Regional Greenhouse Gas Initiative Membership in Pennsylvania and What that Means for Businesses

On October 3, 2019, Governor Tom Wolf issued an executive order directing Pennsylvania’s entrance into the Regional Greenhouse Gas Initiative (“RGGI”).  The RGGI is a collective initiative of eight other New England and Mid-Atlantic states aimed at reducing greenhouse gas emissions.  According to the RGGI’s website, the program is the first mandatory, market-based carbon dioxide emissions reduction program nation-wide.  Likewise, Pennsylvania is the first major fossil fuel state to join the initiative, making this a controversial step toward curbing carbon pollution within Pennsylvania.  Here is how this initiative will affect Pennsylvania businesses.

The RGGI cooperative sets a cap on the amount of carbon dioxide that a fossil-fuel-fired electric power generator with a capacity of 25 megawatts or more can emit.  RGGI’s cap is similar to a budget since it serves as a steadily declining limitation on the amount of carbon dioxide that can be emitted from affected power generators in RGGI-participating states.  For these power generators to comply with the cap, they must purchase an “allowance” for each ton of carbon dioxide they emit.  Allowances are available for purchase at quarterly auctions conducted by RGGI.  According to the Pennsylvania Business Report, allowances were being sold for $5.20 per ton at the September 2019 auction.  Proceeds from the auctions are then remitted back to participating states to invest in renewable and more efficient sources of energy.

Each participating state within the RGGI maintains its own regulations and individual carbon dioxide Budget Trading Program.  These programs are based on the RGGI’s model rules, which limit carbon dioxide emissions from power generators, issue carbon dioxide allowances, and create the regional carbon dioxide auctions.  When a new state wants to join the RGGI cooperative, it must negotiate a new cap with existing participating states, and the proposed state’s cap must be comparable in stringency to the other states’ caps, accounting for the proposed state’s current and projected emissions.

Since Pennsylvania is new to the RGGI cooperative, it will need to enact its own regulations to dictate how its program will be run.  Accordingly, Governor Wolf’s executive order directed the Pennsylvania Department of Environmental Protection to issue a proposed rulemaking package to present to the Pennsylvania Environmental Quality Board for consideration based on the RGGI’s model rules.  This rulemaking package should be presented before July 31, 2020, so there will be time for comments and other feedback in the interim.  During this time, DEP is encouraged to conduct extensive public outreach to determine an appropriate cap for Pennsylvania.

After DEP’s proposal is passed off to the Board, it will vote on whether to advance it to the formal rulemaking procedures under the Regulatory Review Act.  This is a lengthy process which can take years to complete.  During this time, DEP can make revisions based on comments from the public.  The General Assembly may then vote to “disapprove” the regulations.  If it does, Governor Wolf can veto the disapproval, and the General Assembly can attempt to override the veto.  Absent disapproval, however, the proposal becomes the guiding and controlling regulations.  Therefore, while the actual impact of Pennsylvania’s entry to the RGGI will not be felt for a while, businesses within the state should be aware of how these regulations will affect them and provide comments and feedback when appropriate.

Since Pennsylvania is second only to Texas in its natural gas production due to Marcellus Shale deposits, and the third largest coal producer in the nation, it is thus the fourth biggest carbon dioxide emitter according to the World Resources Institute.  Pennsylvania’s choice to join the RGGI initiative stands to impact all forms of electric power generators within the state.  This would include nuclear power plants, coal mines, and other energy producers which create a carbon dioxide output.  These businesses will eventually need to participate in the allowance system and educate themselves on how this system will work.

Despite the proposed costs, however, some businesses do stand to gain from the proposal.  According to studies from the Acadia Center, carbon emissions have dropped significantly faster for states participating in the RGGI initiative than the rest of the country.  Economies within RGGI states have also grown due to increased funding for alternative sources of energy.  This promotes research, development, and investment into greener forms of energy, opening up new business opportunities within these states.  Therefore, while energy producers are expected to pay more for their carbon footprint in the next few years, some predict businesses and consumers will pay less for their electricity long term.  Furthermore, some businesses in Pennsylvania may capitalize on opportunities for investment and growth.

With contribution from Sarah Rothermel, J.D. Widener Law Commonwealth.

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