Western power groups see hurdles on carbon pricing
Regional carbon pricing might be one of the most cost-effective ways for states to hit the CO2 reduction targets in that proposal, providing a price signal for generators to cut emissions without dictating exactly which plants must close. Eastern markets such as the PJM Interconnection expect to attach some type of CO2 price to energy offers to enable compliance with the rule.
But with the exception of California and the budding energy imbalance market it oversees that reaches into the Pacific northwest and the Rockies, the west lacks the market structure and software that could factor CO2 prices into dispatching decisions.
Outside of California's least-cost economic dispatch, centralized clearance platform western utilities mostly rely on bilateral power trades. Long-term arrangements for federal hydropower supply cover a large portion of market needs.
Beyond this "most obvious problem" of the lack of a central market operator in the west, there are also political headwinds against adopting a regional CO2 price, Montana Public Service Commission vice chairman Travis Kavulla wrote in remarks for a technical conference the Federal Energy Regulatory Commission is holding today in Denver about the EPA rule.
Adopting a carbon price would be a "political non-starter," he said, because it would mean states giving up their ability to create a solution that is "politically pleasing to the constituencies that wield power in their states." Another problem, he said, is a common carbon price would require states to ignore divergent compliance costs that EPA has found range from \\$0/ton to \\$62/ton.
California officials are hoping neighboring western states will consider joining its existing carbon market as a way to comply with the Clean Power Plan, given that this would eliminate seams issues and result in more cost-effective emission reductions than California can produce by itself. The state is a net importer of power, particularly from the Pacific northwest.
But the state also recognizes that its neighbors are looking at other compliance methods, California Air Resources Board assistant executive director Michael Gibbs wrote in remarks prepared for the technical conference.
The California air agency is looking at deals with neighboring states that would provide credit for their energy efficiency and renewable energy programs. California also hopes to coordinate metrics for measuring power sector CO2 emissions with states that export into or import power from California, Gibbs said.
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