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Virginians rally for RGGI carbon market as Pennsylvania cools to idea

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Workers at a Consol Energy mine in Pennsylvania. The coal producer was one of several companies to seek a court injunction barring the state from participating in Regional Greenhouse Gas Initiative carbon auctions.
Source: S&P Global Commodity Insights

Over the past month, 838 people and organizations in Virginia weighed in on Gov. Glenn Youngkin's initial proposal to pull the state from the Regional Greenhouse Gas Initiative. More than 95% said the Commonwealth should remain part of the 12-state carbon market.

The level of support for the program reflects the popularity of flood mitigation and coastal resilience projects that are paid for with the proceeds from the RGGI allowance auctions, said Cale Jaffe, a University of Virginia law professor.

"These are bread-and-butter infrastructure projects with money going directly to local governments," Jaffe said in an interview. "If Virginia were to withdraw from RGGI, how do you fill this budgetary hole and fund programs local governments have come to depend upon?"

Another factor likely driving public engagement is that half of the $452.2 million raised by the RGGI auctions for Virginia since March 2021 was earmarked for energy-efficiency upgrades for low-income residents, Jaffe said.

By the time the one-month comment period closed Oct. 26, the vast majority of respondents to the Youngkin administration's notice of intended regulatory action had turned thumbs down on the move, a tally by S&P Global Commodity Insights showed. Youngkin, a Republican, is expected to push forward with the rulemaking to take the state out of RGGI once the public comments have been reviewed.

The public support for the RGGI in Virginia stands in contrast to the heated debate in Pennsylvania, one of the nation's largest producers of natural gas and coal. Legal challenges from legislators, coal companies, plant owners and trade unions halted implementation of the RGGI program, the signature climate initiative of outgoing Pennsylvania Gov. Tom Wolf, a Democrat.

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In both states, whether utility carbon emissions will be capped under the RGGI, and for how long, is uncertain. On-again, off-again state energy policies make planning for the future difficult for power companies, said William Shobe, a professor of public policy and economics with the University of Virginia who helped to design RGGI's carbon allowance auctions ahead of the market's 2008 launch.

"There is risk in any market — what we don't need is the additional risk of big policy changes," Shobe said in an interview. "We would have to replace the [carbon] market with something that is less flexible, and it's going to cost firms to change their capital outlays over the next several years should policies change."

RGGI faces uphill battle in Pennsylvania

Under RGGI, power companies that own fossil fuel plants with a capacity of at least 25 MW are required to buy greenhouse gas emission allowances, or credits, for each short ton of carbon their plants emit. The companies purchase the allowances at quarterly auctions or from a secondary market to comply with their state's emissions cap, which is tightened over time.

The RGGI held its first auction in 2008. Greenhouse gas emissions in participating states have dropped by more than 50%, twice as fast as in the nation as a whole, since the program's inception, according to an RGGI fact sheet published in September 2021.

The RGGI market mechanism financially rewards power producers with cleaner plants while placing a growing economic burden on those that do not transition away from fossil fuels, pushing down emissions. That message has not gone over so well in Pennsylvania, which is the nation's second-largest producer of natural gas and third-largest producer of coal, according to the U.S. Energy Information Administration.

Neither candidate in Pennsylvania's high-profile race for governor has embraced membership in RGGI, now in limbo. Josh Shapiro, the state's attorney general, is running as a Democrat. Shapiro has suggested that his energy plan might not have room for RGGI, should he be elected.

Polling this summer by Muhlenberg College found that while Pennsylvanians expressed concern over climate change, 86% of state residents think that drilling for natural gas is either very or somewhat important to the state's economy.

The state officially entered the carbon market in July but had to withdraw from its first auction after a state court issued an injunction stalling the plan. The Pennsylvania Supreme Court in August declined to overrule that decision until the lower-court trial scheduled for mid-November has concluded.

That means Pennsylvania will probably also miss its second auction in December, along with millions in revenue, said Rob Altenburg, energy center director with environmental advocacy group PennFuture.

"Assuming the [state Department of Environmental Protection] prevails in the legal challenges, we expect continued legislative attempts to derail the program in the new session," Altenburg wrote in an email. "So a lot will depend on the political landscape after the election."

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Virginia gearing up for a fight

In addition to private citizens, a number of Virginia cities, faith leaders and environmental groups such as the Southern Environmental Law Center, the National Parks Conservation Association, and the Sierra Club weighed in with comments to defend the RGGI cap-and-trade program.

"Communities across Virginia need to plan for, mitigate, and build resilience to the climate change impacts being felt today," wrote Justin Wilson, mayor of Alexandria, Va. "The dedicated source of funding for the Community Flood Preparedness Fund provided by Virginia’s participation in the Regional Greenhouse Gas Initiative is critical to our ability to do the work of flood mitigation and resilience planning in our communities."

Supporters of the governor's plan said RGGI amounts to a tax on consumers when utilities pass on compliance costs to ratepayers, an argument Youngkin has also used. Others called it "government overreach" or questioned the RGGI's impact.

"Having power companies buy credits to meet greenhouse initiatives misses the point of reducing emissions," one commenter wrote. "I'd love to see the number of [kilowatt-hours] used each month by all these people who support keeping this initiative. These are probably the same people driving big SUVs while protesting for clean air."

Ultimately, it is not the share of comments filed against the governor's plan but the quality of comments that the state takes into consideration, said Mike Dowd, director of air and renewable energy for the Virginia Department of Environmental Quality.

"We take comments very seriously, especially if they bring up issues we may not have thought about," Dowd said in an interview. "We look for substance, not for a percentage."

The agency expected a large number of comments knowing that RGGI has public support, said the state's air quality chief, who has been with the agency since 2008. "A lot of people feel passionate about this, obviously," Dowd said.

Should the rulemaking make it through another comment period and be finalized in late 2023, as the Youngkin administration hopes, a court battle will likely ensue in Virginia, Jaffe predicted. Legal experts have argued that Youngkin cannot use executive orders or rulemakings to undo state law.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.