Virginia state court strikes down governor's repeal of RGGI carbon market

Gov. Glenn Youngkin's administrative rule to remove Virginia from a regional carbon market was unlawful and is "thereby null and void," a state court ruled in a decision released Nov. 20.

The ruling by Circuit Judge Randall Lowe means the state's participation in the Regional Greenhouse Gas Initiative is "back on the books" and that the administration must comply, Nate Benforado, a senior attorney with the Southern Environmental Law Center, said in an email.

The governor's office vowed to challenge the decision in the Virginia Court of Appeals once the circuit court releases a formal order confirming the ruling.

"Gov. Youngkin remains committed to lowering the cost of living for Virginians by continuing to oppose the Regional Greenhouse Gas Initiative, which fails to effectively incentivize emission reductions in the Commonwealth," Christian Martinez, press secretary for the Republican governor, said in an email. "Instead, it functions as a regressive tax, hidden in utility bills, passed on to all Virginians."

Virginia joined the RGGI in 2021. The state Legislature passed a law a year earlier, authorizing the Virginia Department of Environmental Quality to establish and manage a program to sell carbon allowances as part of RGGI.

Under RGGI, power companies must purchase carbon allowances equal to the emissions they release, which incentivize polluters to make investments in cleaner energy sources that pollute less.

In Virginia, allowance costs are allowed to be passed on to ratepayers. Dominion Energy Inc., for example, had proposed to add $4.37 to residential bills in September 2021 but withdrew the increase when Youngkin sought to repeal the program.

The state collected nearly $828 million during the three years it participated in the RGGI carbon auctions, money that was used for flood preparedness and energy efficiency projects. A vast majority of more than 800 Virginians who weighed in on Youngkin's administrative rulemaking opposed the withdrawal

"The Youngkin administration's illegal actions taking Virginia out of this program benefited no one except our state's biggest polluters," Michael Town, executive director of the Virginia League of Conservation Voters, said in a Nov. 20 statement. "The end result of this illegal rollback was dirtier air, more communities left exposed to floodwaters and fewer tools to help Virginians cut energy costs. We are incredibly pleased with this ruling and hope to see Virginia rejoin RGGI as soon as possible."

Virginia's greenhouse gas emissions have risen in the year since Virginia left RGGI at the end of 2023, according to the US Environmental Protection Agency's Clean Air Markets Program data. Emissions during the first quarter of 2024 were 28% higher than during the same quarter a year earlier, and 22% higher in the second quarter than in 2023, the EPA data showed.

RGGI market prices climbed significantly after the court's ruling. On Nov. 19, one day before the ruling was announced, Platts assessed the RGGI current-month allowance price at $22.76. Prices surged to $24.41 per allowance, a 7.25% day-on-day increase, following the public release of the decision on Nov. 20.

The court ruling might prompt the state's utilities to start to think about their RGGI obligations and allowance-buying strategies, said Matthew Williams, a senior analyst with S&P Global Commodity Insights.

"We saw this when Virginia first joined RGGI," Williams said. "The state legislature passed the bill in early 2020, with official participation beginning in 2021. In that time, utilities like Dominion and [American Electric Power] were building their allowance banks up, putting quite a bit of upward pressure on allowance prices."

The case before the Virginia district court was brought by the Association of Energy Conservation Professionals, which alleged that its members working on weatherization and other energy efficiency improvements lost revenue once the state's RGGI program was repealed. (Association of Energy Conservation Professionals v. Virginia State Air Pollution Control Board, CL23-173)