Pennsylvania Plans to Join the RGGI CO2 Cap-and-Trade Program

Margaret Anne Hill, Christopher A. Lewis, Frederick M. Lowther, Frank L. Tamulonis III, and Stephen C. Zumbrun

At the outset of 2019, Pennsylvania Governor Tom Wolf set a goal for Pennsylvania to significantly reduce greenhouse gas emissions. Now, Governor Wolf plans to achieve that goal by taking the bold step to establish a carbon dioxide cap-and-trade program through executive action. On October 3, 2019, Governor Wolf issued an Executive Order directing the Pennsylvania Department of Environmental Protection (“DEP”) to begin the process for Pennsylvania to join the Regional Greenhouse Gas Initiative (“RGGI”, pronounced “Reggie”). RGGI is a market-based cap-and-trade program implemented by several Northeast states to reduce power sector CO2 emissions. Governor Wolf’s Executive Order made national headlines because of the potential implications of Pennsylvania—a state known for its coal and natural gas reserves—joining RGGI. But this news is only the start of a long regulatory process, one that could realistically take years to become implemented. At this stage, Pennsylvania fossil-fuel power generators should familiarize themselves with RGGI’s requirements and procedures as well as the rulemaking process by which the Commonwealth might join RGGI.

The RGGI Program

RGGI is a collective effort by its member states to create a Northeast regional cap-and-trade program affecting fossil-fuel power plants greater than 25 megawatts. Member states—currently Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont, with New Jersey in the process of rejoining—each enact statutory or regulatory programs in their respective states that are RGGI compliant. CO2 emitting power plants then participate in RGGI regional auctions to purchase CO2 emission allowances for usage, or to sell on secondary markets. RGGI caps the total amount of CO2 emission allowances, measured in tons of carbon, with the most recent cap being 80.2 MM-tons. Beginning in 2021, the cap will be set at 75.1 MM-tons, which will then be reduced by 30 percent between 2020 and 2030. Proceeds from the auctions are distributed to the respective states for investment in programs to further reduce CO2 emissions, such as energy efficiency, renewable energy, or consumer benefit programs.

RGGI and other outside evaluators have characterized RGGI as a success in reducing carbon emissions, while also still seeing lower electricity prices in these states. From 2008 to 2016, emissions from RGGI states were reported to have declined by 40 percent[1], whereas according to DEP, during a comparable timeframe Pennsylvania saw a net 12.3 percent CO2 emissions decrease between 2005 and 2015.[2] These emission reductions, however, coincide with the increase in natural gas production, which has lower CO2 emissions than other fossil fuels, such as coal. But CO2 reductions in RGGI states have reportedly reduced at a 15 percent faster pace than non-RGGI states. Further, RGGI claims the auction proceeds investments have been highly successful. In 2017 alone, auction proceeds generated $315.6 million, and the investments from these proceeds are reported to have lifetime effects of saving 22.6 million MMBtu of fossil fuel energy and 13.9 MWh of electricity, and avoiding the release of 8.3 million short tons of carbon.[3]

Pennsylvania’s Road to RGGI Admission

Governor Wolf’s Executive Order asserts that the Air Pollution Control Act, Act of January 8, 1960 (1959 P.L. 2119, No. 787), authorizes Pennsylvania to join RGGI via executive action. Specifically, DEP has authority under the Act to cooperate with other states to control, prevent, abate, or reduce air pollution, and “where appropriate formulate interstate air pollution control compacts or agreements for the submission thereof to the General Assembly.” 35 P.S. § 4004 (24). But key members of the Republican-controlled General Assembly have expressed opposition to the Governor’s unilateral authority and have hinted at possible legal challenges to the Governor’s push for admission to RGGI. Yet, we are still a long way from a rulemaking to create the RGGI program in Pennsylvania, and any possible ripe legal challenge.

First, a rulemaking will need to be promulgated to establish the RGGI program in Pennsylvania. Pennsylvania’s regulatory regime has a few unique aspects that make the process more multifaceted than the federal system. Here is a very abbreviated version of the process:

      1. DEP will first draft and submit to the Environmental Quality Board (“EQB”) a proposed rulemaking to establish a RGGI qualified program, which Governor Wolf ordered to be completed by July 31, 2020.
      2. Then, the EQB would authorize the proposed rulemaking and submit the proposed rulemaking to legislative committees and the Independent Regulatory Review Commission (“IRRC”) for review and comment.
      3. Next, the proposed rulemaking is open for public comment. DEP would be required to address any public comments (which are likely to be numerous) and then circulate a final-form regulation to IRRC and legislative committees.
      4. Finally, both the IRRC and the Pennsylvania Attorney General are empowered to approve or disapprove of the final-form regulation.

Each of these steps has prescribed processes for review and comment, which result in an extended overall timeframe for a final-form regulation to come into existence. With the deadline for a proposed rulemaking set at July 2020, we will not realistically see a final-form regulation until possibly 2021 at the earliest. Arguably only after this whole process unfolds and a final rule is published would the rule be ripe for a legal challenge by opponents.

Conclusion

The bottom line to this news is that Governor Wolf envisions Pennsylvania as a member of the regional cap-and-trade program, RGGI. But this vision may take years to become a reality and could be met with significant legal opposition. Interested parties should pay attention as the regulatory process unfolds. The next step of engagement is public participation during the proposed rulemaking process.


[1] Outpacing the Nation, RGGI’s environmental and economic success, Acadia Center (September 2017) available at https://acadiacenter.org/wp-content/uploads/2017/09/Acadia-Center_RGGI-Report_Outpacing-the-Nation.pdf

[2] Pennsylvania Greenhouse Gas Inventory, Pennsylvania Department of Environmental Protection (November 2018) available at https://www.dep.pa.gov/Business/Energy/OfficeofPollutionPrevention/climatechange /PublishingImages/Pages/ CCAC/Inventory%20-%202018%20write%20-up.pdf

[3] The Investment of RGGI Proceeds in 2017, The Regional Greenhouse Gas Initiative (October 2019) available at https://www.rggi.org/sites/default/files/Uploads/Proceeds/RGGI_Proceeds_Report_2017.pdf

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