Virginia reaps $228 million in first year of carbon market participation

Revenues more than double environmental officials’ projections

By: - December 6, 2021 10:49 am

Coal fired units at Dominion Energy’s Chesterfield Power Station would close by 2024 under the Clean Economy Act that passed the General Assembly in 2020. (Ryan M. Kelly/ For the Virginia Mercury)

Virginia took in $227.6 million for flood protection and low-income energy efficiency programs during its first year of participation in the Regional Greenhouse Gas Initiative, a carbon cap-and-invest market involving 10 other Mid-Atlantic and New England states.

Results from RGGI’s last quarterly auction of 2021 published Friday morning show the largest chunk of carbon change yet for the commonwealth: $85.6 million. 

Under RGGI, all power producers of a certain size in participating states are required to purchase allowances in quarterly auctions for each ton of carbon they emit. The proceeds of those auctions are then redistributed proportionally back to the states. 

While Virginia has a handful of independent power producers that must purchase allowances at auction, most allowances are bought by the state’s electric utilities, which are permitted by state law to pass those costs on to ratepayers.

Joining RGGI was one of Democrats’ top priorities when they assumed control of the General Assembly in 2020, bringing the party temporarily in control of all three branches of state government. While Virginia had moved toward participation in 2019, Republicans in the General Assembly that year blocked the state’s entry into the market through budget language. 

Democrats see the program as a key pillar of their climate change agenda. Because RGGI increases the costs of carbon-emitting power production over time, it is designed to encourage producers to shift toward less-emitting forms of generation. At the same time, the auctions generate revenues for states that can be used for mitigation or other efforts. 

The 2020 law authorizing Virginia’s participation in the market directed 50 percent of all auction proceeds to go toward low-income energy efficiency programs and 45 percent to go to a new Community Flood Preparedness Fund to assist communities and local governments affected by recurrent flooding and sea level rise. The remainder goes toward administrative expenses. 

Due to higher clearing prices for carbon allowances, actual revenues have far outstripped state officials’ projections. During debates over RGGI during the 2020 General Assembly, the Virginia Department of Environmental Quality estimated that annual proceeds would be “between $104 million to $109 million, starting at the lower end of the range.” 

The House Democratic Caucus in a statement called RGGI participation a “prime example” of Democrat-championed “responsible policies that not only benefit Virginia workers and families but are financially sound.” Alena Yarmosky, a spokesperson for Gov. Ralph Northam’s office, said that “through RGGI proceeds, we’ve been able to reduce energy costs for low-income Virginians by improving efficiency and preparing for more extreme weather and rising seas.” 

House Republican Caucus spokesperson Garren Shipley did not respond to a request for comment about the caucus’s plans for RGGI once it assumes control of the House in January. While Republicans have been hostile to RGGI in the past, repeal may be difficult: Democrats continue to control the state Senate, and the 2020 legislation authorizing state participation was supported by a small handful of Republicans, including Sen. Jill Vogel of Fauquier. 

Nevertheless, amendments may be possible. Several of the state’s independent power producers such as LS Power have complained that the 2020 law unfairly preferences the electric utilities by allowing them to pass on the program’s costs to customers but not controlling compliance costs for non-utility producers with preexisting contracts. During the 2020 session, LS Power unsuccessfully fought for the addition of a provision to Virginia’s RGGI law that would cushion the amount such generators would pay for allowances during the term of their contracts.

“Other states enacted such provisions to avoid creating an unfair competitive disadvantage for their home-state power generators,” wrote LS Power Media Relations Director Steven Arabia in an email. “With the news that RGGI proceeds, and thus the costs to generators with these contracts, are double what was anticipated, we hope policy makers will take a fresh look at the issue and find a way to level the playing field.”

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Sarah Vogelsong
Sarah Vogelsong

Sarah is Editor-in-Chief of the Mercury and previously its environment and energy reporter. She has worked for multiple Virginia and regional publications, including Chesapeake Bay Journal, The Progress-Index and The Caroline Progress. Her reporting has won awards from groups such as the Society of Environmental Journalists and Virginia Press Association, and she is an alumna of the Columbia Energy Journalism Initiative and Metcalf Institute Science Immersion Workshop for Journalists.