The Regional Greenhouse Initiative (RGGI) is a consortium of northeastern states that impose a cap and trade program on power plants by capping the carbon dioxide emissions from electric generators, causing electricity prices to increase. Power plants that do not meet the cap must buy emissions allowances—costs that are passed onto the consumer. This is similar to the system in place in Europe which is currently experiencing significant energy price increases, and where some estimate prices will hit 100 euros ($113) per ton soon.

In 2020, the Virginia General Assembly approved the state to join RGGI and the authorization was signed by Governor Ralph Northam. However, Governor-Elect Youngkin plans to use executive action to remove the state from RGGI. Also, Pennsylvania Governor Tom Wolf wants his state to join the pact but there is an effort in the state legislature to block membership.

Virginia

An aide to Governor-Elect Youngkin believes Virginia’s participation in RGGI is governed by a contract agreement signed by the Department of Environmental Quality, and as such the governor can withdraw Virginia from that agreement by executive action. However, others disagree because of the way state laws authorizing participation are written. Because the State Air Pollution Control Board has promulgated regulations to join RGGI, they believe a governor cannot issue an executive order to undo a duly promulgated regulation.

The Clean Energy and Community Flood Preparedness Act authorized the Department of Environmental Quality “to establish, implement, and manage an auction program to sell allowances into a market-based trading program consistent with the RGGI program.” At the same time, the Virginia Clean Economy Act mandated that Virginia’s power grid decarbonize by 2050 and ordered the Air Pollution Control Board to adopt regulations to reduce carbon emissions from any electricity generator larger than 25 megawatts.

Virginia is currently participating in RGGI and has completed its first full cycle of quarterly carbon auctions. In the most recent auction, prices for emissions credits hit a record-high $13 per ton. Dominion Energy, the largest investor-owned utility in Virginia, recently filed a second application to almost double the charges it will pass onto customers for RGGI participation, which are expected to increase the average residential customer’s monthly bill by $4.37 beginning on September 1, 2022.

According to Dominion Electric, “While the company is committed to its ongoing transition to cleaner and lower carbon emitting resources, we are concerned that the commonwealth’s linkage to the Regional Greenhouse Gas Initiative (RGGI) program through the Virginia carbon proposal would result in a financial burden on its customers with no real mitigation of [greenhouse gas] emissions regionally.”

In a recent speech, Youngkin said “RGGI will cost ratepayers over the next four years an estimated $1 billion to $1.2 billion dollars. RGGI describes itself as a regional market for carbon, but it is really a carbon tax that is fully passed on to ratepayers. It’s a bad deal for Virginians. It’s a bad deal for Virginia businesses.”  In his speech, Youngkin said he would be a champion of various forms of electricity production – wind, solar, nuclear and natural gas. Other supporters for quitting RGGI indicate that the impact of RGGI on climate change is negligible at best because Virginia was reducing carbon dioxide emissions from power plants at a rate comparable to RGGI states before joining the cap and trade group.

Natural gas fueled the largest share, about three-fifths, of Virginia’s net generation in 2020. Coal and, to a much lesser extent, petroleum together fueled less than 4 percent of in-state generation. The residential sector, where most Virginia households have air conditioning and more than half use electricity for home heating, accounts for about two-fifths of electricity sales. Electricity prices in Virginia are currently below the national average, but would necessarily increase under RGGI.

Pennsylvania

Two years ago, Governor Tom Wolf issued an Executive Order directing the Pennsylvania Department of Environmental Protection (DEP) to develop regulatory limits on carbon pollution from power plants. Using its existing authority under the state Air Pollution Control Act, the DEP proposed a CO2 Budget Trading Program that will enable Pennsylvania to participate in RGGI.

Pennsylvania’s Monarch in His Own Mind, Tom Wolf

In October 2021, the Pennsylvania Senate approved a concurrent resolution to block RGGI regulations on power plants. On December 15, the State House also passed a bill to ban the RGGI regulations from taking effect. Governor Wolf is expected to veto the bill given his support of RGGI. A two-thirds vote of approval from the Senate is needed to override a veto by the governor. The senate, however, is 2 votes shy the two-thirds percentage needed. Two more legislators would need to express support of the resolution if it should return to the Senate after a veto by Wolf.

Low-income communities and seniors would be hurt the most by the rapid rise in the RGGI carbon tax, more than doubling over the past two years.  Those residents need electricity and have less discretionary income. Using data from the Energy Information Administration, studies from Penn State and the PJM Interconnection, it is estimated that RGGI could increase electric rates in Pennsylvania by as much as 18 percent.

Pennsylvania is the third-largest producer of electricity in the nation, after Texas and Florida.  In 2020, natural gas-fired power plants were the largest provider of in-state electricity generation for the second consecutive year with a 52 percent market share. Coal-fired power plants were the third-largest providers of in-state electricity generation with a 10 percent share. About one in four Pennsylvania households use electricity as their primary heating source. Pennsylvania’s average residential electricity prices are currently about equal to the national average.

Nearly 3,000 megawatts of the state’s coal-fired summer generating capacity retired between 2015 and mid-2021. During the same period, more than 9,500 megawatts of natural gas-fired capacity came online. This corresponded with Pennsylvania’s growth as a major natural gas producing state because of the application of horizontal drilling and hydraulic fracturing.  Natural gas has accounted for almost all the generating capacity added in the state since 2019. Pennsylvania is the second-largest natural gas-producing state, reaching a record 7.1 trillion cubic feet in 2020. It is the third-largest coal-producing state.

Conclusion

RGGI carbon allowance prices are escalating as President Biden’s fossil fuel policies are driving energy prices up. Both Virginia and Pennsylvania get over 60 percent of their electricity from fossil fuels. If they were to join RGGI, the power plants that emit more than the cap would be taxed the value of emissions allowance prices that are now at a record high of $13 a ton.

These costs would be passed onto consumers and would be regressive for low income and senior residents have less discretionary income. Governor-Elect Youngkin wants to remove Virginia from RGGI and intends to do so through executive action. The House and Senate in Pennsylvania recently voted to block the state from entering into a commitment with RGGI, but currently lacks the votes to override a veto from Governor Wolf.

Reposted, with permission, from IER.