The Federal Energy Regulatory Commission (FERC) is a little-known and too-often ignored federal authority with the power to block or rapidly accelerate the transition to a clean energy future, and is thus indispensable to addressing climate change. Institute for Policy Integrity scholars Bethany A. Davis Noll and Burcin Unel are to be applauded for bringing into focus a regulatory space that is essential to efforts to decarbonize the power sector. Unfortunately, their article focuses exclusively on a silver bullet approach that poses far too much risk for too little reward. This Comment offers three points of critique to the authors’ argument that FERC possesses authority under the Federal Power Act to impose a carbon price in the same manner that it has the power to address other market failures.

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.