Pennsylvania Takes Next Step Toward Cap-and-Trade Amid Resistance

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On July 13, 2021, Pennsylvania moved closer to joining the Regional Greenhouse Gas Initiative ("RGGI") after receiving approval from the Environmental Quality Board ("EQB"). Joining RGGI has been a centerpiece of Governor Tom Wolf's goal of reducing the Commonwealth's carbon emissions from the electricity sector. However, support for joining RGGI is not uniform, and the regulations must undergo review by the Pennsylvania Independent Regulatory Review Commission ("IRRC") and survive legislation designed to block membership, meaning Pennsylvania's membership in RGGI is not yet certain.

RGGI Background

RGGI is an initiative of 11 New England and Mid-Atlantic states to reduce greenhouse gas emissions from the power sector. This collective operates a cap-and-trade program that generates revenue by selling carbon dioxide emissions allowances and then invests the revenue into clean energy efforts, renewable energy sources, and other related programs. RGGI reports that within 10 years of its first carbon credit auction in 2008, members reduced average carbon dioxide emissions from electric generation sources by 48%.

Pennsylvania would represent the first major fossil fuel-producing state to join this initiative. Projections from the Pennsylvania Department of Environmental Protection ("DEP") estimate that, by joining RGGI, Pennsylvania would reduce climate pollution from carbon emissions by 188 million tons by 2030. DEP also estimates that Pennsylvania's participation in RGGI would add 30,000 jobs and increase gross state product by around $2 billion. Disposable personal income would also increase by $3.7 billion by 2050, according to DEP projections. The Wolf administration forecasts joining RGGI would raise approximately $300 million in the first year.

Path to RGGI Membership

In April 2019, Governor Wolf released a Pennsylvania Climate Action Plan that championed a cap-and-trade program for the electricity generation sector. He reaffirmed this commitment with October 2019 and June 2020 executive orders directing the DEP to join RGGI. The EQB then opened a public comment period, yielding more than 14,000 comments. On July 13, 2021, the EQB voted to adopt the final-form RGGI rulemaking by a 15-4 vote, signifying the next step toward Pennsylvania's membership. DEP Secretary Patrick McDonnell lauded this approval as "a milestone in helping Pennsylvanians get one step closer to combating the ills of climate change."

However, not all state officials are pleased with the prospect of Pennsylvania joining RGGI. Many legislators opposing Pennsylvania's membership have raised concerns about higher energy costs, outsourcing energy production, and a reduction in jobs. Senator Gene Yaw (R-Lycoming), chairman of the State Environmental Resources and Energy Committee, called RGGI "a superficial stab at addressing climate change."

Before RGGI membership is finalized, the IRRC must approve Pennsylvania's request to join. The five-member IRRC board is made up of three Democratic appointees and two Republican appointees. The IRRC must determine whether this proposed rule aligns with the public interest, as defined by state law. On February 16, 2021, the IRRC urged the EQB to delay a decision on RGGI membership by one year to "allow the regulated community an opportunity to adjust their business plans to account for the potential increased costs associated with Pennsylvania joining RGGI." Despite this recommendation, the EQB moved forward with the vote to join RGGI. The IRRC must now decide whether to approve the EQB's rulemaking and whether to allow Pennsylvania to join this 11-state collective. If the IRRC approves Pennsylvania's membership in RGGI, the regulation will undergo a final review by the Pennsylvania Attorney General to determine if it complies with existing law. Proponents of RGGI membership advocate for Pennsylvania membership by January 2022, but this has been met with legislative opposition.

Legislation Opposing RGGI

Legislative opposition to Pennsylvania joining RGGI has manifested within committees and various hostile bills. In the near-term, the House Environmental Resources & Energy Committee expects to vote on a letter to the IRRC that would urge it to reject the EQB rulemaking. More forcefully, H.B. 637 seeks to prohibit Governor Wolf and the DEP from taking any actions surrounding cap-and-trade programs, including RGGI, without legislative approval. This bill was recommitted to the House Rules Committee on June 8, 2021.

Another bill, S.B. 119, would also require state legislative approval of RGGI membership. S.B. 119 passed the Senate on June 14, 2021, by a 35-15 vote, and moved to the House Environmental Resources & Energy Committee. The General Assembly took its summer recess, however, before the House could take any action on this legislation, but will return on September 27, 2021.

In all likelihood, if H.B. 637 or S.B. 119 is approved by the General Assembly, Governor Wolf will veto the legislation. A similar bill was vetoed by Governor Wolf in 2020. However, a veto can be overridden with a two-thirds vote of the Pennsylvania General Assembly.

RGGI Companion Bills

While opposing legislation is pending, two companion bills have been introduced to appropriate funds from the RGGI cap-and-trade program. Respectively, Senator Carolyn Comitta (D-Chester) and Representative Dianne Herrin (D-Chester) have proposed S.B. 15 and H.B. 1565 with Governor Wolf's support. These bills would create the RGGI Investments Act and use cap-and-trade program proceeds across various sectors. Specifically, 37.5% of RGGI revenue would be used to retrain workers and support school districts; 12.5% would go to low-income, high-pollution areas (known as environmental justice areas) for electricity bill assistance and environmental clean-up. The remaining 50% of RGGI proceeds would go to the state's Clean Air Fund to be used for greenhouse gas abatement, clean energy, and energy efficiency projects. Absent any companion legislation directed at RGGI proceeds, all revenue from RGGI would automatically be allocated to Pennsylvania's Clean Air Fund. This would be used to help combat air pollution.

Conclusion

As the IRRC deliberates on whether to approve the EQB's rulemaking, the future of Pennsylvania's RGGI membership remains uncertain. Even if IRRC approval is granted, the RGGI membership bid must still survive attorney general review and a flurry of opposing legislation. If approved, though, Pennsylvania's RGGI membership will certainly have a significant impact on the Commonwealth's electricity producers as well as wide-ranging environmental and economic implications.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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