Pennsylvania Effort to Join RGGI Faces Legal, Political Peril

The Regional Greenhouse Gas Initiative, or RGGI, was the first major carbon market to be established in the United States. Since its inception in 2009, RGGI has contributed to a reduction in greenhouse gas emissions from the electricity sector in a market that now spans 11 eastern states. Yet RGGI has recently seen its expansion stalled in Pennsylvania, one of the nation’s largest emitters of carbon dioxide, and a state where the struggle over the future of the energy industry, and the roles to be played by fossil fuels and clean energy, has been particularly intense.

Authors of a recent report on the expected economic and climate impacts of Pennsylvania’s participation in RGGI discuss their findings and explore the political and legal battles that are now taking place over the market’s future in the state. That future may ultimately lie in the hands of a newly elected governor who inherited RGGI from his predecessor, but who has yet to publicly commit to the market’s development. But first, a state court must render its decision on the legality of Pennsylvania’s participation in the RGGI market.

Angela Pachon is research director at the Kleinman Center for Energy Policy. Maya Domeshek is a research associate at Resources for the Future.  Their recent report, “The Prospects for Pennsylvania as a RGGI Member” is a joint publication of the Kleinman Center and Resources for the Future.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. The Regional Greenhouse Gas Initiative or RGGI was the first major carbon market to be established in the United States. Since its inception in 2009, RGGI has contributed to a reduction in greenhouse gas emissions from the electricity sector in a market that now spans eleven Eastern states. Yet RGGI has recently seen its expansion stalled in Pennsylvania, one of the nation’s largest emitters of carbon dioxide and a state where the struggle over the future of the energy industry and the roles to be played by fossil fuels and clean energy has been particularly intense.

On today’s podcast, we’ll explore the uncertain fate of RGGI in Pennsylvania, and the political and legal battles that are now taking place over its future. That future may ultimately lie in the hands of a newly elected governor who inherited RGGI from his predecessor but who has yet to publicly commit to the market’s development. But first a state court must render its decision on the very legality of Pennsylvania’s participation in the market.

I’ll be talking with two authors of a recent report that examines the impact of RGGI on the rate of decarbonization in Pennsylvania and on electricity prices and jobs in the state. The report seeks to provide clarity on these issues, which have been at the center of debate over the state’s entry into the market. Angela Pachon is Research Director here at the Kleinman Center. Maya Domeshek is a Research Associate at Resources for the Future. Angela and Maya, welcome to the podcast.

Maya Domeshek: Thanks for having us.

Angela Pachon: Thank you, Andy. Thank you for having us.

Stone: So we’re going to be talking about the legal and political challenges facing Pennsylvania’s joining the RGGI market, which is a carbon cap-and-trade market. Maya, to get us started and to warm us up for the rest of our conversation, could you give us a quick primer into the purpose of carbon cap-and-trade markets and how the RGGI market itself works?

Domeshek: I’d be happy to. Cap-and-trade markets are a form of environmental regulation where government sets a limit on the amount of carbon dioxide that’s going to be emitted — in the case of RGGI, the amount of carbon dioxide that’s going to be emitted by the power sector. And then that entity, the government in this case, issues a set of permits and anyone who wants to emit has to buy a permit in order to be allowed to emit.

So in the case of RGGI, it’s actually a group of states that have all gotten together and set a limit on the amount of CO2 that is going to be able to come from the electricity sector, and that limit declines over time. And all of the electricity generators in the region of those states have to buy these permits. They’re called “emissions allowances,” in order to be allowed to emit. Those permits are sold in a market which sets the price of the allowances, and that price forms a kind of carbon price which makes it more expensive to emit. The states are then able to collect the revenue from the program, and they can use that for various state priorities.

Stone: On July 1st of last year, July 1st of 2022, Pennsylvania actually officially joined RGGI. However, eight days later, a Pennsylvania court, the Pennsylvania Commonwealth Court issued an injunction preventing the state from moving forward with its plans. Angela, could you give us a background into Pennsylvania’s effort to join the cap-and-trade market and explain the current legal limbo and the court injunction that’s holding things up?

Pachon: Sure, Andy. I would say given the importance of Pennsylvania as an electricity producer in this region, joining RGGI has been always a question of debate. Historically, when RGGI was created, there was a big question, but for Pennsylvania as an electricity producer with such a large power based on coal, it was very expensive at that time. When you have a lot of fossil fuel generation, that may become a burden, and that’s why historically Pennsylvania always refused.

Lately, this has changed because there have been many retirements of coal power plants, and gas has replaced coal. Pennsylvania keeps its nuclear plate. So there was an opportunity because suddenly the electricity produced in Pennsylvania is not as “dirty” as it used to be ten or fifteen years ago. So there was a case for joining RGGI, and the previous governor, Governor Wolf, wanted to explore this option. They requested some studies. There was a case to joining RGGI that there would be benefits, and therefore it started to politically trying to have some buy-in. But we have to remember here that coal and gas producers and gas users, they are very powerful in Pennsylvania politics. So there was a fierce opposition that lasted almost for two years, until finally the governor decided to join RGGI by executive order, which is uncommon because most of the other states have joined RGGI by legislation.

So that obviously became a battle, and we saw when the governor decided to join by regulation, and that finally came though, there were legal challenges, and that went to a Commonwealth Court. Those two legal challenges were awaiting the decision of those courts, whether Pennsylvania can join or not.

Stone: It’s interesting. You mentioned a couple of moments ago the size and the importance of Pennsylvania as an electricity producer. I believe if I have this correct, Pennsylvania’s emissions from its electricity sector alone are equivalent to the emissions of all the eleven states that are currently in the RGGI market, just to put into perspective how big of an emitter and how big of a power market Pennsylvania is. Is that right, Angela?

Pachon: Yes, that’s right. Pennsylvania is an energy state. It’s the second gas producer in the US, so it’s normal that as an electricity producer and as an electricity exporter, and even though Pennsylvania is part of PJM, we have to take into consideration that many of the states that are part of RGGI — not all of them are part of PJM. But yes, you’re right. In terms of proportion, Pennsylvania is a large energy and electricity producer.

Stone: And you also mentioned the two-year process. So that two-year process began around 2020, when former Governor Wolf started to push for the state actively to join RGGI. That process took two years. There was not a legislative action, as in other states as you mentioned, to get Pennsylvania into RGGI. Thus, he had to resort to Executive Order, which kind of sets the foundation of the legal battles here that we’ll get to in just a moment.

Before going back to that, the two of you, Angela and Maya, have recently published a new report that is a joint effort between the Kleinman Center for Energy Policy and Resources for the Future. That report is titled “The Prospects for Pennsylvania as a RGGI Member.” The report seeks to address some of the key questions around the benefits and costs to Pennsylvania of joining RGGI, and ideally the report’s findings would serve as guidance to the governor, should RGGI be given a green light by the Pennsylvania Commonwealth Court.

Angela, could you broadly tell us what are the contentious issues surrounding RGGI and Pennsylvania?

Pachon: As mentioned, this has been a very contentious issue. You have people against and people for. Among these debates, what we have heard obviously from the positive side, this market will really, really accelerate the decarbonization of the electricity sector in Pennsylvania, and that will bring benefits, health benefits, and also benefits for achieving the net-zero targets that the state has. So that’s one of the big positives, in addition to bringing revenues to the state. By joining RGGI, the state may be getting revenues from these allowances. That will also allow the state to be able to spend on the energy transition. Some states have spent it in different ways, either to accelerate transition or to guarantee that this is an equitable transition. So that’s part also of the benefits.

On the negative side, there would be questions about whether this will have variable impact for the economy and for the economy for two reasons: One for the increase in electricity prices because as this market is focused on the electricity sector, opponents consider this as a tax. And as a tax, that will be passed onto consumers of electricity, obviously generating a burden. The second argument is in terms of the economy, in terms of jobs because as this may accelerate the closure of coal power plants and even perhaps gas power plants. That will be problematic in terms of jobs. We heard claims that that will really have a very negative impact for the state economy.

So from the economic part, these are the main arguments. There were also arguments concerning that there could be leakage. Leakage is those producers that get affected. You will have plant closures in Pennsylvania, but because there is the network for this electricity, there will be these producers moving to neighboring states. This is leakage. When these producers are going to the surrounding states, then the net effect on emissions is lost because then you may have reduced emissions in Pennsylvania, but you may have them elsewhere. This is a point that is like — if the whole purpose is to reduce emissions, then you’re going to have leakage. And that leakage, you are not achieving the purpose, and you are killing the economy, basically is the argument that they were —

So that is why we decided that there was a case to really look at this argument. We thought that we needed to look at some of these factors that have been studied in those studies that were made for the governor. The state also did study. But we wanted to see today where we’re standing, in terms of many of these points that were raised in the past.

Stone: That’s an interesting point. So as you just mentioned, Penn State and another body, I believe, created reports in 2020 for Governor Wolf, who was governor at the time. And it looked into a lot of the same questions that your new report is looking at right now. So the question is: Why the new report now, three years later? What has changed, and why did some of these questions that you just raised around the contentious issues surrounding Pennsylvania’s joining RGGI — what has changed that you needed to look at those things again?

Pachon: Yes, when those reports were written, I believe they were in 2020, and one was by the governor, and the other one was independent, Penn State. At this time, the Inflation Reduction Act hadn’t passed, and we considered that that would be a major game-changer for renewables, and therefore the impact should be considered. So with the Inflation Reduction Act, we are in a totally different scenario concerning gas prices, especially gas prices, because of the war in Ukraine.

Stone: Gas prices have gone up quite a lot, right?

Pachon: Yes, compared to — There was the pandemic, when prices were very low. Then we went to a scenario where prices are very high. We wanted to consider these factors and especially the Inflation Reduction Act. For the price, these are at commodity prices that can go up and down, depending on the day. So far the war in Ukraine has had a big impact. But the Inflation Reduction Act was something that we really wanted to take into consideration, because that may completely accelerate. We can discuss that later about how the renewables, the construction of renewables, not only in Pennsylvania but all around the US. So these were the two new factors that we wanted to consider.

Stone: So you’ve got changing natural gas prices, which obviously changes the economic impact of switching from one type of generation fuel to another. And then you’ve got the IRA, which provides these new incentives for renewable energy.

Maya, I want to jump to you for a moment. Could you summarize the findings of the new report? Will RGGI membership lead to higher electricity prices, job losses, as opponents project?

Domeshek: Overall we found in our study that joining RGGI lowers emissions in Pennsylvania, and it also lowers emissions in the region and nationally, which speaks to that point Angela brought up before, about is it possible that reducing emissions in Pennsylvania could lead to an increase somewhere else, thus making RGGI sort of useless? We found that that didn’t happen. Emissions actually were lowered in Pennsylvania and elsewhere.

We also found that those emissions reductions occurred at a really low marginal cost and that those emissions reductions didn’t have much of an impact on the electricity prices. So that major argument about what a big impact RGGI will have on electricity prices and on consumers, at least in our study, we’re not finding that. We also found that RGGI decreases the use of coal generation in the state, and that it increases the use of renewables. We’ll talk about this later, but other prior studies didn’t find a big increase in renewables as a result of joining RGGI.

We found that although joining the program decreases Pennsylvania’s electricity exports a tiny bit, the state remains a major electricity exporter. So if there is any concern about Pennsylvania’s status as an energy and electricity exporter, we’re not seeing a huge impact on that. And then we also found that joining the program gets the state a fair amount of revenue because, as we talked about at the beginning, the state is going to be selling these permits to emit, and they’re going to get revenue from that. And they’re going to be able to use that for various purposes.

And so lastly, we — especially Angela — looked a bit at the likely impact on jobs and argued that really, most of the decrease in generation at coal plants and the closure of coal plants has been in the process of happening anyway. RGGI is accelerating it, but it has been in the process. So the job impacts related to that were in the process of happening, and really what the program is getting us is some revenue that the State could then use to help mitigate those issues.

Stone: I want to ask you a follow-on question. You used a number of different scenarios in your modeling for the impacts of RGGI. I don’t want to go too into the weeds here, because it could very quickly get weedy. But I just wondered if you could give us a quick overview of what those scenarios for decarbonization are and how you modeled them?

Domeshek: We used a model of the US electricity sector that represents the 48 contiguous states and the District of Columbia, looking forward out over the next 20 to 25 years. So the model allows you to look at what types of units are likely to be built, what types of units are likely to retire as a result of projected prices, projected demand, and policies going forward. We modeled some scenarios where Pennsylvania is either outside of the RGGI program, or it’s in the RGGI program. So our main scenario, where most of the takeaways are from, we look at Pennsylvania being outside of the RGGI program, if the RGGI program continues to decline at 3% per year. So that’s reaching almost 90% below 2020 emissions by 2050. And then a different scenario where RGGI is in the program, and then the whole program declines at that same rate.

Secondarily, we did a different set of Pennsylvania in or out scenarios, where we looked at RGGI declining to zero by 2040, but I think the 3% case is maybe closer to the kinds of cases that have been examined in the past.

Stone: So that 2040 net-zero outcome would imply faster than 3% per year reductions?

Domeshek: Yes, that’s correct.

Stone: Getting back to these reports that we’ve talked about earlier, the report that you all have just recently done, and then the earlier reports that came out in 2020, again before IRA and before the war in Ukraine and its impact on gas prices. What material differences did you find between the outcomes of those reports from three years ago and what you found today, Maya?

Domeshek: Great question. There are about three reports that have been written on this topic before. One was done by the Pennsylvania Department of Environmental Protection, at the behest of the governor. And they commissioned the consulting firm ICF to do their study. One was by Penn State, and they did a really comprehensive study, including a big look at the legal implications of joining RGGI. One was actually done by our colleague, Dallas Bertraw, with some help from me at the time, back at 2019, looking at the impact of Pennsylvania joining RGGI, and also at the idea of RGGI expanding overall.

So I think one of the biggest differences that I already pointed out a little bit when talking about the main takeaways is that the prior studies generally found that joining RGGI would decrease the use of coal and slightly increase the use of gas. We certainly find the decrease in coal, but most of them found that RGGI wouldn’t have much of an impact on the quantity of renewables. So the prior studies looked some at the sort of complementary relationship between RGGI and other policies the state could pursue, like its Alternative Energy Portfolio standards, which specifically require an increase in renewables. The previous studies also looked at ways that the state could spend some of the revenue from the program to help incentivize renewables in-state.

We didn’t look at revenue use in this particular study. It was a little out-of-scope for us, and we felt that had been covered really well in the past. But we did find that RGGI increased renewables in this version of the modeling, and that’s primarily because we’re in a different world now where renewables are a lot cheaper, thanks largely to the IRA. So I think that’s one big difference.

Another big difference that we find between the current modeling and the past modeling is that the allowance prices that happened in the program as a result of Pennsylvania joining are a lot lower than in the past studies. The past studies also found pretty low allowance prices. And again, remember the allowance prices are the price to buy one of these permits that let you emit if you’re a generator. So the previous studies had found the prices were pretty low, and this has been kind of contentious in Pennsylvania because people have been surprised that the models would find prices that are lower than the current market prices of allowances. It’s not necessarily surprising that that would be the case because Pennsylvania, as you’ve said, is a really large emitter, and so having it join the program is likely to really change the dynamics of the whole program. You wouldn’t necessarily expect the allowance prices in a world where Pennsylvania is in RGGI to be like the allowance prices in a world where Pennsylvania is outside of RGGI.

That being said, the prior studies did have slightly higher allowance prices than in our study, and again that’s because decarbonizing is a lot easier now than it was in the past because we have the Inflation Reduction Act. So we find lower allowance prices, and that means the state tends to get lower revenue in our version than in the past models, but also that the impact on retail prices is even smaller than in the previous studies. The previous studies also did not find a huge impact on the retail prices, but again, with even lower allowance prices, the impacts are even smaller.

Stone: Can you take us a step further on that? What do you see the impact being on retail electricity prices from RGGI?

Domeshek: Our report finds that joining RGGI would have a small impact on electricity prices, not a large one. So under the scenario where Pennsylvania joins RGGI, and RGGI decreases at 3% per year, we find at most an increase of 1% in the retail electricity prices that people are paying. And actually in the scenario where the emissions cap falls a lot faster, to zero by 2040, we see a small decrease in the prices that people are paying, up to a .6% decrease. So those are pretty small changes in electricity prices.

In addition, it’s important to keep in mind that there’s a pretty big difference between the impact on retail prices and the impact on household bills. Of course your household bill is composed of the price of electricity and the amount of electricity that you’re buying. So other states in the region have used some of the money from the program, either to help households to reduce their usage through energy efficiency programs, or as direct bill rebates. So even if we were in a world where we saw a big increase on the retail prices due to RGGI — and we don’t appear to be in that world in our study — there are things that the state could do that would nonetheless keep household bills low.

Stone: There’s a really interesting question around this, because if the allowance prices in RGGI are low, that means there’s not a lot of penalty to emitters when those prices are low, to continue to emit, right?

Domeshek: Yes.

Stone: So that calls into question, I guess, the incremental value of RGGI. At the same time, if the state is getting revenues from the market, and those revenues can be reinvested in the state, potentially decarbonization can accelerate, and many community benefits can come from that, as well. Is that right?

Domeshek: Yes, that’s definitely true.

Stone: Maya, those are interesting points that really call into question, then, how impactful is RGGI if the prices for emitting in the market are quite low? We’re going to get into that discussion in just a few minutes, but before we jump to that, I wanted to just ask you one other thing here, and this can go to Angela. Angela, what were the job impacts that you saw in working on the report?

Pachon: Compared to the previous studies that really make a model about the jobs — in this case, we didn’t model jobs and how the spending of the revenue may affect the job creation. And this study doesn’t go back further. But we were able to provide some considerations from what we think could happen with the jobs. The first thing is when we are projecting that the share of electricity produced by coal will be getting almost to zero by 2030, then there are going to be coal plant closures for sure. So what we could see is, will that affect the state economy? And the answer is no. The answer is no because the state economy, this share of these jobs is very small. As you know, there have been a lot of coal plant closures already happening, so this sector, especially the coal-powered generation, and even if you add with gas — the share of jobs is no more than 1% of all the jobs in Pennsylvania. So that won’t affect the state. However, what we can tell is that even if that does not affect the state, there are going to be communities that are going to be highly affected by these closures. That’s one of the things that we have mentioned. There is an opportunity with the revenue that comes from RGGI that these communities get either compensated, or in some way that there is going to be some expenditure that will help this community to transition to where the job creation is going to happen, that is in their renewable sector. And the fact that renewables are — that is not something that RGGI will trigger. The IRA obviously will accelerate the job creation in the renewables sector. But already in Pennsylvania, for electricity production, the sectors that have created more jobs are the solar and the renewable sector class — the nuclear sector.

So I think that the main message that we wanted to show is that the state — the numbers that cannot affect the state jobs — but the local communities, yes. There’s going to be an impact. One of the ways of thinking about how to spend the revenues should be to guarantee that this energy transition is fair and equitable.

Stone: And those are the revenues that would come from the auction of the allowances on an annual basis, right?

Pachon: Exactly.

Stone: You mentioned a very important point that there are specific communities that I would imagine are tied to fossil fuels, also maybe coal in particular, that will be very much impacted and are very much impacted when coal plants close. I just want to be clear here. Is retirement the only option for coal plant operators? Are there other options that might be viable, such as carbon capture that would keep these plants conceivably operating for a number of additional years? What are your thoughts on that?

Domeshek: Most of the coal plants in Pennsylvania have made commitments to retire at this point. A lot of those retirements are going to be happening by 2028. There are some facilities that deal with waste coal that are partially incentivized by the Alternative Energy Portfolio standard. And I think fewer of those have made commitments to retire. But the larger, more standard types of coal plants have mostly made commitments to retire.

A lot of those retirements are coming about because those plants are pretty old. They’re not very efficient, and because frankly, they’re not very good for public health, and the EPA is paying attention to that and has been issuing regulations on these topics. So the EPA recently issued some regulations on coal ash residuals and how coal plants are supposed to dispose of them. They also recently issued some regulations about the air pollution that travels between states, so that up-wind states are not causing so much pollution that down-wind states have terrible air quality.

And in addition recently, the EPA — in fact this is only a couple of weeks ago — brought out their Section 111 standard, Section 111 of the Clean Air Act, which is seeking to regulate the amount of carbon dioxide pollution that power plants can put out. Now the EPA in their regulation has said that if coal plants want to continue generating in the long term, some of them may need to retrofit with carbon capture and storage. And certainly that’s something that Pennsylvania plants could consider. But given that most of the plants have already committed to retiring, my guess is that that’s not something that made economic sense for them.

Stone: So Angela, I want to jump back to you here for a moment. We’ve talked about natural gas a little bit in our conversation so far, but we really haven’t taken a dive into the impacts on the industry of RGGI. One of the interesting points that is made in the new report is that the impact of RGGI will be very different on the gas-fired generators than it will be on the gas or the natural gas drillers in Pennsylvania. I wonder if you could talk about that distinction?

Pachon: For gas generators, as they are participating in RGGI, they will have to pay this fee. And this fee will mean that they will operate with higher cost. So that is an effect that they will feel, and that’s why there may be effects on electricity prices, because then they will pass it to consumers. But that’s the effect for gas generators.

For gas drillers, it’s a very different story, because by the state participating in RGGI, gas drillers and gas producers are just going to be affected because of the lower demand. And we look at this through the optics of jobs. For gas producers, the gas sold to electricity generators — it’s only 11% of what they produce. So that means that a large amount of their demands come from other sources.

Stone: That’s amazing. I didn’t realize so little of the gas drilled in Pennsylvania actually goes to electricity generation.

Pachon: Exactly, yes. In fact, it’s surprising because this state is a big electricity producer, but not consumer in the same way. Almost 76% of gas produced in Pennsylvania is exported out of state. So that means that the gas that is consumed here goes more for heating and industrial purposes, while the rest is exported. This means more gas producers, the real drivers or demand are the demand for natural plant gas liquids. Or for example, if this large majority goes to the US, different states, so a big driver of demand for this gas-producer in Pennsylvania, it will continue to be the speed of electrification all along the US. More recently, it’s also a global demand for LNG, and so these are factors that are not going to be affected by RGGI, and therefore RGGI has — the impact on gas producers is, at least in terms of jobs, is not going to be massive because their demand is not going to be affected in the same way.

Stone: Maya, let’s go to you now. One of the issues also that has been very briefly mentioned so far in our conversation is the allowance revenue to the state, right? So these are auctions. The State of Pennsylvania will be auctioning off allowances to allow power plants to emit carbon dioxide. The state will derive revenues from those auctions. Tell us how that money, auction revenue, might be spent, and how might it both help the causes of decarbonization and communities in the state in need?

Domeshek: There are a lot of ways the state could use the revenue. Other states in the RGGI program have primarily used the revenue for energy efficiency programs, and that has helped a lot of customers reduce their energy usage and their bills. I believe that in the governor’s proposed budget, one of the things he set money aside for, should the state join RGGI, would be the use of air quality monitors, which could help communities that are overburdened by pollution. Other things that the money could be used for include transition assistance for communities affected by coal plant closures. Maybe that could be some replacement of tax revenue that would otherwise have come from those coal generators — or job training. A lot of other people do a lot of research on the topic of how that money is best spent, to help communities transition. Other uses of the money could even include incentives for renewables. The original DEP study included some direct incentives for renewables.

So there are a lot of ways the money could be spent. The state just has to decide what its priorities are going to be.

Stone: This is all happening, this discussion around RGGI, when there is a bit of a crisis happening at the moment in the PJM market. And Pennsylvania is in PJM, which is the electricity market that covers the mid-Atlantic region of the United States. In the market there’s a lot of discussion around the concept known as “resource adequacy,” which is basically, summing it up, a concern around whether there is going to be enough generation in the future to meet future demand. One of the problems in the PJM market is that we’re seeing a lot of coal plant retirements, not just in Pennsylvania, but in numerous other states that are involved in the PJM market. And at the same time as those coal plants are retiring, there is not a fast enough influx of new clean energy resources to replace those coal plant retirements. And by the end of this decade, there is a possibility that PJM has identified that simply there will not be enough reserves of electricity generation to meet demand needs under all scenarios.

So that being said, we’re talking about putting additional pressure potentially on coal generators with Pennsylvania’s entry into RGGI. Angela, to what extent do you see RGGI further stoking concern around resource adequacy in the region?

Pachon: Well, I think as we mentioned before, coal plants are closing, and this is with or without RGGI. So the fact that RGGI will accelerate this fact — and when I say “accelerate,” when we did this study, we were not aware of the regulations coming for electricity in cars from the EPA. So that will really accelerate if that happens. So for RGGI, the other way for one part is clear, that that will be accelerated. But from the other side, you’ll have certainty, and certainty to a market that is going towards renewables, and that may even also in the same way that you accelerate the coal power plants’ closures, you may accelerate the deployment of renewables from one side.

And from the other side, something has to happen first, because these very large coal power stations that exist now in Pennsylvania, they have something very valuable, which is the interconnection. But something would have to happen. What will happen is that the plant gets closed so that a new plant can get built, or renewables get built and can use this very valuable interconnection there.

So I think one of the priorities for PJM is trying to use this already existing interconnection, but in order to do that, the plant has to officially close. And I think in that sense, RGGI may provide this certainty for the market, and there will be investors willing to come and perhaps remediate the land left by coal power plants.

Stone: Maya, earlier on, we discussed this issue of the price of allowances in RGGI, and you discussed those allowance prices are not particularly high. That led us to a topic that we kind of held until this moment right now, which is the incremental value of RGGI in the decarbonization process. Again, if allowance prices are low, that implies that it’s not particularly expensive for dirty generators to continue doing what they’re doing. Can you comment on this incremental value of RGGI, given these low allowance prices? And how much does RGGI change the decarbonization trajectory of the state and the region, given also that we have the IRA and other things going on?

Domeshek: This is a really great question and one that we’ve spent a bunch of time thinking about. I think the first and easiest answer is that if we think coal plants are going to be retiring anyway, RGGI at least gives the state the opportunity to get a little bit of revenue as that is happening. And that revenue can be used to smooth the transition for the communities affected by those closures. It can be used to speed decarbonization in other ways, push people towards electrification — other priorities that the state may have.

So even the little bit of revenue that the state is going to get from the program is the reason why the state might consider RGGI to still be worth it. But beyond that, I think the allowance price, even a low one, provides that certainty that Angela was talking about, that the state really is committed to its goals, that it has a mechanism in place in the long-term for making sure that those goals actually are met. And that kind of certainty can help attract investors to the state and can help make sure that the renewable build that we hope will be incentivized by the IRA actually happens in Pennsylvania.

So I think that strongly signals that the state is taking things seriously and that it’s worthwhile to start building renewables in the state. It can really attract revenue.

Stone: A final question for you all, and I’m actually going to direct this one initially to Angela. In Pennsylvania, we are in a state of limbo, right? So the Commonwealth Court has yet to rule on whether RGGI implies a tax or a fee on generators in the state. And that is the fundamental question that it needs to decide, to decide if it’s going to be legal for Pennsylvania to participate in RGGI. When do we expect the Commonwealth Court to rule on this case? Is there any guidance? And let’s say it says Pennsylvania can go forward. Do we have any sense of what Governor Shapiro may do in terms of pushing forward with RGGI?

Pachon: This is like a crystal ball question because it’s very uncertain of when this court is going to rule about it. I think nobody knows, but I’ve been trying to guess what Governor Shapiro may want to do about RGGI. At least there was some inclusion when they were discussing the budget about these allowances coming into the state budget. So even though they were clear that there was not a position on accepting or not RGGI. There were some hints, but I may say that for a state — in these days there is a lot of pressure to be able to have access to all of these subsidies that may come from the Inflation Reduction Act. For example, there are provisions to subsidize industries that go into coal communities. And those coal communities, they are here. I suppose the state will look at trying to bring the most of either the Inflation Reduction Act attracting older investors. We talk about the certainty for the renewable sector. Well, there is also some certainty that, for example, all these car manufacturers like these parts that they want. All these industries, clean industries that the Inflation Reduction Act wants to bring to the US. And they need to be built in the next four or five years.

So I think Pennsylvania will, like the governor, they will like to attract those investments here so that these clean industries happen here and can be located, given the incentives of the subsidies, in these coal areas.

Stone: Angela and Maya, thank you both very much for talking.

Domeshek: Thank you for having us.

Pachon: Thank you, Andy.

Stone: Today’s guests have been Angela Pachon, Research Director at the Kleinman Center for Energy Policy and Maya Domeshek, a Research Associate at Resources for the Future.