Commissioner Mark C. Christie Statement
April 15, 2021
Docket No. AD20-14-000
Order: E-2
I concur that any filing under Section 205 proposing some form of carbon pricing will be evaluated on the facts and circumstances attendant to that filing.[1]
I dissent from those parts of the Policy Statement[2] to the extent those provisions may be interpreted to appear to invite proposals for carbon pricing that are inconsistent with the following general principles.[3]
First, it’s important to be straightforward with the public about what is being considered in this proceeding. For a government to retain the trust of the people, it is imperative to avoid what George Orwell criticized as language that disguises the truth about government actions behind euphemisms and other distortions.[4]
So let’s be clear: the term carbon “price” as used in this docket,[5] and by many commenters advocating for it, is a carbon tax. This is not just a matter of semantics. Using terms accurately will not only better serve and inform the public, but is essential to clarify, and avoid obfuscating, the legal – including constitutional – questions regarding this Commission’s authority, as discussed further below.
As advocated by many commenters herein, a carbon “price” is intended – just like the tax it is– to raise the price to consumers of a product, in this case an energy resource based on its carbon attributes. Raising the price, of course, is the whole point of the policy.[6] Whether in the form of an ad valorem add-on to the market price, similar to a sales tax, or a price floor set above the market price, or a cap-and-trade system, such as the Regional Greenhouse Gas Initiative (RGGI), the term carbon “price” as used in this Policy Statement and advocated by many in this docket means carbon tax.[7] As one commenter quite accurately describes it:
Regardless of the program design, the carbon price will likely increase periodically, either administratively through a pre-set carbon price schedule or through periodic contraction of the number of emissions allowances introduced into the market, which will tend to drive up the price.
. . .
Incorporating a carbon price in wholesale electricity markets will raise [Locational Marginal Prices] . . . .[8]
Of course, use of the euphemism carbon “price” meshes with what may be called the “nothing to see here” argument, which goes something like this: FERC’s sanctioning of carbon “prices” in RTO/ISO markets is part of the natural evolution in the long continuum of FERC’s regulation of wholesale rates under the Federal Power Act,[9] and carbon “pricing” is simply part of and will improve price formation[10] in FERC-regulated wholesale markets, with the carbon “price” properly added to address an externality.[11]
A carbon tax, however, does not cease being a tax just because its ostensible purpose is to address a single externality (while ignoring the universe of other relevant externalities, both positive and negative). Just like litter and bottle taxes enacted by many states and localities to defray the costs of roadside trash pick-up, it’s still a tax, not just a minor element of price formation.
So let’s be honest with the public about what this proceeding is really about and not hide behind the euphemism carbon “price.”
At this point let me emphasize that simply labeling a carbon tax proposal accurately does not determine whether it is good or bad public policy, at either federal or state levels. Indeed, that’s not for an administrative agency to decide.
At the federal level, Congress could conclude that from an economic standpoint a federal carbon tax is a more transparent and less harmful way to decarbonize the economy than a rent-seekers’ paradise of subsidies (the euphemism is “policy support”), mandates, wealth transfers and regulatory actions that threaten both reliability and affordable consumer costs.[12] Congress could couple it with rebates to the consumers and taxpayers who will pay it. But those are questions for Congress to consider.
Some may even call a federal carbon tax the ‘textbook solution’ to achieving decarbonization. And it may be, if the textbook is an economics textbook. In the United States, however, there is always another textbook that must be consulted when deciding major questions of public policy, and that is the textbook of constitutional law and government.
The power to tax is one of the most important powers any government can exercise.[13] If democracy and self-government mean anything, they mean that only those elected by the people should have the power to make the major policy decisions that affect people’s lives in such important ways, and the power to tax clearly falls under any concept of major policy decision.[14]
So the broader question providing context for this and future proceedings goes to the heart of democratic government itself and, that is: Who should have the power to tax?
And we don’t have to answer that question because the Constitution already has. It makes it clear that only those elected by the people to the legislative branch have this power.[15] Congress can legislate to grant this power to an administrative agency through a clear and specific statute – and take accountability for its decision – but in the case of taxing carbon no one has made a convincing case that Congress has granted this power to FERC.
With the above general principles in mind, let’s look at four general questions pertinent to this proceeding that are implicitly raised by the Policy Statement and which have been alluded to by the many commenters:
Can states impose carbon taxes? As the Policy Statement notes, the answer is clearly yes, under their plenary police powers, as long as they don’t attempt to tax transactions where federal law has explicitly pre-empted them. They don’t need FERC’s permission to impose carbon taxes on retail sales or energy production, if they choose; they can do it now. Several states have already used their sovereign powers to impose carbon taxes, either directly or indirectly.[16] RGGI, adopted by several eastern states, is an example of an indirect carbon tax.[17]
Can FERC impose a carbon tax at the wholesale level through its power to regulate RTOs/ISOs? As noted above, Congress would have to empower FERC by a clear and specific statute to impose carbon taxes in RTO/ISO markets and no one in this record has presented a convincing argument that Congress has done so.
Can FERC allow an RTO/ISO to impose a carbon tax on wholesale sales of power? To a certain extent, this question implicates the broader question about the nature of RTOs/ISOs. Some argue that they are merely private utilities and FERC’s only role is to review a rate filing from an RTO/ISO and to approve the filing unless FERC finds it to be “unjust, unreasonable or unduly discriminatory.”[18]
Rather than being little more than private utilities, however, RTOs/ISOs in their present incarnation were essentially created by FERC, as part of the “restructuring” era of the late 1990s/early 2000s, to carry out FERC-driven rate policies.[19] In form, substance and practice, not to mention in their complex governing structures and processes (especially in multi-state organizations), RTOs/ISOs have evolved to resemble somewhat more the hybrid entities that the British not so lovingly call “QANGOs” (quasi-autonomous non-governmental organizations) than they do purely private utilities. This is especially true with regard to multi-state RTOs/ISOs, in which utilities from many different states participate and in which the interests and policies of those multiple states are implicated. Over the past two decades these organizations have taken on various regulatory roles that are more governmental in nature than private, in some cases literally displacing state regulatory authority.[20]
So, just as FERC cannot directly impose a carbon tax without a clear grant of congressional authorization, arguably it would be a distinction without a difference for FERC to approve a proposal from an RTO/ISO to impose a carbon tax (as opposed simply to recognizing an individual state’s carbon tax, as discussed below.)
This would include efforts by a multi-state RTO/ISO (and its market participants[21]) to address “leakage” (a euphemism for “states that won’t impose carbon taxes”)[22] by penalizing resources in states within the RTO that have not imposed a carbon tax;[23] such as, for example, attempting to levelize the costs of state-imposed carbon taxes by imposing a higher offer floor (MOPR anyone?) on untaxed resources from the non-conforming “leakage” states in the RTO/ISO.
Can FERC allow an RTO/ISO to recognize carbon taxes imposed by one or more states? If a state has used its sovereign authority to impose a carbon tax, directly or indirectly, and that tax is simply incorporated into the production costs of a resource from that state offered into the RTO/ISO markets, there is no reason for FERC to intervene.[24] State-imposed regulatory costs, which of course differ from state to state, are already “baked in” to a bidder’s costs and present no cause for FERC’s concern.
Just as with proposals to accommodate other state policies, however, consideration of each specific proposal will be highly fact-intensive and one key question will be to determine whether the line has been crossed between simply recognizing an individual state’s carbon tax versus imposing that state’s tax on generating resources – and consumers – in other states that have not consented to be taxed, an especially salient question in multi-state RTOs/ISOs.
All future proceedings under Section 205, 206 or other statutory provisions will, of course, come with their own individual evidentiary records and will be judged individually at that future time. To the extent, however, the Policy Statement may be interpreted to invite proposals inconsistent with the general principles stated above, I respectfully dissent.
For these reasons, I respectfully concur in part and dissent in part.
[1] See Policy Statement at PP 20 and 22.
[2] See, e.g., id. PP 11, 17-19.
[3] Any future filing will come with its own evidentiary record and be considered individually.
[4] See, e.g., George Orwell, Animal Farm (1945); George Orwell, Nineteen Eighty-Four (1949).
[5] See Policy Statement at P. 7.
[6] See, e.g., Public Interest Organizations November 16, 2020 Comments at 3 (“Taxes and supports are equal but opposite measures: a tax (or fee) increases costs and thus reduces the quantity of a good or activity the state deems undesirable, while a support lowers costs and increases the quantity of those the state deems desirable. Both are economic policy tools intended to move a market away from the equilibrium it would have achieved absent policy intervention.” (emphasis added)).
[7] I would also note that while RTO/ISO markets may be more administrative constructs than true markets, the goal of these markets is to use the operation of supply and demand to produce prices that reflect the competitive results obtainable in a true market. A carbon “price” is imposed with the obvious intent to increase the prices of certain energy resources above those that reflect competitive results, based on a single criterion, carbon content. See, e.g., Institute for Policy Integrity at New York University School of Law November 16, 2020 Comments at 6 (“Because a carbon price would increase the production costs of covered sources relative to the production costs of uncovered sources, some production will shift to uncovered sources.” (citation omitted) (emphasis added)).
[8] Resources for the Future November 16, 2020 Comments at 6, 7 (emphasis added).
[9] See, e.g., Exelon Corporation December 1, 2020 Reply Comments at 7, n.27 (“At the outset, we note that the Commission is responsible under the [Federal Power Act] to ensure rates, terms and conditions of service are just, reasonable and not unduly discriminatory.”). See also David R. Hill Columbia University Center on Global Energy Policy October 5, 2020 [filed] Statement at 6 (“It is only an incremental additional step to determining that an RTO/ISO rate design may incorporate a price for carbon in recognition of a state-established carbon control program.”); see generally Matthew E. Price October 5, 2020 [filed] Technical Conference Comments (October 2020 Price Comments) at 2 (for example, “so long as the ultimate decision is reached in accordance with the RTO’s internal governance requirements, the Commission’s task is simply to review the outcome of that internal process—the proposed tariff—and decide whether it is reasonable.”).
[10] See, e.g., Resources for the Future November 16, 2020 Comments at 6 (“In general, carbon pricing policies will help improve price formation by increasing the offer prices of emitting generators to supply energy and capacity in wholesale markets. Thus, when a carbon-emitting generator is at the margin in these markets, prices will be higher than they would be without the carbon policy.” (emphasis added)).
[11] See, e.g., Exelon Corporation May 21, 2020 Comments on Request for Technical Conference at 3, 4 (“Pollutants such as carbon dioxide are negative externalities because they impose costs on society, yet the polluter does not have to internalize those costs in its production . . . . Carbon pricing is simply the mirror image of [state policies that subsidize certain resources based on environmental attributes], imposing a cost on emitting generation for their negative environmental attributes.”(citation omitted)); The American Wind Energy Association and the Alliance for Clean Energy – New York November 16, 2020 Initial Comments at 3 (“A carbon price would cause market participants to internalize what is currently an externality in wholesale electricity markets, resulting in prices that more accurately reflect the true and total costs of generating electricity at a particular location.”); October 2020 Price Comments at 1.
[12] See, e.g., David R. Hill, Columbia University Center on Global Energy Policy December 1, 2020 Reply Comments at 5 (“These [set-asides, subsidies and mandates] can serve both to mask the cost of the carbon control measures being enacted, and also make carbon emissions reduction more expensive for consumers than it can be and should be.”).
[13] McCulloch v. Maryland, 17 U.S. 316, 439 (1819) (“The power to tax, involves, the power to destroy. . . .”).
[14] See, e.g., Food and Drug Administration v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159 (2000) (“Finally, our inquiry into whether Congress has directly spoken to the precise question at issue is shaped, at least in some measure, by the nature of the question presented. Deference under Chevron to an agency’s construction of a statute that it administers is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps. . . . In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation. Cf. Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L. Rev. 363, 370 (1986) (“A court may also ask whether the legal question is an important one. Congress is more likely to have focused upon, and answered, major questions, while leaving interstitial matters to answer themselves in the course of the statute’s daily administration”) (citation omitted)).
[15] U.S. Const. Art. 1, § 8.
[16] See, e.g., Policy Statement at nn.12-13.
[17] See id. n.12.
[18] See, e.g., October 2020 Price Comments at 2 (“To reject such a Section 205 filing, the Commission would need to conclude that it is unreasonable for a private party – the RTO, after all, is not a public regulator – to make these choices.” (emphasis added)).
[19] See, e.g., Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs. ¶ 31,089 (1999) (cross-referenced at 89 FERC ¶ 61,285), order on reh’g, Order No. 2000-A, FERC Stats. & Regs. ¶ 31,092 (2000) (cross-referenced at 90 FERC ¶ 61,201), aff’d sub nom. Pub. Util. Dist. No. 1 of Snohomish Cty. v. FERC, 272 F.3d 607 (D.C. Cir. 2001); Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996) (cross-referenced at 75 FERC ¶ 61,080), order on reh’g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 (cross-referenced at 78 FERC ¶ 61,220), order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002).
[20] FERC Order Nos. 2222 and 2222-A are the two most recent examples where the RTOs/ISOs displace state regulatory authority, in these examples at FERC’s explicit direction. See Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators, Order No. 2222, 85 FR 67094, 172 FERC ¶ 61,247, on reh’g, Order No. 2222-A, 174 FERC ¶ 61,197 (2021).
[21] For example, Exelon argues that “[f]ailure to address emissions leakage in a coordinated manner is causing wholesale rates to become unjust, unreasonable and unduly discriminatory.” Exelon Corporation November 16, 2020 Comments at 8.
[22] See, e.g., Exelon Corporation December 1, 2020 Reply Comments at 6 (“Instead, resources in states with no carbon price seek to preserve the artificial and unintended advantage that they currently enjoy as a result of other states joining RGGI by opposing Commission action. Thus, their positions in this proceeding are efforts to throw carpet tacks in the path of progress toward properly functioning carbon pricing mechanism(s) that include leakage mitigation.”).
[23] See, e.g., id. at 10 (“[T]he Commission must act under section 206 to rectify the [leakage] situation – such as by requiring RTO/ISOs that have states with carbon pricing to implement a leakage mitigation mechanism . . . . In other words, the intent and effect of leakage mitigation is to remove the impact of an unwanted carbon price from states with no carbon pricing.” (citation omitted) (emphasis in original)).
[24] See, e.g., Ari Peskoe October 5, 2020 [filed] Opening Statement at 1 (“The Commission allows sellers to recover in wholesale rates compliance costs associated with emissions regulations, and the Commission would have no basis to prevent regulated entities from passing through the costs of a state-set carbon price.”).