Dive Brief:

• PJM Interconnection last week published a white paper focused on carbon pricing, examining ways state policies can effectively work alongside competitive regional wholesale markets.
• The grid operator for much of the Mid-Atlantic says market design can advance state policy initiatives, adapt to the changing grid and ensure competitive markets continue to function.
• PJM believes a "uniform footprint-wide carbon price" is the most efficient and cost-effective approach, and the paper examines how regional and subregional carbon pricing could be implemented.

Dive Insight:

The paper PJM published last week is the latest in a series of analyses that seek to align competitive markets with public policies that might show a preference for cleaner generation, or seek to keep a legacy power plant online.

"A uniform footprint-wide carbon price is the most efficient and cost-effective approach because it would continue to capitalize on the economies of scale of PJM’s footprint-wide economic dispatch and the region’s resource diversity," the grid operator said in a blog post. However, because states in the PJM footprint do not share the same perspective on carbon, the operator also believes a "coordinated carbon policy could be advanced through the PJM markets by a subregion of states prepared to adopt a common set of business rules."

The paper examines how regional and subregional carbon pricing could be implemented within the PJM system. According to the paper, the carbon price would: apply to carbon-emitting suppliers on a per-ton basis and be reflected in offers; be revealed in wholesale market prices in the participating region or subregion; and would align with economic dispatch

In June, PJM released four papers focused on market design, including proposals to address state subsidy issues, a proposal to integrate carbon prices into power markets and a proposal for two-part capacity market auctions. Another paper addressed price formation in PJM’s energy market.

Generators have complained that "around-market" policy goals drive down power prices, potentially forcing unsubsidized fossil fuel plants offline. Earlier this year, the issue was the subject of a technical conference at the Federal Energy Regulatory Commission. Stakeholders were largely unable to agree on a solid set of reforms, but a consensus emerged over the need to price carbon in wholesale markets.