On 13 July 2021, the Pennsylvania Department of Environmental Protection’s (DEP) Environmental Quality Board (EQB) approved the final CO2 Budget Trading Program.

The final regulation to establish an ETS covering CO2 emissions from the power sector and to join the Regional Greenhouse Gas Initiative (RGGI) was released along with updated modeling results for the implementation of the ETS on 4 May 2021. It would allow for RGGI participation starting 2022 barring litigation or action from the state legislature.

The final regulation is largely based on the September 2020 draft regulation and is consistent with design features of the RGGI Model Rule, which serves as the basis for state-level legislation and regulations. The updated modeling results reaffirm the draft regulation’s emissions cap of 78 MtCO2 for 2022, decreasing annually by 3% to 58.1 MtCO2 in 2030. Pennsylvania’s allocation would be added to the RGGI cap and, due to the size of the state’s power sector emissions (accounting for 29% of the state’s total GHG emissions in 2017), increase the RGGI cap substantially to 194.3 MtCO2 in 2022. Pennsylvania’s share of emissions in the 2022 RGGI cap would amount to 40.2%.

In addition, the final regulation contains quarterly emission caps for 2022 to anticipate potential delays in the implementation of the regulation, which might result from legal challenges by the Republican-controlled state legislature. The first three quarterly caps would be as follows:

  • 9 MtCO2 if implemented after 1 January 2022 but before 1 April 2022
  • 7 MtCO2 if implemented after 1 April 2022 but before 1 July 2022,
  • 6 MtCO2 if implemented after 1 July 2022 but before 1 October 2022.

Other major changes to the draft final regulation compared to the draft include the adjustment of the amount of allowances to be allocated to waste coal-fired power plants from 9.3 Mt to 10.4 Mt, the addition of further requirements for combined heat and power generation facilities in order to qualify for set-aside allocation stronger emphasis on equity principles and the need to protect vulnerable groups in the preamble of the regulation.

The release of the draft final regulation and the approval by the EQB comes after a 60-day public comment period and after being brought before advisory committees of the DEP. This would put the state on pace to launch its ETS and join RGGI by 2022.

However, the Republican-controlled state legislature continues to try to block ETS implementation and joining RGGI. A recent bill (SB-119) would require legislative approval for Pennsylvania to join any regional carbon pricing initiative and will be taken up in September or October by the state’s House of Representatives after being approved by the state’s Senate in June 2021. First such efforts (HB-2025) were vetoed by Democratic Governor Tom Wolf in 2020. Final regulation will likely face a court challenge from the Republican legislature given its position that implementation of the ETS via executive measures lies outside of the governor’s authority or from companies that oppose carbon pricing.