Carbon Pricing & Cap-and-Trade: New Concepts for Pennsylvania

Weeks after rules allowing the state to join the Regional Greenhouse Gas Initiative (RGGI) were published, several new lawsuits have been filed attempting to halt Pennsylvania’s formal admittance. While these lawsuits continue in the courts, the rules allowing the state to join RGGI are still in effect, with implementation planned for July 1, 2022. It is important to understand the core concepts within RGGI, carbon pricing and cap and trade systems, and explore the arguments for and against such programs. At its core, RGGI is a carbon pricing system. Carbon pricing, as it sounds, is a mechanism used by governments to quantify greenhouse gas (GHG) emissions and charge emitters for their emissions. There are several different policies and processes that can be implemented as part of a carbon pricing program, for example, a cap-and-trade system, which is the system used by RGGI states. In RGGI’s cap-and-trade system, which they call cap-and-invest, a regional cap on greenhouse gas emissions is set by the Initiative. GHG-emitting power generators can then purchase “credits” equal to tons of emissions in quarterly auctions held by RGGI. RGGI is designed to incentivize power plants to find cost-effective ways to reduce emissions to reduce the number of credits necessary for their operation. However, plants that purchase too little or too many credits have the opportunity to trade with one another, allowing for some flexibility among individual power plants; this is the “trade” in cap-and-trade. Proceeds of the auctions are distributed by RGGI to the states to be used for investment in their states. However, RGGI mandates that a quarter of its proceeds be used for “consumer benefit or strategic energy purpose.” There are as many proponents as opponents of RGGI. Since the Initiative has been in existence since 2005, there has been a swath of research conducted on the program. In 2015, the Acadia Center released a review of RGGI. In its report, the authors find RGGI to be an extremely effective program in decreasing both greenhouse gas emissions and electricity prices. According to the report, in 2015, RGGI states experienced “reduced emissions by 16 percent more than other states and saw 3.6 percent more economic growth” as well as a more gradual increase in electricity prices. In 2018, the Cato Institute released a review of RGGI, directly addressing the Acadia Center’s report. The authors in Cato’s review challenged the Acadia Center’s conclusions, calling them “misleading.” Contrasting the Acadia Center, the Cato review found that in the same time frame, RGGI states' electricity prices rose by 4.6 percent on average compared to 2.8 percent in comparable non-RGGI states, and there were “no added reductions in CO2 emissions or associated health benefits” and that non-RGGI states’ economies grew 2.4 times faster in comparison with RGGI states. The Acadia Center released a 10-year review of RGGI in 2019, which echoed the success reported in their 2015 review. According to that review, since 2008, RGGI states’ carbon dioxide emissions were reduced by 47 percent, their electricity prices fell by 5.7 percent, and their GDP’s grew by 47 percent, outpacing the rest of the country in all categories. Additionally, the second Acadia Center review found that RGGI states “have generated $3.2 billion in allowance auction proceeds,” and have benefitted from $5.7 billion in “health and productivity benefits.” How long Pennsylvania will remain in RGGI is up for debate at this point. Even if the rules to join RGGI survive the lawsuits levied against it, entrance into RGGI could hang on to the upcoming gubernatorial election. Republican nominee Doug Mastriano called it “a threat to national security” that will damage the state’s energy industry, while Democratic nominee, Attorney General Josh Shapiro, has also been critical of RGGI, stating that he has concerns about the efficacy of the Initiative.