Pennsylvania’s RGGI Rule Set to Be Published
Tomorrow, Pennsylvania intends to publish a final rule titled “CO2 Budget Trading Program,” which will allow Pennsylvania to become the twelfth state to join the Regional Greenhouse Gas Initiative (RGGI). A link to the publication notice can be found here.
RGGI is an intergovernmental organization consisting of eleven member-states (CT, DE, ME, MD, MA, NH, NJ, NY, RI, VT, VA) that has established a market-based cap-and-trade program for CO2 emitted from fossil fuel-fired power plants that have 25 megawatts or more of nameplate capacity and send at least 10 percent of their gross generation to the grid. Approximately 68 facilities in Pennsylvania fall into this category. Before joining RGGI, a state must develop its own rule based on the RGGI model rule. The state can then join RGGI by having its governor sign the RGGI Memorandum of Understanding.
Once a state joins RGGI, facilities that are subject to RGGI must participate in quarterly auctions to obtain allowances. Each allowance covers one ton of CO2. Not all allowances are auctioned. The Pennsylvania rule provides specific allowance set-aside accounts for combined heat and power electric generating units and waste coal. Pennsylvania’s rule also incorporates the model rule’s provisions for the following offset projects: (1) landfill methane capture and destruction; (2) sequestration of carbon due to reforestation, improved forest management or avoided conversion; and (3) avoided methane emissions from certain agricultural operations.
The auctions are expected to generate hundreds of millions of dollars in annual revenue for Pennsylvania that would be placed in Pennsylvania’s Clean Air Fund where those funds would be statutorily limited “for the use in the elimination of air pollution.” Some states use auction proceeds to invest in programs such as energy efficiency, renewable energy, and other greenhouse gas reduction programs. Opponents argue that Pennsylvania’s rule is a revenue-generating measure that is not a fee authorized under the Pennsylvania Air Pollution Control Act but rather an unauthorized tax that must be approved by the General Assembly.
Pennsylvania’s rule includes a declining annual CO2 emissions budget, which starts at 78 million tons in 2022 and ends at approximately 58 million tons in 2030. Based on an analysis conducted by a consulting firm retained by the Pennsylvania Department of Environmental Protection (PADEP), most of the emission reductions will be attributable to reductions in coal use, while a smaller percentage will be attributable to reductions in natural gas use. The Environmental Quality Board (EQB) estimates that the rule will cause CO2 emissions in Pennsylvania to decrease by a total of 97 - 227 million tons by 2030, but net CO2 emissions across the PJM region are expected to decrease by only 28 million tons by 2030 as a result of anticipated shifting (or leakage) of CO2 emissions to other PJM states.
The rulemaking process for this rule has had a tortured history. In October 2019, Governor Wolf issued Executive Order 2019-07 which directed PADEP to develop and present to the EQB a proposed rule that would be generally consistent with the RGGI model rule and would allow Pennsylvania to join RGGI. The EQB voted to approve the final rule on July 13, 2021. A regulatory review process then ensued under Pennsylvania’s Regulatory Review Act before the rule could be published in the Pennsylvania Bulletin and become effective. The EQB and the Legislative Reference Bureau (which publishes final rules) disagreed over when that process was completed. The EQB ultimately filed a petition for review before the Commonwealth Court seeking to compel the Legislative Reference Bureau to publish the final rule. Several state legislators intervened and moved for a preliminary injunction to prevent the publication and codification of the final rule. A hearing on that motion is currently scheduled for May 2, 2022.
Nevertheless, under either competing interpretation of the Regulatory Review Act, the regulatory review process was completed by no later than April 4, 2022. The Legislative Reference Bureau therefore intends to publish the final rule in the Pennsylvania Bulletin tomorrow, April 23, 2022. Litigation is expected to commence immediately with one or more petitions for review to be filed before the Commonwealth Court. Opponents will likely move for a preliminary injunction seeking to prevent the rule from taking effect until the Commonwealth Court is able to issue a decision after a full hearing on the merits.
Questions on the final rule can be directed to Tom Duncan at tduncan@mankogold.com or 484-430-2358.
