Pennsylvania exited the Regional Greenhouse Gas Initiative (RGGI) as a concession by Democratic lawmakers to finalize the state's long-delayed budget for the coming year.
"We needed to focus on a budget that helps people make ends meet. We also recognize the reality of divided government and the need for compromise," state House of Representatives majority leader Matt Bradford's (D) office said on Thursday.
Governor Josh Shapiro (D) on Wednesday signed a bill, HB 416, repealing regulation that allows Pennsylvania to participate in the northeastern power plant CO2 cap-and-trade program. The state's exit from the program was part of a deal reached by lawmakers to finalize Pennsylvania's budget for the coming year, a process that had been ongoing for a few months.
The passage of that bill resolved any uncertainty over the status of Pennsylvania's membership in RGGI, which has been in limbo for over three years.
Concerns over affordability likely loomed large over lawmakers — echoing a bigger trend in the northeast US spurred by rising energy costs. Conservative legislators and industry groups have criticized RGGI as an unlawful tax that disproportionately raised energy costs for consumers.
"RGGI was seen (mistakenly, in our view) as a political liability with certain voting blocs in the current affordability environment," said non-profit Acadia Center senior director Jamie Dickerson and senior policy and data analyst Paola Tamayo.
"In the heat of budget negotiations, the program was clearly treated as a bargaining chip" among "a broader set of concessions" including sizable cuts to the state's Department of Natural Resources, said Dickerson and Tamayo.
Pennsylvania has also been in the spotlight as a key source of natural gas to provide electricity to power-hungry artificial intelligence (AI) data centers because of the state's vast shale gas fields that are cheaper to drill than other US basins.
Some gas executives operating in Pennsylvania have pitched the state as an attractive data center hub on the grounds that it is far easier to gain key permits to build gas pipelines within the borders of a single state. This could make Pennsylvania a more appealing site for a gas-powered data center than a traditional hub like Virginia, where any new gas generation infrastructure would likely have to take fuel from a producing state like West Virginia. Such a proposed interstate pipeline could face expensive delays and ultimately fail to secure permits.
US president Donald Trump met with gas executives and state leaders in Pennsylvania in July to announce nearly $100bn of investments into Pennsylvania to support AI and new gas production and infrastructure to support it.
A balancing act
Pennsylvania first began the process to join RGGI in 2019 under Shapiro's predecessor, former governor Tom Wolf. But its participation has been on hold since 2022 after the Commonwealth Court struck down the state's RGGI regulation.
Shapiro has been noncommittal over his support for RGGI, having to balance competing interests of environmental and industry groups in the fossil fuel-heavy state. While his administration appealed the lower court's ruling to Pennsylvania's Supreme Court, Shapiro's arguments focused on the preservation of executive authority rather than explicit support of the emissions reduction program. The state's high court held a hearing earlier this spring over that case where judges appeared to push back against the Shapiro administration's arguments.
"While we support RGGI, the fact is, it was found to be unlawful in Commonwealth Court, with a slim chance of it being overturned on appeal," Bradford's office said.
But some groups argued the opposite, criticizing the decision to leave RGGI before the Supreme Court ruled.
"What's … striking is that the courts were close to issuing a decision on the legality of the RGGI regulation … and the expectation had been that the state would retain the rule," said Dickerson and Tamayo, who have been in touch with other interest groups on the ground.
Shapiro has also floated implementing a state-specific cap-and-trade program, known as the Pennsylvania Climate Emissions Reduction Program (PACER). Democratic representatives introduced a bill that would establish PACER to the House in April, but that bill has remained stuck in committee.
It is unclear whether Shapiro intends to move forward with PACER now that Pennsylvania is officially out of RGGI. His office has not commented on whether PACER will be a priority in the near future.
The secondary RGGI CO2 allowance market, which has been supported by the latest elections and elevated electricity demand, barely reacted to the news that Pennsylvania has left the program. Contracts for December 2025 and December 2026 delivery were largely flat on Wednesday, with Argus assessing them at $26.69/short ton (st) and $26.60/st.
