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Carbon pricing would smooth transition to all-green energy, study says

The state’s sweeping plan for an all-green energy grid by 2040 would go more smoothly and cheaply if wholesale energy markets adopted a pricing plan that rewards the cleanest power sources, while taxing the dirtiest, according to a new study.

A so-called carbon-pricing plan being proposed by the independent state energy-market manager could have major impacts for the types of largely fossil fuel-based energy sources that are prevalent on Long Island, some of which provide benefits beyond energy production, experts say.

The operator of four waste-to-energy power plants, in Hempstead, Huntington, Babylon and Islip, for instance, has said the pricing would cost it hundreds of millions of dollars, and could even force closure of some of the facilities, which incinerate more than half Long Island’s municipal waste.

The New York Independent System Operator, which operates the state market and has been advocating for the carbon pricing plan, found reason to cheer after a recent study by the Analysis Group said the new market plan could provide savings statewide of more than $3 billion between 2022 and 2036.

It would do so by encouraging plant developers and investors to shift more quickly to carbon-free energy sources, locate them where clean power is needed most, and retrofit or shut down dirtier plants sooner to avoid paying the carbon cost in wholesale markets.

"Simply stated, it makes cleaner energy more profitable, and carbon-emitting energy more expensive by incorporating the cost of carbon emissions," the agency said. "It also appropriately places the financial risk for developing cleaner, greener technology on investors rather than consumers."

The study didn't examine the specific cost to ratepayers.

Covanta, which operates the four waste-to-energy plants, has expressed concern about the carbon pricing model, chiefly because waste-to-energy plants are among the largest carbon emitters. Covanta has said the models unfairly fail to recognize the plants’ role in keeping trash out of landfills, which are also responsible for greenhouse gas emissions.

“Our major concern with NYISO’s carbon pricing mechanism has been that it didn’t recognize that our facilities were first and foremost solid waste management facilities,” said James Regan, a spokesman for Covanta.

But Regan said passage of the state’s Climate Leadership and Community Protection Act this year “has shifted the focus from the electricity sector exclusively to the state’s entire economy including the waste management sector. We think this is an important step.” 

The Long Island Power Authority gets most of its energy from natural gas plants such as the Caithness Energy facility in Yaphank, and National Grid plants, plus power from cables tied to such facilities off Long Island.

Carbon pricing “definitely would put a negative slant on the existing plants because it would cost more to operate them,” said LIPA trustee Matthew Cordaro. Under such a plan, the state’s proposal for potentially more than 1,000 offshore wind turbines “wouldn’t look as expensive because you are raising the cost of fossil fuel power,” Cordaro said.

New York State in the coming weeks or months is expected to release ratepayer costs for  the first generation of state-contracted offshore wind farms that will produce power for more than 1 million customers.

James Denn, a spokesman for the state Public Service Commission, said "well-designed," market-based approaches such as a carbon-pricing plan “can be effective instruments of state policy to combat climate change faster, fairer and more affordably." He declined to say whether the state was on board to back the system.

The Public Service Commission is “closely following the NYISO process to ensure that potential outcomes benefit and meet the energy needs of all New Yorkers and align with our overall strategy to reduce emissions cost-effectively.”

Any pricing plan also would need approval from the Federal Energy Regulatory Commission. NYISO chief Rich Dewey hesitated when asked during a conference call last week whether the agency was concerned the Trump administration’s support for fossil fuel plants could lead it to reject New York’s carbon-pricing plan.  

“That question requires a lot of speculation,” he said. “We’re going to pass on that.”

PSEG Long Island, which manages the electric grid under contract to LIPA, has been reviewing the carbon pricing model and the latest report with an eye toward impacts on the system and customer cost, an official said. The company hasn’t concluded a localized cost study of how it would affect plants or customer costs.

“We’re still evaluating the [carbon pricing] proposal,” said the official, who requested his name not be used. “We have a responsibility to ensure both reliability and low cost to our consumers. The bottom line is we’ll do what we need to keep the lights on and keep costs” contained.

A previous report commissioned by the NYISO had projected a statewide cost to average customers of about $20 year for carbon pricing, but officials at the agency said the state’s new climate legislation and other factors could change that conclusion.

“We need to run an updated number based off the new report,” said NYISO spokesman Kevin Lanahan, who stressed the report’s conclusion that a carbon pricing scheme could “conservatively” save customers from $280 million to $850 million as the state transitions to all green energy.

“If you’re going to eliminate all fossil fuels, this could help you get there at less a cost than it would otherwise,” said Cordaro. “But the bottom line is the ratepayer is still going to have to pay a significant amount of money.”

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