“FERC appears to have ignored the track record of top-down state and regional climate policies, which have increased costs and negligibly impacted the environment.”
“Prior to providing a blanket endorsement for state carbon pricing, the commission needs to hear from families, small businesses, and workers who will pay substantially more for electricity.”
Last week, the Federal Energy Regulatory Commission (FERC) announced that President Trump had replaced then-Chairman Neil Chatterjee with Commissioner James Danly. Media reports suggested that the President’s decision to swap Republican Commissioners – both of whom he had nominated – was driven by dissatisfaction with Chatterjee’s push to accommodate state carbon dioxide (CO2) taxation.
Background
The change followed an unusual move by FERC to host a September 30 Technical Conference on Carbon Pricing in Organized Wholesale Electricity Markets. Two weeks later, the Commission issued a proposed policy statement that extolled the benefits of a wide variety of costly, ineffective, top-down decarbonization policies, including carbon taxes and cap-and-trade programs. If this were not enough, FERC invited investor-owned utilities and regional transmission organizations (RTOs) “to explore establishing wholesale market rules that incorporate state-determined carbon prices.”
FERC usually conducts its business by acting on filings or initiating proceedings. So why are some commissioners going out of their way to write a blank check for state and regional climate programs, many of which have been shown to have a harmful impact on low-income families and a negligible impact on greenhouse gases?
The new strategy, in short, is highly problematic and inconsistent with the Commission’s charter under the Federal Power Act of 1935.
Consumers Last?
FERC appears to be completely ignoring consumers’ concerns. Prior to providing a blanket endorsement for state carbon pricing, the commission needs to hear from families, small businesses, and workers who will pay substantially more for electricity.
FERC’s failure to ask any questions regarding the impact on ratepayers in the policy statement is troubling, in fact. FERC’s responsibility to ensure rules for electricity that are just, reasonable, and not unduly discriminatory or preferential. The absence of consumer voices in the technical conference or policy statement is even more stark as rent-seeking firms, monopoly utilities, RTOs, environmental groups, and others were well represented.
In addition, FERC has failed to acknowledge that the hundreds of subsidies, tax credits and mandates for different energy sources at all levels of government already create a hidden, de facto carbon price, adding hundreds of thousands of dollars to the electricity or tax bills of American families.
Second, the proposal’s bias toward “potential benefits,” while offering no mention of potential costs, is confounding. One of the principles of sound policymaking is to evaluate the costs and benefits of policy proposals to determine if said policy intervention is worth pursuing. By pretending there is no cost associated with aggressively taxing CO2 in our electricity supply, proponents overlook the regressive effects these actions can have on American families.
Third, the Commission acknowledges that it “is not an environmental regulator,” then mistakenly assumes the effectiveness and transparency of a wide variety of top-down carbon policies adopted by public utilities and RTOs, which are also not environmental regulators.
FERC, tasked with regulating the performance of wholesale markets in consumers’ interest, is in no position to address these matters without clear congressional guidance. When federal environmental statutes like the Clean Air Act are interpreted to mandate emission controls for certain facilities, FERC has enabled state regulators and utilities to incorporate those costs in rates. The same federal mandate does not exist for greenhouse gases. FERC’s footnoting of this issue in the policy statement demonstrates its misunderstanding of environmental law and cooperative federalism.
Correcting Mission Creep
Now-Chairman Danly issued a terse, partial dissent that highlights some key concerns with the origin of this effort. In it, he argues that the policy statement was “unnecessary and unwise,” and wondered why the commission felt the need to opine on a jurisdictional matter in a vacuum without seeing details on what might be proposed. By making up their minds before a legitimate proposal was brought to FERC, the former chairman and Commissioner Richard Glick have undertaken extra-statutory advocacy to endorse policies that will leave the American people worse off.
This appears to be a pattern from the former chairman, who has scheduled technical conferences and roundtables, unprompted by actual filings or rulemakings, on topics such as electric vehicles, offshore wind, and storage in recent months. It is also contrary to the Administration’s efforts on energy affordability and reducing the impact of non-regulatory agency guidance, which often serves as shadow regulation.
This approach is also directly at odds with Chatterjee’s correct 2017 admonition on the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan that federal agencies should not adopt sweeping, top-down climate policy “through administrative action without a clear statutory directive or limiting principle.”
Pain, No Gain Economics
FERC appears to have ignored the track record of top-down state and regional climate policies, which have increased costs and negligibly impacted the environmental. The purpose of regional electricity markets has always been to increase competition and increase efficiencies that deliver benefits to customers in the form of lower electricity prices. Yet by cheerleading cost-inflating proposals in a vacuum, FERC is abdicating its role as an impartial economic regulator that protects consumer interest, instead becoming partisan for a political cause.
A 2020 analysis from the Massachusetts Institute of Technology shows that top-down decarbonization efforts, whether through cap-and-trade, sectoral greenhouse gas regulation, or carbon taxes, will cost the lowest income American families hundreds of dollars per year on their electricity bills. Even before the pandemic, surveys showed that less than one-third of Americans said they would be willing to spend $10 more on their electricity bills to address climate change. It should come as no surprise that Latino groups, environmental justice communities, and elected officials are pushing back on these top-down policies.
Top-down solutions like carbon taxes have also proven monumentally ineffective at reducing greenhouse gas emissions. From 2007 to 2019, U.S. energy-related carbon dioxide emissions have fallen by roughly 15 percent, while global emissions have increased by more than 20 percent. The International Energy Agency recognizes that the U.S. saw the largest reduction of energy-related CO2 emissions of any country between 2018 and 2019 and the largest absolute decline since 2000. These trends have been accomplished without top-down energy policies that replace consumer choices with political preferences.
These lessons about the ineffectiveness of top-down policy is even starker at the state level. According to the latest data from the U.S. Energy Information Administration, since 2007 states that have avoided these policies (including Alabama, Alaska, Indiana, Kentucky, West Virginia, and Wyoming) have each reduced per capita energy-related CO2 emissions more than five times more than California.
Over that same period, North Dakota, South Carolina, Georgia, and Kentucky have ranked in the top five states for reduced energy intensity, reducing energy per dollar of GDP more than 10 times more than New York.
Misael Cabrera, director of Arizona’s Department of Environmental Quality, recently explained that Arizona and Utah have far outpaced regional competitors such as Oregon, California, New Mexico, and Washington in terms of both population growth and reduced carbon dioxide emissions through “market forces and a balanced energy portfolio,” not via statewide greenhouse gas policy.
Conclusion
FERC’s charter is to promote competitive prices in the wholesale electricity market. Americans deserve transparency against backdoor agendas at this agency as well.
New FERC Chairman James Danly should withdraw this one-sided policy statement–and wait for an actual proposal before making decisions that have an enormous impact on the life of American workers, businesses, and families.
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Martin Rodriguez (@MartinRodRodr) is Policy Analyst at Americans for Prosperity (AFP). Clint Woods (@ReformRegs) is AFP’s Policy Fellow for Regulations, and previously served as Deputy Assistant Administrator for U.S. EPA’s Office of Air and Radiation.