Va. governor releases plan for departing RGGI carbon market

Virginia Gov. Glenn Youngkin on March 15 laid out his rationale and plan for pulling the state out of a regional cap-and-trade market, calling the Regional Greenhouse Gas Initiative a "carbon tax on all households and businesses."

The first Republican governor to serve the politically purple Commonwealth in eight years, Youngkin has made tax cuts a centerpiece of his agenda. The former businessman promised before being sworn into office to repeal the 2020 state law that made Virginia the 11th participant in the RGGI carbon market.

A Youngkin administration report released March 15 includes "emergency regulation" language for the independent State Air Pollution Control Board's consideration. However, the report did not include specific timelines, and the Democratic-controlled board would have to initiate a rulemaking reflecting that language.

Whether such a rulemaking would have any practical impact is also questionable. Attorneys watching the case say only the legislature can repeal the RGGI law, something Republican lawmakers tried earlier this year but failed to do. RGGI opponents in the capital of Richmond, Va., are now seeking to repeal the RGGI law through the budget process.

Carbon market participation is a centerpiece of another Virginia law passed in 2020, the landmark Clean Economy Act. The measure requires the state's largest utility, Dominion Energy Inc. subsidiary Virginia Electric and Power Co. doing business as Dominion Energy Virginia, to be fossil-free by 2045 and American Electric Power Co. Inc. subsidiary Appalachian Power Co. to hit that goal five years later.

The mid-Atlantic and Northeastern RGGI is just such a carbon market, requiring owners of power plants to purchase allowances for releasing greenhouse gas pollution above a certain cap set by the state. The RGGI program aims to incentivize owners of plants to invest in cleaner energy sources to reduce potentially hundreds of millions of dollars in annual allowance costs.

Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia participate in the RGGI market. Virginia has so far received $302 million in allowance proceeds, money that has been earmarked for energy-efficiency upgrades to homes of low-income residents and coastal resilience programs. Maryland has received nearly $893 million to date.

Governor's report cites utility recovery from customers

The governor's report noted that although the state's carbon intensity decreased over the past decade, total emissions from the state's power sector "have remained fairly constant over the last 10 years."

The report also acknowledged that "an emission reduction program or combination of programs will be required to meet the Commonwealth's climate goals ... and the 2045 net-zero carbon emissions goal. In the absence of any such program, emissions may not reduce sufficiently to achieve these goals."

However, Youngkin's administration says the mechanism does not work in Virginia because the state's utilities are allowed to pass on allowance costs to ratepayers rather than offering rebates like utilities in some other RGGI states.

"Because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is in effect a direct carbon tax on all households and businesses," the governor's office said in a March 15 press release.

Dominion had been seeking a $323.4 million retail rate adjustment to cover its allowance costs, a request it withdrew in January, citing the sudden "uncertainty" over the state's continued participation in RGGI.

A typical Dominion homeowner pays an average of $108 monthly for electricity, including $2.39 for the RGGI. Starting Sept. 1, when the latest RGGI rate increase would have gone into effect, that homeowner would have paid about $4.37 every month for the RGGI program, the utility estimated.

"The only real complaint I see in this report is that the administration thinks Dominion doesn't have the right incentives and may be charging its customers too much, but repealing RGGI doesn't fix that," said Nate Benforado, a senior attorney with the Southern Environmental Law Center in Charlottesville, Va. "Dominion is a regulated monopoly."

With utility rate recoveries controlled by the Virginia State Corporation Commission, Benforado said the governor should consider rate reform proposals introduced by lawmakers in recent sessions.

The political wrangling over RGGI has left the state's energy players wondering what comes next.

"Folks have a lot of questions: 'Does he have the legal authority to do this?' and 'What does the political environment look like?'" said Harrison Godfrey, the executive director of Virginia Advanced Economy, a group representing clean energy businesses in the state. "There's just a lot of uncertainty right now."

The Youngkin administration's report was crafted by the state agency overseen by Andrew Wheeler, administrator of the U.S. Environmental Protection Agency under President Donald Trump who oversaw the rollback of dozens of environmental regulations. Though Wheeler's nomination to become Virginia's secretary of Natural and Historic Resources was rejected by Senate Democrats, his appointment remained active until the legislative session ended in March.

Youngkin has since appointed Wheeler to be a senior adviser to his administration.

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