Electric Power Resource "Shuffling" and Subnational Carbon Regulation: Looking Upstream for a Solution

The potential for shuffling in wholesale power markets thwarts California’s ability to meet its AB 32 GHG emission reduction goals, and may even lead to emissions increases. Yet, as California’s efforts illustrate, resource shuffling is extremely difficult to regulate at the state level. Short of California aggressively reducing its emissions limits to reflect the leakage problem of shuffling, the state is incapable of solving the problem on its own. As states follow California’s lead in crafting their own approaches to regulating GHG emissions, national solutions will be necessary to address the problem of resource shuffling, given interstate markets in wholesale electric power.

Undoubtedly EPA can play a role, but its flexible approach to state carbon regulation suggests it is likely to leave the management of shuffling largely to states. Moreover, without some ability to preempt states the EPA too is ill-equipped to address shuffling. This Article has argued that the superior solution to resource shuffling lies upstream, in the electric power markets managed by FERC. For subnational carbon emissions regulation to meet its goals, it must be recognized that shuffling is a problem created by pricing practices in upstream interstate power markets.

The ultimate solution to this problem lies with the federal regulators who manage these markets, not with individual states.