Viewpoint: RGGI members up in the air in 2023

Political and legal fights over the Regional Greenhouse Gas Initiative (RGGI) will continue to affect the CO2allowances market, as Pennsylvania and North Carolina mull joining and Virginia eyes exiting the power plant cap-and-trade program.

The potential membership changes also are butting up against RGGI's program review, which is slated to conclude next year and could result in more stringent rules.

Uncertainty surrounding Pennsylvania looms large, since the state had planned to participate in 2022 with a CO2 cap of 78mn short tons. The cap for the other 11 RGGI states this year was 116mn st.

RGGI allowance prices have not recovered since the Commonwealth Court of Pennsylvania halted a regulation designed to enable the state to join. After missing every auction this year, Pennsylvania will also miss the first auction of 2023, if legal hurdles are not cleared by February.

That timeline could prove challenging. The state Supreme Court is currently reviewing whether the Commonwealth Court's injunction was rightly decided, and it could intervene again once the lower court issues a decision on the rule's legality in the coming weeks.

"Final adjudication of these matters is not expected until sometime next year," RGGI executive director Andrew McKeon said at a recent board meeting.

Governor-elect Josh Shapiro (D) has pledged to form a panel — potentially including industry, labor, and bipartisan group of lawmakers — to forge some compromise around RGGI. But any agreement with Republicans, who control the state Senate and may control the House again depending on who fills three vacant seats, would be a tough sell.

"I take the governor-elect at his word when he desires to have a collaborative approach on energy policy," said incoming Senate majority leader Joe Pittman (R). "The Senate Republican majority views the first step in such collaboration is to move Pennsylvania out of the RGGI scheme as quickly as possible."

Southern strategies

Virginia Republicans are similarly opposed to RGGI, and governor Glenn Youngkin (R) is now pushing for his state to exit the program by December 2023, after previous attempts to leave quickly faltered. A regulation to withdraw will come up for public comment soon before it heads back to a regulatory board skeptical of RGGI for final approval.

Democrats and environmentalists dispute Youngkin's contention that he can exit RGGI without legislative approval. Legal challenges are thus likely, and a court battle like in Pennsylvania could ensue in 2023 once a rule is published.

A successful exit would be significant, since Virginia accounted for 23pc of the RGGI allowance budget in 2022.

Further south, North Carolina has aimed to join RGGI by January 2024. But that schedule could be delayed. The Department of Environmental Quality (DEQ) told Argus there is no timeline for completing a fiscal analysis of the draft rulemaking, after indicating in July that it aimed to complete that review by November.

As in other states, Republicans have pushed legislation to block RGGI participation, although they will not be able to easily override vetoes from the Democratic governor after narrowly falling short of a supermajority in this year's elections.

For now, there is more focus on the North Carolina utility commission's mandate to develop a plan to reduce power plant CO2 emissions by 70pc by 2030. Some environmental groups have pushed for RGGI to feature in the commission's final plan, which is due by the end of the year.

RGGI could function as a "backstop" to the plan floated by Duke Energy, the state's largest utility, to ensure the targets are met, Environmental Defense Fund director of southeast climate and energy Will Scott said.

While North Carolina's entry into RGGI could happen later, DEQ has floated a cap of 38.6mn st for 2022 that would fall faster than other RGGI states through 2030.

By Cole Martin