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Markets, Externalities, and the Federal Power Act: The Federal Energy Regulatory Commission's Authority to Price Carbon Dioxide Emissions

August 2020

Citation: 50 ELR 10629

Issue: 8

Author: Bethany A. Davis Noll and Burcin Unel

Electricity generation in the United States is one of the leading sources of greenhouse gas emissions, which cause severe climate change-related harms. Despite the severity of those harms, the Federal Energy Regulatory Commission (FERC), which regulates the interstate transmission and wholesale electricity markets, has avoided addressing the issue. FERC has historically shied away from environmental considerations in ratemaking. But carbon dioxide (CO2) emissions are not just an environmental consideration; they are a prime example of the market failure known as a negative “externality.” This Article provides a comprehensive economic framework to show that addressing the CO2 externality through a carbon price falls within FERC’s authority to ensure an efficient market.

Bethany A. Davis Noll is Litigation Director at the Institute for Policy Integrity, New York University School of Law. Burcin Unel, Ph.D., is Energy Policy Director at the Institute of Policy Integrity, New York University School of Law.

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