets, would require four basic steps for it to be implemented:

  1. New York State would set a to-be-determined consistent cost of carbon (in price/ton of CO2 emitted), equivalent to the estimated environmental damage.
  2. Polluters (power plants) pay for the emissions that they are responsible for when they bid into the wholesale energy market, making their electricity more expensive and effectively making clean energy less expensive.
  3. The money raised from dirty energy production is split several ways, including as rebates to ratepayers so that they are not paying higher energy bills and awards to clean energy producers.
  4. Consumers receive the benefits from the polluter payments. According to Resources for the Future (RFF), by 2025, carbon pricing would lead to benefits up to $691 million annually.

This market-based model for decarbonizing the electricity sector has a wide range of benefits. According to the NYISO report, this carbon pricing system would:

  • Reduce the cost of achieving 100% carbon-free emissions by 2040 and 70% renewable energy by 2030, as outlined by the CLCPA.
  • Accelerate investment in renewable energy.
  • Increase energy efficiency and green advancements in current fossil fuel energy generation technologies.
  • Limit dependence on power plants with high emissions, alleviating public health risks.
  • Maintain and strengthen New York’s status as an environmentally-driven state and leader in climate change mitigation and adaptation.

Before carbon pricing can be introduced, approval must be obtained from the Federal Energy Regulatory Commission (FERC). Then, New York could set the price of carbon and fully implement the structure within two years.

Recently, FERC took steps to limit the State’s ability to subsidize renewable energy and energy storage. Not permitting these subsidies allows fossil fuel companies to continue to grow and benefit. However, carbon pricing may be better positioned to obtain FERC’s approval while still reducing emissions.

For all of these reasons, NYLCV supports this plan to implement carbon pricing in the energy market. There’s a lot of uncertainty in policy-making right now, but we hope that all stakeholders will be able to come together soon to discuss the benefits of carbon pricing in more depth.