Governor Youngkin Begins withdrawal from RGGI

Last week Governor Glenn Youngkin signed Executive Order 9 to direct DEQ to examine the impact of RGGI and start the process of ending Virginia's participation in the program. This occurred with the released the Regional Greenhouse Gas Initiative (RGGI) report.

At the time of the announcement the Governor comment that “costs are soaring for Virginia families … and that RGGI is in reality a carbon tax passed on to families, individuals and businesses throughout the Commonwealth--it’s a bad deal for Virginians. Hardworking Virginians are having to do more with less as inflation steals a historic amount from their paychecks and the failed Biden Administration energy policies are costing Virginians more at the pump and in their homes. We're working every day to cut energy taxes and reduce costs--like the RGGI carbon tax--and make Virginia the best place to live, work and do business." 

The following conclusions and findings were made in the Regional Greenhouse Gas Initiative (RGGI) report: 

• Prior to RGGI, electricity generation in Virginia has increased while CO2 per MWh has almost been cut in half over the last ten years. This was primarily due to changes in the types of generation as seen below.
• Because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is in effect a direct carbon tax on all households and businesses; 
• In addition, consumers are unable to avoid the pass through of these costs because they do not have the opportunity to switch electric providers – Dominion and other providers are monopolies in most regions of Virginia.
• The imposition of the RGGI “carbon tax” fails to achieve its goal as a carbon “cap-and-trade” system because it lacks any incentive for power-generators to actually reduce emissions, due to the ability to pass through costs to consumers.
• The costs of compliance with the trading rule and participation in RGGI have begun to materialized in higher electricity rates as identified in the filings before the State Corporation Commission by Dominion Energy. 
• Emission allowance prices have increased over time, and are expected to continue increasing which will increase the tax on ratepayers. 

 On July 10, 2020, Virginia formally adopted the CO2 Budget Trading Program (Part VII of 9VAC5-140) for the power sector to implement a carbon emissions trading and reduction program as authorized by the Clean Energy and Community Flood Preparedness Act (Article 4 of Chapter 1219 of the 2020 Acts of Assembly). The rule allowed for full participation in the Regional Greenhouse Gas Initiative (RGGI) to reduce carbon dioxide (CO2) emissions and make emissions allowances available for sale through an auction program that power producers use for compliance purposes. Proceeds from allowance sales are returned to Virginia to fund climate mitigation and resilience programs. Virginia began full participation in RGGI on January 1, 2021, and participated in five quarterly auctions to date. On January 15, 2022, Governor Youngkin issued Executive Order 9 (2022) (EO-9) to re-evaluate the program.

The review found that prior to the implementation of the RGGI: That a major shift has occurred in the Virginia power sector where electricity generation from coal has been replaced by cleaner generation sources of natural gas and more recently renewable energy generation sources. Also, during the same time, in-state electricity generation had increased by about 30%, which has led to the mass emissions levels remaining relatively constant. Over this time period, Virginia has become the world's data center capital which might have accounted for the growth in electricity demand.

The review also found that:

Because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is in effect a direct carbon tax on all households and businesses.  RGGI fails to achieve its goal as a carbon “cap-and-trade” system because it lacks any incentive for power-generators to actually reduce carbon emissions.  

Other states participating in the RGGI program designed their systems to provide rebates to their ratepayers, in Virginia the program operates as a hidden tax on consumers in which the funds are disbursed through grant programs. Virginia consumers were originally told that the program would not increase their energy bills, and given the rate increases approved, this is untrue. This is an inefficient method to tax and distribute funds for the benefit of Virginians without achieving the intended greenhouse gas emission goal.

The compliance costs of RGGI program participation have submitted by Dominion Energy and approved by the SCC, and have begun to impact electricity rates.  These costs are and will continue to be directly related to the cost of allowances, along with other charges allowed under current law and regulations.  Allowance prices have varied significantly in the past, and future prices will continue to vary.  Four other RGGI participating states (and prospectively a fifth) provide electric bill assistance to customers using some of their auction proceeds which Virginia does not.