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Energy and Environment Monitor

Reginald Comes to the Keystone State?

October 9, 2019

By: Robert G. McLusky

By Executive Order No. 2019-07 issued on October 3, 2019, Pennsylvania Governor Wolf directed the PADEP to develop rules by July 31, 2020 for limiting CO2 emissions from “fossil-fuel-fired electric power generators.”  The same Order mandated that the regulatory program establish a CO2 “budget consistent with that established in the RGGI (pronounced “Reggie”) participating states; provide for the auction of CO2 emissions allowances through a market-based system and be … consistent with the RGGI Model Rule such that allowances may be traded with holders of allowances from other states.”  Effectively, the Governor wants the Keystone State to join the Regional Greenhouse Gas Initiative (“RGGI”) that is currently comprised of several Northeastern and Mid-Atlantic states. More on RGGI below.

 

This mandate comes on the heels of Executive Order No. 2019-01, issued in January.  That Order declared that the Commonwealth “shall strive to achieve a 26 percent reduction of net greenhouse gas emissions … from 2005 levels, and an 80 percent reduction of net greenhouse gas emissions by 2050 from 2005 levels.”  To that end, it ordered that all executive agencies shall:

 

  • Collectively reduce energy consumption annually by 3% and 21% by 2025 from 2017 levels.
  • Replace 25% of the Commonwealth’s car fleet with battery electric and plug-in hybrid cars by 2025.
  • “Procure renewable energy to offset at least 40 percent of the Commonwealth’s annual electricity use…”
  • Where any Commonwealth building project will exceed 50% of a building’s replacement cost, the design and construction shall meet Green Building LEED certification standards.

      

What is RGGI?  It is a CO2 trading program established by New England and Mid-Atlantic states. The program applies only to CO2 emissions from electric power plants with the capacity to generate 25 megawatts or more.  The RGGI states have set a series of declining caps on CO2 from the regulated facilities.  Quarterly, the states issue emission “allowances” equal to the cap and then auction the allowances to the regulated sources.  The allowances can be traded and banked.  The Congressional Research Service has issued a detailed summary of the plan here: https://fas.org/sgp/crs/misc/R41836.pdf.  Participating states have raised over $3 billion from the allowance auctions since the program started.  The monies raised have generally, but not uniformly, been spent on energy efficiency projects—presumably to help consumers deal with the anticipated higher generation costs caused by the plan.

 

At least one author has noted that the RGGI program has done a better job at raising state revenues for energy reduction strategies than it has in actually reducing CO2 emissions from the regulated plants.  See The Regional Greenhouse Gas Initiative explained (available at https://www.vox.com/science-and-health/2017/2/28/14741384/rggi-explained).  There, the author notes that while CO2 emissions have been reduced in the RGGI states, RGGI itself has not been the primary cause—rather the nationwide replacement of coal with gas-fired generation has done more to cause reductions than has the carbon tax imposed by RGGI.  In addition, according to the same author and to the Congressional Research Service, the regulated plants cumulatively represent only about 20% of the CO2 emissions in the participating states, and those states produce about 7 percent of the nation’s CO2 emissions—meaning that the regulated plants across the RGGI states account for only 1.4% of the nation’s CO2 emissions.

               

The early RGGI caps were also set above actual CO2 emissions, which likely allowed participating plants to acquire and bank allowances at relatively low prices. The caps have been reduced over time, and it is unclear whether this will force regulated Pennsylvania plants to purchase allowances at higher prices than those previously banked by their competitors in other RGGI states. 

 

Some speculate that Governor Wolf sees RGGI as a source of revenue for his green infrastructure initiatives in lieu of additional severance taxes directly on the coal and gas industries.  While initiatives like RGGI and the Governor’s mandate that certain percentages of power generation come from renewable sources will create jobs—at least for a while—they rely on a tax on existing fossil fuel generation and on an assumption that those sources will be able to continue paying the tax—most of which is passed onto electric power consumers or investors. 

 

 

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