What National Policy Can Learn from Pennsylvania’s RGGI

By: Tommy Furlong

Environmental policy has long been rising on the national agenda. Changes under the Biden administration are expected to come, but earth-shattering innovations like the Green New Deal are not.

“The less innovative their policies are,” said Kate Larsen, a director at Rhodium Group, an independent research provider, “the more likely those revised rules would pass through court challenges in a very conservative court situation.”

She was speaking in terms of executive action, but then “there is the golden goose of legislation,” said Larsen, “which will be highly dependent on the Georgia runoff, even then, it would be a really closely split Senate and it would be a challenge to get any major legislation that would say, establish his clean energy target.”

Biden announced during his campaign that his energy target is carbon neutrality by 2050, but reaching that goal requires more than executive action, it needs congressional support.

Larsen, who leads her firm’s international energy and climate research has a strong understanding of the policy challenges in implementing such goals, as prior to her current job she served as Deputy Director for Energy and Climate Action at the White House Council on Environmental Quality.

The challenge isn’t rooted in convincing the nation climate change is an issue, according to PEW Research 65% of the country feels the government should be doing more to address climate change, but instead finding a way to ease the idea of communities being left behind economically following such policy changes. 

In Pennsylvania, Governor Wolf (D) signed an executive order in October of 2019 to begin the process of enabling the Commonwealth to join the Regional Greenhouse Gas Initiative (RGGI) in order to cut down carbon emissions.

RGGI is a cap and trade system that already includes 10 states in the Northeast region of the country and enforces a certain number of allowances on polluters, essentially government sold coupons that give permission to emit X amount of carbon. The government, understanding the burden they’re placing on these companies, will typically grant past emitters their allowances for free, but at a reduced number compared to their previous emission levels. Then there will be a market for the rest of the allowances open to others.

“So one of the really nice things about a cap and trade system,” said Peter Maniloff, assistant professor of economics and business at the Colorado School of Mines, in a Zoom interview, “is that it gives the government this huge slush fund of allowances … and that’s basically free money.”

“But,” Maniloff said, “if you give a bunch of allowances to Duke Power or Southern Company, the big coal workers, or to historical coal mining companies, that’s not the same thing as giving money to the people that worked in the coal mines or the people that worked at the power plants.”

Cap and trade gives companies an incentive to cut their emissions, and one of the quickest and easiest ways to do that is by shutting down a power plant. Now that company is left with an abundance of allowances they can make money off, money that will stay in the shareholders’ hands rather than the laid off workers’ hands.

But that’s the market-based tradeoff. Maniloff said, “if you tell them we’re going to give you a lot of money to shut down your power plant, then they’re not going to fight you so hard. It’s a way of making the politics work.”

RGGI carbon emission allowances in Pennsylvania decrease by 3% annually, lowering emissions by 25% from 2022 to 2030 and 80% by 2050.

The state Department of Environmental Protection (DEP) has run prediction models to understand the economic impact of such changes. The three different models, based on the expected $261 million in allowance revenues from 2022, depict where and how the state economy will be affected.

The first is a balanced approach where revenues are split amongst three main categories of investment: energy efficiency, renewables and greenhouse gas abatement. The other two scenarios are bill assistance, which replicates the breakdown of RGGI state Maryland’s revenue allocation, and General Fund, which puts the majority of revenue into the state’s general fund.

The balanced approach predicts by 2030 a $1.9 billion increase to the state GDP as well as a net increase of 27,752 jobs. The other scenarios, however, predict drops in both GDP and employment.  

But not everyone is convinced that an energy transition would result in an increase in employment.

Casey Mullooly, a district representative for Pennsylvania for the United Mine Workers of America labor union, said in a phone interview, “I was here when the steel industry went under and I heard all these things that are coming in and how we’re going to take care of these people, and they didn’t. There was a vacuum left for years and years.”

“And the same thing is going to happen in the coal and gas fields,” he said. “When these transitions come, I hope they come with some kind of compassion and some kind of actual industry to replace it, because our folks here don’t want a handout.” 

Casey Mullooly, district representative for the United Mine Workers of America discusses why an energy transition will be harmful.

No matter what though, said Maniloff, there will at least be new high-tech and installation jobs in the energy sector. “But that’s not going to replace the jobs that are being lost,” he said, “particularly not in the locations that they are being lost.”

 “I would say the government is picking winners and losers in the marketplace,” said Mullooly.  “The impact will be devastating on the coal fields, and it will be devastating on the families that work on the coal fields,” he continued.

But maybe those coal fields are closing due to other factors as well. Secretary of the Pennsylvania Department of Environmental Protection, Patrick McDonnell said in a phone interview, “If you go back in recent history and coal plants were on the order of half or more of our electricity generation. Fast forward to today and it’s less than 20%, so we’ve seen that decline, we’ve seen those plant closures and we know based on just market forces, that’s going to continue.”

RGGI will also impact the large fracking and natural gas industry in the state as a cap on carbon emissions effects their energy generation as well, but it doesn’t predict to end the industry like it does coal.

But the state sees coal coming to an inevitable close as natural gas plants offer a cheaper alternative, and emission standards are going to continue to come with or without RGGI and coal is the dirtiest form of energy generation.

Other criticisms threaten the initiative as well, such as the idea of leakage, which Maniloff writes about. Meaning, the policy implemented in Pennsylvania will only be covering a region of the country, encouraging polluting activity to simply move to uncovered places nearby.

“My hope,” said Rachel Gleason in a phone interview, executive director of the Pennsylvania Coal Alliance, “would be that this administration wouldn’t want to ruin Pennsylvania’s economy and stimulate the economy of Ohio and West Virginia for something that has no environmental benefit.”

Gleason thinks the consequences of leakage would leave the region with less jobs and the country would still be emitting an equal amount of pollutants, just shifted to new states.

The only way to avoid leakage is to create a national or global carbon price said Maniloff, but that hasn’t happened, and Larsen says that won’t be happening anytime soon.

Gleason has reason for concern. “I think in 2019 we sent about 10 million tons of Pennsylvania produced coal to Pennsylvania,” she said. “RGGI predicts to pretty much cannibalize those units in year one.” This will not only affect her production, but also what she calls the “economic downstream” of coal as well.

While the coal industry fears its possible demise, Gleason said the Pennsylvania administration has not reached out to her or others within the industry to discuss possible policy changes.

Currently, RGGI is in a public comment period that would allow Gleason and others to give input that will then be considered at a series of hearings throughout December. DEP will then make the necessary changes and continue the regulatory process through advisory committee meetings and final edits made by the state Environmental Quality Board next year. According to Secretary McDonnell, once these steps are made, Pennsylvania would look to join RGGI in 2022.

Regulatory action is executive action with little input from the state legislators. Due to this, Gleason sees the policy as a stretch of executive power.

“The Governor is trying to circumvent the General Assembly entirely and do it through regulation,” she said. “It’s questionable if he even has that authority. I think RGGI could largely be argued as a tax because of the revenue it generates, and our state constitution says that taxes can only be enacted through the General Assembly.”

The state administration, on the other hand, argues that the state Air Pollution Control Act, which gave DEP authority to implement the Clean Air Act within the Commonwealth, gives them the power to regulate emissions.

Similarly, said Larsen, the federal government “would use the same Clean Air Act authority to regulate emissions from power plants, but I think they would go about it in a different way.”

She later said, “I think there’s enough clarity on how we might do this without cap and trade that it’s not worth the risk to put all of the time and effort into another bill.”

There are still a handful of legislative steps he should be able to implement according to Larsen. For example, tax credits for renewable and electric vehicles.

The bulk of his impact, however, will have to come at the hands of executive authority, steps he can make on day one. Larsen mentions using executive procurement power to buy only electric vehicles and purchase cement and steel that have low carbon footprints as possible examples, along with the conservation of public lands.

There won’t be a single big issue policy package like a cap and trade system, action will come in a collection of smaller initiatives hoping to achieve a greater goal. And Biden certainly has ambitious goals.

Progressive democrats and environmentalists will be hoping for major action towards that goal, and Larsen says the best way to balance those ambitions with policy success is to “find a way to articulate and communicate a package of actions that add up to the goal, that is the best way to bridge that gap.”

If the Democrats are able to pick up Senate seats in 2022, the next step would be to establish a legislative clean energy standard, said Larsen. National policies will have to reflect those implemented regionally like RGGI in order to maximize the balance between environmental protection and economic consequences. 

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