Carbon pricing proposal in New York provides path to nation’s clean energy future

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Across the country, policymakers at all levels of government are exploring initiatives to address climate change. New York State’s Climate Leadership and Community Protection Act remains one of the most ambitious, with its requirement that “the statewide electrical demand system will be zero emissions” by 2040.

So how do we get to a zero-emission system? The New York Independent System Operator (NYISO) is working on a market enhancement that could not only help lead New York to success, but could also serve as a model for the nation to reduce greenhouse gas emissions.

Our proposal is to incorporate the social cost of carbon dioxide emissions into New York’s wholesale electricity markets, commonly referred to as carbon pricing.

The NYISO is a private, non-profit organization that manages the New York electricity grid and its wholesale, competitive markets. For the past 20 years, electricity markets have promoted competition and electric system reliability at the lowest cost for consumers. Cost-based competition encouraged deployment of efficient, combined-cycle generation to displace older, more polluting generators, improving reliability while providing economic and environmental benefits. The energy markets in New York have a proven history of rewarding the most efficient ideas to meet the primary goal of grid reliability at the least cost to consumers.

Carbon pricing puts a price per ton on carbon dioxide emissions, which would be paid by carbon-emitting generators such as fossil-fuel-burning plants. The effect would promote clean energy generation and encourage dirtier generators to close or invest in more efficient technology and reduce their carbon output. 

Here’s how it works:

  1. The state sets the carbon price, a certain amount per ton of CO2 being emitted.
  2. Carbon-emitting power plants pay for the carbon they release into the atmosphere.
  3. About half of the revenue goes to low-carbon or carbon-free resources like wind, solar and hydro.
  4. The rest would be distributed back to consumers.

This approach creates a strong economic incentive that values cleaner energy production and drives investment in new, lower carbon-emitting technologies. It promotes innovation, helping to grow clean energy businesses in New York State. And it encourages existing carbon-emitting plants to invest in repowering or in emission-reducing technologies, a key component. Current clean energy incentive programs offer no encouragement for conventional plants to reduce carbon dioxide emissions.

In New York, a majority of energy industry stakeholders — including generator owners, utilities, environmentalists, investors and consumers — came together to work with the NYISO to develop the current carbon pricing proposal. If the approach is supported by state policymakers and accepted by the Federal Energy Regulatory Commission, carbon pricing will provide an incentive for New York’s energy industry to meet the state’s ambitious environmental goals, and the needs of a changing grid.

A recent study by the Analysis Group (AG) shows the benefits of carbon pricing. According to AG, “a carbon price in NYISO’s competitive wholesale power markets can help deliver New York’s clean-energy transition in faster, cheaper, more reliable, more efficient, and more creative ways.”

Putting a price on carbon emissions has the potential to drive the types of changes that are needed more quickly and less expensively. As state policy searches for new ways to fight the threat of climate change, a carbon price in the NYISO markets can help deliver New York’s clean energy transition.

Richard J. Dewey is president and chief executive officer of the New York Independent System Operator (NYISO). With a background in IT and network services, Dewey joined the NYISO soon after it was formed in 1999, and has held a number of executive roles before becoming its leader earlier this  year.

Tags Carbon finance Carbon pricing Climate change policy Energy economics New York

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