PJM Carbon Pricing Study Preliminary Results2020/02/25 · | Public 6 PJM©2020 Overview Review of Context and Study Assumptions Part 1a: Impacts of a RGGI Carbon Price in the PJM

PJM©2020www.pjm.com | Public

Expanded Results of PJM Study of Carbon Pricing & Potential Leakage Mitigation Mechanisms

Carbon Pricing Senior Task ForceFebruary 25, 2020


Schedule

July 2019 Meeting:Reviewed objectives

and proposed assumptions for the PJM Carbon Study

January 2020 Meeting:

Reviewed objectives and initial modeling

results

Today: Review objectives and additional scenarios taking into account

stakeholder feedback


Objectives of Analysis

PJM is studying the potential impacts of a carbon price and potential leakage mitigation mechanisms in order to inform stakeholders and policy-makers.

• PJM is not proposing to establish a carbon price.

• PJM is conducting this study to inform carbon pricing discussions in the CPSTF stakeholder process.

• Feedback on initial & extended modeling will be used to guide additional modeling efforts.

• Policy-makers in the PJM region are ultimately responsible for environmental policy, and any associated revenue generated through its application.


Review of Action Items from January CPSTF

Modeling Sensitivities1. Addition of VA to Carbon-Price Sub-Region2. Addition of VA & PA to Carbon-Price Sub-Region3. Addition of PA to Carbon-Price Sub-Region4. All of PJM included in Carbon-Price Sub-Region5. Higher carbon prices

Additional Data Points & Clarifications1. Additional information on border adjustment equations & modeling2. Impact of border adjustments on production cost3. Impact of border adjustments on uplift 4. Additional information on external interchange5. Results by state, zone

Included in 2/25/2020 meeting materials

Future


Results Executive Summary

Modeling of Carbon Prices from RGGICompared to counterfactual with no carbon price

• Generation & Emissions– Decrease in carbon-price sub-region– Increase in rest of RTO– Net RTO impact varies based on sub-region

assumptions

• Energy Prices– On average, LMPs increase in both sub-regions

as the carbon price increases

Impacts of Border AdjustmentsCompared to no border adjustment

• Generation & Emissions– Increase in carbon-price sub-region– Decrease in rest of RTO– Net RTO impact varies based on sub-region

assumptions

• Energy Prices– On average, as the carbon price increases, a

two-way border adjustment results in greater price decreases than a one-way border adjustment.

Results depend on the generation mix, and emissions intensities, of each sub-region.


Overview

Review of Context and Study Assumptions

Part 1a: Impacts of a RGGI Carbon Price in the PJM Energy Market; Addition of VA to carbon-price sub-region

Part 2a: Impacts of Potential Border Adjustments for Leakage Mitigation; Addition of VA to carbon-price sub-region

Part 1b: Impacts of a RGGI Carbon Price in the PJM Energy Market; Addition of VA & PA to carbon-price sub-region

Part 2b: Impacts of Potential Border Adjustments for Leakage Mitigation; Addition of VA & PA to carbon-price sub-region


Review of Leakage Concepts• Leakage - any shift in production and related emissions, from a regulated jurisdiction to a less-

stringently regulated jurisdiction, due to differing compliance costs.

• In the context of the Regional Greenhouse Gas Initiative (RGGI), “Emissions leakage is the concept that there could be a shift of electricity generation from capped sources subject to RGGI to higher-emitting sources not subject to RGGI.” [1]

• Concerns raised by stakeholders in the CPSTF Opportunity Statement: “Without addressing leakage, rising emissions can eliminate the environmental benefits that carbon pricing policies are intended to produce. Similarly, leakage can also harm consumers in areas that have not adopted carbon pricing as more expensive resources push market clearing prices higher.” [2]

[1] Final Report of the RGGI Emissions Leakage Multi-State Staff Working Group to the RGGI Agency Heads. Potential Emissions Leakage and the Regional Greenhouse Gas Initiative (RGGI). 2008. https://mde.maryland.gov/programs/Air/ClimateChange/RGGI/Documents/Leakage_Report_Final_3-08.pdf[2] CPSTF Opportunity Statement, https://www.pjm.com/-/media/committees-groups/task-forces/cpstf/postings/problem-statement.ashx?la=en

Note: Some studies consider emissions from power and non-power sectors, and emissions reduction goals when estimating leakage impacts. PJM study is focused on power sector emissions from simulation of the wholesale electricity market.

https://mde.maryland.gov/programs/Air/ClimateChange/RGGI/Documents/Leakage_Report_Final_3-08.pdf

https://www.pjm.com/-/media/committees-groups/task-forces/cpstf/postings/problem-statement.ashx?la=en


The study does not account for state-specific approaches to leakage mitigation

There are multiple approaches to leakage mitigation:

• In study: Border adjustment constraints within wholesale electricity market– One-way (transfers into carbon region)– Two-way (transfers into and out of carbon region)

• Not in study: State-specific approaches– Programs that reduce electricity demand – Load-based greenhouse gas compliance obligations– Allowance allocation– Support for increasing low / zero-emitting in-state generation


Setting up the model included using three key variable inputs

• Year Modeled: 2023 (most recent planning case from Regional Transmission Expansion Plan and Market Efficiency process)

• Variable inputs are used to look at energy market impacts of a carbon price and leakage mitigation approaches

• Utilized PLEXOS to simulate the commitment & dispatch of resources and the resulting market/emissions outcomes

• Potential future analysis: longer-term modeling to evaluate potential changes to resource mix due to a carbon price

– Out of scope for this phaseModel

Border Adjustment

Carbon Sub-

Region

Carbon Price


Study Methodology: Modeling Overview

Static Inputs

Variable Inputs

Model

Outputs

Fuel PricesSecurity Constrained Unit Commitment & Economic Dispatch

Generator Offer(s)

Carbon Price

Locational Marginal Prices (LMP)

Generation

Demand Transmission Limits

Emissions

Border Adjustment Constraint

Generator Parameters

Carbon-Price Sub-Region


RGGI Program helps to determine low and high carbon price values

• Applied in counterfactual case to quantify the impact of adding a carbon price on generation, emissions, and energy prices$0 /short ton of CO2

• Low-end reference• Trigger price for the RGGI Emissions Containment Reserve (ECR) in 2023$6.87 /short ton of CO2

• High-end reference• Trigger price for the RGGI Cost Containment Reserve (CCR) in 2023$14.88 /short ton of CO2


Internal and External resources to PJM are included in the optimization

• Current set of results consider PJM states currently participating in RGGI (DE, MD, NJ), with the addition of VA and PA

• New York is modeled with a carbon price, as it is a RGGI state. Study results are focused on the PJM RTO.

• Resources both internal and external to PJM were included in the optimization.


Rest of RTO

32%

3%

26%

13%

16%

7%

3%

Carbon-Price Sub-Region: DE, MD, NJ, VA

13%

8%

40%

13%

14%

3%9%

Virginia is included in the Carbon Sub-Region

Percent of Nameplate Capacity:

62,248 MW



140,513 MW


Rest of RTO

39%

1%16%

17%

16%

10%

1%

Carbon-Price Sub-Region: DE, MD, NJ, VA, PA

15%

7%

43%

9%

15%

3%8%

VA and PA are included in the Carbon Sub-Region


108,894 MW



93,866 MW


Three variations of Border Adjustment approaches are modeled

• Determine baseline for economic and environmental leakage between regions

No Border Adjustment

• Accounts for impacts of carbon price on transfers into the carbon-pricing region

One-Way Border Adjustment

• Accounts for impacts of carbon price on transfers into carbon-pricing region and transfers from the carbon-pricing region

Two-Way Border Adjustment


RGGI Revenue will coexist with a Carbon Price

• Each state will continue to collect RGGI revenue from each RGGI Regulated Source located in its state as it does today.

• These financial transactions take place outside of the market and the grid operator’s settlement process.


Residual funds allocation will be determined by the States

• The analysis will include the value of the carbon residual funds resulting from border adjustments. States, not PJM, will determine how these funds are allocated, if any. – Surplus possible when there are net transfers into the carbon-

pricing region.– Deficit possible when there are net transfers from the carbon-

pricing region.• Based on the states that make up the carbon-price sub-region,

there may not be any carbon residual funds.


Overview

Review of Context and Study Assumptions






Part 1a Scenario SummaryImpacts Associated with a RGGI Carbon Price in the PJM Energy Market

• Scenarios with RGGI price at $6.87/short ton and $14.88/short ton compared to a counterfactual scenario with RGGI price at $0/short ton (“No RGGI”) to quantify differences in:

– Generation– Emissions– Prices

• The year 2023 was simulated for the following cases:

• Results are broken out by the following regions:– Carbon-Price Sub-Region – includes DE, MD, NJ and VA– Rest of RTO – all other states in PJM

Case RGGI Price Border AdjustmentCase 1-0W $0/short ton (i.e. “No RGGI Price”) NoneCase 4-0W $6.87/short ton NoneCase 5-0W $14.88/short ton None


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Total

Gen

erati

on P

rodu

ction

(GW

h)2023 Generation Production by Sub-Region

Carbon-Price Sub-RegionDE, MD, NJ, VA

Rest of RTO

Case 1-0W$0 / ton

Case 4-0W$6.87 / ton

Case 5-0W$14.88 / ton

Case 1-0W$0 / ton


Case 5-0W$14.88 / ton

As the carbon price increases, generation:• Decreases in carbon-price

sub-region*• Increases in the rest of the

RTO

* There may also be shifts in generation within the carbon-price sub-region, as the carbon price is only applied to RGGI generators.


-35,000

-25,000

-15,000

-5,000

5,000

15,000

25,000

35,000Carbon Price Region Rest of RTO Carbon Price Region Rest of RTO

Case 4-0W Case 5-0W

Chan

ge in

Gen

erati

on (G

Wh)

from

Cas

e 1-0

W

Coal Natural Gas CC / Steam Natural Gas CT Nuclear Hydro Wind & Solar Other

2023 Shifts in Generation Production from Case 1-0W ($0 / ton CO2) by Sub-Region

Case 4-0W: $6.87 / ton Case 5-0W: $14.88 / ton

Generation displaced in carbon-price sub-region is relatively equivalent in emissions intensity to the increased generation in rest of RTO. • Driven by generation mixes in each

sub-region.

Carbon Price Sub-Region

DE, MD, NJ, VA

Rest of RTO Carbon Price Sub-Region

DE, MD, NJ, VA

Rest of RTO


-5,000 5,000 15,000 25,000 35,000 45,000

Case 1-0W

Case 4-0W

Case 5-0W

Interchange between PJM and External Regions

$6.87/ton

$14.88/ton

Net External Interchange (GWh)Net ExportsNet Imports


278 278 277

52 44 35

226 234 242

0

50

100

150

200

250

300

Case 1-0W Case 4-0W Case 5-0W

Millio

n Ton

s of C

O 22023 Total CO2 Emissions

Case 1-0W$0 / ton


Case 5-0W$14.88 / ton

Generation shift from increasing carbon price results in CO2:• Decrease in carbon-price sub-region• Increase in rest of RTO (no carbon price)• Net decrease across the RTO

DE, MD, NJ, VA


189 195206

28 24 22

161171

184

0

50

100

150

200

250


Thou

sand

Tons

of N

O x2023 Total NOX Emissions

Case 1-0W$0 / ton


Case 5-0W$14.88 / ton

Generation shift from increasing carbon price results in CO2:• Decrease in carbon-price sub-region• Increase in rest of RTO • Net increase across the RTO

DE, MD, NJ, VA


179 184 186

8 4 3

171180 183

0

20

40

60

80

100

120

140

160

180

200


Thou

sand

Tons

of S

O 22023 Total SO2 Emissions

Case 1-0W$0 / ton


Case 5-0W$14.88 / ton

Generation shift from increasing carbon price results in CO2:• Decrease in carbon-price sub-region• Increase in rest of RTO (no carbon price)• Net increase across the RTO

DE, MD, NJ, VA


30.44 30.8933.08

29.43 29.2830.94

0

5

10

15

20

25

30

35


LMP

($/M

Wh)

2023 PJM Average Yearly LMPs* by Sub-Region & Carbon Price

*Average yearly LMPs are time-weighted averages of load-weighted hourly LMPs.

Case 1-0W$0 / ton


Case 5-0W$14.88 / ton

On average, LMPs increase in both sub-regions with an

increasing carbon price.

Carbon Price Sub-Region: DE, MD, NJ, VA Rest of RTO


0.45

2.64

-0.16

1.50

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Case 4-0W Case 5-0W

LMP

($/M

Wh)

2023 Difference in Average Yearly LMPs* from Case 1-0W by Sub-Region & Carbon Price


Case 5-0W$14.88 / ton






Results SummaryPart 1a: Impacts Associated with a RGGI Carbon Price in the PJM Energy Market


Case 1-0W($0 / ton)

Case 4-0W($6.87 / ton)

Case 5-0W($14.88 / ton)

Generation Emissions LMP


Results SummaryPart 1a: Impacts Associated with a RGGI Carbon Price in the PJM Energy Market


• Generation:– Compared to the no carbon price scenario, the carbon price scenarios

result in shifts in generation production from the Carbon-Price Sub-Region to the Rest of RTO.

– The generation displaced in the Carbon-Price Sub-Region has relatively equivalent emissions intensity compared to the increased generation in the Rest of RTO. This is driven by the generation mixes between of each sub-region.


Results Summary (cont.)Part 1a: Impacts Associated with a RGGI Carbon Price in the PJM Energy Market


• Emissions:– The shift in generation production results in a decrease in emissions in

the Carbon-Price Sub-Region and an increase in emissions in the Rest of RTO. This resulted in a net decrease in CO2 emissions and a net increase in NOx and SO2 emissions across the RTO.

• Energy Prices:– Compared to the scenario with no carbon price, on average, LMPs

increase in both sub-regions as the carbon price increases.


Overview

Review of Context, Objectives, and Study Assumptions






Leakage Mitigation Mechanism: Border Adjustments

• Two leakage mitigation mechanisms were studied and were compared against the case with no leakage mitigation1) No Border Adjustment (no leakage mitigation) 2) One-Way Border Adjustment3) Two-Way Border Adjustment

• Each leakage mitigation mechanism was studied using the RGGI ECR price of $6.87/short ton and the RGGI CCR price of $14.88/short ton.


Part 2a Scenario SummaryImpacts of Potential Border Adjustments for Leakage Mitigation

• The year 2023 was simulated for the following cases for the carbon-price sub-region that included DE, MD, NJ and VA:

Case RGGI Price Border AdjustmentCase 4-0W $6.87/short ton NoneCase 4-1W $6.87/short ton One-WayCase 4-2W $6.87/short ton Two-WayCase 5-0W $14.88/short ton NoneCase 5-1W $14.88/short ton One-WayCase 5-2W $14.88/short ton Two-Way


Results Metrics

• The following metrics are compared for each simulation case:– Generation– Emissions– Prices– Carbon Revenue (Residual Funds)

• Results are broken out by the following regions:– Carbon-Price Sub-Region – includes DE, MD, NJ and VA– Rest of RTO – all other states in PJM


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Gene

ratio

n Pro

ducti

on (G

Wh)

2023 Generation Production by Sub-Region: $6.87 / ton CO2

Carbon-Price Sub-Region(DE, MD, NJ, VA)

Rest of RTO

Case 4-0W Case 4-1W

With the addition of a border adjustment, generation:• Increases in Carbon-Price Sub-

Region• Decreases in Rest of RTO

This shift is larger with a two-way border adjustment, compared to a one-way border adjustment.

Case 4-2W Case 4-0W Case 4-1W Case 4-2WCase 1-0W Case 1-0W


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Gene

ratio

n Pro

ducti

on (G

Wh)


Carbon-Price Sub-Region(DE, MD, NJ, VA)

Rest of RTO

Case 1-0W Case 5-0W Case 5-1W Case 5-2W Case 1-0W Case 5-0W Case 5-1W Case 5-2W





-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

Carbon PriceRegion Rest of RTO




Case 4-1W Case 4-2W Case 5-1W Case 5-2W

Chan

ge in

GW

h fro

m No

Bor

der A

djustm

ent (

4-0W

, 5-0

W)


Shift in Generation Production by Sub-Regionfrom adding Border Adjustment

Case 4-1WCarbon-Price Sub-Region

(DE, MD, NJ, VA)Rest of RTO

Case 4-2W Case 5-1W Case 5-2W$6.87/ton $14.88/ton

Larger generation shift with a two-way border adjustment, compared to a one-way border adjustment. Increased generation in Carbon-Price Sub-Region is relatively lower-emitting than the displaced generation in rest of RTO.


(DE, MD, NJ, VA) Rest of RTOCarbon-Price Sub-Region

(DE, MD, NJ, VA)Rest of RTO


(DE, MD, NJ, VA) Rest of RTO



$6.87/ton

$14.88/ton

Net External Interchange (GWh)

-5,000 5,000 15,000 25,000 35,000 45,000

Case 4-0W

Case 4-1W

Case 4-2W

Case 5-0W

Case 5-1W

Case 5-2W

Net ExportsNet Imports


Impact of Border Adjustment on CO2 Emissions

$6.87/ton $14.88/ton

Generation shift from border adjustment results in emissions increase in Carbon-Price Sub-Region, decrease in Rest of RTO and net decrease across Net-RTO.

278 277 277 275

5235 35

53

226242 242

221

0

50

100

150

200

250

300

Case 1-0W Case 5-0W Case 5-1W Case 5-2WMi

llions

Tons

of C

O2

278 278 278 277

52 44 44 53

226 234 234 224

0

50

100

150

200

250

300


Millio

ns To

ns of

CO 2

DE, MD, NJ, VA


189206 206

190

28 22 22 29

161184 184

160

0

50

100

150

200

250


Thou

sand

Tons

of N

Ox

Impact of Border Adjustment on NOX Emissions

$6.87/ton $14.88/ton


189 195 195 189

28 24 24 29

161171 171

160

0

50

100

150

200

250


Thou

sand

Tons

of N

O x

DE, MD, NJ, VA


Impact of Border Adjustment on SO2 Emissions

$6.87/ton $14.88/ton


179 186 186172

8 3 3 8

171183 183

164

0

20

40

60

80

100

120

140

160

180

200


Thou

sand

Tons

of S

O2

179 184 183 176

8 4 4 8

171180 179

168

0

20

40

60

80

100

120

140

160

180

200


Thou

sand

Tons

of S

O 2

DE, MD, NJ, VA


30.89 30.70 31.0533.08 32.81

31.4629.28 29.11 29.41

30.94 30.70 29.80

0

5

10

15

20

25

30

35

Case 4-0W Case 4-1W Case 4-2W Case 5-0W Case 5-1W Case 5-2W

LMP

($/M

Wh)

2023 PJM Average Yearly LMPs* by Sub-Region


Carbon-Price Sub-Region: DE, MD, NJ, VA Rest of RTOWith the addition of a border adjustment, LMPs tend to decrease for both regions.

$6.87/ton $14.88/ton


-0.19

0.16

-0.27

-1.62

-0.17

0.13

-0.23

-1.14

-1.8-1.6-1.4-1.2-1.0-0.8-0.6-0.4-0.20.00.20.4


LMP

($/M

Wh)

2023 Difference in Average Yearly LMPs* from Case 0W by Sub-Region and RGGI Price

Carbon-Price Sub-Region: DE, MD, NJ, VA Rest of RTO

$14.88/ton$6.87/ton

With the addition of a border adjustment, LMPs tend to decrease for both regions.



Impact of Border Adjustments on 2023 RTO Total Production Cost

12.34 12.35 12.17 12.49 12.51 12.25

-

2

4

6

8

10

12

14


Total

Pro

ducti

on C

ost (

$billi

on)

$6.87/ton $14.88/ton

Total System Production Cost:• Increases with a one-way

border adjustment• Decreases with a two-way

border adjustment


Impact of Border Adjustment on CO2 Emission Costs to Generators

• As previously noted, compared to scenarios with no leakage mitigation, the border adjustment scenarios result in shifts in generation production from the Rest of RTO to the Carbon-Price Sub-Region.

• This could be assumed to increase the funds from CO2 allowance sales that states would collect if the CO2 compliance obligation continues to be placed on the emitting generators in their states.

• However, it is possible in the two-way border adjustment case, that generators will not receive enough revenue through the market to cover their RGGI compliance obligations (which are paid outside the market) and generation costs.


Carbon Revenue (Residual Funds) from Border Adjustment Constraint

• In all simulation cases, there are no carbon residual funds at any time.

• This is because the carbon component of the LMP is $0/MWh at all times in all cases.

• In other words, the carbon cost of the marginal unit being transferred from the Rest of RTO Sub-Region to the Carbon-Price Sub-Region is zero in all the simulation cases.


Results SummaryPart 2a: Impacts of Potential Border Adjustments for Leakage Mitigation


Case 4-0W($6.87 / ton)

Case 4-1W($6.87 / ton)

Case 4-2W($6.87 / ton)

Case 5-0W($14.88 / ton)

Case 5-1W($14.88 / ton)

Case 5-2W($14.88 / ton)





• Generation:– Compared to scenarios with no leakage mitigation, the border

adjustment scenarios result in shifts in generation production from the Rest of RTO to the Carbon-Price Sub-Region.

– This generation shift increases as the price of carbon increases, and is greater with a two-way border adjustment, compared to a one-way border adjustment.

– The generation displaced in the Rest of RTO has a relatively higher emissions intensity than the increased generation in the Carbon-Price Sub-Region.




• Emissions:– Use of a border adjustment mechanism resulted in an increase in

emissions in the Carbon-Price Sub-Region, a decrease in emissions in the Rest of RTO, and a net decrease in total Net-RTO emissions.

– These shifts in emissions are greater with a two-way border adjustment, compared to a one-way border adjustment.

– The change in emissions is greater as the carbon price increases.




• Energy Prices:– Use of a border adjustment mechanism may mitigate the impact of a

carbon price on the LMP.– Compared to scenarios with no leakage mitigation, on average, as the

carbon price increases, a two-way border adjustment results in greater price decreases than a one-way border adjustment.


Overview







Part 1b Scenario SummaryImpacts Associated with a RGGI Carbon Price in the PJM Energy Market

• Scenarios with RGGI price at $6.87/short ton and $14.88/short ton compared to a counterfactual scenario with RGGI price at $0/short ton (“No RGGI”) to quantify differences in:

– Generation– Emissions– Prices

• The year 2023 was simulated for the following cases:

• Results are broken out by the following regions:– Carbon-Price Sub-Region – includes DE, MD, NJ, VA and PA– Rest of RTO – all other states in PJM

Case RGGI Price Border AdjustmentCase 1-0W $0/short ton (i.e. “No RGGI Price”) NoneCase 6-0W $6.87/short ton NoneCase 7-0W $14.88/short ton None


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Total

Gen

erati

on P

rodu

ction

(GW

h)2023 Generation Production by Sub-Region

Carbon-Price Sub-RegionDE, MD, NJ, VA, PA

Rest of RTO

Case 1-0W$0 / ton


Case 7-0W$14.88 / ton

Case 1-0W$0 / ton


Case 7-0W$14.88 / ton

As the carbon price increases, generation:• Decreases in carbon-price

sub-region*• Increases in the rest of the

RTO

* There may also be shifts in generation within the carbon-price sub-region, as the carbon price is only applied to RGGI generators.


-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000Carbon Price Region Rest of RTO Carbon Price Region Rest of RTO

Case 6-0W Case 7-0W

Chan

ge in

Gen

erati

on (G

Wh)

from

Cas

e 1


2023 Shifts in Generation Production from Case 1-0W ($0 / ton CO2) by Sub-Region

Case 6-0W: $6.87 / ton Case 7-0W: $14.88 / ton

Generation displaced in carbon-price sub-region is relatively equivalent in emissions intensity to the increased generation in rest of RTO. • Driven by generation mixes in

each sub-region.

Carbon Price Sub-Region

DE, MD, NJ, VA, PA

Rest of RTO Carbon Price Sub-Region

DE, MD, NJ, VA, PA

Rest of RTO



$6.87/ton

$14.88/ton


-5,000 5,000 15,000 25,000 35,000 45,000

Case 1-0W

Case 6-0W

Case 7-0W



278266 259

129103

85

149162

174

0

50

100

150

200

250

300


Millio

n Ton

s of C

O22023 Total CO2 Emissions

Case 1-0W$0 / ton


Case 7-0W$14.88 / ton


DE, MD, NJ, VA, PA


189179 180

90

6959

99110

121

0

20

40

60

80

100

120

140

160

180

200


Thou

sand

Tons

of N

Ox2023 Total NOX Emissions

Case 1-0W$0 / ton


Case 7-0W$14.88 / ton

Generation shift from increasing carbon price results in CO2:• Decrease in carbon-price sub-region• Increase in rest of RTO • Net decrease across the RTO

DE, MD, NJ, VA, PA


179

160152

60

2712

119132

141

0

20

40

60

80

100

120

140

160

180

200


Thou

sand

Tons

of S

O22023 Total SO2 Emissions

Case 1-0W$0 / ton


Case 7-0W$14.88 / ton


DE, MD, NJ, VA, PA


30.4432.34

35.57

29.43 29.8731.73

0

5

10

15

20

25

30

35

40


LMP

($/M

Wh)

2023 PJM Average Yearly LMPs* by Sub-Region & Carbon Price


Case 1-0W$0 / ton


Case 7-0W$14.88 / ton



Carbon Price Sub-Region: DE, MD, NJ, VA, PA Rest of RTO


1.90

5.13

0.43

2.29

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Case 6-0W Case 7-0W

LMP

($/M

Wh)

2023 Difference in Average Yearly LMPs* from Case 1-0W by Sub-Region & Carbon Price


Case 7-0W$14.88 / ton






Results SummaryPart 1b: Impacts Associated with a RGGI Carbon Price in the PJM Energy Market


Case 1-0W($0 / ton)

Case 4-0W($6.87 / ton)

Case 5-0W($14.88 / ton)



Results SummaryPart 1b: Impacts Associated with a RGGI Carbon Price in the PJM Energy Market


• Generation:– Compared to the no carbon price scenario, the carbon price scenarios

result in shifts in generation production from the Carbon-Price Sub-Region to the Rest of RTO.

– The generation displaced in the Carbon-Price Sub-Region has relatively equivalent emissions intensity compared to the increased generation in the Rest of RTO. This is driven by the generation mixes between of each sub-region.


Results Summary (cont.)Part 1b: Impacts Associated with a RGGI Carbon Price in the PJM Energy Market


• Emissions:– The shift in generation production results in a decrease in emissions in

the Carbon-Price Sub-Region, an increase in emissions in the Rest of RTO, and a net decrease in Net-RTO emissions.

• Energy Prices:– Compared to the scenario with no carbon price, on average, LMPs

increase in both sub-regions as the carbon price increases.


Overview







Part 2b Scenario SummaryImpacts of Potential Border Adjustments for Leakage Mitigation

• The year 2023 was simulated for the following cases for the carbon-price sub-region that included DE, MD, NJ, VA and PA:

Case RGGI Price Border AdjustmentCase 6-0W $6.87/short ton NoneCase 6-1W $6.87/short ton One-WayCase 6-2W $6.87/short ton Two-WayCase 7-0W $14.88/short ton NoneCase 7-1W $14.88/short ton One-WayCase 7-2W $14.88/short ton Two-Way


Results Metrics

• The following metrics are compared for each simulation case:– Generation– Emissions– Prices– Carbon Revenue (Residual Funds)

• Results are broken out by the following regions:– Carbon-Price Sub-Region – includes DE, MD, NJ, VA and PA– Rest of RTO – all other states in PJM


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Gene

ratio

n Pro

ducti

on (G

Wh)


Carbon-Price Sub-Region(DE, MD, NJ, VA, PA)

Rest of RTO

Case 6-0W Case 6-1W




Case 6-2W Case 6-0W Case 6-1W Case 6-2WCase 1-0W Case 1-0W


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Gene

ratio

n Pro

ducti

on (G

Wh)


Carbon-Price Sub-Region(DE, MD, NJ, VA, PA)

Rest of RTO

Case 1-0W Case 7-0W Case 7-1W Case 7-2W Case 1-0W Case 7-0W Case 7-1W Case 7-2W





-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000






Chan

ge in

GW

hfro

m No

Bor

der A

djustm

ent C

ases

(6-0

W,

7-0W

)


Shift in Generation Production by Sub-Regionfrom adding Border Adjustment

Case 6-1W

(DE, MD, NJ, VA,PA)

Rest of RTO

Case 6-2W Case 7-1W Case 7-2W$6.87/ton $14.88/ton

Shift in generation of relatively equivalent emissions intensity. This is driven by the generation mixes in each sub-region.

Rest of RTO Rest of RTO Rest of RTO(DE, MD, NJ, VA,PA) (DE, MD, NJ, VA,PA) (DE, MD, NJ, VA,PA)



$6.87/ton

$14.88/ton


-5,000 5,000 15,000 25,000 35,000 45,000

Case 6-0W

Case 6-1W

Case 6-2W

Case 7-0W

Case 7-1W

Case 7-2W



Impact of Border Adjustment on CO2 Emissions

$6.87/ton $14.88/ton

Generation shift from one-way border adjustment results in small emissions shifts between sub-regions, and small net decrease across Net-RTO. Two-way border adjustment results in emissions increase in Carbon-Price Sub-Region, decrease in Rest of RTO and net increase across Net-RTO.

DE, MD, NJ, VA, PA

278259 259

275

129

85 85

128

149174 174

147

0

50

100

150

200

250

300

Case 1-0W Case 7-0W Case 7-1W Case 7-2WMi

llions

Tons

of C

O2

278 266 266 277

129103 103

129

149162 162

148

0

50

100

150

200

250

300


Millio

ns To

ns of

CO2


189180 180

189

90

59 59

91

99121 121

99


Thou

sand

Tons

of N

Ox

Impact of Border Adjustment on NOX Emissions

$6.87/ton $14.88/ton

DE, MD, NJ, VA, PA


189179 179

189

9069 69

91

99110 110

99

020406080

100120140160180200


Thou

sand

Tons

of N

Ox


179

152 152172

60

12 12

56

119

141 140

115

020406080

100120140160180200


Thou

sand

Tons

of S

O2

Impact of Border Adjustment on SO2 Emissions

$6.87/ton $14.88/ton

DE, MD, NJ, VA, PA


179160 159

176

60

27 27

59

119132 132

117

020406080

100120140160180200


Thou

sand

Tons

of S

O2


32.34 32.1331.11

35.57 35.46

31.7029.87 29.68 29.35

31.73 31.6029.85

0

5

10

15

20

25

30

35

40


LMP

($/M

Wh)

2023 PJM Average Yearly LMPs* by Sub-Region


Carbon-Price Sub-Region: DE, MD, NJ, PA, VA Rest of RTOWith the addition of a border adjustment, LMPs tend to decrease for both regions.

$6.87/ton $14.88/ton


-0.21

-1.24

-0.12

-3.88

-0.18

-0.52

-0.13

-1.88

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0


LMP

($/M

Wh)

2023 Difference in Average Yearly LMPs* from Case 0W by Sub-Region and RGGI Price

Carbon-Price Sub-Region: DE, MD, NJ, PA, VA Rest of RTO

$14.88/ton$6.87/ton

With the addition of a border adjustment, LMPs tend to decrease for both regions.



Impact of Border Adjustments on 2023 RTO Total Production Cost

$6.87/ton $14.88/ton

Total System Production Cost:• Increases with a one-way

border adjustment• Decreases with a two-way

border adjustment

12.62 12.62 12.1813.01 13.02

12.26

$-

$2

$4

$6

$8

$10

$12

$14


Total

Pro

ducti

on C

ost (

$billi

on)


Impact of Border Adjustment on CO2 Emission Costs to Generators

• As previously noted, compared to scenarios with no leakage mitigation, the border adjustment scenarios result in shifts in generation production from the Rest of RTO to the Carbon-Price Sub-Region.

• This could be assumed to increase the funds from CO2 allowance sales that states would collect if the CO2 compliance obligation continues to be placed on the emitting generators in their states.

• However, it is possible in the two-way border adjustment case, that generators will not receive enough revenue through the market to cover their RGGI compliance obligations (which are paid outside the market) and generation costs.


Carbon Revenue (Residual Funds) from Border Adjustment Constraint

• In all simulation cases, there are no carbon residual funds at any time.

• This is because the carbon component of the LMP is $0/MWh at all times in all cases.

• In other words, the carbon cost of the marginal unit being transferred from the Rest of RTO Sub-Region to the Carbon-Price Sub-Region is zero in all the simulation cases.


Results SummaryPart 2b: Impacts of Potential Border Adjustments for Leakage Mitigation

Carbon Price Sub-Region: DE, MD, NJ, PA, VA Rest of RTO

Case 4-0W($6.87 / ton)

Case 4-1W($6.87 / ton)

Case 4-2W($6.87 / ton)

Case 5-0W($14.88 / ton)

Case 5-1W($14.88 / ton)

Case 5-2W($14.88 / ton)





• Generation:– Compared to scenarios with no leakage mitigation, the border

adjustment scenarios result in shifts in generation production from the Rest of RTO to the Carbon-Price Sub-Region.

– This generation shift increases as the price of carbon increases, and is greater with a two-way border adjustment, compared to a one-way border adjustment.

– The generation displaced in the Rest of RTO is of relatively equivalent emissions intensity to the increased generation in the Carbon-Price Sub-Region. This is reflective of the in generation mixes in each sub-regions.




• Emissions:– Use of a one-way border adjustment mechanism resulted in an increase

in emissions in the Carbon-Price Sub-Region, a decrease in emissions in the Rest of RTO, and a net decrease in total Net-RTO emissions.

– Use of a two-way border adjustment mechanism resulted in an increase in emissions in the Carbon-Price Sub-Region, a decrease in emissions in the Rest of RTO, and a net increase in total Net-RTO emissions.

– The change in emissions is greater as the carbon price increases.



Carbon-Price Sub-Region: DE, MD, NJ, PA, VA

• Energy Prices:– Use of a border adjustment mechanism may mitigate the impact of a

carbon price on the LMP.– Compared to scenarios with no leakage mitigation, on average, as the

carbon price increases, a two-way border adjustment results in greater price decreases than a one-way border adjustment.


Results Summary

Modeling of Carbon Prices from RGGICompared to counterfactual with no carbon price

• Generation & Emissions– Decrease in carbon-price sub-region– Increase in rest of RTO– Net RTO impact varies based on sub-region

assumptions

• Energy Prices– On average, LMPs increase in both sub-regions

as the carbon price increases

Impacts of Border AdjustmentsCompared to no border adjustment

• Generation & Emissions– Increase in carbon-price sub-region– Decrease in rest of RTO– Net RTO impact varies based on sub-region

assumptions

• Energy Prices– On average, as the carbon price increases, a

two-way border adjustment results in greater price decreases than a one-way border adjustment.
