Advanced Search
November 4, 2019
On October 3rd, Pennsylvania Governor Tom Wolf signed an executive order that started the process of formally moving Pennsylvania into the Regional Greenhouse Gas Initiative (RGGI), a group of northeastern states that have worked together to reduce their carbon emissions through a cap and trade system since 2005.
In order to join RGGI, states must draft a cap and trade policy framework that aligns with RGGI’s emission reductions goals. The executive order signed by Gov. Wolf sets a two-year timeline for the development of such a policy in Pennsylvania. In the RGGI cap and trade programs, member states set a hard cap on the overall amount of emissions that are allowed. Then, RGGI auctions off pollution permits to energy producers, who are free to trade those permits among themselves. This gives firms some flexibility in the face of regulation; firms only need to buy permits for what they emit. If a firm emits less than their allowance, they can reclaim that revenue by selling unused permits to other firms. The revenue from the initial permit auction is divided and given back to the states, which then reinvest the proceeds into programs pertaining to energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill assistance.
Pennsylvania joins northeastern and mid-Atlantic states that have adopted RGGI, including Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont (New Jersey will re-join the initiative on January 1, 2020). Pennsylvania is unique among these states, however, in that fossil fuel extraction represents a sizeable share of its economy. Pennsylvania is the second-largest producer of natural gas and third-largest producer of coal in the country, according to 2017 U.S. Energy Information Administration data.
The decision by Gov. Wolf to join RGGI is very consequential for the program, since any permit auctioned to producers under RGGI policy frameworks can be sold to energy producers in other RGGI member states. Pennsylvania’s participation, with its substantial electricity production, significantly increases the number of permits and permit purchasers on the regional market, and thereby improves the economic efficiency of the program for all participating firms by increasing competition and availability of permits across the board. Since 2005, RGGI states have collectively reduced their GHG emissions by 45 percent, and Pennsylvania is poised to help RGGI make an even greater impact.
In setting up RGGI, policy entrepreneurs proved successful in overcoming political obstacles such as large, influential political forces that warned of potentially harmful impacts on the energy industry; economic worries from both consumers and industrial emitters of carbon dioxide; and the risk of policy reversal in the face of elections. RGGI can, therefore, provide key insight into the process of adopting and implementing a federal carbon pricing policy.
The adoption of a federal carbon pricing policy would not be an easy task. Any advocates for such a policy must build a wide-ranging coalition of national support, which is a challenge when increasing the price of a popular, often essential, resource (e.g., energy generated from the burning of fossil fuels). Additionally, carbon pricing legislation is proactive and preventative, with delayed gratification and sometimes intangible benefits that can be hard to conceptualize. Once enacted, the policy would likely face additional challenges related to implementation, administration, and durability, as has been the case with RGGI, California’s cap and trade program, and British Columbia’s carbon tax program.
One aspect of the RGGI cap and trade program that makes it successful is the market-based auction mechanism. This structure generates proceeds that RGGI states then reallocate to renewable energy and energy efficiency programs important to a wide coalition of stakeholders. For example, this revenue has been used for energy efficiency retrofits, which create local jobs and help businesses by reducing energy costs that have a substantial impact on their bottom lines. The reallocation of the generated revenue to these programs allowed for demonstrable benefits to the public and for the purposeful reframing of the policy as a public resource instead of a private one.
In recent months, eight carbon pricing bills have been introduced in Congress. Most of the proposals use a carbon tax pricing mechanism as opposed to a cap and trade policy, although some of the bills allow for a decision between the two carbon pricing options to be made at a later date. Regardless of carbon pricing format, most of these bills will generate revenue. What to do with that revenue is an important aspect of the policy debate and can be informed by the experience of RGGI.
The bills proposed so far differ widely in how much revenue is generated and how that revenue is allocated. One strategy, exemplified in the bipartisan Stemming Warming and Augmenting Pay Act (H.R. 4058) proposed by Reps. Francis Rooney (R-FL) and Dan Lipinski (D-IL), gives back revenue to taxpayers largely in the form of a payroll tax cut, and also provides money for social security, block grants designed to offset energy costs for low-income households, and adaptation and energy efficiency investments.
The Energy Innovation and Carbon Dividend Act (H.R. 763), introduced by Rep. Ted Deutch (D-FL) and 58 other cosponsors, reallocates revenue by putting it into a trust fund and then paying American households a monthly dividend. Under this plan, according to the Citizens’ Climate Lobby, two-thirds of American households would receive more in dividends than they would pay in higher prices.
Another strategy is to spend the revenue on infrastructure, which is where 54 percent of revenues would go under the America Wins Act (H.R. 4142) proposed by Rep. John Larson (D-CT).
Other ideas for revenue reallocation are to help fossil fuel-reliant communities transition into other work, to invest in energy research and development, or to weatherize homes. The differences in how revenues are allocated may be key for any given piece of legislation to gain traction. Federal efforts to put a price on carbon could benefit from reframing carbon pricing as a resource for the public and the common good, which the RGGI states have modeled for over a decade.
Author: George Davidson
Top-Rated Climate Nonprofit – 4-Star Charity