Economic and Environmental Impacts of a Proposed "Carbon Adder" on New York's Energy Market

The New York Independent System Operator (NYISO) has developed a carbon-pricing proposal to reduce carbon intensive electricity generation in anticipation of future clean energy goals in the state. The proposed measure is a so-called "carbon adder" on CO₂ emissions from the power sector that targets the social cost of carbon amidst existing overlapping policies. The carbon adder is set as the difference between the targeted social cost of carbon and the prevailing RGGI price for CO₂ emission allowances. We investigate the economic and environmental impacts from the imposition of a carbon adder on New York's power sector. Our analysis indicates that the carbon adder gives the 'right' price signal for New York's power generation to turn into a greener one and is shown to be more cost-effective than clean energy standards. Requirements for permit price floors in the RGGI market induces carbon permit retirements across RGGI states leading to small reductions in region- and country-wide emissions levels. The proposed border carbon adjustments on electricity trade are shown to further mitigate emission leakage.