UPDATE: Pennsylvania releases draft ETS regulation with RGGI linkage starting 2022

On 30 January 2020 Pennsylvania’s Department of Environmental Protection (DEP) released a first draft proposal for an ETS covering CO₂ emissions from the electric power sector and joining the Regional Greenhouse Gas Initiative (RGGI) in 2022. On 23 April 2020 the DEP added an annex to the proposal that contains an emissions cap for 2022 and an emissions budget until 2030.

The draft proposal comes after Pennsylvania’s Democratic Governor Tom Wolf directed the DEP to develop and present to the Environmental Quality Board (EQB) for review a final ETS proposal by 15 September 2020.

The draft proposal is largely consistent with the system design features of the RGGI Model Rule, including the implementation of an emissions containment reserve (ECR) and a cost containment reserve (CCR) as well as quarterly auctions to allocate allowances. The proposed emissions cap that would be added to the RGGI cap is set at 78 MtCO₂ in 2022 and would decrease by 25.5% to 58.1 MtCO₂ in 2030. The annual reduction factor would be approx. 2.5 MtCO₂.

The proposal also includes some additional features.

• Adjustments for banked allowances: After every compliance period the emissions cap would be adjusted to account for banked allowances. The adjustment would be calculated by multiplying the difference between the number of allowances in circulation and total emissions output of covered entities by the state’s share of the RGGI cap. Even though RGGI states have also implemented such cap adjustments during the program’s review cycles, none of the RGGI states’ ETS regulation includes automatic implementation of adjustments.
• Additional offset protocol: Pennsylvania’s ETS proposal adds plugging to prevent methane emissions from abandoned oil and gas wells as an eligible offset type.
• Waste-coal set aside account: The proposed ETS would also create a set-aside account for allowances to be allocated to all waste coal-fired power plants in Pennsylvania.

This first proposal is now going through a review and stakeholder engagement process before the release of the final ETS proposal by 31 July 2020. It then must go through the state’s regulatory review process, including through state boards and legislative committees for comment. A final proposal could be adopted in mid-2021, while the earliest start date for Pennsylvania’s ETS and its linkage to RGGI would be 2022. However, the Republican-controlled state legislature has introduced two bills (HB-2025 and SB-950) that would block the implementation of the ETS regulation by requiring legislative approval for “action intended to abate, control or limit carbon dioxide emissions by imposing a revenue-generating tax or fee on carbon dioxide emissions”. Wolf, a supporter of ETS, has the authority to veto the bills.