Minnesota regulators finalize carbon cost rules for utility procurements
- The Minnesota Public Utilities Commission on Jan. 3 issued an order finalizing carbon cost estimates that utilities must use when planning new infrastructure projects, setting them at a range of $9.05 to $42.46 per ton in 2020.
- The order builds on a July decision that increased carbon cost values from $0.44 to $4.53 per short ton of emissions. Regulators finalized the discount rate used for the carbon values — 5% for the low end of the pricing range and 3% for the high end — and calculated value ranges for utilities to use out to 2050.
- The order comes as the federal energy regulators and the Trump administration abandon the use of social cost of carbon metrics developed during the Obama administration, in part over qualms with discount rates.
As the Trump administration moves away from accounting for carbon in federal agency decisions, Minnesota moved to institutionalize the practice for utilities this week.
On Wednesday, regulators finalized new values for carbon and other air pollutants that utilities must factor into decisions over generation and other infrastructure projects. Applying the 3% and 5% discount rates, regulators calculated values for utilities to use when planning projects all the way out to 2050:
"By considering resource plans prepared with these costs—along with a scenario that excludes consideration of externality costs—the Commission will gain insight into the magnitude of the CO2-related stakes in any resource choice," regulators wrote.
The 3% and 5% discount rates represent a compromise between utility interests and environmental groups, who wanted the commission to use the more stringent 2.5% discount rate that was included in the Obama administration's social cost of carbon estimates.
While regulators accepted the framework of the federal carbon cost estimates, they declined to make utilities consider a 2.5% discount rate. They also rejected the less stringent 7% discount rate proposed by coal interests.
"While the Commission is mindful of the harms associated with greenhouse gases, the purpose of this docket is not merely to acknowledge the harms, but to meaningfully quantify them to aid in establishing a range of CO2 costs to use in evaluating utility resources," regulators wrote. "The 3.0% and 5.0% discount rates provide a more certain and reliable basis for that purpose."
Minnesota's embrace of carbon cost estimates comes as federal regulators move in the opposite direction. Earlier this year, the D.C. Circuit rejected the approval of a group of pipeline projects in Florida, saying the Federal Energy Regulatory Commission (FERC) should have more fully considered potential carbon impacts of the projects.
FERC, however, resisted the court's call, writing in a subsequent environmental review that "no consensus" exists on the appropriate discount rate for carbon.
"The [social cost of carbon] tool may be useful for rulemakings or comparing regulatory alternatives using cost-benefit analyses where the same discount rate is consistently applied," FERC wrote. "[H]owever, it is not appropriate for estimating a specific project’s impacts or informing our analysis under [the National Environmental Policy Act]."
The White House has also weighed in on the debate directly, telling federal agencies to discontinue use of the federal carbon cost guidelines in a March executive order. Despite that, a number of states continue to use the framework to guide utility procurement decisions, and the Obama-era rules were also used to shape nuclear subsidies in New York and Illinois.
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