IEEE Power & Energy Magazine - January/February 2021 - 48

Leakage refers to a situation in which there are shifts in
generation and emissions from resources subject to a
carbon price to higher-emitting resources that are not.

markets would help send efficient price signals to market
participants about the value of clean energy resources and
align electric systems with decarbonization goals. It may
also accelerate the transition to a clean energy future by
directly incentivizing new entry of low-carbon resources
in locations where they would displace the most carbon
dioxide emissions.
In New York, there has been interest in pricing carbon
dioxide emissions in addition to the state's current participation in the Regional Greenhouse Gas Initiative (RGGI), a
cooperative effort among 10 Northeastern states to cap and
reduce power sector carbon dioxide emissions. NYISO, in
conjunction with its stakeholders, developed a design where
the state sets a social cost of carbon as a price per ton of
carbon dioxide emitted based on state goals and the environmental impact. The emitting generators pay for the carbon dioxide they release into the atmosphere. Participants
receive economic incentives to invest in low-carbon technologies, and existing participants receive incentives to
reduce their carbon emissions. The revenue collected from
emitting resources is then returned to wholesale customers.
The design also addresses emissions-leakage concerns with
neighboring states. Leakage refers to a situation in which
there are shifts in generation and emissions from resources
subject to a carbon price to higher-emitting resources that
are not. Leakage can hinder emissions-reduction policies
when energy from higher-emitting resources outside of the
carbon pricing region displaces efficient, lower-emitting
resources within the region. Also, unmitigated leakage

New York State Sets
a Social Cost of
Carbon
as a Price per Ton of Emitted
Carbon Dioxide Based on
the Impact to the Environment

Power Plants Pay
for the Carbon They
Release Into the Atmosphere

can potentially impact investment decisions and consumer
costs throughout the system. The way the NYISO design
alleviates these concerns is by charging a price at New
York's electrical border that does not reflect the carbon
price so that a cheaper, higher-emitting supply would not
gain market share.
An analysis of the proposal has shown that it would
✔✔ reduce the consumer cost of reaching the state's goal
of 100% carbon-free emissions by 2040
✔✔ help grow investment and innovation in clean energy
generation
✔ ✔ promote innovation and efficiency in fossil fuel
technology
✔✔ improve public health by encouraging retirement of
the highest-emitting generators.
The design has proceeded through the NYISO stakeholder process and now awaits support from New York State.
If supported by the state and approved by stakeholders, the
NYISO Board of Directors, and FERC, carbon pricing in
New York would be implemented (see Figure 4).
PJM Interconnection, which operates in 13 states and
the District of Columbia, has a unique challenge related to
the diverse range of emission policy initiatives across the
region it serves. Three states currently participate in RGGI,
while two others have taken steps to join (see Figure 5). Eleven
states have renewable portfolio standards or goals employing renewable energy credits, and four states have or are
investigating providing subsidies to a broader subset of zeroemitting generation.

Generation Owners Receive
Economic Incentives
to Invest in Low-Carbon or
Carbon-Free Resources Like
Wind, Solar, and Hydro

Consumers
Benefit From Payments
Made by Polluting
Power Producers

figure 4. An overview of NYISO carbon pricing design.
48

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january/february 2021

IEEE Power & Energy Magazine - January/February 2021

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