Electrical Vehicles and Carbon Pricing | FTI Consulting

Electrical Vehicles and Carbon Pricing

Evolution of the Electric Market

Energy & Utilities

December 30, 2020

Windmill

Since the beginning of 2020, two long-simmering discussions in the energy space have gained momentum and captured attention to the extent that the subject of each are suddenly and increasingly viewed as inevitable elements of the evolution of the electric market.

One is about the need to recognize the societal cost of carbon in organized electricity markets. The other regards the desirability of mandates that compel widespread adoption of Electric Vehicles (“EVs”). While developments on both fronts remain in their early stages, it is already clear that as the energy industry responds to the climate crisis, carbon pricing and EVs will be prominently featured.

It may be equally clear that there will be opportunities to invest in and benefit from new infrastructure and preferred technology types, risks and complications abound. Important questions about how polices are set, how they are implemented, and who will emerge as winners and losers from the shifts in paradigms cannot be known at this time.

Markets vs. Mandates

The different philosophies that underlie regulators’ and legislators’ approaches to carbon pricing and EVs are themselves significant to the discussion. Under most carbon pricing programs that have been proposed, including, for example the one by the New York Independent System Operator, which seems to be the farthest along and offer the most detail, a carbon price is set by an independent agency, which is then paid by generators in the electric market.

The cost increase will cause electric prices to increase by an amount that varies based on the availability and efficiency of the units operating at any given time, system demand, and factors that change hour by hour.1


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