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Governor Youngkin faces opposition, legal questions over order to pull VA out of carbon market

coal field
A large field of coal stored on the property of Dominon Energy's Chesterfield Power station in Chester. (Photo: Steve Helber/AP)

Correction: A previous version of this story incorrectly reported that a measure to create a coastal flood resilience fund identified $5 million over two years for flood protections. This funding only covers administrative costs.

On his first day in office, Gov. Glenn Youngkin ordered state regulators to reassess Virginia’s involvement in a regional cap-and-trade market for carbon emissions and begin the process of leaving the program.

Virginia, the southernmost of eleven states currently in the Regional Greenhouse Gas Initiative, has been a member since January 2021 after years of efforts by Democrats to join. Youngkin and other Republicans say costs for ratepayers will skyrocket if the state doesn’t leave now. In Executive Order Number Nine, the governor cited an approved monthly rate increase of $2.39 for a Dominion residential customer using 1000kWh of electricity.

The move was met with concerns from Democrats and environmental groups that Virginia would lose a significant source of funding associated with the program for energy efficiency investments as well as flood protection and recovery. Legal experts also questioned whether the regulatory arm Youngkin is using has the power to unilaterally pull the commonwealth out.

RGGI is a complicated issue - it was difficult for Democrats to bring to Virginia, and it could be just as difficult for Republicans to get rid of.

What is RGGI?

Virginia utilities are required by the Virginia Clean Economy Act to reduce their carbon emissions to zero by 2050 at the latest; RGGI provides a way to get there.

Bill Shobe teaches public policy and economics at UVA, where he runs the Center for Economic and Policy Studies. He’s an environmental economist - and was actually part of the team that put together RGGI’s version of a cap-and-trade market back when the member states were all in the Northeast and Mid-Atlantic.

Shobe is an expert on RGGI. He is also, he admits, a big fan and advocate for the program who would prefer it not be done away with in Virginia.

Shobe says the program starts with an emissions limit - the cap in cap-and-trade - for participating states. Specifically, it says the power sectors of those states can’t exceed a certain tonnage of carbon-dioxide emissions yearly. That limit is reduced each year, eventually reaching zero. Currently, the 2030 limit is slated to be 30% of the 2020 limit - a reduction of a projected 20 million tons of atmospheric CO2 across member states.

If you’re a company in the business of generating or distributing fossil-fuel-derived power, and you want to continue in that business, you have to buy into the market.

RGGI assigns one share, or allowance, to each ton of CO2 in the budget. If a power company or facility wants to emit, they have to purchase allowances through quarterly auctions or from other companies - that’s the trade portion.

The revenue from those auctions - essentially, the assigned cost of carbon - is then split up among member states, who do their own allocating.

The program has a bit of a reputation for being confusing, but Shobe disputes that.

“We don’t think about other markets in our lives, we think about them as natural as the day is long,” Shobe said.

Put it like this - the people making Oreos are responsible for paying for ingredients, production and transportation - it’s a complicated process. But those costs are passed on to the consumer as a single price, so the person engaging in the market has a very simple choice.

RGGI is a way of making the environmental cost of greenhouse gas pollution into a tangible one, which becomes part of the price of electricity.

What happens if VA leaves RGGI?

Yes, the governor’s argument that RGGI raises ratepayer bills is true - the cost of carbon allowances, like all energy costs in Virginia, is passed through to ratepayers, who are mostly captive customers of Dominion Energy or Appalachian Power Company, which operate as state-sanctioned, privately owned monopolies and are legally guaranteed a profit. As a ratepayer, you’re covering your own emissions.

Youngkin referenced Dominion’s $2.39 “RGGI rider” in his order. That applies to a monthly electricity bill for 1000 kWH, so the actual cost would fluctuate based on your energy usage. But the rider is expected to go up if Virginia stays in the program.

Recently, Dominion pulled a further rate increase request for its RGGI charge, which would have brought the monthly total to over $4 for 1000 kWH. Youngkin says that’s an undue burden on low-income ratepayers, and it’s the reasoning for leaving the program, according to his order.

But the program has also brought in over $225 million from one year of allowance auctions. In Virginia, 45% of that goes to coastal and inland flooding needs, 50% goes to low-income energy efficiency programs and the remaining 5% covers administrative costs. That’s done through the 2020 Clean Energy and Community Flood Preparedness Act, which allowed then-Gov. Ralph Northam to enter Virginia into the market.

Removing this source of funding has been the major point of criticism for Democrats and environmental groups. Peggy Sanner, who runs the Virginia Chesapeake Bay Program, is among them.

“Where’s the money gonna come from to help citizens address flooding needs, to help prepare for them? We don’t have that,” Sanner said.

She acknowledged that Youngkin is supporting a bill to create a coastal flooding resiliency authority. The body would have 17 members from across state and local government, with a few slots reserved for non-legislative members

Senate Agriculture, Conservation and Natural Resources Committee Chair Chap Petersen (D-Fairfax) expressed his own feelings on RGGI and the VCEA earlier this week.

“Both [RGGI and VCEA] were sponsored and authored by members of this panel, so as the chairman of this committee, I'm very protective of their accomplishments,” Petersen said.
 

Legal questions

Youngkin’s original promise was to use executive action to directly remove Virginia from the program, but he apparently backed off that approach after his legal authority on the matter was questioned.

Instead, he’s attempting to get the same regulatory body that approved Virginia’s involvement in RGGI to essentially reverse that approval.

So, before this gets even more complex, let’s reiterate that Virginia’s General Assembly passed a law in 2020 that allowed the governor to enter the state into RGGI - but the actual regulatory language guiding that process was drafted by the Department of Environmental Quality and adopted by the state Air Pollution Control Board, an independent citizen panel.

Youngkin ordered DEQ in EO9 to propose a regulation to the air board to reverse that action - but it’s still not quite that simple.

“The problem is,” said Cale Jaffe, an environmental lawyer also at UVA, “if you just repeal the regulations at the state air board, you still have the statutory elements to comply with.”

He says if the board, every current member of which was appointed by a Democratic governor, does decide to pull out of RGGI, there are still statutory requirements that energy producers have to deal with. The difficulty is complying with no regulatory scheme in place.

Jaffe says that complexity is by design: “It makes transitions from one policy to another, by necessity, be more deliberate, more thoughtful and more slow.

“I think their team is learning that’s not as simple to do as it is to say,” Jaffe said.

With Senate Democrats blocking a legislative repeal, the governor's options forward seem limited.

Looking forward

Shobe argues paying for our emissions is a necessary cost, through RGGI or another route, for desirable outcomes - namely, reducing atmospheric carbon. He adds it will help avoid worse impacts from sea-level rise, agricultural shifts, heavy storms and more.

“On the other hand, that doesn’t mean that every ratepayer in Virginia is going to be happy to contribute,” he admits. But he says there are options to adjust the program rather than go for a wholesale repeal.

Shobe says if lawmakers decided to adjust the allocation of auction proceeds to provide some direct rebate to households, that additional cost could be made up pretty easily. It would require a significant portion of the proceeds though, likely at least a third - which would have to be taken away from the flooding and efficiency programs - likely still a tough sell in the Senate.

DEQ’s report on RGGI is due in mid-February, and any regulation before the air board will have a public comment period. Plus, Senate Democrats appear undeterred in their defense of the program. So, the process of leaving RGGI could be as drawn out as the process of getting in - if Youngkin manages to be successful.