RGGI / Carbon Cap & Trade
Issue:
Although Regional Greenhouse Gas Initiative (RGGI) is referred to as a cap-and-trade program, its effect is the same as a direct tax or fee on carbon dioxide emissions because RGGI allowance costs are passed on from electric generators to consumers. “For example, according to the study [from the Cato Institute], RGGI allowances added $11 million a year to Delaware’s electric bills. The impact of the higher electricity prices in the RGGI states resulted in a 13-percent drop in goods production and a 35-percent drop in the production of energy intensive goods. The non-RGGI states increased goods production by 15 percent and only lost 4 percent of energy intensive manufacturing.”
The RGGI cost imposed on electric generators in Pennsylvania will increase the cost of electricity to Pennsylvania residents, commercial businesses and large energy intensive, trade exposed industrial manufacturers. For large industrial manufacturers, this places them at a competitive disadvantage to facilities in others states and countries that do not incur the cost of a RGGI like program.
IECPA Position:
IECPA membership is familiar with the RGGI Initiative and operate in states that have adopted and implemented the program. Our issue is not with the underlying goals of reducing carbon emissions, but rather the unnecessary RGGI cost that would be imposed on electric generators in Pennsylvania that will increase the cost of electricity to Pennsylvania residents, commercial businesses and large energy intensive, trade exposed industrial manufacturers.
Joining RGGI and incurring the increased cost is unnecessary to achieve carbon dioxide reductions!
Carbon dioxide emissions in Pennsylvania have decreased just as much on a percentage basis as the other states participating in RGGI and have decreased MORE than other RGGI states on an absolute basis without the added cost of the RGGI program!
The impact to electricity prices and energy intensive manufacturing should be studied and fully understood before moving forward with RGGI along with the development of statutory protections for those large energy consumers.
IECPA Sends Letter to the Independent Regulatory Review Commission regarding public interest implications of the DEP's proposed new RGGI regulations - August 9, 2021
IECPA Sends Letter to the Independent Regulatory Review Commission regarding public interest implications of the DEP's proposed new RGGI regulations - February 10, 2021
IECPA Sends Letters to the Senate Environmental Resources Committee and House Environmental Resources and Energy Committee - January 28, 2021
IECPA Files Comments with Department of Environmental Protection - January 12, 2021
IECPA Submits Letter to Environmental Quality Board re Proposed Rulemaking on CO2 Budget Trading Program - September 14, 2020
IECPA Provides Testimony to Senate Environmental Resources and Energy Committee regarding RGGI - August 25, 2020
IECPA Written Testimony to Senate Environmental Resources and Energy Committee - June 19, 2020
IECPA Letter to Department of Environmental Protection - Mar 27, 2020
IECPA Executive Director Provides Testimony Regarding RGGI - Feb 5, 2020
IECPA Letter to General Assembly re RGGI - Nov 20, 2019
IECPA Letter to Department of Environmental Protection - Nov 20, 2019
IECPA Urges Caution regarding PA Joining RGGI
Background:
The Regional Greenhouse Gas Initiative (RGGI) is an effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce power sector CO2 emissions.
RGGI is composed of individual CO2 Budget Trading Programs in each participating state. Through independent regulations, based on the RGGI Model Rule, each state's CO2 Budget Trading Program limits emissions of CO2 from electric power plants, issues CO2 allowances and establishes participation in regional CO2 allowance auctions.
RGGI compliance obligations apply to fossil-fuel power plants 25 megawatts and larger located within the 9 states. According to the initiative, which was originally adopted on January 1, 2009, the revenue that the states obtain from the cap-and-trade program is used to improve energy efficiency, modernize the electric grid and purchase more wind and solar power. However, a study funded by the Cato Institute finds that 1) there were no added emissions reductions or associated health benefits from the program (the reduction in these states is consistent with the reduction in other states that are not members of the initiative) and 2) the RGGI allowance costs increased already high regional electricity prices.
To determine the impact that the RGGI has on carbon dioxide emissions reductions, the author compared the RGGI states’ emissions reductions and renewable capacity to that of non-RGGI states. The five non-RGGI states selected (Illinois, Oregon, Ohio, Pennsylvania, and Texas) have all deregulated their generating supply sectors as have the RGGI states. The five non-RGGI states also have renewable portfolio standards (RPS), requiring a certain amount of renewable generation by specified dates.
Looking at the annual amount of RGGI auction revenues collected in each state spread over the Electric Power sector CO2 emmissions in those states results in $3.35 per metric ton. When applied to 82.1 metric tons of Electric Power sector CO2 emissions in Pennsylvania, the minimal financial impact of RGGI on PA is approx.. $275 million per year additional cost to electric generators.
However this does not take into account additional secondary market CO2 allowances that generators may need to purchase or the increased cost to electric generators to reduce CO2 emissions to comply with RGGI.
Joining RGGI to boost Pennsylvania gas-, coal-fired power prices, double emissions traded
About $6/MWh added to coal-fired power cost
About $2/MWh added to gas-fired generation
On April 1, 2019 IECPA signed on to a letter to the members of the Environmental Quality Board (EQB), which raises various issues the board members ought to be aware of. The EQB’s policy allows members to reject rulemaking petitions on policy and regulatory considerations. The aim with the letter was to outline those considerations.
On April 16th, 2019 EQB voted 14-5 to accept the petition. The 5 no votes came from Sen. Yaw, Rep. Metcalfe, and three representatives from the Citizens Advisory Council – Jim Welty of MSC, John St. Clair, and Mark Caskey of Steel Nation. EQB members also rejected a motion by Rep. Metcalfe to table consideration of the petition by the same margin. Sen. Yudichak through his designee noted he would vote to accept but believes this type of policy ultimately needs to be established by the legislative branch. Sen. Yaw referenced our letter in his statement following the vote. Rep. Metcalfe noted several times his concern about absence of statutory authority and separation of powers and noted our letter in his comments. The Department of Environmental Protection (DEP) reiterated several times the vote was solely on to accept the petition, not on the merits or legality of it.
DEP per the EQB policy has 60 days to compile its legal, economic and technical analysis of the bill and make a recommendation to the board as to whether the board should accept, modify or reject the petition. It is expected DEP will take more than 60 days for its review.
In May, Gov. Wolf announced PA is joining the US Climate Alliance and released the state’s updated Climate Action Plan. The plan, developed in consultation with the Climate Change Advisory Committee (though not with its unanimous consent), in part endorses joining a regional cap and trade program for power generation. https://www.governor.pa.gov/pennsylvania-releases-state-climate-action-plan-join-u-s-climate-alliance/
Every three years DEP is to update its action plan, per Act 70 of 2008, to identify areas of policy, legislation and voluntary initiatives to abate global warming.
The Climate Alliance is a group of state governors who are committing to meet the Paris goals. Only a year ago, Gov. Wolf had this to say about the project: “We are actually doing things well beyond the climate agreement,” Wolf said. “We are on target to exceed the Paris agreement on carbon. I’m not sure what is served by the symbolic gesture of signing on to something we’re already doing a better job on.” https://stateimpact.npr.org/pennsylvania/2018/01/26/gov-wolf-doesnt-recall-campaign-pledge-to-join-climate-initiative/
On June 18th, 2019 DEP reported it will be putting out an RFD for a consultant to help review the petition in terms of costs, benefits and potential structure. DEP said it expects it will take until early 2020 to have a final report back to EQB on the petition. The final report will include a recommendation as to whether EQB should move forward with a proposed rulemaking. If DEP recommends moving forward, it will also present to EQB a draft rulemaking.
On October 3, 2019 Governor Wolf issued an Executive Order that directed the Department of Environmental Protection by no later than July 31, 2020, to develop and present to the Pennsylvania Environmental Quality Board a proposed rulemaking package to abate, control, or limit carbon dioxide emissions from fossil-fuel-fired electric power generators, which rulemaking package shall be authorized by the Act of January 8, 1960 (1959 P.L. 2119, No. 787), known as the Air Pollution Control Act. Amoung other things the proposed rulemaking shall establish a carbon dioxide budget consistent in stringency to that established in the RGGI participating states.
IECPA Executive Director Rod Williamson participated in a Fox 43 news interview immediately after the release of this executive order.
In November 2019, SB 950 was introduced to delineate the process for legislative approval before Pennsylvania imposes a carbon tax on employers engaged in electric generation, manufacturing or other industries operating in the Commonwealth, or enter into any multi-state program, such as the Regional Greenhouse Gas Initiative (RGGI), that would impose such a tax.
On February 13, 2020 the Department of Environmental Protection (DEP) unveiled a preliminary draft regulations to allow Pennsylvania to participate in the Regional Greenhouse Gas Initiative (RGGI). DEP provided details about the preliminary rulemaking language, which would design a carbon dioxide trading program in Pennsylvania using the RGGI Model Rule but also incorporating revisions and additions specific to Pennsylvania, to the Air Quality Technical Advisory Committee (AQTAC) at its bimonthly meeting in Harrisburg.
The preliminary draft is consistent with the RGGI Model Rule but has several specific distinctions: it adds a waste coal set-aside allowance allocation; it adds a qualifying offset for abandoned well plugging; it provides flexibility for on-site generation tied to manufacturing facilities; and it includes an auction provision, indicating that DEP will determine whether to participate in a multi-state auction based on certain factors or hold a Pennsylvania-run auction.
At this time, this preliminary draft was presented to AQTAC for informational purposes only; a draft proposed regulation, as required by the governor’s Executive Order, will be presented to the Environmental Quality Board on July 21.
Pennsylvania’s Proposed CO2 Budget Trading Program Presentation http://files.dep.state.pa.us/Air/AirQuality/AQPortalFiles/Advisory%20Committees/Air%20Quality%20Technical%20Advisory%20Committee/2020/2-13-20/AQTAC%20PA%20CO2%20Budget%20Trading%20Program_February%202020.pdf
DRAFT PROPOSED RULEMAKING
Subchapter E. CO2 BUDGET TRADING PROGRAM http://files.dep.state.pa.us/Air/AirQuality/AQPortalFiles/Advisory%20Committees/Air%20Quality%20Technical%20Advisory%20Committee/2020/2-13-20/Draft%20PRN%20CO2%20Budget%20Trading%20Annex%20A%201-30-20.pdf
On April 21, 2020 a group of Senators sent a letter to Governor Tom Wolf requesting the rescission of Executive Order No. 2019-7 directing the Pennsylvania Department of Environmental Protection (DEP) to submit a proposed rulemaking to the Environmental Quality Board to establish a “carbon dioxide budget consistent in stringency to that established in the Regional Greenhouse Gas Initiative (RGGI) participating states,” and to direct DEP to suspend regulatory efforts to implement RGGI or any carbon dioxide budget trading program in Pennsylvania.
On September 10, 2020, the General Assembly approved a bill that would prevent the state from joining a carbon cap and trade program without their permission first. House Bill 2025 cleared the Senate on a vote of 33-17, including support from four Democrats, nearly one year after Wolf instructed the Department of Environmental Protection to join the Regional Greenhouse Gas Initiative.
On September 15, 2020 the state’s Environmental Quality Board (EQB) - a 20-member body charged with approval of most environmental regulations, but always controlled by gubernatorial appointees - voted 13 to 6 approving the proposed CO2 budget trading program rule making. After a 60-day comment period with public hearings around the state, DEP will review the comments and present its final proposal to the board. If the final version is approved, it would be subject to other, more independent regulatory reviews before it’s enacted.
On September 24, 2020 Governor Tom Wolf vetoed House Bill 2025, which would have prevented the Pennsylvania Department of Environmental Protection (DEP) from taking any action to abate, control or limit carbon dioxide emissions in the commonwealth without the prior approval of the General Assembly.
In November 2020 the model rule was published in the Pennsylvania Bulletin and the regulatory review process was initiated.
The Department submitted the CO2 Budget Trading Program final-form rulemaking to the IRRC for review and consideration, as well as to the Pennsylvania House and Senate Environmental Resources and Energy Committees, on July 28, 2021.
On September 1, 2021, the Independent Regulatory Review Commission (IRRC) adopted the regulation for Pennsylvania to participate in RGGI.
The Senate passed a concurrent resolution (with a 32-15 vote) on October 27, 2021 wherein it unequivocally stated it’s opposed to RGGI. On December 15th, 2021 the House voted on the Senate concurrent regulatory resolution (Yes – 130 / No – 70).
On January 10, 2022 Governor Wolf vetoed and disapproved Senate Concurrent Regulatory Review Resolution 1, which would have disabled the commonwealth’s opportunity to enter the Regional Greenhouse Gas Initiative.
Currently the RGGI regulation is being legally challenged and the court has issued a stay to prevent the implementation.
IECPA maintains it’s position that RGGI is bad for Pennsylvania and there are better options available. For instance:
The Gross Receipts Tax (GRT) is paid by both electric distribution companies and electric generation suppliers on the basis of the company's or the supplier's gross receipts from the sale of electric generation supply within the Commonwealth of Pennsylvania. Electric distribution companies and electric generation suppliers include the GRT as part of the cost of electric generation supply to customers.
By law, the current GRT rate in Pennsylvania is 5.90 percent. However, since the tax is embedded in the cost of electric generation supply, electric distribution companies and electric generation suppliers apply a gross-up factor to determine the amount of GRT that must be paid to Pennsylvania. As a result, electric distribution companies and electric generation suppliers pay GRT to Pennsylvania in the amount of 6.27 percent on the base price of electric generation supply.
This link Search (pa.gov) is to the PA department of Revenue, which has “The Statistical Supplement for the Pennsylvania Tax Compendium” file (attached) which on tab 13 breaks down the gross receipts tax collection by sector since the turn of the century, if you take the electric sectors current contribution it’s ~77% of the $1B collected in 2020-21 (approx.. $760MM).
Carbon Reduction Solution
The original estimates projected that RGGI would generate $200MM to $300MM per year in carbon allowance sales revenue which funds could be used for carbon reduction. The state already collects approx.. $760MM per year from the Gross Receipt Tax (GRT) on electricity customers. If addressed carbon emissions is a priority for the Governor and the state of Pennsylvania, there is no need to join a regional program where PA has a) limited control, b) the program only addresses one sector – electricity, c) has a carbon price set by speculative investors and d) has no linkage or consideration of electric system reliability. The state should develop a Pennsylvania specific plan by reprioritizing the use of a portion of existing GRT funds to focus on carbon reduction which could include multiple sectors (electricity, transportation, industrial, etc.)
Pennsylvania and RGGI – Decision and Resolution
by Barry Naum | Spilman Thomas & Battle, PLLC
On November 1, 2023, the Commonwealth Court of Pennsylvania, in a five-judge panel decision, issued a long-awaited ruling denying the authority of the executive branch, through the Pennsylvania Department of Environmental Protection, to bind Pennsylvania as a member of the Regional Greenhouse Gas Initiative ("RGGI"), colloquially a "carbon cap and trade" program, with current membership from 11 northeast and Mid-Atlantic states.
This represents a critical development on the controversial effort initiated by former Governor Tom Wolf as a capstone environmental initiative of his administration, viewed by advocates and supporters as a potential means to significantly reduce the carbon emissions output of Pennsylvania's electricity producers. Since Governor Wolf's executive order in 2019, RGGI created a firestorm of both support and opposition from numerous stakeholders, with positions often atypically crossing the usual ideological lines. Substantively, critics of RGGI argued the program would result in massive increases in the cost of energy to Pennsylvania consumers and Pennsylvania potentially losing its favorable position as an energy exporter, all at the risk of Pennsylvania jobs and the state's economy.
The Court's decision was based narrowly on the arguments of the litigants of two challenges before it, with plaintiffs represented, respectively, by the state's Senate Republicans and a collection of energy companies, labor unions, and business and industry parties, on the question of whether the executive action to join RGGI appropriately equated to a legitimate fee under the DEP's authority to regulate energy generators under the federal Clean Air Act or an unlawful tax enacted outside of the Governor's constitutional authority. Ultimately, citing in part the excess revenues that would be generated through RGGI by collection from Pennsylvania power producers, the Court agreed with the plaintiffs that the executive action to join RGGI created a tax that, in order to pass constitutional requirements, can only be accomplished through legislation by the Pennsylvania General Assembly.
Although current Governor Josh Shapiro retains the ability to appeal the decision to the Pennsylvania Supreme Court, present indications are that this course of action is unlikely. Rather, it appears that Governor Shapiro is intent on working with his legislative counterparts to pursue an alternative to RGGI, or various alternatives, that will achieve his administration's environmental goals. If so, then the long-running RGGI question, at least in Pennsylvania, is likely resolved.
On November 21, 2023 Pennsylvania Department of Environmental Protection (“DEP”) and the Environmental Quality Board (“EQB”), Have filed an appeal to the Supreme Court of Pennsylvania from the Order entered in this matter on November 1, 2023, declaring the Regional Greenhouse Gas Initiative Regulation (the “RGGI Regulation”), promulgated by the DEP and EQB, “void” and enjoining the DEP and EQB from enforcing the RGGI Regulation.
This is extremely disappointing to say the least!