Wednesday, September 20, 2017

CAISO, ARB to Address Imbalance Market Carbon Leakage

By Robert Mullin

CAISO last week provided stakeholders an update on its efforts to address concerns that the Energy Imbalance Market is not properly accounting for the impact of emissions from dispatching out-of-state resources into California — what the state’s Air Resources Board calls “carbon leakage.”

“We are working collaboratively with the ARB to address their identified issues with greenhouse gas accounting in the EIM,” Mark Rothleder, CAISO vice president for market quality and renewable integration, said during an Aug. 4 Regional Issues Forum held at Idaho Power headquarters in Boise.

Leakage occurs when California’s emissions program logs a reduction, despite the fact that no actual decrease in atmospheric GHGs has occurred based on the effects of the secondary dispatch.

The board’s concerns focus on how the EIM’s least-cost dispatch model attributes balancing energy from a low-emitting out-of-state resource to CAISO, while not accounting for the secondary dispatch of another higher-emitting resource that serves external demand that could have been covered by the first resource absent the market.

CAISO, EIM, ARB

California’s Air Resources Board (ARB) is seeking to capture the impact of higher-emitting resources being dispatched in the EIM to cover for zero-emissions power dispatched into CAISO. Fort Churchill Generating Station Photo Source: NVEnergy

The cleaner resource is “deemed delivered” to California, and the cap-and-trade system issues an emissions-compliance obligation to the scheduling coordinator for the resource, the ARB has noted.

“However, in certain instances, the full transfers that support balancing load to California are not identified and accounted for in the cap-and-trade program, resulting in emissions leakage,” the board wrote in a recent staff report proposing changes to the state’s cap-and-trade system.

CAISO is considering a range of options to help the ARB account for the emissions stemming from secondary dispatch.

The favored option: calculating the emissions from the secondary dispatch and assigning the GHG obligation to ISO load responsible for imbalances. However, this option could call the ISO’s dispatch decisions into question, Rothleder said.

Other options include requiring a minimum GHG bid for low-emission resources based on a system-emission rate or creating a hurdle rate for EIM transfers into the ISO. Both would put clean out-of-state resources at a disadvantage to equivalent resources inside the ISO.

The ISO also floated the idea of ARB lowering the electricity sector’s emissions caps or retiring GHG allowances by the estimated amount of secondary dispatch effects. Under California’s cap-and trade system, load-serving entities are issued a set amount of allowances each year subject to a declining annual cap.

One unlikely proposal is to have CAISO become a regulated party under cap-and-trade and produce all the emissions-compliance instruments associated with EIM dispatch.

“This is not high on our list as the way to go,” Rothleder said.

He pointed out that any solution would apply only to the EIM, and not to an expanded ISO. Still, the outcome could inform GHG accounting under regionalization.

CAISO seeks to issue a paper on the subject within a month and is targeting a fall meeting for further discussion. Any changes to GHG accounting in the EIM are slated to go into effect in January 2018.

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