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Carbon Pricing Aligns Energy Markets and State Policy

September 10, 2018

The New York Independent System Operator (NYISO) is working with stakeholders on a market-based approach, known as carbon pricing, to better align its wholesale markets with New York State’s environmental goals.

Carbon pricing has the potential to enhance the state’s current approach to meeting the goals of the Clean Energy Standard (which requires that, by 2030, 50% of the energy consumed in New York State be generated from renewable resources). Under the Clean Energy Standard, the state purchases clean energy attributes from wholesale energy suppliers outside of the competitive wholesale markets.

Many participants in the wholesale energy markets have asked the NYISO to consider incorporating the social cost of carbon dioxide emissions directly into the wholesale energy market as a means to more efficiently achieve the state’s public policy goals. Under such an approach, cleaner generators that produce little or no emissions could see increased market revenue reflecting both the value of the energy produced and the value associated with avoided carbon dioxide emissions. This concept could create market incentives for investment in new clean energy supply while also encouraging existing dirtier resources to invest in cleaner energy production.

The NYISO is working with policymakers and a diverse group of stakeholders, representing supply and consumer interests, in an open, collaborative, and transparent process to explore the potential benefits of reflecting the social cost of carbon dioxide emissions in our wholesale energy markets. The NYISO believes carbon pricing has the potential to support New York State’s environmental goals without disrupting our commitment to reliably meeting the needs of New Yorkers.

The NYISO is optimistic about the potential for carbon pricing to enhance the state’s approach to reducing carbon dioxide emissions and expanding renewable generation. The next step in this collaborative stakeholder process is to further explore the potential costs of implementing this concept as compared to current out-of-market compensation mechanisms.

NYISO-administered wholesale markets have delivered considerable value for New York. Leveraging the power of markets aligns supplier compensation with public policy goals, enhancing investment signals and improving how the grid operates. Reflecting the social cost of carbon dioxide emissions in the NYISO wholesale energy markets has great potential to benefit consumers, investors, and our environment.

For a more detailed discussion about the changing energy landscape, please see our 2018 Power Trends Report.

We are an independent, not-for-profit corporation responsible for operating the state’s bulk electricity grid, administering New York’s competitive wholesale electricity markets, conducting comprehensive long-term planning for the state’s electric power system, and advancing the technological infrastructure of the electric system serving the Empire State.