Our Perspectives on the Latest Issues
On Oct. 3rd, Governor Tom Wolf signed Executive Order 2019-07 instructing the Department of Environmental Protection (DEP) “to begin the process of developing a carbon budget and trading program that aligns with that of the Regional Greenhouse Gas Initiative (RGGI).” So what exactly does that mean?
It involves creating a cap-and-trade program where to emit one ton of carbon dioxide, a generator will need to hold an “allowance.” These allowances are created by the state and together they make the emissions cap. Generators who emit CO2 will need to buy the allowances they need at an auction, letting the market set the price. Revenue from that auction can be invested in different ways—ideally in things like more clean renewable energy and energy efficiency, but the state could fund other priorities or programs.
What Kind of RGGI Program Can DEP Propose?
The executive order requires the DEP proposal to be “sufficiently consistent with the RGGI Model Rule such that allowances may be traded with holders of allowances from other states.” That suggests that the affected sources will be defined the same way (i.e. electric generators with a nameplate capacity over 25 megawatts), the pool of available allowances will be sized so as not to disrupt the functioning of the market, and that the various compliance periods and accounting procedures will align. Beyond that basic structure, the DEP will have a lot of flexibility.
One issue where we expect debate is related to the allocation of allowances. Every source of fossil fuel generation will likely try and make the case why they are a special case deserving of free or low-cost allowances. The waste coal industry in particular has had some success making these kinds of arguments in the past, so that is a particular industry to watch. Other states also choose to hold some allowances in reserve for special purposes. For instance, Massacusets holds some allowances aside to retire when people voluntarily purchase clean energy.
Early projections suggest there could be $300 to $400 million per year in revenue—who gets to spend the money and what it gets spent on will be another significant issue. DEP can use money from air emissions fees to support the operation of the air program itself, and the Governor’s remarks indicate they are at least considering other spending priorities. It’s also clear that the Legislature will have significant input into how the money is spent.
While the Executive Order is an important and historic step toward reducing Pennsylvania’s carbon pollution, it is just the beginning of a potentially long pathway that, even if all goes smoothly, could take 18 to 24 months to finalize. So, what comes next? The answer to that question requires some explanation.
So What Comes Next?
The Regulatory Review Act (RRA) specifies a detailed process the DEP needs to follow to promulgate a regulation, but the actual work usually begins several months before this formal process starts, and working towards RGGI is no different.
Before any RGGI language is drafted, the technical and legal staff at DEP will spend a good bit of time researching issues like the ones we mentioned above and will form ideas on how they might move forward. While there are very few requirements at this early stage, DEP tends to start by developing a powerpoint presentation covering the concepts in the regulation, and presenting that to the various relevant advisory committees.
In this case, we expect presentations will be given, at a minimum, to the Air Quality Technical Advisory Committee, the Climate Change Advisory Committee, and the Citizens Advisory Council, but there may also be additional presentations to other committees or groups. The DEP will also likely meet with members of the regulated community, such as power plant owners, and other interested parties to discuss RGGI concepts before the drafting process begins. And, in some cases, the DEP might also hold “listening sessions” or other events to get even more public input.
The Proposal Stage
Once the DEP feels they have the necessary information and analysis, they will write a preamble to the regulation, the regulatory language itself (called “Annex A”), and prepare a Regulatory Analysis Form, all of which will be presented at a meeting of the Environmental Quality Board (EQB). The EQB, if they vote to do so, will formally propose to adopt the rulemaking. We expect this will take place around July.
Next, the DEP will prepare a package on the proposed rulemaking and have it delivered to the Legislative Reference Bureau (LRB) for publication in the Pennsylvania Bulletin. At the same time the package goes to the LRB, it will also be delivered to the Independent Regulatory Review Commission (IRRC) and to the relevant standing committees in the House and Senate. Normally DEP regulations are sent to the House and Senate Environmental Resources and Energy Committees.
About 10 days after the package is delivered to the LRB, it will appear in the Bulletin. This notice will mark the start of the formal public comment period (which must be at least 30 days) and it will also have information about any public hearings that are scheduled. Anyone interested in the regulation can file written comments and/or testify at a public hearing, and all of their comments will become part of the official record. The DEP will likely also schedule presentations for the relevant advisory committees and give them an opportunity to weigh in on the proposal. After the public comment period closes, IRRC will have 30 more days to submit their comments and the legislative committees may file comments at any time prior to the delivery of a final form regulation.
After the close of the comment period, there will appear to be a lull in the process, but a lot of work will be going on behind the scenes. DEP staff will review each and every comment they receive and make any changes they think are necessary to the draft rule. They will also prepare a “Comment Response Document” that explains how they handled every comment. Changes at this point are usually either clarifications or relatively minor fixes to the language, but occasionally big changes are necessary that will require DEP to reopen the comment period.
Once DEP is ready with a final rule, it will be presented once again to the EQB and, assuming it is approved, it will once again be delivered to IRRC and the standing committees in the Legislature along with all of the comments that DEP received. This delivery needs to happen within two years of the date the rule was proposed, estimated to be July 2022. If it is not, the rulemaking ends and DEP needs to start again from the beginning.
Once the rule is delivered, IRRC will schedule it to be considered at their next meeting that is at least 30 days away. The public can submit comments directly to IRRC up to 48 hours before the meeting, and the standing committees can also respond at any time up to 24 hours before the meeting.
If IRRC approves of the rule, the Attorney General gets to review it for legality and form. If all goes well, the rule will be published as final in the Pennsylvania Bulletin.
If IRRC disapproves of the rule, the DEP has 40 days to deliver a report back to IRRC. The DEP can make changes to the rule in response to IRRCs comments, but they are not required to do so. The IRRC will consider the rule again at another meeting and the standing committees will have more time to act, but IRRC cannot stop a rule from continuing toward finalization.
What Role does the Legislature Play?
The legislative veto is unconstitutional in Pennsylvania so, if the standing committees want to stop a rulemaking, the House and Senate must adopt a concurrent resolution disapproving of the rule and either have that signed by the Governor or override the Governor’s veto by a two-thirds majority. Unless that happens, the rule may be delayed, but the process will continue toward finalization.
That’s not to say the Legislature doesn’t have other methods to halt or delay the process. When Pennsylvania was drafting regulations required to fulfill the Clean Power Plan under President Obama, the legislature passed a bill that added significant delay to the above process. Similar legislation is already proposed in the state House to delay consideration of the RGGI rulemaking. There are also indications that the legislature may try and add additional rules to limit how Pennsylvania can create a RGGI-like program, including requiring that other RGGI states cannot ban the use of natural gas. We expect other new attempts to slow this process down as well.
Outside of the regulatory review process, there is also the possibility that any rulemaking will be challenged in the courts. Although the Governor expressed hope that this process wouldn’t become political, the Pennsylvania House Republican caucus quickly issued a statement saying that they “believe the executive branch cannot bind the state into multi-state agreements without the approval of the General Assembly.” That might signal a pending legal challenge.
While it wouldn’t be surprising to see a lawsuit filed in fairly short order, courts tend not to weigh in until the administration makes a final action. Since any actual law is likely 18 to 24 months from going into effect, it is much more difficult—but not impossible—for potential challengers to show they will suffer harm by allowing the administrative process to continue.
The other more important hurdle a lawsuit would face is that our state’s Air Pollution Control Act (APCA) gives the executive branch fairly broad powers to set emission limits and reduce pollution. Programs with interstate trading components are one of many tools the DEP has used to achieve that goal in the past. This includes the Acid Rain Program (1995), the NOx Budget Trading Program (2003), the Clean Air Interstate Rule (2005), and the Cross-State Air Pollution Rule (2011). It’s not clear how opponents will justify that regulating carbon pollution triggers an exception or is any different than previous efforts to reduce air pollution.
Beyond the Air Pollution Control Act, we also have the Environmental Rights Amendment in Article 1 § 27 of our state Constitution, which states that, “The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment.” Even if the authority in the APCA wasn’t specific, it would be hard to justify how ignoring carbon pollution was in keeping with the Commonwealth’s trust responsibility to conserve and maintain our natural resources.
Pennsylvania has an ethical responsibility to be a leader in fighting the climate crisis. We are the fourth-highest carbon polluter in the nation and are still heavily subsidizing fossil fuels. Governor Wolf’s executive order is a good and necessary first step to address this imbalance, but no single action is going to solve the problem.
In addition to implementing a cap on carbon pollution, we need to invest in cleaner alternatives to coal and gas instead of creating new subsidies for dirty fossil fuels. We need to extend and expand our Alternative Energy Portfolio Standards, increase investment in energy efficiency, and enable new business models like community solar. We also need to ensure the Department of Environmental Protection has the tools it needs to do its job.
Joining RGGI is a great first step, but it cannot be the only step Pennsylvania takes to address the climate crisis. Regardless, PennFuture will keep you posted as the process unfolds over the next 18 to 24 months.