Dominion Energy’s Virginia City Hybrid Energy Center in Wise County, Va., 2019. (Sarah Vogelsong/Virginia Mercury)
Gov. Glenn Youngkin’s administration this week released a report that his office says justifies the governor’s efforts to pull Virginia out of a multi-state carbon market called the Regional Greenhouse Gas Initiative. But opponents say the report actually demonstrates the key role RGGI plays in reducing climate change-causing carbon emissions.
The report, which was issued Tuesday along with drafts of an emergency regulation that would roll back the state’s RGGI rule and a letter notifying the market coordinator of Virginia’s withdrawal, was written by the Department of Environmental Quality in coordination with the secretary of natural and historic resources, a role until recently filled by Andrew Wheeler. It concludes that the carbon market has led to higher electricity rates and offers no incentive for power producers to reduce carbon emissions.
“This report reveals 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,” Youngkin said in a statement.
Multiple environmental groups and state energy policy experts, however, say the document’s conclusions are contradictory and fail to take into account how RGGI costs disincentivize the use of carbon-emitting units in the regional electric grid.
“The report appears designed to support a partisan repeal effort rather than to provide an objective look at available information,” said Nate Benforado, an attorney with the Southern Environmental Law Center, which has advocated for RGGI and opposes Youngkin’s plans to withdraw from it.
William Shobe, an economist at the University of Virginia who was part of a team of researchers who helped advise RGGI on the design of its market in 2004, said the idea that the market doesn’t provide incentives for emissions reductions “just isn’t true.”
“Emissions have to fall under RGGI. They have to,” he said. “Because the budget requires that emissions go to zero in 2049.”
Under RGGI, all power producers whose units have a capacity of 25 megawatts or more are required to buy carbon allowances at quarterly auctions to cover each ton of carbon they emit. The amount of allowances available to producers declines annually.
In Virginia, the resulting proceeds are then funneled to flood protection and low-income energy efficiency programs. Since the state joined the market in winter 2021, it has taken in $302 million in auction revenues.
When Virginia lawmakers set up the state’s RGGI program, they allowed the regulated electric utilities, which are responsible for three-quarters of the state’s power sector emissions, to pass on their carbon allowance costs to ratepayers. The average residential Dominion customer has seen their monthly power bill increase by $2.39 as a result of RGGI participation. The administration says the typical industrial customer’s bill has risen by $1,554 per month.
A ‘stick to whack utilities’
The Youngkin administration’s report released this week criticizes RGGI as an ineffective carbon tax that “fails to offer any incentive to change behavior” because it allows power generators like Dominion to pass on the costs of buying allowances, meaning they are “essentially bearing no cost for the carbon credits.”
Shobe, however, said that conclusion fails to account for how the electric grid functions.
Virginia is part of a regional electric grid run by PJM Interconnection. In PJM, power producers offer to supply electricity to the grid at a given price, and the grid operator decides what facilities should produce power based on costs. Resources that are less expensive are dispatched first; consequently, the addition of RGGI costs makes it pricier to run carbon-emitting facilities and increases the likelihood that less carbon-intensive sources of energy will be prioritized.
Power producers can include RGGI costs when they bid into the PJM market, “but they are not required to do so,” said Dan Lockwood, a spokesperson for PJM said in an email.
Dominion does include those costs in its bids, according to a utility filing with the State Corporation Commission from December. “All else equal,” the company said, the addition of RGGI costs for carbon-emitting generators “results in those units being dispatched less.”
Shobe said those impacts are “not changed by the pass-through of these costs to ratepayers.”
Walton Shepherd, Virginia policy director for the Natural Resources Defense Council, agreed that RGGI drives reductions through the “market price signal, which automatically dispatches higher-polluting resources less in PJM.” But he also said reductions can result from “Virginia’s regulatory environment in which the SCC essentially carries a stick to whack utilities for making bad investments in polluting fossil fuels” that the companies would have to procure allowances for.
Nevertheless, RGGI’s impacts are far more significant for unregulated merchant generators, which produce power to sell into the grid as a business venture and do not supply electricity to the general residential or commercial population.
Unlike regulated utilities such as Dominion, merchant generators must bear the costs of RGGI themselves. While many have long-term private contracts in place to accommodate those costs, not all do: Doswell producer LS Power has been pleading with the General Assembly since 2020 for relief from RGGI costs, which it expects will total $50 million by 2025.
Roughly a quarter of Virginia’s carbon emissions covered by RGGI come from unregulated producers. A Youngkin spokesperson did not respond to a question about whether DEQ had conducted any analysis of RGGI’s impact on these facilities.
‘Contradictory’ emissions data
In the short term, the DEQ report states that “it is too early to determine the impact of the program on emissions since 2021 is Virginia’s first participation year.”
Data from the U.S. Environmental Protection Agency and DEQ on carbon emissions from the power sector show that Virginia emissions “have remained fairly constant” over the past 10 years, according to the report. At the same time, “the RGGI region has a long track record of emission reductions since the beginning of the program.”
The report says that carbon emissions in RGGI states declined by 59 percent between 2005 and 2020.
“The conclusions in this report really don’t match the data,” said Benforado. “While the governor attempts to brush aside the need for RGGI, the report actually confirms the need for RGGI.”
However, total emissions aren’t the whole picture: the Youngkin administration points out that a significant decline has occurred in emission rate, or the amount of emissions produced relative to the amount of power produced.
Notably, the report observes that Virginia saw a 43 percent reduction in the power sector’s emission rate between 2010 and 2020, demonstrating “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.”
Shobe said that while this rate has “absolutely” dropped due to the replacement of coal with natural gas, “that transformation is done.”
“We generate almost no electricity from coal now,” he said. “There are no more emission reductions to be had transferring over from coal to natural gas. So all of our models show emission intensity flattening out.”
The last operational coal-fired plants in Virginia are Dominion’s Virginia City Hybrid Energy Center in Wise County, two coal units at Chesterfield Power Station and the Clover Power Station in Halifax, which is jointly owned by Dominion and Old Dominion Electric Cooperative.
The Chesterfield units are slated to close in 2023, while the other plants run infrequently: Dominion reported to the SCC in December that VCHEC only produced 10.5 percent of the power it was capable of generating in 2021; in 2019, Clover operated at only 17 percent of its capacity.
Shobe said further reductions will require state policies and pointed to a report he helped author for the state that found market-based instruments like RGGI are some of the most cost-effective tools Virginia can use to decarbonize.
“Of all the provisions in the Virginia Clean Economy Act, RGGI is the most efficient,” he said. “It’s the last one you want to get rid of.”
Some regulators, however, have been skeptical about what they say may be duplicative costs of RGGI and the Clean Economy Act.
“It remains unclear whether the significant cost required for participation in an additional cap-and-trade program — which is expected to cost customers billions of dollars — are necessary for Dominion’s and Appalachian’s ratepayers to bear in order to achieve the General Assembly’s carbon reduction objectives,” wrote SCC Judge Judith Jagdmann in an August opinion.
The Youngkin DEQ report notes that the report Shobe helped co-author “indicates that an emission reduction program or combination of programs will be required to meet the commonwealth’s climate goals of the VCEA and the 2045 net-zero carbon emissions goal” and “in the absence of any such program, emissions may not reduce sufficiently to achieve these goals.”
A lack of bill assistance
Among the criticisms leveled by the Youngkin administration against Virginia’s current RGGI model is that “the program was not implemented in the way it was originally sold” and that unlike other states, Virginia doesn’t help offset the increased costs ratepayers have to shoulder as a result of participation.
Virginia initially designed its RGGI program as a “consignment auction” where the state would distribute its carbon allowances to power producers and then require the producers to sell them at auction while buying back what they needed. Proceeds would go back to the producers to be redistributed to ratepayers in order to reduce cost impacts.
The DEQ report notes that of the 10 other RGGI states, four — Delaware, Maryland, Maine and New Hampshire — use a percentage of their auction proceeds for direct bill assistance to mitigate ratepayer costs.
However, “in Virginia the program operates as a hidden tax in which the legislature then disburses the funds through grant programs,” the agency states.
Shobe said that if the administration objects to the idea of charging for allowances, “you could have kept the real heart of RGGI but just gone back to the consignment version of RGGI as it was originally written.”
“There’s a sense in which what this report does is it throws the baby out with the bathwater,” he said.
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