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Regional Climate Pact’s Future Is Now a Tale of Two Governors

Jan. 18, 2022, 11:00 AM

A regional climate pact among Northeast states faces increasing uncertainty as two of its most recent additions are already mulling whether to get out.

Pennsylvania, the fourth highest-emitting state, is a top priority for environmental groups to join the 11-state Regional Greenhouse Gas Initiative in 2022 after Virginia joined last year. But new Republican Gov. Glenn Youngkin’s Jan. 15 move to withdraw Virginia under an executive order has energized advocates and opponents in both states.

Environmental groups vow they’ll fight to preserve the initiative and its hard-fought gains on climate action, particularly if Biden administration efforts remain bogged down in Congress.

“It is in Pennsylvania’s and Virginia’s best interest to continue participating in a multi-state, proven program,” said Mandy Warner, the Environmental Defense Fund’s director for climate and clean air policy. The “time-tested program” for Northeast states also has halved power sector emissions in just a dozen years, she said.

The alliance has been through similar circumstances in the past, including New Jersey’s withdrawal a decade ago, though it has since rejoined.

Uncertainty in Virginia

Youngkin, who has called RGGI a “bad deal” for ratepayers and businesses, is directing state regulatory agencies to develop an emergency regulation to withdraw from RGGI. But there’s significant legal uncertainty over whether he can go it alone.

Attorney General Mark Herring (D) in a Jan. 11 opinion warned Youngkin “cannot, solely through an executive order, repeal or eliminate” requirements by the Department of Environmental Quality to join RGGI, authorized under Virginia’s Clean Energy and Community Flood Preparedness Act.

Herring’s opinion, requested by two Democratic statehouse delegates, said the 2020 law directed DEQ “to establish, implement, and manage an auction program” for power plants to buy carbon allowances covering their emissions.

Also unclear is whether Youngkin could put the final touches on any withdrawal, including resolving expected litigation, before RGGI’s next carbon auction on March 9. A spokesman for the governor declined to detail his plans.

Virginia also is phasing out its coal-fired power plants toward making its power generation carbon free by mid-century. It’s unclear, RGGI supporters say, how it could comply with lofty emissions targets while withdrawing from the program.

Several Virginia Democrats say the new governor should have to explain how hundreds of millions in annual RGGI revenue would be raised without tax increases. State Sen. Ghazala Hashmi (D) argues that the lost dollars would leave desperately needed flood control projects unfunded.

Hashmi “is absolutely against” withdrawal and is urging Youngkin to understand “how vital it is to remain within the RGGI compact,” said June Laffey, Hashmi’s chief of staff.

Laffey noted that Virginia in December awarded $24.5 million in grants from its Community Flood Preparedness Fund, using RGGI funds, to help communities build their capacities to address climate impacts and combat effects of severe weather, recurrent flooding, and sea level rise.

Virginia’s potential withdrawal from RGGI creates uncertainty for Dominion Energy, the state’s largest utility, which purchased millions of allowances—costing more than $100 million—to cover its 2021 emissions.

Dominion, which opposed the state joining RGGI, remains concerned it will “result in a financial burden on its customers with no real mitigation” of regional emissions, company spokesman Rayhan Daudan said.

Tremors in Pennyslvania

Pennsylvania had to overcome significant political opposition toward joining RGGI sometime in 2022. But its fate may depend on its next governor to succeed Gov. Tom Wolf (D), a big RGGI proponent who is term-limited and departs in January 2023.

Republicans who control both of Pennsylvania’s legislative chambers have come within striking distance of forcing the state out of RGGI, but Wolf has won each round, including a Jan. 10 veto of a resolution to dismantle participation.

Barring unforeseen changes, Pennsylvania is expected to begin participating in the second or third quarter of 2022 after clearing regulatory hurdles in 2021.

RGGI’s opponents aren’t giving up. They’re mulling strategies to scrap or limit Pennsylvania’s participation, from getting a Republican governor elected in the fall to passing legislation to boost resilience and other climate funding—as long as the state ends its RGGI participation.

Several Republican candidates—including former U.S. House Rep. Lou Barletta and Jason Richey, a partner with K&L Gates LLP—strongly oppose RGGI. Even the leading Democratic candidate, Attorney General Josh Shapiro, whose office ultimately signed off on the regulation in December, has at times sounded skeptical on the campaign trail.

Pennsylvania needs an energy strategy that ensures reliable, affordable and clean power for the long term, “and it’s not clear to me that RGGI” does so, he said last fall.

Legislative Alternative

Pennsylvania legislators are considering legislation that could offer an alternative to RGGI, possibly by investing money in climate change adaptation, mitigation, and technology, according to state Sen. Joe Pittman (R). Lawmakers are considering language to prevent Pennsylvania from joining RGGI unless all 13 states that rely on the PJM regional transmission system also join, Pittman said.

“That would at least level the playing field in terms of making sure our status as an exporter of electricity is maintained, because all states would be treated equally,” Pittman told Bloomberg Law.

Some Democrats also support a legislative fix, including state Rep. Pam Snyder (D), who told Bloomberg Law that joining RGGI “really puts a burden” on Pennsylvania’s energy sector.

If all else fails, there’s always the courts. RGGI opponents are exploring the idea that joining violates Pennsylvania’s Air Pollution Control Act and imposes an unconstitutional tax.

Another possible legal argument would be that the state’s environmental regulators didn’t follow state law when holding virtual hearings during the Covid-19 pandemic. Opponents argue the unavailability of broadband service in some parts of the state means the virtual option violated public hearing requirements.

One final strategy: Pennsylvania GOP lawmakers could get enough Democrats to defect to hit the two-thirds threshold they’d need in both chambers to overturn Wolf’s veto of the RGGI withdrawal resolution.

Overcoming those odds in the Senate is possible, said Mark Szybist, a senior attorney with the Natural Resource Defense Council’s climate and clean energy program; odds are tougher in the House.

But opponents don’t “have much to lose by doing it,” he said.

Enforceable Limit

Under the initiative, participating states set an enforceable regional limit on the amount of carbon pollution that power plants are allowed to emit and sell pollution permits up to the limit through quarterly auctions.

In addition to Virginia, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont participate.

RGGI generates dollars state can leverage into even more funding via the federal infrastructure package and Democrats’ proposed Build Back Better legislation, EDF’s Warner noted. Virginia raised more than $200 million in its first year for state energy efficiency and flood protection, she said.

“We are already seeing dollars go out the door now, and these projects are being supported by members of both parties,” she said, including GOP districts demanding flood-protection dollars.

Officials with the RGGI program declined to comment, noting the outcome for both states remains unclear. But its backers say its expansion into those and other states will be paramount if congressional deadlock over climate action continues, including Biden’s stalled Build Back Better package.

To contact the reporters on this story: Dean Scott in Washington at dscott@bloombergindustry.com; Stephen Lee in Washington at stephenlee@bloombergindustry.com

To contact the editor responsible for this story: Rebecca Baker at rbaker@bloombergindustry.com

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