How Markets Can Help Reduce Greenhouse Gas Emissions and Create Economic Opportunities

Nicholas Institute Senior Counsel Jennifer Chen was recently invited to speak before the U.S. House Select Committee on the Climate Crisis. Her remarks focused on how regional energy markets could help cut greenhouse gas emissions while providing consumer savings and economic opportunities to all states—regardless of individual state climate ambitions.

Two-thirds of U.S. customer demand is served through wholesale electricity markets, which are operated by Regional Transmission Organizations (RTOs) and regulated by the Federal Energy Regulatory Commission (FERC).

In these markets, suppliers sell electricity to utilities for resale to consumers. Markets select the least-cost options first (usually zero-fuel-cost wind and solar). As demand rises, the grid draws on more expensive and often more polluting resources.

Markets that allow all resources to compete can facilitate meeting climate goals while providing cost-effective and reliable service to consumers. While there are many ways to improve these markets, Chen focused her statement on how allowing voluntary access to these markets from non-RTO-member utilities could potentially benefit all states while helping states with climate goals to achieve them.

Extending the reach of the market evens out wind and solar generation by allowing areas with surplus wind and sunshine to provide cheap electricity to areas with high demand. Indeed, the California Independent System Operator opened its real-time energy market to neighboring non-member utilities, and in doing so, the region has cut greenhouse gas emissions while providing economic savings to all participants.

At least 37 U.S. states have renewable portfolio standards or goals, while all states have low-cost renewable resources they could develop (as seen in the two maps below).

   

While one-third of the U.S. is not part of an RTO, providing broader access to RTO markets could open up additional economic opportunities for renewables.

Transmission infrastructure improvements (the subject of a separate Committee meeting), done efficiently and sensitively sited, are critical to facilitating renewables integration, but there are ways to better use existing infrastructure without waiting for new transmission to be built. As an initial step, Chen suggested that other RTOs could similarly open their energy markets to voluntary participation from neighboring utilities. FERC could also review the rules that impede interregional sharing of resources between RTOs.

A larger and more flexible grid can better integrate renewables as well as resiliently respond to extreme weather events. Sharing more resources between all regions, whether between RTOs or more broadly with non-RTO regions, has in the past kept the electricity running when the grid is stressed. FERC could also help improve the flexibility of the grid by finalizing its rule enabling distributed energy resources (like electric vehicle batteries or rooftop solar) to sell into the wholesale electricity markets.

FERC could initiate a proceeding to holistically examine how needed flexibility could best be achieved—whether by enlarging the grid, bringing on more flexible resources, or improving operations—instead of leaving it to the RTOs to address piecemeal. This would be similar to the kind of proceeding FERC recently conducted in investigating whether the grid needs to improve in resilience, what that means, and how.

 Read Chen’s full statement to the Committee. (PDF)