07.14.2020 Virginia Regional Carbon Trading: Ready, Set, Join RGGI!
The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among 10 northeastern states to cap and reduce CO2 emissions from fossil-fueled power plants. A bill passed in the 2020 Virginia General Assembly Session and signed into law has kick-started Virginia’s preparation to participate in RGGI. With the General Assembly shifting to a Democratic majority in November 2019, this change was expected. The previous General Assembly stalled Governor Ralph Northam’s efforts to participate in RGGI in 2020. However, the General Assembly’s pivotal legislation sent state environmental regulators to work to expedite entry into RGGI on January 1, 2021.
The new legislation is entitled the Clean Energy and Community Flood Preparedness Act. It accelerates efforts to immediately join RGGI, in concert with the General Assembly and Governor’s new budget that removes the prior budget restriction that prevented the Virginia Department of Environmental Quality (DEQ) from expending resources to join RGGI in 2019. The Act requires that DEQ “establish, implement, and manage an auction program to sell allowances into a market-based trading program consistent with the RGGI program.” To accomplish this objective, the Act tasks DEQ with revising Virginia’s Cap and Trade Rule to allow Virginia to join RGGI as a full member, rather than as a linked member with consignment auctions. The Act directs DEQ to revise the Rule without notice and comment through the Virginia Administrative Process Act by incorporating the statute into the existing Rule. Now, Virginia will be sprinting toward RGGI membership by the end of this year.
Direct RGGI membership is a significant shift from the prior consignment membership that only required the collection of administrative fees from participants. As a full member, Virginia will participate directly in RGGI auctions, meaning sources affected by the rule will have to purchase a CO2 allowance for every ton of CO2 emitted. Funds for the purchase of CO2 allowances will now pass from Virginia RGGI participants that must purchase allowances (electric generators and large non-exempt industrial sources that emit carbon) to RGGI. RGGI largely returns the auction proceeds from Virginia allocations to the Commonwealth. The Clean Energy and Community Flood Preparedness Act directs that the monies will not be returned to the participants but will be funneled primarily to two new state funds: (1) an account for sea level rise/flooding from severe weather; and (2) an account to support low income energy efficiency programs. Electric generators in Virginia will obtain rate recovery for the costs involved in RGGI participation as an environmental investment. As result, it is likely that RGGI costs ultimately will be borne by Virginia’s citizens and businesses in their electricity payments. In summary, the Act uses RGGI participation as a mechanism for collecting monies from citizens and businesses to pay for new state funds directed toward flood preparedness and low-income energy efficiency programs.
On July 1, DEQ issued the revised Virginia Cap and Trade Rule as directed by the Act. The revised Rule provides for Virginia to begin participation in 2021 and retain the current allowance allocation for Virginia for 2021 of 27.16 million tons of CO2 allowances to be contributed into the RGGI market. However, the RGGI model rules have a mechanism to adjust allocations downward for full members, so it is possible allocations may be adjusted in the future. The revised Rule bypassed notice and comment and action by the State Air Pollution Control Board. DEQ indicated that it coordinated with other RGGI states prior issuing the Rule.
Sources that must comply with RGGI are working on implementation. There are many details not present in the revised Rule that pertain to implementation and permitting. DEQ indicates that a permitting template will be developed as a separate document.
Virginia has made history as the first southern state to join RGGI. We will be tracking implementation efforts in the second half of 2020. Environmentalists have applauded this step with the hope that this trading program will reduce carbon emissions in the Commonwealth. Participants are preparing to comply with RGGI’s additional layer of regulatory requirements. Manufacturing facilities, all of which consume more electricity than households, will need to prepare for cost increases.
Regulation for Emissions Trading Programs, 9 VAC 5-140-6010 et seq.
Revised Regulation for Emissions Trading Programs, 9 VAC 5-140-6010 et seq., https://www.deq.virginia.gov/Portals/0/DEQ/Air/Regulations/c140p7.pdf. (prepublication version)
Virginia General Assembly 2019 Session, House Bill 1700, Item 4-5.11 #1c.
For more information about the Regional Greenhouse Gas Initiative, see https://www.rggi.org
For more information about environmental group positions on RGGI, see https://www.southernenvironment.org/cases-and-projects/carbon-cap-and-trade-a-simple-and-proven-climate-solution-for-virginia and