The Legal and Administrative Environment for Pennsylvania’s Bid to Join RGGI

In 2019, Pennsylvania Governor Tom Wolf ordered the Pennsylvania Department of Environmental Protection (DEP) to “develop and present to the Pennsylvania Environmental Quality Board [EQB] a proposed rulemaking package to abate, control, or limit carbon dioxide emissions from fossil-fuel-fired electric power generators” under the Pennsylvania Air Pollution Control Act (APCA). The rulemaking contemplated by the order would accomplish this end by, among other things, establishing a cap-and-trade system for carbon dioxide that can be integrated with other states’ cap-and-trade programs under the Regional Greenhouse Gas Initiative (RGGI) model rules. The order also asked DEP to work the Pennsylvania Public Utility Commission and the regional transmission organization encompassing all of Pennsylvania (PJM Interconnection) to “promote the integration” of the PA cap-and-trade rules in a “manner that preserves orderly and competitive economic dispatch within PJM and minimizes emissions leakage.” Almost immediately after the order, speculation began about potential legal barriers to achieving the goals set out by Governor Wolf. This white paper closely examines a set of legal questions that are likely to arise in litigation about DEP’s and EQB’s authority and discretion to promulgate rules in accordance with the order under existing laws. While it is difficult to anticipate exactly what kinds of challenges might emerge, especially since DEP has not yet finalized its approach, in general the challenges will likely emerge in four categories of issues : First, it is likely that arguments will be made that PA’s cap-and-trade system would be an unconstitutional tax on electric power generators, either because it imposes a carbon budget with financial consequences for affected firms that choose to comply by implementing carbon dioxide mitigation measures or because allowance auctions would result in financial payments by affected firms to come into compliance through the purchase of allowances. Such a “tax,” promulgated by the EQB, might be argued to violate the Pennsylvania separation of powers principle because it amounts to executive taxation. Second, even assuming that PA’s cap-and-trade is not an unauthorized tax, arguments may be made that a cap-and-trade program for carbon dioxide is not within the scope of delegated rulemaking authority under the APCA, and that EQB could only promulgate such a program with new authorizing legislation. Again, this would be framed as a violation of the Pennsylvania separation of powers principle. Third, separate and apart from the issue of whether carbon dioxide allowance auctions may be considered an unauthorized tax or beyond the scope of legislative authorization, arguments may be made about the precise scope of DEP’s authority to collect the revenues from auctions and use it for particular programmatic purposes. Finally, to the extent that DEP and EQB eventually integrate measures designed to minimize emissions leakage across state lines, challengers may argue that the regulations violate the Dormant Commerce Clause of the U.S. Constitution by impermissibly discriminating against inter-state commerce and trade. This white paper provides essential background understanding for each of these potential disputes, analyzes the potential arguments that might be leveraged for or against the agencies’ authority and discretion to create a robust cap-and-trade system without any additional legislative action, and concludes that the agencies have ample authority under existing law to create the program and join RGGI. The analysis focuses on Pennsylvania law and U.S. constitutional law, but also draws heavily from a survey of relevant New York laws, as New York is the only other state to have entered RGGI administratively, making it a particularly useful comparison for Pennsylvania’s attempt to do the same. It also draws more generally on state authorities from California, Delaware, New Jersey, and other states, but these treatments of cap-and-trade systems are not directly controlling in Pennsylvania and have only persuasive value.