Pennsylvania Lawmakers Seek to Block Entry Into Multi-State Climate Compact

March 14, 2021 Updated: March 17, 2021

Pennsylvania lawmakers have reloaded legislation from last year that would prohibit the state’s governor from imposing carbon taxes in combination with new climate change regulations without the approval of the General Assembly.

At issue is whether Pennsylvania will join a multi-state climate change compact known as the Regional Greenhouse Gas Initiative, or RGGI.

The bill was referred to the House Environmental Resources and Energy Committee in February, just days after an independent commission called for a one-year moratorium on the implementation of Gov. Tom Wolf’s proposed climate change regulations. In their comments, the commissioners also raised questions about the Democratic governor’s authority to implement regulations that would trigger carbon taxes without legislative approval.

Wolf vetoed a similar bill last fall that attracted bipartisan support and fell just one vote shy of a veto-proof majority in the Senate. The current bill is co-sponsored by two Democrats: Reps. Pam Snyder, who serves in the 50th District covering Greene, Fayette, and Washington counties, and Chris Sainato, who represents the 9th District in Lawrence County.

The bill must pass the House before it’s taken up by the Senate.

In a statement, Snyder praised the Independent Regulatory Review Commission (IRCC) for its decision to recommend delaying Pennsylvania’s entry into the RGGI.

The decision from the IRCC “shows that RGGI is definitely the wrong path for our state to take, notably during a pandemic, Snyder said in the release.

“In fact, several industry representatives, including the Pennsylvania Manufacturers Association and the International Brotherhood of Electrical Workers, are rightly concerned that such a move would impose a carbon tax and lead energy companies in my communities to close, and frankly, that would be beyond devastating. We can’t afford for that to happen.”

The Regional Greenhouse Gas Initiative is a compact that currently includes 10 New England and mid-Atlantic states where regulators place an upper limit or “cap” on the amount of carbon dioxide emissions that power plants can emit. Energy companies can then trade the “allowances” back and forth during quarterly auctions. The “cap and trade” regulations are intended to provide energy companies with financial incentives to reduce emissions.

Companies that meet or exceed emissions targets may sell any excess allowances back to companies that haven’t met them.

Snyder says her region would be among those hardest hit by the regulations and taxes that she anticipates would flow out of RGGI as energy jobs leave the commonwealth. She has joined with other cosponsors of the bill to send a memo to colleagues to describe the potential economic fallout from RGGI.

“Since Pennsylvania deregulated its electricity market, 19 coal-fired electric generating units (EGUs) have or are in the process of closing or converting,” the memo says. “If Pennsylvania were to adopt a carbon tax such as that imposed by joining the Regional Greenhouse Gas Initiative (RGGI), the remaining coal-fired EGU’s would be forced to pay hundreds of millions in additional taxes and, as a result, will shut down.

“This would lead to the direct elimination of thousands of family-sustaining jobs in those communities, not to mention the loss of millions of local and state revenues.”

On the Senate side, members of the Environmental Resources and Energy Committee sent a letter to the IRCC in February expressing their disapproval of Wolf’s RGGI proposal. The letter, signed by members of the committee, challenges the governor’s statutory authority to implement RGGI.

A Tax, Not a Fee

The senators also explain why the RGGI allowance is properly viewed as a tax.

Since the Environmental Quality Board plans to allocate 5 percent of the allowance for administrative purposes and just 1 percent to the RGGI corporation, the remaining 94 percent of revenue is raised through a tax, which requires legislative approval, according to the letter. Anthony Holtzman, a Harrisburg attorney with expertise in constitutional and environmental law, makes a similar argument in testimony he offered to the Pennsylvania House.

“RGGI’s quarterly auction mechanism—which is the heart of the program—would qualify as a ‘tax,’ not a ‘fee,’ because the proceeds of the auctions are grossly disproportionate to the costs of administering the program,” Holtzman said. “Through 2017, in fact, the RGGI signatory states had directed less than 6 percent of the proceeds toward the program’s administration. RGGI’s auction mechanism is designed to raise substantial sums of revenue—in fact, it has raised more than $3 billion to date—and the signatory states have used the vast majority of this revenue to either support policy initiatives (such as energy efficiency and renewable energy initiatives) or bolster state coffers through transfers to general funds.

“The auction program, therefore, imposes a tax that only the General Assembly can impose.”

Carbon allowances sold for $7.41 per metric ton in the fourth quarter of last year, an increase of about 8.7 percent from the prior quarter and a 30 percent increase from the prior year, according to RGGI figures. The latest auction raised about $120 million.

Defending RGGI

The state’s Department of Environmental Protection projects annual RGGI revenue from auction proceeds surpassing $300 million.

The department’s modeling exercises show that RGGI would produce economic, health, and environmental benefits for the commonwealth. The department claims, for instance, that “from 2022 to 2030, participating in RGGI would lead to an increase in Gross State Product of nearly $2 billion and a net increase of over 27,000 jobs” for the commonwealth.

Patrick McDonnell, the department’s secretary, has said in testimony that “Pennsylvania has an obligation to take action to reduce greenhouse gas emissions,” since the commonwealth is “one of the top GHG [greenhouse gas] emitting states in the country.”

McDonnell describes RGGI as an “economically efficient” program that enables power plants to achieve the “least cost compliance” by way of buying and selling allowances across the entire region.

Other supporters of RGGI include the Sierra Club Pennsylvania Chapter, which participated in testimony before the Senate Environmental Resources and Energy Committee in June 2020.

Thomas Schuster, the chapter’s clean energy program director, told committee members that “regulating electric sector carbon pollution and linking it to RGGI is a very important step” that Pennsylvania must take to “begin addressing the existential threat posed by climate disruption, and to do so in a way that is cost-effective and supportive of our diverse energy economy.”

‘Wrong for Pennsylvania’

Meanwhile, the Independent Regulatory Review Commission’s recommended moratorium on the implementation of RGGI-related regulations sends a “clear statement” that the multi-state agreement “is wrong for Pennsylvania,” Rep. James Struzzi, an Indiana County Republican, said in a statement. The General Assembly created the Independent Regulatory Review Commission in 1982 to review regulatory proposals to ensure they’re in line with legislative intent and that they are in the public interest.

“The governor is trying to skirt the General Assembly and shove Pennsylvania into a job-killing, taxpayer-subsidizing multi-state compact and potentially make our state the only one to do so without legislative approval,” Struzzi, who is also the lead sponsor of the bill, said in the release. “I have been and remain steadfast in my opposition to RGGI.”

Wolf currently plans to have Pennsylvania join RGGI next year.