Analysis: Renewable power carbon tax looms in guvs’ “decarbonization” request

Scott, four other NE governors request “decarbonized” power grid yesterday, seven months after regional grid prez seeks consensus for carbon pricing

By Guy Page

October 15, 2020 – Yesterday, five of six New England governors – including Gov. Phil Scott – called for a “decarbonized grid” for New England electricity transmission. Ratepayers will soon know if they want a regional carbon tax, as suggested in March by the president of New England’s power transmission grid operator.

Gov. Scott and the governors of Maine, Massachusetts, Rhode Island and Connecticut – but not New Hampshire – demand that ISO-New England, the regional power grid operator, help them create “a decarbonized grid,” according to a joint statement released yesterday.

The five governors say the grid must be “capable of supporting the accelerated adoption of more sustainable electric, heating, and transportation solutions.” They offer no specific solutions. They decry the current  “market design that is misaligned with our States’ clean energy mandates and thereby fails to recognize the full value of our States’ ratepayer-funded investments in clean energy resources.”

Translated into layman’s language, the governors don’t like that ISO only buys the lowest-cost power available. Carbon-cutting renewable power rarely fits that description. Power plants burning energy-dense natural gas can sell wholesale power for 2-3 cents/kilowatt-hour. By contrast, power from proposed New England offshore wind projects would sell at an estimated wholesale cost of about 20 cents/kilowatt-hour. ISO’s lowest-cost purchasing policy may be welcome to ratepayers but it’s troublesome to states with laws requiring steep carbon reduction.

The same state legislatures that passed the reduction mandates lack the will to enforce them. In their own states, they won’t ban cheap fossil-fuel power, mandate renewable power, or levy a carbon tax on life-essential electricity. Instead the states want ISO-New England to solve their carbon-reduction problems for them, by taxing carbon. 

Gordon van Welie – photo ISO-ne.com

To which ISO-New England CEO Gordon van Welie in effect told the New England states March 6 (see pages 14-16), ‘no problem. But we need your consensus.’ Speaking at a media briefing, van Welie said carbon pricing is “the simplest, easiest and most efficient way” to create wholesale price parity between cheap fossil fuel electricity and “clean energy” power.

He conceded carbon pricing would increase ratepayer spending – in his words, “raise energy market revenues” – but would “favor the operation of resources that reduce carbon emissions, and drive the clean energy transition desired by the states.”

Most carbon pricing schemes charge extra to carbon polluters (in this case oil, gas, and coal-powered electricity generators) and bestow the revenue (after administrative expenses) on energy efficiency and low-carbon power generation providers. Carbon pricing artificially balances the cost of wholesale power. Robbing Polluting Peter to pay Pricey Paul creates at least the appearance of a level playing field. 

Van Welie added that it would be easy to implement, and “effective in helping states meet their renewable energy goals.” There was just one problem, the ISO CEO said March 6: “to date, there has not been a regional consensus on this approach.”

In other words, van Welie told the state’s governors: ye have not, because ye ask not. 

Yesterday, the governors asked for decarbonization. When the “vision statement” promised by the governors materializes, ratepayers in the five states should know for sure if the governors are asking for the carbon pricing suggested by van Welie. It could also seek more intermittent-power friendly transmission infrastructure. Both wind and solar power generate power at the whim of nature, not on demand as do fossil-fuel generators. Think sailboats vs. motorboats.

Three other questions remain unanswered:

1, Will low-carbon hydro and nuclear power benefit from a regional carbon-pricing scheme? Both Vermont Yankee and Pilgrim nuclear power plants closed largely due to their inability to compete in the wholesale power market with natural gas generators. Renewable power advocates typically ignore or downplay the carbon-reduction value of nuclear and hydro. However, a June 2018 statement by Scott and every New England governor except Maine’s suggested nuclear power price supports.

2. Without buy-in from New Hampshire, will ISO regard a request by five out of six governors as “a regional consensus”? Gov. Chris Sununu signed the June 2018 statement but yesterday’s. Like every other New England state, New Hampshire has set carbon emissions reduction goals of 80% by 2050, using 1990 levels as a baseline. However, Sununu has vetoed instate carbon taxation bills. 

3. What would a regional carbon tax mean to Vermont ratepayers? That depends on the amount of the tax, and the ratio of the wholesale energy purchases to other elements of the ratepayer bill (other regional charges, state taxes, energy efficiency surcharges, powerline maintenance, etc.). Most carbon tax schemes start relatively small in the first year or two, to avoid “sticker shock” and to determine effectiveness in reducing carbon. If emissions remain high, it’s seen as a reason to increase the ‘pollution tax.’

Photo: Block Island Wind, a Rhode Island off-shore wind project