In order to meet New York’s goal to reduce carbon dioxide emissions by 40% by 2030 and 80% by 2050 (relative to 1990 levels), New York ISO (NYISO) will begin to reflect the full cost of carbon dioxide (CO2) emissions in its wholesale electricity market. To this end, NYISO recently introduced a straw proposal to incorporate the cost of carbon to accomplish the following goals:
- Economic efficiency
- Full transparency
- Avoidance of major cost shifts among New York customers
- Market and regulatory stability
The following elements are included in NYISO’s proposed design:
- The cost of carbon emissions could be incorporated into the NYISO-administered wholesale energy market using a carbon price in dollars per ton of CO2 emissions (managed as a part of the settlement). The applicable carbon price would be adjusted for RGGI allowance prices for those suppliers required to hold RGGI allowances.
- Suppliers would embed these additional carbon charges in their energy offers (referred to as the supplier’s carbon adder in $/MWh) and, thus, incorporate the carbon price into the commitment, dispatch, and price formation through NYISO’s existing processes.
- In addition to charging internal generators for their emissions, NYISO would charge imports for emissions and credit exports for avoiding other emissions to prevent the carbon charges on internal generation from causing emissions leakage and costly distortions. Wheel-through transactions would pass through without being subjected to carbon charges – other than the difference between entry and exit points.
- Market participants would have to know, in advance of the day ahead and real-time offer submission deadlines, the applicable charges/credits at each interface so they could be incorporated into offers and bids to compete with internal resources as intended.
- Wheel-through transactions would pass through without being subjected to carbon charges other than the difference between entry and exit points.
- Market participants would have to know the applicable charges/credits at each interface in advance of the day ahead and real-time offer submission deadlines, allowing for their incorporation into offers and bids to compete with internal resources as intended.
- NYISO would debit the LBMP from LSEs for wholesale energy purchases, which would account for the carbon adder of the marginal units. NYISO would also credit the carbon charge residuals (equal to the sum of the carbon charges debited from suppliers) to the LSEs. The methodology would compensate for zonal differences in the carbon component of the LBMP.
The Brattle Group, in its analysis, “Summarizing the Consumer Impact of Incorporating the Cost of Carbon Emissions in the Wholesale Electric Market,” concluded that integrating the cost of carbon will enhance transparency and lead to more innovative solutions as the market absorbs and deals with the new cost. The study also notes that NYISO is at the forefront of expanding its fleet of renewable resources and that incorporating carbon costs into its market will attract more competition.
NYISO has engaged in stakeholder discussions to develop a model that can (a) attain the stated goals of carbon reduction and (b) enhance market liquidity, transmission development, and new-generation projects on both a near-term and forward basis.
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