Pa. might follow Calif. on cap and trade

Source: Benjamin Storrow, E&E News reporter • Posted: Friday, April 19, 2019

Pennsylvania regulators are considering a petition to institute an economywide cap-and-trade program, a move that immediately thrusts the Keystone State to the forefront of national conversations over how to curb greenhouse gas emissions.

The proposal under consideration by the Department of Environmental Protection is notable in both its ambition and scope.

The Pennsylvania plan goes beyond the cap-and-trade program instituted by its Northeastern neighbors, which is limited to the power sector, and would apply to all sectors of the economy. It is modeled after California’s cap-and-trade program and would enable Pennsylvania to participate in the Golden State’s carbon-cutting regimen.

The impact to emissions would be considerable. Among states, only California and Texas emit more carbon. Under the proposal, Pennsylvania emissions would be capped at 2016 levels. The cap would fall 3% annually, putting the state on course to completely decarbonize its economy by 2052.

“The petition substantially increases the ambition of the legal proposals being discussed in Pennsylvania right now,” said John Dernbach, a professor of environmental law at Widener University and one of 104 petitioners who requested DEP consider the proposal.

A group of environmental organizations, attorneys, scientists and businesses petitioned Pennsylvania regulators on the proposal. A board that oversees DEP voted to accept the petition earlier this week.

The plan faces significant obstacles. First among them: whether DEP can even implement a cap-and-trade program.

Proponents say state law obligates the department to take action to curb greenhouse gases, arguing regulators have a fiduciary responsibility to protect the environment.

“If you take the view that we do, that the atmosphere is a public trust resource, right now the atmosphere is being used as a free disposal area for carbon dioxide,” Dernbach said. “The cap-and-trade proposal, if adopted, would charge people to use the atmosphere for carbon dioxide waste.”

But business interests and Republican lawmakers are strongly suspicious of that position. They contend the plan represents a tax that must be approved by the General Assembly.

State Rep. Daryl Metcalfe (R), chairman of the House Environmental Resources and Energy Committee, said the proposal represents an end run around the General Assembly, which is controlled by Republicans.

“We have given no taxing powers to the executive,” Metcalf said. He noted Pennsylvania is now America’s second-largest natural gas producer, adding, “We are a leading state to help America become energy independent, and this would cripple that.”

The decision to study a cap-and-trade proposal comes at a crucial time in Pennsylvania.

Gov. Tom Wolf (D) recently signed an executive order to cut greenhouse gas levels by 26% of 2005 emissions by 2025 and 80% by 2050. DEP is expected to release a revised climate action plan in the coming weeks. And lawmakers are weighing a proposal to subsidize struggling nuclear power plants that might close in the absence of state support. The fate of those plants have the potential to shape Pennsylvania’s power sector and emissions trajectory for decades to come (Climatewire, March 12).

In agreeing to consider the petition, regulators sided with petitioners who argue DEP has the authority to implement a cap-and-trade program. Wolf signaled his approval of the study but stopped short of endorsing cap and trade.

“Governor Wolf is still evaluating the specific plan submitted to DEP and its impact but did publicly support moving forward to study it further as the overall goal of minimizing air pollution and global warming is in the public interest,” J.J. Abbott, a Wolf spokesman, said in an email.

DEP has 60 days to study the plan, though most observers expect the department to request an extension. The department could make a recommendation to adopt the rule, institute another proposal or drop the idea all together.

Advocates said cap and trade would offer a significant benefit to the state at little cost. They estimated the program could raise up to $1.9 billion in revenue, though they noted it is more likely to generate around $1.5 billion after factoring in exemptions for businesses subject to international competition. Gasoline prices would rise by as much of 8 cents per gallon in 2020 under proponents’ projections, while natural gas prices would increase by as much as 0.0053 cent per cubic foot.

The proposal would enable Pennsylvania to immediately link to the Regional Greenhouse Gas Initiative, a cap-and-trade regimen covering nine Northeastern states, by accepting the program’s allowances.

And it seeks to solve the challenge of low prices for carbon allowances, which has plagued carbon markets elsewhere in previous years, by instituting a gradually increasing minimum price on carbon credits.

‘A lot of money at stake’

The decision to model the Pennsylvania plan after California’s program was made in an attempt to offer some continuity to large companies, which already have familiarity with the Golden State’s system, said Robert McKinstry Jr., an environmental attorney and the petition’s lead author.

He predicted the proposal would soon win support from a series of large energy companies.

“I think it is something that is the most important topic in front of us and the world today,” McKinstry said. “It’s clear we’re not going to have anything at the federal level.”

Opponents, for their part, were eager to draw comparisons to California. In that case, lawmakers decided to adopt cap and trade. The problem is that Pennsylvania lawmakers have not had a chance to weigh in on the potential costs and benefits, said Kevin Sunday, director of the Pennsylvania Chamber of Business and Industry, a trade group.

“Here there is a pretty clear decision to circumvent the Legislature to have a role in all this,” Sunday said, adding, “You would be uncompetitive if you operated a business in the state under this petition.”

David Hess, who served as DEP secretary under former Gov. Mark Schweiker (R), said he thought the department was well within its authority to enact a cap-and-trade program. But he predicted Republican lawmakers would have a say before any proposal reached the finish line. Lawmakers could insert a rider in the budget, for example, restricting Wolf’s ability to enact cap and trade.

The real question facing DEP is not so much whether California’s approach is effective, Hess said. He argued the Golden State program has proven to be sound. Instead, the question is how the California system compares to other alternatives.

“Before you make that sort of major decision, you need to look at all possible options out there,” Hess said. “You’ve got a lot of money at stake, real impact on people and ratepayers. How is that money returned to ratepayers, is it used to encourage renewables, energy efficient, any number of things?

“I don’t think you can look at this in isolation,” he said. “You look at the major options and look at what’s best for Pennsylvania.”