In carbon-pricing model, PJM states benefit from sharing Clean Power Plan burdens

By Emily Holden | 03/05/2015 08:22 AM EST

States that are better-situated to meet carbon emission levels under the Clean Power Plan still might suffer from higher compliance costs if they don’t work with their neighbors, according to an economic analysis by the PJM Interconnection.

"State-by-state compliance options, compared to regional compliance options, likely would result in higher compliance costs for most PJM states," according to a report from the regional grid organization, which serves 13 states in or near the Mid-Atlantic and Midwestern regions, as well as the District of Columbia. "This is because there are fewer low-cost options available within state boundaries than across the entire region."

U.S. EPA’s Clean Power Plan asks states to write their own plans to reduce electricity-sector emissions by differing amounts, either working alone or together.


Because the electric grid is so interconnected, the study implies that states with lower compliance costs might still see higher regional electricity prices if they don’t share carbon-reducing resources with states that are working toward tougher goals.

"The implication is that even though the … regional compliance scenario resulted in a CO2 price of zero, and some states on an individual basis also have a CO2 price of zero, there is still a cost in the form of higher [locational marginal price] and load energy payments to all states by choosing individual state compliance," according to state-level data.

PJM’s study instituted a carbon price to predict the impact of the Clean Power Plan in 17 scenarios, examining varying levels of renewable resources, energy efficiency, natural gas prices, nuclear generation and new natural gas combined-cycle units. The report looked at the cost of achieving mass-based targets, or caps on the amount of carbon dioxide that states would emit.

The report says the modeling can be compared to an emissions tax or a system for states to swap credits for emissions or reductions. Either way, compliance would be ensured for the whole region.

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PJM operates in 14 jurisdictions: Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. At least four states — Indiana, Illinois, Ohio and West Virginia — would not meet their mass targets for 2020 if they tried to comply individually.

Under the regional modeling, some states would offset other states’ emissions to bring down costs overall.

Kentucky, for example, has less stringent goals than other coal-intensive states. In a regional scenario, it would overshoot its target by 5 million to 8 million tons of carbon emissions by 2029, enabling it to offset emissions in states that fall short of their individual goals.

PJM and other grid organizations have for months been encouraging states to overcome politics and work together to comply with the proposed rule. The research, though, is not meant to advocate particular policy positions.

The findings seem to support arguments for regional compliance, but they also highlight a key obstacle: persuading states with less stringent goals to be part of a multistate compliance plan.

The incentives for regional cooperation may not be enough to overcome the political dynamics in coal-dependent Kentucky — a state that has enacted a law deeming the regulation illegal and limiting compliance options.

State officials in Kentucky have said they might not need to do anything to comply and may be able to rely on already-planned coal plant shutdowns to reach required emissions levels by 2030 (Greenwire, March 4). And Kentucky’s Mitch McConnell, majority leader of the U.S. Senate, wrote an op-ed this week urging other states to refuse to comply with the Clean Power Plan (Greenwire, March 4).

Given the political environment, it could be difficult to bring states like Kentucky on board with a regional solution, like a carbon tax or trading system.