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Pa. court rules climate program is an illegal tax, says state cannot join RGGI

Grey smoke billows from a smokestack.
Reid Frazier
StateImpact Pennsylvania
The Regional Greenhouse Gas Initiative is a cap-and-trade program intended to cut carbon emissions from the power sector.

Commonwealth Court is stopping Pennsylvania’s effort to join a cap-and-trade program targeting power plant emissions.

Joining the Regional Greenhouse Gas Initiative was Gov. Tom Wolf’s signature climate policy. Under RGGI, power plants must pay for each ton of carbon dioxide they emit. The move would have made Pennsylvania the first major fossil fuel-producing state to put a price on carbon.

In opinions filed Wednesday in two related cases, Commonwealth Court ruled that money raised through RGGI is an invalid tax. A five-judge panel heard the case. Judge Michael Wojcik wrote the opinion striking down RGGI. Judge Ellen Ceisler wrote a dissenting opinion.

The court sided with state Republican Senators and industry groups who claimed the Department of Environmental Protection did not have the constitutional authority to collect revenue from the program, and that only the legislature can levy taxes.

Senate intervenors in the case were then-President Pro Tempore of the State Senate Jake Corman (R-Centre), Senate Majority Leader Kim Ward (R-Westmoreland), Chair of the Senate Environmental Resources and Energy Committee Gene Yaw (R-Lycoming), and then-Chair of the Senate Appropriations Committee Pat Browne (R-Lehigh).

Interest groups that support RGGI have said they expected the state to appeal if Commonwealth Court ruled against Pennsylvania joining the program.

But Gov. Josh Shapiro has raised concerns about RGGI. He has said it’s not clear RGGI will address climate change while protecting energy jobs and ensuring affordable power. A working group he brought together on the issue recently released a report that said a cap-and-invest program would be optimal in supporting an energy transition that can benefit the environment and reduce emissions. But it did not endorse RGGI as the best option.

PennFuture attorney Jessica O’Neill noted the working group included people from industry who were challenging RGGI as well as environmental groups who supported the regulation.

Shapiro spokesperson Manuel Bonder said the administration “is carefully reviewing the Commonwealth Court’s decision as we evaluate next steps.”

The administration has 30 days to appeal to the state Supreme Court.

Wojcik’s opinion declares the RGGI rulemaking void and prohibits DEP from enforcing the rule.

“Where, as here, the moneys generated and received by the Commonwealth’s participation in the auctions are ‘grossly disproportionate’ to the costs of overseeing participation in the program or DEP’s and EQB’s annual regulatory needs, and relate to activities beyond their regulatory authority, the regulations authorizing Pennsylvania’s participation in RGGI are invalid and unenforceable,” Wojcik wrote. “Stated simply, to pass constitutional muster, the Commonwealth’s participation in RGGI may only be achieved through legislation duly enacted by the Pennsylvania General Assembly …”

Wojcik also noted that RGGI was expected to raise three times the Department of Environmental Protection’s annual state budget in just one year.

Robert Routh, Pennsylvania lead with the Natural Resources Defense Council, said the amount shouldn’t be the determining factor. He said it’s important that the money would have gone to a specific use–reducing air pollution–and not for general revenue.

“Frankly, the amount that is raised is commensurate with the significant amount of carbon pollution that Pennsylvania power plants emit,” Routh said.

Ceisler, in her dissenting opinion, wrote that there was not enough information to side with either party.

“Based upon the record before us, it does not seem that the emissions allowance auction process would impose what could be deemed fees in the traditional sense, but, by the same token, it is not entirely clear that the proceeds raised thereby would constitute a tax,” Ceisler wrote.

The RGGI rule was published in April 2022, but was paused by Commonwealth Court that July while legal arguments played out.

Senators also argued DEP sent the rulemaking to the Legislative Reference Bureau to be published before the state House had time to consider voting it down, that the rule violates the state’s Air Pollution Control Act, and that RGGI would be an illegal interstate compact. The opinion dismissed those claims as moot.

Power PA Jobs Alliance, made up of industries that oppose RGGI, is celebrating the decision.

“Governor Shapiro can clean the slate and move forward as his RGGI Working Group urged and engage the General Assembly on energy policies that ‘retain Pennsylvania’s status as the nation’s number one exporter of electricity and protect existing energy jobs,’” the group said in a statement.

“A bipartisan majority of Pennsylvania legislators have consistently voted against RGGI when the issue has been brought to the floor,” Sen. Yaw said. “I appreciate the Commonwealth Court’s rejection of this unconstitutional maneuver.”

Senate Majority Leader Joe Pittman (R-Indiana), whose district includes a few of the state’s last coal-fired power plants and who has fought against RGGI, called the Commonwealth Court ruling a victory.

“With this decision we have the opportunity to finally close a tumultuous chapter and move forward to determine the best legislative solution to foster greater energy independence, while ensuring the responsible development of our God-given natural resources,” Pittman said.

Environmental groups are hoping to see the case reach the Supreme Court.

“This is a decision point for the Shapiro administration. Are you going to appeal this and continue to press forward on RGGI or not?” O’Neill said. “The administration has been defending the regulation and we believe that they need to continue to do so, particularly in the absence of an alternative. We cannot just let power plant pollution go unabated.”

Conservation Voters of PA Executive Director Molly Parzen called the ruling “a misguided but temporary setback.”

“Governor Shapiro’s record on protecting our air, water and natural resources is a robust one stretching back to his tenure as attorney general, county commissioner and state legislator. We are confident in his commitment to our environment,” Parzen said.

John Dernbach, an Emeritus Professor of Environmental Law and Sustainability at Widener University Commonwealth Law School, said there’s a “good chance” of the Supreme Court overturning Wednesday’s decision.

Dernbach filed a brief in support of the RGGI regulation, arguing in part that joining would support the state’s obligation to its people under the Environmental Rights Amendment. The ERA protects Pennsylvanians’ right to a clean environment, including for future generations.

Dernbach said, during an appeal hearing of the RGGI cases in Supreme Court, it appeared a majority of justices agreed that the ERA “is relevant in deciding whether the RGGI regulation is lawful.”

Under RGGI, power plants must pay for each ton of carbon dioxide they emit, making dirtier sources of energy less competitive. The price of “allowances” is determined at quarterly auctions by market conditions. The states can then use the money to fund clean energy and energy efficiency programs.

Some environmental groups have estimated that the state has lost more than $1 billion by not joining RGGI when the regulation was finished.

That money could have been put toward addressing climate change by boosting clean energy programs. If the legislature and Shapiro had agreed on a plan, it also could have offered relief to fossil-fuel industry workers who lost jobs when power plants closed.

DEP estimated last year that the state could raise around $200 million per year from RGGI. Shapiro’s proposed budget estimated raising $600 million in the next year. The state would pay a small percentage for administering the program.

DEP estimated the rule would prevent up to 227 million tons of carbon pollution by 2030. That’s equal to taking 44 million cars off the road for one year.

Pennsylvania ranked fourth in the U.S. for carbon emissions, according to 2021 data. It produces more natural gas than any state except Texas.

This story is produced in partnership with StateImpact Pennsylvania, a collaboration among WESA, The Allegheny Front, WITF and WHYY.

Updated: November 1, 2023 at 4:42 PM EDT
Updated with more details on the ruling.