Wolf begins process to bring Pennsylvania into regional cap-and-trade program

By: - October 3, 2019 9:55 am

Gov. Tom Wolf signs an executive order to bring Pennsylvania into RGGI. {Photo courtesy Gov. Tom Wolf’s office)

Gov. Tom Wolf is forging ahead with a plan to add Pennsylvania to a group of northeastern states that are capping carbon emissions from their power plants.

The Democrat announced Thursday that he is beginning the process to enter the commonwealth into the Regional Greenhouse Gas Initiative, described as the “first mandatory market-based program in the United States to reduce greenhouse gas emissions.”

“If we want a Pennsylvania that is habitable for our children, for our grandchildren, where temperatures aren’t in the 90s as they were yesterday in October … we need to get serious right now about addressing the climate crisis,” Wolf said from the Capitol on Thursday.

The state Department of Environmental Protection will be tasked with drafting the proposed regulation. The proposal must then go through the state’s long and winding regulatory review process, which includes multiple passes through state boards and legislative committees for comment — though lawmakers do not hold a veto power.

Wolf estimated the process will take two years. At the moment, the administration believes the program would raise between $250 to $400 million in revenue a year.

The administration can implement the policy and spend funds in accordance with the state’s Air Pollution Control Act and the federal Clean Air Act, according to the DEP. Any other spending would be left up to the Republican-controlled General Assembly.

“This is something we shouldn’t be playing politics with,” Wolf said. “We have a joint interest in doing this.”

Republican leadership in the state House released a statement condemning what they termed Wolf’s “continued practice of go-it-alone approaches that are unhelpful in working cooperatively to move our Commonwealth forward in a way that best represents the interests of all Pennsylvanians.”

“The regulation of carbon dioxide presents significant impacts on our economy, the environment and on the bottom line for Pennsylvania families,” the statement said. “The people of our Commonwealth, as represented and heard through the General Assembly, have the absolute right to review, approve or disapprove any plan that has such far reaching implications.”

In a separate statement, Senate President Pro Tempore Joe Scarnati, R-Jefferson, and Senate Majority Leader Jake Corman, R-Centre, said they “expect that the Legislature will have the opportunity to engage in this process, to make sure that any change in energy policy ensures a balance between safeguarding the environment, preserving energy jobs, and protecting ratepayers.”

How it works

According to the initiative’s website, RGGI (referred to as “Reggie”) is modeled on a cap-and-trade program.

States set a cap on carbon emissions then sell credits to power plants. Most of the so-called “emission allowances” are sold during auctions. States then “invest the proceeds in energy efficiency, renewable energy, and other consumer benefit programs,” according to the RGGI site. 

In January, Wolf set a statewide goal to reduce greenhouse gas emissions by 26 percent by 2025. The prospect of Pennsylvania joining the initiative has been rumored for months, beginning during the June budget negotiations.

Currently, nine states are part of RGGI: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. Four of those states are led by Republican governors.

As a reporter noted during Thursday’s press conference, Pennsylvania emits nearly as much carbon as the nine other states combined.

Lower carbon emissions — and energy prices? 

GOP leadership in the House and Senate, as well as the state chapter of the National Federation of Independent Business, immediately raised concerns about increased energy prices for consumers.

But according to an analysis by Mike Abito, a professor at the University of Pennsylvania, the result could be the opposite.

RGGI states sell carbon credits to power plants at a uniform price during quarterly auctions. At its most recent auction, the initiative sold credits at $5.25 per ton of carbon and raised $68.2 million.

For Penn’s Kleinman Center for Energy Policy, Abito analyzed the potential impact of a $25 per ton carbon price and found that, over time, it would lower electricity prices. 

This is because the carbon pricing would, in effect, tax less efficient plants and incentivize investment in newer facilities, Abito told the Capital-Star. 

At prices above $25 per ton, electricity prices would increase. But Abito said that RGGI’s prices historically have been lower than $10 per ton of carbon. 

While Abito didn’t analyze prices under $25, he said he’d be “very surprised” if consumer electricity costs increased at those lower rates.

Pennsylvania currently gets its electricity through PJM Interconnection, a regional organization that sets electricity prices. 

Abito said his projections show Pennsylvania would decrease carbon emissions if it joined RGGI. But he added that it’s possible — though unlikely — that PJM’s total emissions could increase if plant operators move to states without carbon caps.

An analysis released in September by the Acadia Center, an environmental think tank, found that electricity prices “dropped by 5.7 percent across the [RGGI] region” between 2008 and 2017. The report also cited internal RGGI data to show a 47 percent decline in carbon emissions from power plants in the nine states since 2008.

Another study from Duke University attributed fewer, but still significant, carbon reductions to the program. Researchers also gave credit to “the recession, complementary environmental programs, and lowered natural gas prices.”

No. 4 in carbon emissions

Natural gas especially looms large in Pennsylvania, where low prices are squeezing out big, old, and pollution-heavy coal plants.

Even as natural gas booms, Pennsylvania’s carbon emissions from energy-related sources declined by 64.7 million metric tons between 2005 and 2016, according to the U.S. Energy Information Administration. 

That’s the second largest absolute decrease in the country and a 22.8 percent decline. Still, Pennsylvania ranks fourth in the nation in total carbon emissions.

As coal’s share of electricity generation declines — these plants produced nearly 13 percent less electricity this year over 2018 —  the question becomes how state policies can encourage clean energy to fill the gap, Rob Altenburg, of the environmental nonprofit PennFuture, said. 

Since companies aren’t building new coal or nuclear plants, “the question is, what’s going to replace them?” Altenburg, the director of the PennFuture Energy Center, told the Capital-Star. 

He pointed to natural gas’ already high share of electricity generation, and suggested the fossil fuel “could easily make 70, 80, even 90 percent of our generation if we don’t put a cap on [those carbon emissions].”

It’s also critical that revenue from cap-and-trade be invested in renewable energy sources such as solar and consumer energy efficiency programs, Altenburg said. 

Joining RGGI isn’t the only cap-and-trade proposal in the works. 

A group of environmental advocates, including the Philadelphia-based Clean Air Council, are pushing their own economy-wide plan. The DEP is currently reviewing the proposal.

Deals or delays?

Both the Wolf administration and environmentalists acknowledge the need for buy-in from the Legislature, which has the power to craft more effective programs to invest in green energy and tech.

The governor expressed a desire to have an open conversation with the General Assembly over how to use dollars raised through cap-and-trade.

But lawmakers in the General Assembly are already taking a different tack. 

In September, six lawmakers — five Republicans and one Democrat — proposed legislation to give the Legislature approval over any fees on carbon.

One key lawmaker also struck a particularly adversarial tone on Thursday: Rep. Daryl Metcalfe, R-Butler, who chairs the House Environmental Resources & Energy Committee. 

“I will continue my fight to hold the Wolf administration accountable by ensuring that state regulations encourage, not discourage, job-creating energy producers, while protecting the health, wealth and safety of all Pennsylvanians,” Metcalfe said in a statement.

David Hess, a former DEP secretary under Republican Gov. Tom Ridge, told the Capital-Star he expects term limits — Wolf will be out of office by 2022 — to influence the debate.

While entering the RGGI opens “101 questions” on how to rebuild state energy policy in the face of climate change, Hess said he could see the GOP-controlled Legislature waiting “for a Republican governor with a veto pen” to begin serious negotiations on implementing cap-and-trade.

A change in political leadership has in the past affected involvement in RGGI. 

While New Jersey was a founding member of the compact, Republican Gov. Chris Christie pulled the Garden State out in 2011. Earlier this year, Democratic Gov. Phil Murphy decided to rejoin the agreement.

While Wolf set an urgent call to action, Hess expressed some skepticism it would be met.

“As we’ve seen, the General Assembly is excellent at delaying things,” he said.

Associate Editor Sarah Anne Hughes contributed reporting.

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.