Carbon Pricing in Organized Wholesale Electricity Markets, 21714-21722 [2021-08218]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 86, Number 77 (Friday, April 23, 2021)]
[Notices]
[Pages 21714-21722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08218]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD20-14-000]


Carbon Pricing in Organized Wholesale Electricity Markets

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of policy statement.

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SUMMARY: The Commission is issuing this Policy Statement to clarify how 
it will approach filings under section 205 of the Federal Power Act 
that seek to incorporate a state-determined carbon price in organized 
wholesale electricity markets.

DATES: This Policy Statement is effective April 15, 2021.

FOR FURTHER INFORMATION CONTACT: 
John Miller (Technical Information) Office of Energy Market Regulation, 
(202) 502-6016, [email protected]
Adam Pan (Legal Information) Office of the General Counsel, (202) 502-
6023, [email protected]
Alan Rukin (Legal Information) Office of the General Counsel, (202) 
502-8502, [email protected]

SUPPLEMENTARY INFORMATION:
    1. On September 30, 2020, the Commission convened a technical 
conference on state-determined carbon pricing in organized wholesale 
electricity markets operated by regional transmission organizations and 
independent system operators (RTO/ISO) (Carbon Pricing Technical 
Conference). As discussed further below, the record in this proceeding 
identified numerous potential benefits of incorporating a carbon price 
set by one or more states into RTO/ISO markets.\1\ On October 15, 2020, 
the Commission issued a Proposed Policy Statement, and sought comments 
on whether the information and considerations discussed in the Proposed 
Policy Statement are appropriate for the Commission to take into 
account or whether the

[[Page 21715]]

Commission should consider different or additional considerations.\2\ 
After considering those comments, we issue this Policy Statement to 
explain how the Commission will approach filings submitted pursuant to 
Federal Power Act (FPA) section 205 \3\ that propose RTO/ISO market 
rules that incorporate a state-determined carbon price.
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    \1\ Panelists that participated in the Carbon Pricing Technical 
Conference were invited to submit for the record before the 
conference their choice of testimony in the form of prepared opening 
remarks, detailed written comments, or both. Any submitted panelist 
testimony was posted to eLibrary in this docket on October 5, 2020, 
and a transcript of the conference was posted on October 30, 2020.
    \2\ Carbon Pricing in Organized Wholesale Electricity Markets, 
85 FR 66965 (Oct. 21, 2020), 173 FERC ] 61,062 (2020) (Proposed 
Policy Statement).
    \3\ 16 U.S.C. 824d.
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I. Proposed Policy Statement and Comments

    2. On October 15, 2020, the Commission issued the Proposed Policy 
Statement. In the Proposed Policy Statement, the Commission identified 
certain information and considerations that the Commission believed, 
based on the record of the Carbon Pricing Technical Conference, may be 
germane to the Commission's evaluation of an FPA section 205 filing to 
determine whether an RTO/ISO's market rules that incorporate a state-
determined carbon price into RTO/ISO markets are just, reasonable and 
not unduly discriminatory or preferential. The Commission sought 
comments on whether the information and considerations discussed in the 
Proposed Policy Statement are appropriate for the Commission to examine 
or whether the Commission should consider different or additional 
considerations.\4\
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    \4\ Proposed Policy Statement, 173 FERC ] 61,062 at P 16.
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    3. Initial comments were due on November 16, 2020, and reply 
comments were due on December 1, 2020. The attached Appendix identifies 
the names of those that submitted comments.\5\
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    \5\ This Appendix will not be published in the Federal Register.
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II. Policy Statement

    4. This Policy Statement explains how the Commission will approach 
rate filings submitted under FPA section 205 to establish market rules 
for incorporating a state-determined carbon price into RTO/ISO 
markets.\6\ In so doing, we identify a non-binding list of potential 
considerations that the Commission may use to evaluate such a filing to 
establish market rules for incorporating a state-determined carbon 
price into an RTO/ISO market. The Policy Statement makes clear that the 
Commission will determine whether the filing meets the FPA section 205 
standard based on the particular facts and circumstances presented in 
that proceeding. We believe that this discussion will help RTOs/ISOs 
and stakeholders considering the value of establishing wholesale market 
rules that incorporate a state-determined carbon price and help RTOs/
ISOs to make appropriate filings with the Commission if they seek to 
implement such rules.
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    \6\ While RTOs/ISOs typically hold FPA section 205 filing rights 
to change RTO/ISO market rules, the Commission recognizes that in 
some regions other entities may hold such FPA section 205 filing 
rights. The Commission intends for this Policy Statement to apply to 
FPA section 205 filings submitted by any holders of FPA section 205 
rights to change RTO/ISO market rules.
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    5. This Policy Statement addresses only filings pursuant to FPA 
section 205.\7\ In addition, as this is a policy statement, it provides 
only a general expression of our policy. It does not establish any 
binding rule, regulation, or other precedent.\8\ When this Policy 
Statement is applied in specific cases, parties can challenge or 
support the application of this Policy Statement in those 
proceedings.\9\
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    \7\ This limitation is unchanged from the Proposed Policy 
Statement, but we reiterate this point here in response to certain 
comments requesting clarity on whether the Policy Statement has any 
bearing on proceedings initiated pursuant to FPA section 206. See, 
e.g., MISO Nov. 16, 2020 Comments at 5; R Street Nov. 16, 2020 
Comments at 1-2.
    \8\ See Pac. Gas & Elec. Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 
1974) (``A general statement of policy is the outcome of neither a 
rulemaking nor an adjudication; it is neither a rule nor a precedent 
but is merely an announcement to the public of the policy which the 
agency hopes to implement in future rulemakings or adjudications.'') 
(footnote omitted).
    \9\ See Inquiry Regarding the Commission's Policy for Recovery 
of Income Tax Costs, 164 FERC ] 61,030, at P 6 (2018), order 
dismissing clarific'n, 168 FERC ] 61,136 (2019).
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A. Background on State Emissions-Reduction Policies and Commission-
Jurisdictional RTO/ISO Markets

    6. States are currently taking a leading role in efforts to address 
climate change by adopting policies to reduce greenhouse gas (GHG) 
emissions. The electricity sector is a frequent focus of those 
policies. Several states have adopted laws or regulations that require 
substantial or total decarbonization of the electricity sector in the 
coming decades.\10\ Many others have adopted goals or targets to the 
same effect.\11\
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    \10\ Thirteen states--California, Hawaii, Maine, Maryland, 
Massachusetts, Nevada, New Jersey, New Mexico, New York, Oregon, 
Vermont, Virginia, and Washington--and the District of Columbia have 
adopted clean energy or renewable portfolio standards of 50% or 
greater. See C2ES, U.S. State Electricity Portfolio Standards, 
https://www.c2es.org/document/renewable-and-alternate-energy-portfolio-standards/; see also Database of State Incentives for 
Renewables and Efficiency, https://programs.dsireusa.org/system/program?type=38&.
    \11\ For example, a number of states--including Colorado, 
Connecticut, Nevada, Rhode Island, and Wisconsin--have established 
100% clean electricity goals or targets by executive order or other 
non-binding commitment. See Natural Resources Defense Council, 100% 
Clean Electricity Targets, https://www.nrdc.org/resources/race-100-clean.
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    7. Placing a value on GHG emissions has emerged as an important 
market-based tool in state efforts to reduce GHG emissions, including 
efforts to reduce GHG emissions from the electricity sector. In this 
Policy Statement, we use the term ``carbon pricing'' to include both 
``price-based'' methods adopted by states that establish a specific 
price on GHG emissions as well as ``quantity-based'' approaches adopted 
by states that do so indirectly through, for example, a cap-and-trade 
system.\12\ Currently, 12 states impose some version of carbon 
pricing.\13\ Those programs include the 11-state RGGI \14\ in the 
Northeast and the cap-and-trade program administered by CARBMultiple 
other states are considering adopting a carbon pricing regime,\15\ or 
currently

[[Page 21716]]

use a carbon price to inform state agency actions.\16\ In addition, 
numerous entities, including RTOs and ISOs, have begun examining 
approaches to incorporating state-determined carbon prices into 
wholesale electricity markets.\17\
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    \12\ ``Price-based'' methods, such as a carbon fee, use an 
explicit charge on each ton of GHG emitted. ``Quantity-based'' 
methods, such as a cap-and-trade system, limit the amount of 
permissible GHG emissions. Cap-and-trade systems establish a total 
quantity of GHGs that can be emitted collectively by all entities 
covered by the policy within a fixed period (a cap). ``Allowances'' 
are created for each ton of GHG emissions that can be emitted. 
Covered entities must obtain one allowance for each ton of GHG 
emitted. Covered entities obtain allowances from either: (1) Initial 
allocation or auctioning of allowances; or (2) trading of 
allowances. Carbon prices thus emerge from the initial allocation of 
allowances and the trading of allowances on the secondary market. 
The term ``state-determined carbon price'' refers to any state 
mechanism to place a value on GHG emissions, including but not 
limited to a charge directly imposed on emissions, and may refer to 
either a single state or multi-state initiative (e.g., the Regional 
Greenhouse Gas Initiative (RGGI)). For example, a ``state-determined 
carbon price'' may refer to a value on GHG emissions, set by a state 
regulation or law, to be applied consistently throughout the 
electricity industry.
    \13\ State carbon pricing programs that are currently 
implemented include: (1) California's cap-and-trade program (see 
California Air Resources Board (CARB), Cap-and-Trade Program, 
https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program/about); (2) Massachusetts' cap-and-trade program (see Mass. Dept. of 
Env. Protection, Reducing GHG Emissions under Section 3(d) of the 
Global Warming Solutions Act, https://www.mass.gov/guides/reducing-ghg-emissions-under-section-3d-of-the-global-warming-solutions-act); 
and (3) the 11-state RGGI, infra n.14 (see RGGI, Inc., Elements of 
RGGI, https://www.rggi.org/program-overview-and-design/elements). 
See C2ES, U.S. State Carbon Pricing Policies, https://www.c2es.org/document/us-state-carbon-pricing-policies/.
    \14\ Those states are: Connecticut; Delaware; Maine; Maryland; 
Massachusetts; New Hampshire; New Jersey; New York; Rhode Island; 
Vermont; and Virginia. RGGI, Inc., https://www.rggi.org.
    \15\ Pennsylvania and Washington are pursuing carbon pricing 
through rulemakings. Pennsylvania intends to join RGGI (see Penn. 
Dept. of Env. Protection, RGGI, https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx), and Washington is seeking to adopt a 
statewide cap-and-trade program (see State of Washington, Dept. of 
Ecology, Clean Air Rule, https://ecology.wa.gov/Air-Climate/Climate-change/Greenhouse-gases/Reducing-greenhouse-gases/Clean-Air-Rule). 
Fourteen states are currently considering carbon pricing 
legislation: Connecticut, Georgia, Hawaii, Indiana, Kansas, 
Maryland, Massachusetts, Montana, New Hampshire, New York, Oregon, 
Rhode Island, Texas, and Washington (see National Conference of 
Energy Legislators, Carbon Pricing, State Information, https://www.ncel.net/carbon-pricing/#stateinfo).
    \16\ At least 11 states--California, Colorado, Illinois, Maine, 
Maryland, Minnesota, Nevada, New Jersey, New York, Virginia, and 
Washington--use a state-determined carbon price as a decision-making 
tool in various contexts, such as policy analysis, utility 
integrated resource planning, and retail ratemaking for distributed 
energy resources. See Policy Integrity, The Cost of Carbon 
Pollution, States Using the SCC, https://costofcarbon.org/states.
    \17\ This includes, for example, ISO-NE's stakeholder 
discussions regarding carbon pricing (see van Welie Oct. 5, 2020 
Opening Comments at 2-3; Tr. 100:1-6 (van Welie); ISO-NE Oct. 5, 
2020 Pre-Technical Conference Statement at 6-7); NYISO's carbon 
pricing draft proposal (see Dewey Oct. 5, 2020 Opening Remarks at 3-
5; Tr. 89:20-90:3 (Dewey); NYISO, Carbon Pricing, https://www.nyiso.com/carbonpricing); and PJM's Carbon Pricing Senior Task 
Force (see Giacomoni Oct. 5, 2020 Comments at 2-3; Tr. 146:13-147:3 
(Giacomoni); PJM, Carbon Pricing Senior Task Force, https://www.pjm.com/committees-and-groups/task-forces/cpstf.aspx).
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    8. As with any state regulation of electricity generation 
facilities, state efforts to reduce GHG emissions in the electricity 
sector may affect matters subject to the Commission's jurisdiction.\18\ 
And while the Commission does not directly administer environmental 
statutes, the Commission may be called upon to review proposals 
submitted under FPA section 205 \19\ that address rules that 
incorporate a state-determined carbon price into RTO/ISO markets.
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    \18\ See, e.g., Coal. for Competitive Elec., Dynegy Inc. v. 
Zibelman, 906 F.3d 41, 57 (2d Cir. 2018), cert. denied sub nom. 
Elec. Power Supply Ass'n v. Rhodes, 139 S. Ct. 1547 (2019) 
(explaining that the state payments to address environmental 
externalities at issue in that case had ``(at best) an incidental 
effect'' on RTO/ISO markets); see also FERC v. Elec. Power Supply 
Ass'n, 136 S. Ct. 760, 776 (2016), as revised (Jan. 28, 2016) (EPSA) 
(noting that the federal and state spheres of jurisdiction under the 
FPA ``are not hermetically sealed from each other'').
    \19\ 16 U.S.C. 824d(a) (``All rates and charges made, demanded, 
or received by any public utility for or in connection with the 
transmission or sale of electric energy subject to the jurisdiction 
of the Commission, and all rules and regulations affecting or 
pertaining to such rates or charges shall be just and reasonable.'') 
(emphasis added).
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    9. RTO/ISO markets already address various matters related to 
federal and state environmental regulations. For example, the 
Commission has long permitted generating resources to recover through 
wholesale rates the costs of complying with environmental regulations, 
including the costs of emissions pricing regimes.\20\ Permitting 
generating resources to recover through wholesale rates in the RTO/ISO 
markets the costs associated with a state-determined carbon price is 
consistent with that precedent.\21\
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    \20\ See Policy Statement and Interim Rule Regarding Ratemaking 
Treatment of the Cost of Emissions Allowances in Coordination Rates, 
59 FR 65,930, at 65,935 (Dec. 22, 1994) FERC Stats. & Regs. ] 
31,009, at 31,207 (1994) (cross-referenced at 69 FERC ] 61,346) 
(Policy Statement on Costs of Emissions Allowances) (Policy 
Statement on Costs of Emissions Allowances) (``We will allow the 
recovery of incremental costs of emission allowances in coordination 
rates whenever the coordination rate also provides for recovery of 
other variable costs on an incremental basis.''); see also Grand 
Council of Crees v. FERC, 198 F.3d 950, 957 (D.C. Cir. 2000) 
(holding that just and reasonable rates may account for a seller's 
``need to meet environmental requirements,'' which ``may affect the 
firm's costs''); see generally Peskoe Oct. 5, 2020 Pre-Conference 
Filing at 1-2 (discussing these orders in greater detail); Konschnik 
Oct. 5, 2020 Opening Statement at 1; Tr. 25:5-18 (Konschnik) 
(similar).
    \21\ See Peskoe Oct. 5, 2020 Pre-Conference Filing at 1 (``The 
Commission has recognized that environmental compliance costs are 
appropriately included in wholesale rates, and there is no basis for 
the Commission to treat carbon price costs any differently.'').
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    10. The Commission has also accepted filings to establish wholesale 
market rules that address how a state-determined carbon price operates 
within markets that encompass more than one state. As one example, CARB 
administers a multi-sector cap-and-trade program that includes the 
electricity sector.\22\ As part of its Western Energy Imbalance Market 
(EIM), California Independent System Operator Corporation (CAISO) 
proposed, and the Commission has accepted, tariff provisions to address 
how resources located outside California offer into the EIM in light of 
California's carbon pricing regime.\23\ Those rules permit a resource 
to fashion its offers into the EIM such that they include a carbon 
price if they are dispatched to serve load in California and not 
include a carbon price if they are dispatched to serve load in the rest 
of the EIM.\24\ Similarly, CAISO proposed, and the Commission has 
accepted, measures for addressing resource shuffling in the EIM \25\ by 
more accurately assessing which resources are dispatched to serve load 
in California.\26\
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    \22\ See supra n.13. Nineteen other states--Colorado, 
Connecticut, Hawaii, Louisiana, Maine, Massachusetts, Michigan, 
Minnesota, Montana, Nevada, New Hampshire, New Jersey, New York, 
Oregon, Pennsylvania, Rhode Island, Virginia, Vermont, and 
Washington--and the District of Columbia have adopted economy-wide 
decarbonization goals or targets of 50% or greater. See C2ES, U.S. 
State Greenhouse Gas Emissions Targets, https://www.c2es.org/document/greenhouse-gas-emissions-targets/.
    \23\ Cal. Indep. Sys. Operator Corp., 153 FERC ] 61,087, at PP 
9-11, 57 (2015).
    \24\ Id.
    \25\ In this context, CARB determined that CAISO's initial 
method for accounting for emissions from EIM resources that serve 
California load incorrectly assumed that the least-emitting 
resources served California load, when instead some of those 
resources would have already been dispatched to serve load outside 
of California. Therefore, there was a ``backfill'' of higher-
emitting resources to serve non-California load, or a ``shuffling'' 
of resources. CARB concluded that, but for California's demand in 
the EIM, those higher-emitting resources would not have been 
dispatched at all and therefore those emissions should be attributed 
to serving California load. See, e.g., Wolak Oct. 5, 2020 Comments 
at 2-3; Hogan Oct. 5, 2020 Comments at 4-5; Tr. 101:16-24 (Wolak).
    \26\ Cal. Indep. Sys. Operator Corp., 165 FERC ] 61,050, at PP 
7, 17 (2018).
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B. Discussion

1. Incorporating a State-Determined Carbon Price Into RTO/ISO Markets
    11. In this section, we explain the Commission's jurisdiction to 
review RTO/ISO market rules that would incorporate a state-determined 
carbon price filed under FPA section 205. We also explain that it is 
the policy of this Commission to encourage efforts of RTOs/ISOs and 
their stakeholders to explore and consider the value of incorporating a 
state-determined carbon price into RTO/ISO markets.\27\
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    \27\ Certain commenters recommend that we refer more broadly to 
``emissions pricing'' or state environmental policies more 
generally, rather than limiting it to ``carbon pricing.'' See, e.g., 
Public Interest Orgs. Nov. 16, 2020 Comments at 2. This Policy 
Statement is a response to specific issues raised in the record 
developed at and after the Carbon Pricing Technical Conference. As 
that record was limited to the specific issue of carbon pricing, we 
decline to address other state environmental policies as outside the 
scope of this proceeding.
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a. Commission Jurisdiction Regarding Rules That Incorporate a State-
Determined Carbon Price Into RTO/ISO Markets
    12. Wholesale market rules that incorporate a state-determined 
carbon price into RTO/ISO markets can fall within the Commission's 
jurisdiction as a practice affecting wholesale rates. Whether the rules 
proposed in any particular FPA section 205 filing do, in fact, fall 
under the Commission's jurisdiction, or whether any such proposal is 
consistent with FPA section 205, is a determination we will make based 
on the facts and circumstances in any such proceeding. Accordingly, 
rather than make any jurisdictional or merits determination in this 
Policy Statement, we present a framework for exercising our FPA section 
205 jurisdiction.\28\
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    \28\ For these reasons, we reject the suggestion that we are 
``prejudg[ing] the jurisdictional merits of any future section 205 
proposals.'' See Danly Concurrence in Part and Dissent in Part at PP 
2-3.

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    13. In EPSA, the Supreme Court articulated a two-part test for 
evaluating whether a Commission action is within its jurisdiction to 
regulate practices affecting wholesale rates. First, the activity being 
regulated must ``directly affect'' wholesale rates.\29\ Although the 
Court did not exhaustively define what it means to ``directly affect'' 
wholesale rates, it noted that the wholesale market rules established 
in Order No. 745 \30\ ``meet that standard with room to spare.'' \31\ 
As the Court explained, those rules address how demand response 
resources participate in the RTO/ISO markets, including the levels at 
which they bid and are compensated.\32\
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    \29\ EPSA, 136 S. Ct. at 774 (citing Cal. Indep. Sys. Operator 
Corp. v. FERC, 372 F.3d 395, 403 (2004)).
    \30\ Demand Response Compensation in Organized Wholesale Energy 
Markets, Order No. 745, 76 FR 16,657 (Mar 24, 2011), 134 FERC ] 
61,187, order on reh'g & clarification, Order No. 745-A, 137 FERC ] 
61,215 (2011), reh'g denied, Order No. 745-B, 138 FERC ] 61,148 
(2012), vacated sub nom. Elec. Power Supply Ass'n v. FERC, 753 F.3d 
216 (D.C. Cir. 2014), rev'd & remanded sub nom. EPSA, 136 S. Ct. 
760.
    \31\ EPSA, 136 S. Ct. at 774.
    \32\ Id. at 774-75.
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    14. Wholesale market rules that incorporate a state-determined 
carbon price into RTO/ISO markets can satisfy that ``directly affect'' 
standard. Like the rules at issue in Order No. 745, wholesale market 
rules that incorporate a state-determined carbon price could, depending 
on the particular circumstances, govern how resources participate in 
the RTO/ISO market, how market operators dispatch those resources, and 
how those resources are ultimately compensated.\33\ As such, those 
wholesale market rules can affect wholesale rates in essentially the 
same way described in EPSA.
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    \33\ See, e.g., Tr. 23:3-22 (D. Hill); 28:24-29:8, 52:24-53:13 
(Peskoe); D. Hill Oct. 5, 2020 Comments at 5-7; Peskoe Oct. 5, 2020 
Pre-Conference Filing at 2-3; Price Oct. 5, 2020 Comments at 8-9; 
Rossi Oct. 5, 2020 Pre-Conference Filing at 3. See generally 
Transmission Planning and Cost Allocation by Transmission Owning and 
Operating Public Utilities, Order No. 1000, 76 FERC 49,842 (Aug. 11, 
2011), 136 FERC ] 61,051, at PP 203-224 (2011), order on reh'g, 
Order No. 1000-A, 139 FERC ] 61,132, order on reh'g and 
clarification, Order No. 1000-B, 141 FERC ] 61,044 (2012), aff'd sub 
nom. S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014) 
(requiring that regional transmission planning processes consider 
transmission needs driven by public policy requirements (which can 
include state public policies)).
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    15. Second, EPSA explained that the Commission cannot regulate a 
matter that FPA section 201(b) reserves for exclusive state 
jurisdiction, ``no matter how direct, or dramatic, its impact on 
wholesale rates.'' \34\ The Court explained, however, that the effects 
that wholesale market rules have on retail rates or other matters 
subject to exclusive state jurisdiction do not, in and of themselves, 
cause the Commission to exceed its jurisdiction.\35\ Instead, those 
effects are the inevitable result of the fact that the FPA divides 
jurisdiction over the electricity sector between the Commission and the 
states.\36\ In turning to the specifics of Order No. 745, the Court 
concluded that the rule did not regulate retail rates because ``every 
aspect of [the rule] happens exclusively on the wholesale market and 
governs exclusively that market's rules'' and ``the Commission's 
justifications for regulating demand response are all about, and only 
about, improving the wholesale market.'' \37\ Under those 
circumstances, the Court explained, ``[section 201(b)] imposes no bar'' 
on Commission authority.\38\
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    \34\ EPSA, 136 S. Ct. at 775.
    \35\ Id. at 776 (``[A] FERC regulation does not run afoul of 
[section 201](b)'s proscription just because it affects--even 
substantially--the quantity or terms of retail sales.'').
    \36\ Id. (``It is a fact of economic life that the wholesale and 
retail markets in electricity, as in every other known product, are 
not hermetically sealed from each other. To the contrary, 
transactions that occur on the wholesale market have natural 
consequences at the retail level. And so too, of necessity, will 
FERC's regulation of those wholesale matters.'').
    \37\ Id. (citing Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 385 
(2015)).
    \38\ Id.
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    16. Wholesale market rules that incorporate a state-determined 
carbon price into RTO/ISO markets can satisfy this standard as well. 
Such rules would not regulate a matter reserved exclusively to the 
states under the FPA, or otherwise displace state authority, including 
state authority over generation facilities.\39\ Instead, wholesale 
market rules that incorporate a state-determined carbon price into RTO/
ISO markets can ``govern exclusively'' the wholesale market and do so 
for the purpose of improving that market.\40\ Rules that meet that 
standard could affect matters within state jurisdiction, including a 
state's regulation of generation facilities, without running afoul of 
section 201(b)'s limitation on the Commission's jurisdiction.\41\ Under 
those circumstances, the state would retain authority over that carbon 
price as well as other measures for regulating generation facilities, 
as in the CAISO EIM example discussed above.\42\ For these reasons, 
incorporating a state-determined carbon price into RTO/ISO markets 
would not in any way diminish state authority to establish a carbon 
price or modify an existing state carbon price.\43\
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    \39\ See 16 U.S.C. 824(b).
    \40\ EPSA, 136 S. Ct. at 776.
    \41\ Id.
    \42\ See supra P 10.
    \43\ This position is unchanged from the Proposed Policy 
Statement, but we clarify this point here in response to certain 
comments that expressed concern that the Policy Statement could 
serve to diminish existing state authority. See, e.g., EKPC Dec. 1, 
2020 Comments at 2-10; Joint NY Consumers Nov. 16, 2020 Comments at 
2; NESCOE Nov. 16, 2020 Comments at 5-6; Ohio Commission Nov. 16, 
2020 Comments at 6-7.
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    17. Finally, we note that incorporating a state-determined carbon 
price into RTO/ISO markets could represent another example of the type 
of ``program of cooperative federalism'' that the Court noted with 
approval in EPSA.\44\ RTO/ISO market rules that incorporate a state-
determined carbon price could, as discussed above, improve the 
efficiency and transparency of the organized wholesale markets under 
Commission jurisdiction by providing a market-based method to 
incorporate state efforts to reduce GHG emissions, a matter self-
evidently under state jurisdiction.
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    \44\ Id. at 779-80.
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b. Commission Encouragement of Efforts of RTOs/ISOs and Their 
Stakeholders To Explore and Consider the Value of Incorporating a 
State-Determined Carbon Price Into RTO/ISO Markets
    18. Participants at the Carbon Pricing Technical Conference 
identified a diverse range of potential benefits that could arise from 
incorporating a state-determined carbon price into RTO/ISO markets. 
Those benefits include the development of technology-neutral, 
transparent price signals within RTO/ISO markets and market certainty 
to support investment.\45\ In addition, participants explained that 
carbon pricing is one example of an efficient market-based tool that 
incorporates state public policies into RTO/ISO markets without in any 
way diminishing state authority.\46\
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    \45\ See Tr. 24:1-3 (D. Hill), 85:17-21 (Bowring), 95:14-16 
(Olson), 171:1-10 (White), 177:1-3 (Mukerji), 219:6-25 (Wadsworth), 
261:24-262:5 (``From a pure business perspective, clarity and 
certainty are so important. And for those of us that are involved in 
making these long-term capital-intensive investments in energy 
infrastructure, having this mechanism that can provide long-term 
price signals for investment would be hugely valuable.'') (Beane), 
264:17-19 (Crane), 278:8-10, 279:10-15 (Segal), 283:17-19 (Wiggins), 
300:20-301:12 (Beane), 312:22-313:15 (Beane), 314:14-22 (Crane), 
317:11-20 (Segal), 326:17-327:7 (Wiggins).
    \46\ See, e.g., Tr. 27:7-11, 29:9-24 (Peskoe), 31:15-32:12 
(Price), 85:9-21 (Bowring), 200:11-23 (Breidenich).
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    19. We agree that proposals to incorporate a state-determined 
carbon price into RTO/ISO markets could potentially improve the 
efficiency of

[[Page 21718]]

those markets.\47\ Accordingly, it is the policy of this Commission to 
encourage efforts of RTOs/ISOs and their stakeholders--including 
States, market participants, and consumers--to explore and consider the 
value of incorporating state-determined carbon prices into RTO/ISO 
markets.\48\ That encouragement does not indicate a preference for a 
state-determined carbon pricing approach over other state policies. 
Whether and how a state chooses to address GHG emissions is a matter 
exclusively within that state's jurisdiction. Instead, our intention is 
only to encourage discussions among RTOs/ISOs and their stakeholders 
regarding wholesale market rules that would incorporate state-
determined carbon pricing, in light of what we view as the potential 
benefits of carbon pricing.
---------------------------------------------------------------------------

    \47\ See, e.g., Tr. 31:15-25 (Price), 99:16-22 (van Welie), 
150:6-23 (Mukerji), 169:5-12. (Hogan), 170:1-15 (Mukerji), 170:20-
171:10 (White), 175:5-20 (Rothleder), 219:1-221:4 (Wadsworth), 
265:4-21 (Crane), 271:1-5 (T. Hill), 282:15-22 (Tierney).
    \48\ See Proposed Policy Statement, 173 FERC ] 61,062 at P 15 
(proposing ``to make it the policy of this Commission to encourage 
efforts by RTOs/ISOs and their stakeholders--including States, 
market participants, and consumers--to explore establishing 
wholesale market rules that incorporate state-determined carbon 
prices in RTO/ISO markets''); see also id. PP 1, 7.
---------------------------------------------------------------------------

2. Considerations for Evaluating an FPA Section 205 Proposal To 
Incorporate a State-Determined Carbon Price Into RTO/ISO Markets
    20. The Commission will review any FPA section 205 filing that 
proposes to establish wholesale market rules that incorporate a state-
determined carbon price into RTO/ISO markets based on the particular 
facts and circumstances presented in that proceeding, with the filer 
bearing the burden of demonstrating that the proposal meets the FPA 
section 205 standard.\49\
---------------------------------------------------------------------------

    \49\ See, e.g., Ala. Power Co. v. FERC, 993 F.2d 1557, 1571 
(D.C. Cir. 1993) (stating that ``the party filing a rate adjustment 
with the Commission under Sec.  205 bears the burden of proving the 
adjustment is lawful'') (citation omitted).
---------------------------------------------------------------------------

    21. Nevertheless, based on our review of the record in this 
proceeding, we believe that certain questions and issues are likely to 
arise in any such filing. Below, we identify considerations that we 
believe may be germane to the Commission's evaluation of an FPA section 
205 filing, which filers should consider including, as appropriate, in 
any FPA section 205 filing to incorporate a state-determined carbon 
price into RTO/ISO markets.
    a. How, if at all, do the relevant market design considerations 
change depending on the manner in which the state or states determine 
the carbon price (e.g., price-based or quantity-based methods)? How 
would state-determined carbon prices, including any changes to these 
prices, be reflected in RTO/ISO tariffs or market designs?
    b. How would the FPA section 205 proposal provide adequate price 
transparency and enhance price formation?
    c. How would the carbon price or prices be reflected in locational 
marginal prices (LMP)?
    d. How would the incorporation of the state-determined carbon price 
into the RTO/ISO market affect dispatch? Would the state-determined 
carbon price affect how the RTO/ISO co-optimizes energy and ancillary 
services? Would any reforms to RTO/ISO co-optimization rules be 
necessary in light of the state-determined carbon price? Would any 
reforms to other market design elements be necessary, such as to market 
power mitigation rules or other rules that affect whether the market 
produces just and reasonable rates?
    e. Would the filer's proposal result in economic or environmental 
leakage? \50\ If so, how might the proposal address any such leakage?
---------------------------------------------------------------------------

    \50\ See Hogan Oct. 5, 2020 Comments at 4; Wolak Oct. 5, 2020 
Comments at 2; Singh Oct. 5, 2020 Comments at 2-3. See also Tr. 
56:12-57:10 (Price) (generally discussing economic and environmental 
leakage), Tr. 46:2-18 (Peskoe) (discussing the Commission's 
jurisdiction over proposals from public utilities to address 
leakage).
---------------------------------------------------------------------------

    f. What elements of the proposal affect the wholesale rates paid by 
customers? How does the proposal consider this impact and the impact on 
consumers overall?
    22. These considerations are intended to provide guidance to RTO/
ISOs and their stakeholders regarding the kinds of issues that the 
Commission may consider when evaluating FPA section 205 filings that 
seek to incorporate a state-determined carbon price in RTOs/ISOs. We 
emphasize that this list is intended to provide guidance but does not 
alter the Commission's intention to consider the facts and 
circumstances presented in each proceeding and does not bind or limit 
the Commission with respect to which considerations the Commission will 
weigh in applying the legal standard articulated in FPA section 205.

III. Document Availability

    23. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (https://www.ferc.gov). At 
this time, the Commission has suspended access to the Commission's 
Public Reference Room, due to the proclamation declaring a National 
Emergency concerning the Novel Coronavirus Disease (COVID-19), issued 
by the President on March 13, 2020.
    24. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    25. User assistance is available for eLibrary and the Commission's 
website during normal business hours from the Commission's Online 
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

    By direction of the Commission. Commissioner Danly is concurring 
in part and dissenting in part with a separate statement attached. 
Commissioner Christie is concurring in part and dissenting in part 
with a separate statement attached.

    Issued: April 15, 2021.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

    Note: the following appendix will not appear in the Federal 
Register.

Appendix: List of Commenters

------------------------------------------------------------------------
          Short name                           Full name
------------------------------------------------------------------------
ACORE........................  American Council on Renewable Energy.
AEE..........................  Advanced Energy Economy.

[[Page 21719]]

 
Americans for Prosperity, et   Americans for Prosperity, Alliance for
 al.                            Wise Energy Decisions, Americans for Tax
                                Reform, Caesar Rodney Institute,
                                Citizens Against Government Waste,
                                Committee for a Constructive Tomorrow,
                                Competitive Enterprise Institute, Energy
                                & Environment Legal Institute, Heritage
                                Action for America, Mississippi Center
                                for Public Policy, National Center for
                                Public Policy Research, Roughrider
                                Policy Center, Texas Public Policy
                                Foundation, The Heartland Institute, and
                                60 Plus Association.
America's Power..............  America's Power.
API..........................  American Petroleum Institute.
AWEA, et al..................  American Wind Energy Association and the
                                Alliance for Clean Energy--New York.
BCSE.........................  Business Council for Sustainable Energy.
Brookfield Renewable.........  Brookfield Renewable Trading and
                                Marketing LP.
Buckeye Power................  Buckeye Power, Inc.
CAISO........................  California Independent System Operator
                                Corporation.
CAISO Market Monitor.........  CAISO Department of Market Monitoring.
Calpine......................  Calpine Corporation.
CARB.........................  California Air Resources Board.
Carbon Free NY...............  Carbon Free New York.
CEA..........................  Canadian Electricity Association.
CEI..........................  Competitive Enterprise Institute.
Covanta......................  Covanta Holding Corporation.
Cricket Valley...............  Cricket Valley Energy Center, LLC.
David Hill...................  David R. Hill, Columbia Univ. Center on
                                Global Energy Policy.
EDF..........................  Environmental Defense Fund.
EEI..........................  Edison Electric Institute.
EKPC.........................  East Kentucky Power Cooperative, Inc.
ELCON........................  Electricity Consumers Resource Council.
EPSA.........................  Electric Power Supply Association.
ETI..........................  Energy Trading Institute.
Eversource...................  Eversource Energy Service Company, The
                                Connecticut Light and Power Company,
                                NSTAR Electric Company, and Public
                                Service Company of New Hampshire.
Exelon.......................  Exelon Corporation.
Heritage Foundation..........  Katie Tubb and Nicolas Loris of The
                                Heritage Foundation.
HQUS.........................  H.Q. Energy Services (U.S.) Inc.
IER..........................  Institute for Energy Research.
Industrial Customer Orgs.....  American Forest & Paper Association and
                                Industrial Energy Consumers of America.
Int'l. Energy Credit Ass'n...  International Energy Credit Association.
IPPNY........................  Independent Power Producers of New York,
                                Inc.
ITC Companies................  International Transmission Company,
                                Michigan Electric Transmission Company,
                                LLC, ITC Midwest LLC, and ITC Great
                                Plains, LLC.
Joint Attys. Gen.............  Attorneys General of Massachusetts,
                                California, Delaware, Maryland,
                                Michigan, Minnesota, New Mexico,
                                Pennsylvania, Rhode Island, Wisconsin,
                                and the District of Columbia.
Joint California Parties.....  Pacific Gas & Electric Company, San Diego
                                Gas & Electric Company, and Southern
                                California Edison.
Joint Consumer Advocates.....  Office of the People's Counsel for the
                                District of Columbia, Delaware Division
                                of the Public Advocate, Citizens Utility
                                Board, Maryland Office of People's
                                Counsel, New Jersey Division of Rate
                                Counsel, and Pennsylvania Office of
                                Consumer Advocate.
Joint NY Consumers...........  New York Energy Consumers Council, Inc.,
                                Real Estate Board of New York, and
                                Building Owners and Managers Association
                                of Greater New York.
LS Power.....................  LS Power Development, LLC.
Mass. Atty. Gen..............  Massachusetts Attorney General Maura
                                Healey.
Michigan Commission..........  Michigan Public Service Commission.
Microsoft....................  Microsoft Corporation.
MISO.........................  Midcontinent Independent System Operator,
                                Inc.
National Grid................  National Grid.
NEI..........................  Nuclear Energy Institute.
NEPGA........................  New England Power Generators Association,
                                Inc.
NEPOOL.......................  New England Power Pool Participants
                                Committee.
NESCOE.......................  New England States Committee on
                                Electricity.
NY State Entities............  New York State Public Service Commission,
                                New York State Energy Research and
                                Development Authority, and New York
                                Power Authority.
NGSA.........................  Natural Gas Supply Association.
NMA..........................  National Mining Association.
NRG..........................  NRG Energy, Inc.
Nucor Gallatin...............  Nucor Steel Gallatin, LLC.
NYISO........................  New York Independent System Operator,
                                Inc.
ODEC.........................  Old Dominion Electric Cooperative.
Ohio Commission..............  Public Utilities Commission of Ohio's
                                Office of the Federal Energy Advocate.
PJM..........................  PJM Interconnection, L.L.C.
PJM Power Providers..........  PJM Power Providers Group.
Policy Integrity.............  Institute for Policy Integrity, New York
                                Univ. School of Law.
Public Interest Orgs.........  Sustainable FERC Project, Clean Air Task
                                Force, Natural Resources Defense
                                Council, Union of Concerned Scientists,
                                Southern Environmental Law Center,
                                Conservation Law Foundation, and Acadia
                                Center.
R Street.....................  R Street Institute.
Real Estate Roundtable.......  The Real Estate Roundtable.
RFF..........................  Karen Palmer, Dallas Burtraw, Todd
                                Aagaard, and Kathryne Cleary of
                                Resources for the Future.
Roger Caiazza................  Roger Caiazza, Private Citizen.

[[Page 21720]]

 
Roy Shanker..................  Roy J. Shanker, Ph.D., Independent
                                Consultant.
SAFE.........................  Securing America's Future Energy.
SEIA.........................  Solar Energy Industries Association.
Shell Energy.................  Shell Energy North America (US), L.P.
Trane........................  Trane Technologies plc.
Utah Dept. of Commerce.......  Utah Department of Commerce.
Vistra.......................  Vistra Corp.
WPTF.........................  Western Power Trading Forum.
------------------------------------------------------------------------

Department of Energy; Federal Energy Regulatory Commission

Carbon Pricing in Organized Wholesale Electricity Markets

    DANLY, Commissioner, concurring in part and dissenting in part:
    1. Any party with a rate on file can submit a Federal Power Act 
section 205 \1\ filing at any time. I therefore cannot oppose the 
policy statement's effective acknowledgement that section 205 has yet 
to be repealed and thus the Commission is obligated to consider such 
filings, including those related to carbon pricing initiatives.\2\ So, 
as seemingly unnecessary as it may be to announce a policy of ``non-
binding . . . potential considerations,'' I see no basis upon which to 
oppose that aspect of the policy statement.\3\
---------------------------------------------------------------------------

    \1\ 16 U.S.C. 824d.
    \2\ See Carbon Pricing in Organized Wholesale Elec. Mkts., 175 
FERC ] 61,036, at P 4 (2021).
    \3\ Id.
---------------------------------------------------------------------------

    2. Also ``non-binding'' is the majority's view of our 
jurisdictional powers as they memorialize them in this policy 
statement.\4\ I accordingly dissent from the policy statement to the 
extent it attempts to prejudge the jurisdictional merits of any future 
section 205 proposals. Congress grants our jurisdiction, and the courts 
decree its limits when we overstep it. Anyone considering a section 205 
filing following this issuance would be well-advised to read the 
courts' decisions in order to inform themselves as to the proper bounds 
of a legitimate tariff proposal; interested parties should do the same 
when formulating protests.
---------------------------------------------------------------------------

    \4\ See id. PP 8-17.
---------------------------------------------------------------------------

    3. Finally, my prior statement in this proceeding that the 
Commission ``ha[s] jurisdiction to entertain section 205 filings that 
seek to accommodate state carbon-pricing policies'' meant no more and 
no less than that.\5\ The Commission has the duty ``to entertain'' any 
section 205 filing. I reiterate now in case any party wishes to 
disregard my plain meaning: The Commission cannot prejudge whether 
future section 205 filings designed to accommodate state carbon-pricing 
initiatives will pass jurisdictional muster.\6\
---------------------------------------------------------------------------

    \5\ Compare Carbon Pricing in Organized Wholesale Elec. Mkts., 
173 FERC ] 61,062 (2020) (Danly, Comm'r, concurring in part and 
dissenting in part at P 1), with Exelon Corporation December 1, 2020 
Reply Comments, Docket No. AD20-14-000, at 7-8.
    \6\ See Carbon Pricing in Organized Wholesale Elec. Mkts., 173 
FERC ] 61,062 (Danly, Comm'r, concurring in part and dissenting in 
part at P 4) (``I would have waited until we had an actual 205 
filing before us rather than pre-judging the issue based on unstated 
assumptions about how such programs might work. It is easy to 
imagine any number of RTO/ISO carbon-pricing proposals that would 
violate the Federal Power Act . . . .'').
---------------------------------------------------------------------------

    For these reasons, I respectfully concur in part and dissent in 
part.

James P. Danly,
Commissioner.

Department of Energy; Federal Energy Regulatory Commission

Carbon Pricing in Organized Wholesale Electricity Markets

    CHRISTIE, Commissioner, concurring in part and dissenting in part:
    1. I concur that any filing under Section 205 proposing some form 
of carbon pricing will be evaluated on the facts and circumstances 
attendant to that filing.\1\
---------------------------------------------------------------------------

    \1\ See Policy Statement at PP 20 and 22.
---------------------------------------------------------------------------

    2. I dissent from those parts of the Policy Statement \2\ to the 
extent those provisions may be interpreted to appear to invite 
proposals for carbon pricing that are inconsistent with the following 
general principles.\3\
---------------------------------------------------------------------------

    \2\ See, e.g., id. PP 11, 17-19.
    \3\ Any future filing will come with its own evidentiary record 
and be considered individually.
---------------------------------------------------------------------------

    3. First, it's important to be straightforward with the public 
about what is being considered in this proceeding. For a government to 
retain the trust of the people, it is imperative to avoid what George 
Orwell criticized as language that disguises the truth about government 
actions behind euphemisms and other distortions.\4\
---------------------------------------------------------------------------

    \4\ See, e.g., George Orwell, Animal Farm (1945); George Orwell, 
Nineteen Eighty-Four (1949).
---------------------------------------------------------------------------

    4. So let's be clear: the term carbon ``price'' as used in this 
docket,\5\ and by many commenters advocating for it, is a carbon tax. 
This is not just a matter of semantics. Using terms accurately will not 
only better serve and inform the public, but is essential to clarify, 
and avoid obfuscating, the legal--including constitutional--questions 
regarding this Commission's authority, as discussed further below.
---------------------------------------------------------------------------

    \5\ See Policy Statement at P. 7.
---------------------------------------------------------------------------

    5. As advocated by many commenters herein, a carbon ``price'' is 
intended--just like the tax it is--to raise the price to consumers of a 
product, in this case an energy resource based on its carbon 
attributes. Raising the price, of course, is the whole point of the 
policy.\6\ Whether in the form of an ad valorem add-on to the market 
price, similar to a sales tax, or a price floor set above the market 
price, or a cap-and-trade system, such as the Regional Greenhouse Gas 
Initiative (RGGI), the term carbon ``price'' as used in this Policy 
Statement and advocated by many in this docket means carbon tax.\7\ As 
one commenter quite accurately describes it:
---------------------------------------------------------------------------

    \6\ See, e.g., Public Interest Organizations November 16, 2020 
Comments at 3 (``Taxes and supports are equal but opposite measures: 
A tax (or fee) increases costs and thus reduces the quantity of a 
good or activity the state deems undesirable, while a support lowers 
costs and increases the quantity of those the state deems desirable. 
Both are economic policy tools intended to move a market away from 
the equilibrium it would have achieved absent policy intervention.'' 
(emphasis added)).
    \7\ I would also note that while RTO/ISO markets may be more 
administrative constructs than true markets, the goal of these 
markets is to use the operation of supply and demand to produce 
prices that reflect the competitive results obtainable in a true 
market. A carbon ``price'' is imposed with the obvious intent to 
increase the prices of certain energy resources above those that 
reflect competitive results, based on a single criterion, carbon 
content. See, e.g., Institute for Policy Integrity at New York 
University School of Law November 16, 2020 Comments at 6 (``Because 
a carbon price would increase the production costs of covered 
sources relative to the production costs of uncovered sources, some 
production will shift to uncovered sources.'' (citation omitted) 
(emphasis added)).
---------------------------------------------------------------------------

    Regardless of the program design, the carbon price will likely 
increase periodically, either administratively through a pre-set carbon 
price schedule or through periodic contraction of the number of 
emissions allowances introduced into the market, which will tend to 
drive up the price.

. . .


[[Page 21721]]


    Incorporating a carbon price in wholesale electricity markets will 
raise [Locational Marginal Prices] . . . .\8\
---------------------------------------------------------------------------

    \8\ Resources for the Future November 16, 2020 Comments at 6, 7 
(emphasis added).
---------------------------------------------------------------------------

    6. Of course, use of the euphemism carbon ``price'' meshes with 
what may be called the ``nothing to see here'' argument, which goes 
something like this: FERC's sanctioning of carbon ``prices'' in RTO/ISO 
markets is part of the natural evolution in the long continuum of 
FERC's regulation of wholesale rates under the Federal Power Act,\9\ 
and carbon ``pricing'' is simply part of and will improve price 
formation \10\ in FERC-regulated wholesale markets, with the carbon 
``price'' properly added to address an externality.\11\
---------------------------------------------------------------------------

    \9\ See, e.g., Exelon Corporation December 1, 2020 Reply 
Comments at 7, n.27 (``At the outset, we note that the Commission is 
responsible under the [Federal Power Act] to ensure rates, terms and 
conditions of service are just, reasonable and not unduly 
discriminatory.''). See also David R. Hill Columbia University 
Center on Global Energy Policy October 5, 2020 [filed] Statement at 
6 (``It is only an incremental additional step to determining that 
an RTO/ISO rate design may incorporate a price for carbon in 
recognition of a state-established carbon control program.''); see 
generally Matthew E. Price October 5, 2020 [filed] Technical 
Conference Comments (October 2020 Price Comments) at 2 (for example, 
``so long as the ultimate decision is reached in accordance with the 
RTO's internal governance requirements, the Commission's task is 
simply to review the outcome of that internal process--the proposed 
tariff--and decide whether it is reasonable.'').
    \10\ See, e.g., Resources for the Future November 16, 2020 
Comments at 6 (``In general, carbon pricing policies will help 
improve price formation by increasing the offer prices of emitting 
generators to supply energy and capacity in wholesale markets. Thus, 
when a carbon-emitting generator is at the margin in these markets, 
prices will be higher than they would be without the carbon 
policy.'' (emphasis added)).
    \11\ See, e.g., Exelon Corporation May 21, 2020 Comments on 
Request for Technical Conference at 3, 4 (``Pollutants such as 
carbon dioxide are negative externalities because they impose costs 
on society, yet the polluter does not have to internalize those 
costs in its production . . . . Carbon pricing is simply the mirror 
image of [state policies that subsidize certain resources based on 
environmental attributes], imposing a cost on emitting generation 
for their negative environmental attributes.''(citation omitted)); 
The American Wind Energy Association and the Alliance for Clean 
Energy--New York November 16, 2020 Initial Comments at 3 (``A carbon 
price would cause market participants to internalize what is 
currently an externality in wholesale electricity markets, resulting 
in prices that more accurately reflect the true and total costs of 
generating electricity at a particular location.''); October 2020 
Price Comments at 1.
---------------------------------------------------------------------------

    7. A carbon tax, however, does not cease being a tax just because 
its ostensible purpose is to address a single externality (while 
ignoring the universe of other relevant externalities, both positive 
and negative). Just like litter and bottle taxes enacted by many states 
and localities to defray the costs of roadside trash pick-up, it's 
still a tax, not just a minor element of price formation.
    8. So let's be honest with the public about what this proceeding is 
really about and not hide behind the euphemism carbon ``price.''
    9. At this point let me emphasize that simply labeling a carbon tax 
proposal accurately does not determine whether it is good or bad public 
policy, at either federal or state levels. Indeed, that's not for an 
administrative agency to decide.
    10. At the federal level, Congress could conclude that from an 
economic standpoint a federal carbon tax is a more transparent and less 
harmful way to decarbonize the economy than a rent-seekers' paradise of 
subsidies (the euphemism is ``policy support''), mandates, wealth 
transfers and regulatory actions that threaten both reliability and 
affordable consumer costs.\12\ Congress could couple it with rebates to 
the consumers and taxpayers who will pay it. But those are questions 
for Congress to consider.
---------------------------------------------------------------------------

    \12\ See, e.g., David R. Hill, Columbia University Center on 
Global Energy Policy December 1, 2020 Reply Comments at 5 (``These 
[set-asides, subsidies and mandates] can serve both to mask the cost 
of the carbon control measures being enacted, and also make carbon 
emissions reduction more expensive for consumers than it can be and 
should be.'').
---------------------------------------------------------------------------

    11. Some may even call a federal carbon tax the `textbook solution' 
to achieving decarbonization. And it may be, if the textbook is an 
economics textbook. In the United States, however, there is always 
another textbook that must be consulted when deciding major questions 
of public policy, and that is the textbook of constitutional law and 
government.
    12. The power to tax is one of the most important powers any 
government can exercise.\13\ If democracy and self-government mean 
anything, they mean that only those elected by the people should have 
the power to make the major policy decisions that affect people's lives 
in such important ways, and the power to tax clearly falls under any 
concept of major policy decision.\14\
---------------------------------------------------------------------------

    \13\ McCulloch v. Maryland, 17 U.S. 316, 439 (1819) (``The power 
to tax, involves, the power to destroy. . . .'').
    \14\ See, e.g., Food and Drug Administration v. Brown & 
Williamson Tobacco Corp., 529 U.S. 120, 159 (2000) (``Finally, our 
inquiry into whether Congress has directly spoken to the precise 
question at issue is shaped, at least in some measure, by the nature 
of the question presented. Deference under Chevron to an agency's 
construction of a statute that it administers is premised on the 
theory that a statute's ambiguity constitutes an implicit delegation 
from Congress to the agency to fill in the statutory gaps. . . . In 
extraordinary cases, however, there may be reason to hesitate before 
concluding that Congress has intended such an implicit delegation. 
Cf. Breyer, Judicial Review of Questions of Law and Policy, 38 
Admin. L. Rev. 363, 370 (1986) (``A court may also ask whether the 
legal question is an important one. Congress is more likely to have 
focused upon, and answered, major questions, while leaving 
interstitial matters to answer themselves in the course of the 
statute's daily administration'') (citation omitted)).
---------------------------------------------------------------------------

    13. So the broader question providing context for this and future 
proceedings goes to the heart of democratic government itself and, that 
is: Who should have the power to tax?
    14. And we don't have to answer that question because the 
Constitution already has. It makes it clear that only those elected by 
the people to the legislative branch have this power.\15\ Congress can 
legislate to grant this power to an administrative agency through a 
clear and specific statute--and take accountability for its decision--
but in the case of taxing carbon no one has made a convincing case that 
Congress has granted this power to FERC.
---------------------------------------------------------------------------

    \15\ U.S. Const. Art. 1, Sec.  8.
---------------------------------------------------------------------------

    15. With the above general principles in mind, let's look at four 
general questions pertinent to this proceeding that are implicitly 
raised by the Policy Statement and which have been alluded to by the 
many commenters:
    16. Can states impose carbon taxes? As the Policy Statement notes, 
the answer is clearly yes, under their plenary police powers, as long 
as they don't attempt to tax transactions where federal law has 
explicitly pre-empted them. They don't need FERC's permission to impose 
carbon taxes on retail sales or energy production, if they choose; they 
can do it now. Several states have already used their sovereign powers 
to impose carbon taxes, either directly or indirectly.\16\ RGGI, 
adopted by several eastern states, is an example of an indirect carbon 
tax.\17\
---------------------------------------------------------------------------

    \16\ See, e.g., Policy Statement at nn.12-13.
    \17\ See id. n.12.
---------------------------------------------------------------------------

    17. Can FERC impose a carbon tax at the wholesale level through its 
power to regulate RTOs/ISOs? As noted above, Congress would have to 
empower FERC by a clear and specific statute to impose carbon taxes in 
RTO/ISO markets and no one in this record has presented a convincing 
argument that Congress has done so.
    18. Can FERC allow an RTO/ISO to impose a carbon tax on wholesale 
sales of power? To a certain extent, this question implicates the 
broader question about the nature of RTOs/ISOs. Some argue that they 
are merely private utilities and FERC's only role is to review a rate 
filing from an RTO/ISO and to approve the filing unless FERC

[[Page 21722]]

finds it to be ``unjust, unreasonable or unduly discriminatory.'' \18\
---------------------------------------------------------------------------

    \18\ See, e.g., October 2020 Price Comments at 2 (``To reject 
such a Section 205 filing, the Commission would need to conclude 
that it is unreasonable for a private party--the RTO, after all, is 
not a public regulator--to make these choices.'' (emphasis added)).
---------------------------------------------------------------------------

    19. Rather than being little more than private utilities, however, 
RTOs/ISOs in their present incarnation were essentially created by 
FERC, as part of the ``restructuring'' era of the late 1990s/early 
2000s, to carry out FERC-driven rate policies.\19\ In form, substance 
and practice, not to mention in their complex governing structures and 
processes (especially in multi-state organizations), RTOs/ISOs have 
evolved to resemble somewhat more the hybrid entities that the British 
not so lovingly call ``QANGOs'' (quasi-autonomous non-governmental 
organizations) than they do purely private utilities. This is 
especially true with regard to multi-state RTOs/ISOs, in which 
utilities from many different states participate and in which the 
interests and policies of those multiple states are implicated. Over 
the past two decades these organizations have taken on various 
regulatory roles that are more governmental in nature than private, in 
some cases literally displacing state regulatory authority.\20\
---------------------------------------------------------------------------

    \19\ See, e.g., Regional Transmission Organizations, Order No. 
2000, FERC Stats. & Regs. ] 31,089 (1999) (cross-referenced at 89 
FERC ] 61,285), order on reh'g, Order No. 2000-A, FERC Stats. & 
Regs. ] 31,092 (2000) (cross-referenced at 90 FERC ] 61,201), aff'd 
sub nom. Pub. Util. Dist. No. 1 of Snohomish Cty. v. FERC, 272 F.3d 
607 (D.C. Cir. 2001); Promoting Wholesale Competition Through Open 
Access Non-Discriminatory Transmission Services by Public Utilities; 
Recovery of Stranded Costs by Public Utilities and Transmitting 
Utilities, Order No. 888, FERC Stats. & Regs. ] 31,036 (1996) 
(cross-referenced at 75 FERC ] 61,080), order on reh'g, Order No. 
888-A, FERC Stats. & Regs. ] 31,048 (cross-referenced at 78 FERC ] 
61,220), order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), 
order on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in 
relevant part sub nom. Transmission Access Policy Study Group v. 
FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v. 
FERC, 535 U.S. 1 (2002).
    \20\ FERC Order Nos. 2222 and 2222-A are the two most recent 
examples where the RTOs/ISOs displace state regulatory authority, in 
these examples at FERC's explicit direction. See Participation of 
Distributed Energy Resource Aggregations in Markets Operated by 
Regional Transmission Organizations and Independent System 
Operators, Order No. 2222, 85 FR 67094, 172 FERC ] 61,247, on reh'g, 
Order No. 2222-A, 174 FERC ] 61,197 (2021).
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    20. So, just as FERC cannot directly impose a carbon tax without a 
clear grant of congressional authorization, arguably it would be a 
distinction without a difference for FERC to approve a proposal from an 
RTO/ISO to impose a carbon tax (as opposed simply to recognizing an 
individual state's carbon tax, as discussed below.)
    21. This would include efforts by a multi-state RTO/ISO (and its 
market participants \21\) to address ``leakage'' (a euphemism for 
``states that won't impose carbon taxes'') \22\ by penalizing resources 
in states within the RTO that have not imposed a carbon tax; \23\ such 
as, for example, attempting to levelize the costs of state-imposed 
carbon taxes by imposing a higher offer floor (MOPR anyone?) on untaxed 
resources from the non-conforming ``leakage'' states in the RTO/ISO.
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    \21\ For example, Exelon argues that ``[f]ailure to address 
emissions leakage in a coordinated manner is causing wholesale rates 
to become unjust, unreasonable and unduly discriminatory.'' Exelon 
Corporation November 16, 2020 Comments at 8.
    \22\ See, e.g., Exelon Corporation December 1, 2020 Reply 
Comments at 6 (``Instead, resources in states with no carbon price 
seek to preserve the artificial and unintended advantage that they 
currently enjoy as a result of other states joining RGGI by opposing 
Commission action. Thus, their positions in this proceeding are 
efforts to throw carpet tacks in the path of progress toward 
properly functioning carbon pricing mechanism(s) that include 
leakage mitigation.'').
    \23\ See, e.g., id. at 10 (``[T]he Commission must act under 
section 206 to rectify the [leakage] situation--such as by requiring 
RTO/ISOs that have states with carbon pricing to implement a leakage 
mitigation mechanism . . . . In other words, the intent and effect 
of leakage mitigation is to remove the impact of an unwanted carbon 
price from states with no carbon pricing.'' (citation omitted) 
(emphasis in original)).
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    22. Can FERC allow an RTO/ISO to recognize carbon taxes imposed by 
one or more states? If a state has used its sovereign authority to 
impose a carbon tax, directly or indirectly, and that tax is simply 
incorporated into the production costs of a resource from that state 
offered into the RTO/ISO markets, there is no reason for FERC to 
intervene.\24\ State-imposed regulatory costs, which of course differ 
from state to state, are already ``baked in'' to a bidder's costs and 
present no cause for FERC's concern.
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    \24\ See, e.g., Ari Peskoe October 5, 2020 [filed] Opening 
Statement at 1 (``The Commission allows sellers to recover in 
wholesale rates compliance costs associated with emissions 
regulations, and the Commission would have no basis to prevent 
regulated entities from passing through the costs of a state-set 
carbon price.'').
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    23. Just as with proposals to accommodate other state policies, 
however, consideration of each specific proposal will be highly fact-
intensive and one key question will be to determine whether the line 
has been crossed between simply recognizing an individual state's 
carbon tax versus imposing that state's tax on generating resources--
and consumers--in other states that have not consented to be taxed, an 
especially salient question in multi-state RTOs/ISOs.
    24. All future proceedings under Section 205, 206 or other 
statutory provisions will, of course, come with their own individual 
evidentiary records and will be judged individually at that future 
time. To the extent, however, the Policy Statement may be interpreted 
to invite proposals inconsistent with the general principles stated 
above, I respectfully dissent.
    For these reasons, I respectfully concur in part and dissent in 
part.

Mark C. Christie,
Commissioner.

[FR Doc. 2021-08218 Filed 4-22-21; 8:45 am]
BILLING CODE 6717-01-P