United States: Worth Another Look: Regional Greenhouse Gas Initiative

Last Updated: December 2 2019
Article by Buchanan Ingersoll & Rooney PC

On October 3, 2019, Governor Tom Wolf issued Executive Order – 2019-07- Commonwealth Leadership in Addressing Climate Change through Electric Sector Emissions Reductions. The executive order instructs the Pennsylvania Department of Environmental Protection (DEP) to develop a rulemaking package to "abate, control or limit carbon dioxide emissions from fossil-fuel-fired electric power generators" consistent with the Regional Greenhouse Gas Initiative (RGGI).

DEP has until July 31, 2020 to present the proposed rulemaking package to the Pennsylvania Environmental Quality Board (EQB). The EQB is a 20-member independent board that adopts DEP regulations. The Board includes 11 state agencies, five members of the Citizens Advisory Council, and four members of the Legislature.

Once the proposed regulations are submitted to the EQB, the public is invited to submit comments. After the public comment period closes, DEP reviews all comments, in some instances holds public hearings, and then drafts a formal comment and response document that is considered by the EQB before voting on the rulemaking. After a proposed rulemaking is adopted by the EQB, the official rulemaking process will begin pursuant to the Regulatory Review Act. A summary of this process can be found here.

Republican leadership from both chambers issued statements shortly after the Governor's announcement. Senate Republicans "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." House Republicans took a different stance, stating that they "believe the executive branch cannot bind the state into multi-state agreements without the approval of the General Assembly, and we plan to execute the fullest extent of our legislative power on behalf of the people of Pennsylvania."

RGGI is the first mandatory market-based program in the United States to reduce greenhouse gas emissions. Current members include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont, with New Jersey set to join on January 1, 2020. RGGI requires power plants with a capacity of 25 megawatts (MW) or greater to hold allowances equal to their carbon dioxide (CO2) emissions over a three-year control period, with those allowances representing a limited authorization to emit one short ton of CO2 from a regulated source, as issued by a participating state.

Power plants can use a CO2 allowance issued by any participating state to demonstrate compliance in any state, and they may acquire additional allowances by purchasing them at regional auctions, or through secondary markets. Regional CO2 allowance auctions are held every three months, with the auctions being sealed-bid, uniform price auctions open to all qualified participants, resulting in a single quarterly clearing price for each allowance. The most recent auction held on September 4, 2019 resulted in an allowance per ton price of $5.20, generating a combined $68.2 million in proceeds from the sale of 13,116,447 allowances. Each RGGI state receives proceeds based on the number of allowances purchased in each state.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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