CEI Comments on FERC Proposed Wholesale Carbon Pricing Policy

Thank you for the opportunity to comment on the Federal Energy Regulatory Commission’s proposed policy statement on carbon pricing in wholesale electricity markets organized by regional trading organizations (RTOs) and independent system operators (ISOs).[1]

Summary

The Commission does not clearly explain the rationale for wholesale carbon pricing. Fortunately, the Institute for Policy Integrity (IPI) provides a clear explanation. The central idea is that electricity markets are “inefficient” due to “market failure.” IPI thus recommends that RTO/ISO markets incorporate carbon prices based on the Obama administration’s 2016 Interagency Working Group (IWG) report on the social cost of carbon (SCC). IPI argus that SCC-based carbon pricing will make U.S. electricity markets more “efficient.”

My comments show that:

• The IWG report was politicized by agencies’ reliance on structurally biased integrated assessment models (IAMs), dated climate parameters, accounting gimmickry, and unreasonable depreciation of human adaptive capabilities.
• SCC estimation is a highly speculative enterprise, and SCC estimates vary substantially depending on reasonable alternative assumptions.
• A recent peer-reviewed study finds that when a leading IAM is re-run with updated empirical data on climate sensitivity and carbon dioxide fertilization, the social cost of carbon drops to very small numbers, with a 40 percent probability of being negative, through the mid-21^st century. A negative SCC is another way of saying a net benefit.
• Even if the IWG’s SCC estimates were objective, wholesale carbon pricing would make electricity markets less—not more—efficient, for three reasons:
  • Carbon pricing would overlay, not replace, other climate policies. Adding costs to excessively costly policies only increases inefficiency.
  • Pricing carbon in regional markets in one segment of one sector is all pain for no gain. The benefit-cost ratio of the Commission’s proposal is abysmal. That is not efficient.
  • Not only free marketers but also UN-affiliated climate experts believe energy- and resource-intensive development can achieve the highest levels of human flourishing over the 21^st century. If energy- and resource-intensive development is the most efficient social policy, how can any coercive decarbonization scheme truly be efficient?

Read the full comments here.