Judge weighs manufacturers’ lawsuit to overturn Virginia carbon market regulation

By: - July 1, 2021 12:02 am
Potomac River Generating Station/Mirant power plant

Coal stacks at the now-closed Potomac River Generating Station in Alexandria, Va. (Sarah Vogelsong/Virginia Mercury)

Despite Virginia’s participation in two carbon auctions netting the state almost $90 million, Virginia manufacturers are continuing to fight an environmental regulation outlining the carbon-trading program. 

“This rule has been transformed completely, with a much higher price tag,” said Elizabeth Williamson, an attorney with Williams Mullen representing the Virginia Manufacturers Association, at a hearing before Judge Beverly Snukals in Richmond Circuit Court Wednesday morning. 

The VMA in its lawsuit has argued that the Virginia Department of Environmental Quality failed to follow correct procedure in revising its carbon trading regulation, that the new regulation is “vague” and that it “imposes an illegal carbon tax on ratepayers.” 

Virginia’s Office of the Attorney General, however, says that DEQ simply followed clear directives set by the General Assembly in a 2020 law authorizing the state to join a carbon market, and that the regulation is neither vague nor an illegal tax. 

VMA’s reading of the 2020 law “would render the act and the carbon budget trading program unworkable,” said Assistant Attorney General Jerald Hess. 

Virginia Democrats spent several years attempting to link the state to the Regional Greenhouse Gas Initiative, a cap-and-invest market for carbon that currently involves 10 northeastern and mid-Atlantic states. Under the RGGI framework, any carbon-emitting power plant with a capacity of 25 or more megawatts must purchase allowances equal to their emissions. 

The Department of Environmental Quality first devised a regulation for participation in a carbon market in 2018. But due to a state requirement that the General Assembly must approve any exchange of state monies, the initial regulation devised a complicated system for distributing allowances that emitters would then have to sell into the broader market. Although the State Air Pollution Control Board approved that regulation in 2019, Republicans blocked Virginia from taking any further action through budget language. 

After Democrats took control of both houses of the General Assembly in 2020, they pushed through the Clean Energy and Community Flood Preparedness Act, which authorized DEQ’s director “to establish, implement, and manage an auction program to sell allowances into a market-based trading program consistent with the RGGI program and this article.”

DEQ subsequently overhauled its earlier regulation to bring it in line with the auction system used by other market participants. 

Much of the Virginia Manufacturers Association’s complaint hinges on other language in the 2020 law stating that DEQ’s incorporation of the legislation into its earlier regulation “shall be exempt from the provisions of the Virginia Administrative Process Act.” 

The APA outlines the procedures state agencies must follow in drafting and revising regulations, including requirements for public comment and notice. 

The manufacturers say the General Assembly only intended the APA exemption — which allowed DEQ to bypass that process, including new approval by the State Air Pollution Control Board — to apply to the agency incorporating the language of the 2020 law into the regulation and not any subsequent revisions. Under that reading, additional changes should have undergone review and public input in line with the APA. 

The law “does not gift an unbridled APA exemption to DEQ,” the group argued in a legal brief. 

“Are you contending that they should have just lifted that language and stuck it in there?” asked Snukals, who at one point said she had had to read the manufacturers’ legal brief “several times” to grasp the argument.  

“Yes, Your Honor,” said Williamson. 

Hess said the manufacturers’ reading of the 2020 law “just makes no sense.” 

“That’s not what the act says,” he told Snukals. If the legislature hadn’t intended for the agency to move ahead with revisions to the existing regulation in order to join the state with the regional market, “what would be the point of the APA exemption?” he asked. “They showed they wanted it to move quickly.” 

The 2020 law went into effect July 1, 2020, and Virginia has since participated in two auctions. Proceeds have totaled approximately $89 million, of which half will go toward low-income energy efficiency programs and 45 percent will go to a Community Flood Preparedness Fund to assist communities and residents “affected by recurrent flooding, sea level rise, and flooding from severe weather events.” 

State regulators are currently reviewing a proposal from Dominion Energy to recover the costs of participating in the RGGI market from customers. 

Snukals said she would try to rule on the case “promptly.”

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Sarah Vogelsong
Sarah Vogelsong

Sarah is the Mercury's environment and energy reporter, covering everything from utility regulation to sea level rise. Originally from McLean, she has spent over a decade in journalism and academic publishing. She previously worked as a staff reporter for Chesapeake Bay Journal, the Progress-Index and the Caroline Progress, and her work has been twice honored by the Virginia Press Association as "Best in Show" for online writing. She was chosen for the 2020 cohort of the Columbia Energy Journalism Institute and is a graduate of the College of William and Mary. Contact her at [email protected]

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