More than 20 years ago, Minnesota enacted a law requiring the state’s Public Utilities Commission (or PUC) to set a cost for the greenhouse gases and air pollutants emitted by electric power generation. The state’s utilities were then required to use these cost figures in their resource planning.
It took a while – more than four years – and more than a bit of controversy for the PUC to establish those costs, but in 1997, it established the “environmental cost” of CO2 at between 30 cents and $3.10/ton.
Those costs have increased slightly over the past 20 years, but the methodology used to calculate those costs has remained essentially the same. However, last month, the PUC voted 3-2 to adopt the controversial Federal Social Cost of Carbon methodology and increase the CO2 costs used by Minnesota utilities in their resource planning processes from the current level of 44 cents-to-$4.53 per ton to a range of $9.05-to-$43.06 per ton by 2020.
Commissioners Nancy Lange, Dan Lipschultz and John Tuma voted for the increase, while Matthew Schuerger and Katie Sieben, the two newest commissioners voted against it, arguing instead for a higher carbon cost range of $12.30 to $63.56 per ton — the value proposed by the Minnesota Pollution Control Agency (MPCA) and the Minnesota Department of Commerce.
The ruling is important because it will dramatically influence decisions on the type of new generation utilities serving in Minnesota will be able to construct – precisely at a time when many, if not most, of those utilities are weighing new generation decisions over the next few years. As Commissioner Lipschultz noted during deliberations, the change will “in all likelihood” have an indirect impact on electric rates in the state.
It also will likely spill into other energy issues that come before the PUC, such as the calculation of the Value of Solar (the rate investor-owned utilities are required to pay the owners of community solar projects), rate cases, conservation plans and Certificates of Needs for transmission and pipeline projects.
While environmental groups and state agencies argued in favor of adopting the Federal Social Cost of Carbon methodology, it was opposed by the utilities and large energy users because of concerns over its statistical methodology and the inherent uncertainty of many of its health, environmental and economic assumptions, particularly when those assumptions extend out to the year 2300.
They also raised concerns about the value of using global damages when calculating the cost of carbon in as narrow a jurisdiction as a single state.
The final proposal that passed the PUC acknowledged some of those concerns, reducing the time frame to consider economic damages to 2100 and using more conservative rates to calculate the assumed damages.
Despite those concessions, the decision still puts Minnesota on something of an island. The state is one of only three states to use a cost of carbon dioxide in resource planning, and the only one to use the Federal Cost of Carbon methodology, something even the federal government is no longer doing. In March, the Trump Administration ordered federal agencies to stop using it in rulemaking procedures.