Dive Brief:

Introducing carbon pricing into competitive wholesale power markets could provide billions of dollars in net economic benefits, the New York Independent System Operator (NYISO) said Thursday.

A NYISO-commissioned report by the Analysis Group concludes a carbon price could help New York's electric sector reach zero emissions by 2040 up to $850 million more cheaply than a business-as-usual case, through market efficiencies and investments in clean energy technologies. The state's Climate Leadership and Community Protection Act (CLCPA) was enacted less than four months ago and established the zero emissions by 2040 goal.

NYISO officials say the earliest a carbon price could be implemented in New York energy markets would be mid-2021, due to the approval process and technical challenges, along with the need to provide more time to related markets that could be impacted.

Dive Insight:

The cost to comply with New York's landmark carbon legislation is an "astounding number" that was so high that it was left it out of the final analysis for fear it would be a distraction, according to the report's author. Regardless, they say, placing a price on carbon will cut the cost.

"If New York doesn't put a price on carbon, it is missing out [on] an opportunity to have its markets really harnessed and pushing for the goal," Sue Tierney, Analysis Group senior advisor and co-author of the ISO's carbon pricing analysis, told Utility Dive.

There were other reasons to omit a total cost of compliance figure, including uncertainty over a wide range on the final figure. And because the CLCPA is so new and its goals so aggressive, there is less certainty regarding prior analyses of a potential carbon price, Tierney said.

Tierney's analysis was in progress when the law was enacted. "We changed our focus, to how such a carbon pricing mechanism could get the goals of the act accomplished in the most efficient form," she said.

The broad takeaway from the report, she stressed, is that a carbon pricing proposal will save New Yorkers money.

"Accuracy is a tough question," Tierney said, addressing potential savings. The report developed different ranges based on previous research by Brattle and Potomac Economics. But because New York lawmakers passed the CLCPA after those carbon-price studies were completed, Tierney says it is difficult to peg specific numbers.

"Even with this caveat, we observe that previous studies indicate that a carbon price will lead to billions of dollars of positive economic benefits," the report said.

By one measure, the analysis indicates that a carbon price would result in a net present value of benefits to consumers between 2022 and 2036 ranging from $1.72 billion to $3.25 billion, based on calculations from Potomac's analysis.

The report concluded New York can leverage the ISO markets to add renewable energy called for in the new law, including 6 GW of solar by 2025 and 3 GW of storage capacity by 2030.

A carbon price "can spur faster access to sufficient revenue certainty, with local pricing incentives to site such projects in downstate locations, and with potential savings deriving from market efficiencies" the report found. Tierney estimated the net present value of market efficiency savings ranging from $280 million to $850 million between 2022 and 2040.

But the report adds, "this estimate is likely conservative, based on the unrealistically low assumption — given the decarbonization and electrification aspirations under the CLCPA — of a business-as-usual outlook for electricity demand."

ISO officials clarified they do not intend to move ahead with a carbon pricing proposal absent support from New York Gov. Andrew Cuomo, D. The proposal would also need ISO stakeholder approval before heading to the Federal Energy Regulatory Commission.