CARBON PRICING IN

CALIFORNIA, CAISO, & THE EIM

Duke / NYU Workshop | March 3, 2020

Danny Cullenward jd, phd

Lecturer & Affiliate Fellow, Stanford Law School

Member, Independent Emissions Market Advisory Committee *

dcullenward@ghgpolicy.org // www.ghgpolicy.org

* I am speaking only for myself, not the IEMAC

KEY QUESTIONS

• How does the CAISO Energy Imbalance Market (EIM) incorporate California’s carbon price?

• How does the California Air Resources Board (CARB) incorporate electricity imports into its climate policy and manage greenhouse gas emissions leakage from the EIM?

• What legal and policy issues arise when states manage climate policy under a FERC-approved regional tariff structure?

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Real-time energy market

No mandatory dispatch to serve core CAISO load

Modest trading volume, but big future potential

Divergent energy policy preferences across states

Divergent climate policy preferences across states

Figure source: CAISO

GHG EMISSIONS LIABILITY IN CALIFORNIA

• Unlike RGGI, CARB uses a “first deliverer” liability structure in which electricity importers must surrender compliance instruments in the state’s cap-and-trade program.

—Cal. Code Regs., title 17 § 95811(b); id. at § 95852(b).

• Unspecified electricity sources assigned an emissions factor of 0.428 tCO2e/MWh, similar to a natural gas power plant.

—Cal. Code Regs., title 17 § 95111(h); see also Kaatz & Anders (2016); Schivley et al. (2018); de Chalender et al. (2019).

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CARBON PRICING MECHANISMS

Transaction Carbon price

California to CAISO (*) Implicit Mandatory

California to EIM (*) Implicit Mandatory

EIM to CAISO Explicit GHG Bid Adder Voluntary

EIM to EIM None Voluntary

(*) Analogous to interactions between RGGI and non-RGGI states

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GHG BID ADDER – VOLUNTARY

• Out-of-state generators include a GHG bid adder ($/MWh) based on facility-specific GHG emissions rate multiplied by secondary California market price.

• If the out-of-state generator includes no GHG bid adder or bids zero quantity (0 MW), the out-of-state resource will not be deemed dispatched to California.

—See CAISO Fifth Replacement Tariff § 29.32;

CAISO, 147 FERC ¶ 61,213 (2014);

CAISO, 149 FERC ¶ 61,058 (2014).

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EMISSIONS LEAKAGE

• “Secondary dispatch” in EIM leads to emissions leakage

• CAISO’s “two-pass” proposal and final approach

• CARB’s cap-and-trade leakage adjustments:EIM imports ultimately treated as “unspecified emissions” (0.428 tCO2e/MWh)

—See Chapter 4 in IEMAC (2018); Chapter 3 in IEMAC (2019); Hogan (2017);

see also Cal. Code Regs., title 17, § 95852(l) (liability); id. at § 95111(h) (accounting).

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LEGAL AND POLICY ISSUES

Consistency between:

• State and federal emissions accounting

• Facility-specific vs. universal emissions factors

• Wholesale markets and bilateral contracts

For cap-and-trade programs, does a market-wide cap adjustment resolve leakage issues with minimal legal risks?

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THANKS! QUESTIONS?

Danny Cullenward jd, phd

dcullenward@ghgpolicy.org

www.ghgpolicy.org

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REFERENCES

California Air Resources Board, Cap-and-Trade program regulation (Apr. 1., 2019), https://ww3.arb.ca.gov/cc/capandtrade/capandtrade/ct_reg_unofficial.pdf.

California Air Resources Board, Mandatory Reporting Regulation (Apr. 1., 2019), https://ww2.arb.ca.gov/mrr-regulation

California Independent System Operator Tariff, http://www.caiso.com/rules/Pages/Regulatory/Default.aspx.

Jacques A. de Chalender, John Taggart, and Sally M. Benson, Tracking emissions in the US electricity system, Proceedings of the National Academy of Sciences 51: 25497-502 (2019).

IEMAC, 2018 Annual Report of the Independent Emissions Market Advisory Committee (Oct. 2018), https://calepa.ca.gov/climate/iemac-independent-emissions-market-advisory-committee/.

IEMAC, 2019 Annual Report of the Independent Emissions Market Advisory Committee (Dec. 2019), https://calepa.ca.gov/climate/iemac-independent-emissions-market-advisory-committee/.

Joe Kaatz & Scott Anders, The role of unspecified power in developing locally relevant greenhouse gas emissions factors in California’s electric sector, Electricity Journal 29: 1-11 (2016).

William W. Hogan, An efficient Western Energy Imbalance Market with conflicting carbon policies, Electricity Journal 30: 8-15 (2017).

Greg Schivley, Inês Azevedo, and Constantine Samaras, Assessing the evolution of power sector carbon intensity in the United States, Environmental Research Letters13(6): 064018 (2018).

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